PANAMA POST: EDITION 12; VOLUME II

C O N F I D E N T I A L PANAMA 000574 SIPDIS E.O. 12958: DECL: 07/09/2018 TAGS: PREL PGOV ECON PM SUBJECT: PANAMA POST: EDITION 12; VOLUME II REF: PANAMA 493 (AND PREVIOUS) Classified By: POLCOUNS Brian R. Naranjo. Reasons: 1.4 (b), (c) and (d). -------------- Summary -------------- ¶1. (C) Juan Carlos Varela's landslide victory in the Panamenista primary on July 6, defeating Alberto Vallarino by over 20 points, was the defining political development for the week. The focus quickly turned to Varela's efforts to unify Panama's largest opposition party and to renewed discussions regarding opposition alliances. In this week's Panama Post, our leading stories are: -- Former President Mireya Moscoso's on Panamenista unity; -- Billy Ford: "Patriotic Union is leaning towards an alliance with Ricardo Martinelli" of Democratic Change (CD); -- Martinelli aide believes Martinelli may need to be prepared to go it alone; and -- Martinelli op-ed sheds light on economic views. -------------- Moscoso Prepared to Support Varela -------------- ¶2. (C) Former President Mireya Moscoso was prepared to support Juan Carlos Varela as the Panamenista presidential candidate, Moscoso aide Eduardo Quiros told POLCOUNS on July ¶11. "It could mean the death of Panamenismo if the opposition loses in 2009, and the Panamenista candidate needs to be at the top of the ticket," Quiros explained. Varela's landslide victory over Vallarino put Varela in perhaps the best position to unify the party in recent memory and to build a strong opposition alliance, according to Quiros. Moscoso wanted to beat the PRD, so now the Panamenista party needed to close ranks behind Varela. Acknowledging that Moscoso and Varela were not on speaking terms and that Varela to a large extent defined his efforts to renew the party by contrasting himself sharply with Moscoso, Quiros said that nonetheless both Varela and Moscoso were sending out feelers. Jose Luis "Popi" Varela, Varela's brother and closest political advisor, had met recently with Moscoso in an effort to broker a rapprochement. Quiros stated clearly, however, that in building bridges to the old-line chieftains of the Panamenista party, Varela would have to remain committed to leading an opposition ticket, not settling for second billing. ¶3. (C) Comment: Quiros described a very ruthlessly pragmatic Moscoso in laying out her desire to shift from Vallarino, whom she backed in the primaries, to Varela. She wants the Panamenistas to lead the opposition and to defeat the governing Revolutionary Democratic Party (PRD). Only time will tell how successful Varela will be in putting real substance behind the symbolic party unity he has already achieved. (Varela joined his primary opponents on July 10 for the formal declaration that he had won the primary at which Vallarino and Marco Ameglio promised to "close ranks" behind Varela.) -------------- Ford: UP Leaning Toward Alliance with CD -------------- ¶4. (C) "Listen, my presidential campaign is about trying to keep my party together," Patriotic Union President and declared presidential candidate Guillermo "Billy" Ford told POLCOUNS on July 9. "I am going to step down to help form the strongest opposition alliance possible. I do not think that a grand opposition alliance of all parties is likely, but right now the momentum in Patriotic Union (UP) is to join with Ricardo Martinelli" of Democratic Change (CD). Ford explained that UP needed to take care of its candidates for National Assembly and local positions. Since Martinelli "owns and directs" his party, Ford explained, that it was easier for Martinelli to make space in an alliance for UP candidates. In contrast, dealing with the Panamenista Party was like dealing with a corporation with corporate boards and stockholders that needed to be satisfied. Also, the Panamenistas had just elected on July 6 its slate of candidates for these lower level positions. As for a broader alliance, Ford speculated that Juan Carlos Varela's landslide two to one victory over Alberto Vallarino to win the Panamenista presidential nomination had made it less likely that Varela and Martinelli would be able to come to terms on a "grand opposition alliance." "There'll be three candidates in the general elections: two opposition candidates, Martinelli and Varela, and one (governing Revolutionary Democratic Party) PRD candidate, Balbina" Herrera. Ford added that no alliances were likely to be announced until September or possibly even October. Describing Vallarino as a "poor loser" and bitter, Ford noted that Varela would have his work cut out for him bringing the Panamenista Party together. ¶5. (C) Comment: Ford was not enthused about an alliance with "my friend" Martinelli, but did see it as the best deal that he could secure for UP. Ford discussed alliance formation in terms of securing and using the greatest amount of leverage for UP. -------------- Martinelli May Go It Alone -------------- ¶6. (C) "One has to respect Varela for his impressive victory over Vallarino," Martinelli political advisor Jimmy Papadimitriu told POLCOUNS July 7. "Nobody predicted that he would clobber Vallarino by such a margin." Papadimitriu acknowledged that the strength of Varela's victory would probably incline Varela to make a drive for the presidency, not take second billing on a Martinelli-led ticket. "You know though, for some time I've believed that Ricardo can't rely on Varela, and I think that