PANAMA SNAPSHOT FOR PRESIDENT TORRIJOS'S VISIT TO

C O N F I D E N T I A L PANAMA 000897

SIPDIS

SIPDIS

FOR ASSISTANT SECRETARY SHANNON FROM AMBASSADOR EATON

E.O. 12958: DECL: 05/10/2016
TAGS: PGOV PREL ETRD PM CU VE CH
SUBJECT: PANAMA SNAPSHOT FOR PRESIDENT TORRIJOS'S VISIT TO
TEXAS

Classified By: AMBASSADOR WILLIAM EATON FOR REASONS 1.4 (B) AND (D).


1. (U) This message is intended as a scenesetter for A/S
Shannon and former President Bush's May 11 meeting with
President Torrijos.

SUMMARY
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2. (C) The Embassy's relations with the Torrijos government
(GOP) are warm and bilateral cooperation on security and
anti-narcotics matters remain strong. At the same time,
local political calculations surrounding a planned referendum
on Canal widening have hobbled chances for a bilateral FTA.
We also find disquieting recent trends in the increasing
prominence of former Noriega cronies within the GOP and in
the GOP's apparent eagerness to improve relations with Cuba
and Venezuela. Amid a residential boom in Panama City, where
high-rises are under construction seemingly on every corner,
increasing poverty, want, and inequality are receiving little
attention. End Summary.

Canal Widening in Focus
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3. (SBU) At the moment, the Panamanian government's (GOP)
central policy objective is winning a yet-to-be-scheduled
referendum on widening the Canal to permit much larger ships
to pass than 106-foot-wide Panamax vessels. Supposedly 70%
of Panamanians favor the referendum, which may be held as
early as November though many influences could soften that
support as the date approaches. The Canal Authority (ACP)
has said that the $5.25 billion project will take eight years
to complete and directly create 7000 jobs. The project is to
be financed directly through ACP revenues and bridge loans.

FTA Gets Short Shrift
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4. (SBU) With all its resources and attention focused on an
upcoming referendum to widen the Panama Canal, the GOP has
de-emphasized an important item on the bilateral agenda,
namely the Free Trade Agreement (FTA). Although FTA
negotiators have completed nine rounds of talks, the GOP
appears nervous about possible opposition to the FTA, which
could harm passage of the Canal referendum. As a result, the
GOP is reluctant to satisfy all of USTR's requirements on
sanitary and phytosanitary issues (SPS),at least until after
the Canal referendum. Meanwhile, USG "fast track"
negotiating authority expires in June 2007. The outlook is
grim.

Security/Anti-Corruption Cooperation
--------------

5. (C) Our security priorities of anti-narcotics and
mil-to-mil cooperation remain strong, though probably not at
the level we enjoyed under the 1999-2004 Moscoso government.
Unlike the Moscoso government, the current GOP has a
plausible attorney general, who is willing to cooperate on
anti-corruption issues. Like Moscoso, the Torrijos
government has undertaken no notable anti-corruption
prosecutions whatever. It is willing to talk but not act.
In 2005, on the Embassy's advice, the USG revoked the visa of
Supreme Court magistrate Winston Spadafora under 212(f)
corruption provisions. More revocations are being considered.

Noriega-era Figures Return
--------------

6. (C) In general, U.S. relations with the GOP are warm but
following the November visit of President Bush, we have noted
trends in the GOP's ideological coloration and orientation
that we find disturbing. First, Noriega-era figures, such as
former "dignity battalions" chief Benjamin Colamarco
(recently named Public Works minister),the presumed killer
of U.S. service member Zak Hernandez, Pedro Miguel Gonzalez
-- and a host of former Panamanian Defense Force (PDF)
officers and others -- are gaining prominence within the GOP
and the ruling PRD. Colamarco's appointment in particular
casts serious doubt on the GOP's anti-corruption credibility.
Despite the ascendancy of Noriega's, the GOP has announced
its intention to jail Noriega after his planned release from
U.S. custody in November 2007.

Cuba-Venezuela-China Relations
--------------

7. (C) Second, the GOP has devoted steadily increasing
effort to improving relations with Cuba and Venezuela. (On
May 9 Panama voted for both countries at the UN Human Rights
Council, not to mention China.) Martin Torrijos made a
high-profile visit to Cuba immediately following the November
2005 President Bush visit, his second after the September
2005 resumption of bilateral relations (repairing the August
2004 rupture following Moscoso's surprise pardon, release,
and flight of convicted anti-Castro plotter Luis Posada
Carriles). A steady stream of senior GOP officials have
since traveled to Havana, many of them more than once.
Separately, the GOP has given indications that it intends to
switch diplomatic recognition to China from Taiwan at an
appropriate moment.

Operacion Milagro
--------------

8. (C) Also, the GOP has facilitated the widely popular
Operacion Milagro (Operation Miracle),a Cuban-Venezuela
joint-venture which brings low-income Panamanians to Cuba for
cataract and other eye operations. While Cuba and Venezuela
reap a public relations windfall, the GOP has tried to bask
in the glow. In a related development, the GOP recently
waived visa requirements for Cuban diplomats and permitted
Milagro to open offices in Panama City.

Widespread Income Inequality, Poverty Amid Plenty
-------------- --------------

9. (SBU) Panama remains riven by the Hemisphere's
second-worst income distribution and a 40-plus percent
poverty rate, despite consistently high rates of economic
growth and billions of dollars in investment in so-called
"residential tourism" projects funded by American and
European citizens. While rich Panamanians enjoy one of the
highest standards of living in Latin America, the ranks of
the poor are increasing. Aside from a program of subsidies
and handouts, the GOP has no credible strategy to create jobs
and to drastically improve education, health, and other
social indicators. Few observers believe that Canal
expansion will "trickle down" to make a significant
difference to Panama's disadvantaged. The issue remains a
time bomb with a shorter and shorter fuse.

EATON