he may need to go it alone," Papadimitriu said. "We'll pick up an alliance partner or two, but there will probably be two opposition candidates." ¶7. (C) Comment: Papadimitriu has been trying to convince Martinelli for some time that Varela may not be his friend and that Martinelli may need to prepare to campaign against him. Though at his campaign launch in May Martinelli trained most of his fire primarily on the PRD, Martinelli did make the argument that both the PRD and the Panamenista Party have had ample opportunity to try to address the needs of the people over the past forty years of their various administrations. On television and radio on July 8, Martinelli dismissed questions regarding alliances by noting, "My alliance is with the Panamanian people. I won't enter into that old political alliance game. Instead, I want to talk about real solutions to solve real problems, the problems in education, health care, law and order, employment, and wages." Papadmitriu noted that Varela was now humming the "change" mantra and said he was struck by the powerful response of the Panamenista rank and file to this message. Martinelli's team clearly believes that Martinelli holds the edge in being the change agent that they believe the Panamanian public seeks. -------------- - Martinelli Op-Ed Sheds Light on Economic Views -------------- - ¶8. (U) In a June 18 op-ed entitled "The Decline of the Traditional Politicians (El Desgaste de los politicos tradicionales)" in paper-of-record "La Prensa," Martinelli laid out his economic views. In his opening lines, he stated, "The country's principal problems for Panamanian families are the high cost of living and unemployment. Both are related to economics and cannot be solved by people who do not understand how things are interrelated or by people who have never generated any job openings." He then declared that he understood how the economy worked and how things were interrelated. Other highlights follow: -- Eliminate the tax on diesel and cut in half the tax on gasoline: Martinelli state that the high cost of petroleum affected the high cost of goods and services that Panama produced. By eliminating the tax on diesel and cutting in half the tax on gasoline, Martinelli wrote, "This is the way to help lower the cost of living." -- Implement a flat tax: Acknowledging that the Torrijos Administration had presided over economic growth and a reduction of unemployment, Martinelli nonetheless stated, "What these numbers do not show is that every day the salary that Panamanians earn goes less as far and there is a difference between employment and under employment." To attack this problem, it was imperative to lower the taxes on enterprises and workers. "International studies prove that a reduction of taxes on businesses translates into an increase in salaries for their employees and a lowering of the costs of goods and services." Arguing that some sectors could have zero tax burden while some banks paid seven percent and small and medium enterprises paid 30 percent, Martinelli wrote, "I propose to implement a fixed level of taxes system -- flat tax -- so that all enterprises pay the same percentage in taxes." -- Reduce the size of government: To continue progressing, Martinelli asserted that the size of government had to be reduced and that more resource needed to be dedicated to things that would improve productivity and the quality of life such as infrastructure investment, transportation, education and health. -- Focus on things that add value: Over the medium and long term, Martinelli argued that to transform Panama's economy, the focus had to be on producing goods and services that had greater added value. By doing so, Martinelli wrote that salaries would improve. To achieve this goal, Martinelli wrote that Panama's education system had to churn out more engineers, scientists and professionals in "specialized careers" and fewer "social science" graduates. Furthermore, incentives to encourage business to invest in research and development had to be created. ¶9. (U) Concluding his article, Martinelli writes, "Panama is living a historic moment of which we are failing to take advantage. The politicians and political parties that we have always had do not want things to change because they need a poor public so that they can live off the needs of the people and continue with political clientalism Rejecting "falling into the trap" of "taking from the rich to give to the poor," Martinelli writes, "What needs to be done is generating more wealth and giving the same opportunity to all so that they can partake of that wealth." ¶10. (C) Comment: The conservative orthodox economic proposals laid out in this op-ed will fly over the heads of most Panamanians, including the relatively elite readership of La Prensa. Martinelli's political message will resonate: Panama is not taking advantage of its extraordinary moment in history, needs to grow the economic pie and ensure full access to economic opportunity for all, and needs an experienced job creator at the helm. His proposal to reduce the tax on diesel and halve the tax on gasoline will be very popular regardless of social-economic status, but his proposal to implement a flat tax, reduce the size of government, and to focus on value-added activities will be too esoteric for the average Panamanian voter. Post expects that Martinelli will continue to push the basic political message of this op-ed in other fora. MESA