SCENESETTER: SECRETARY RICE,S VISIT TO PANAMA FOR

UNCLAS PANAMA 000896 SENSITIVE SIPDIS USTR FOR JOHN MELLE; COMMERCE FOR ANNE DRISCOLL, TREASURY FOR DAS O'NEIL, LABOR FOR CHARLOTTE PONTICELLI E.O. 12958: N/A TAGS: ECON ENIV ETRD OVIP PGOV PM PREL SUBJECT: SCENESETTER: SECRETARY RICE,S VISIT TO PANAMA FOR THE PATHWAYS TO PROSPERITY MINISTERIAL -------------- SUMMARY -------------- 1.(SBU) Embassy Panama warmly welcomes your December 9-10 visit for the inaugural Pathways to Prosperity (Pathways) Ministerial. In many ways, Panama's social and economic journey since the 1989 restoration of democracy mirrors the goals of the Pathways initiative: establish and consolidate a democratic, stable and responsive government; accelerate economic growth through open markets; and strive to ensure that the benefits of that growth reach all citizens. While a hemispheric leader in progress on these fronts, Panama today stands at a crossroads. Its political establishment is approaching its fourth presidential election since 1990 in May 2009, yet cynicism abounds. Panama has leveraged its superb stewardship of the Canal and central location to create an economic and logistical architecture that is yielding stellar economic growth and a substantial reduction in poverty. However, opportunities created by the growth remain elusive to the poor and middle class due to continued income inequality fostered by lack of access to quality education, inadequate public infrastructure (especially transportation) and the disproportionate effect of inflation on lower income citizens. ¶2. (SBU) If Pathways develops as planned, it will directly address a theme you have stressed - overcoming the left/right divide in Latin America to achieve agreement on common principles for governing wisely and enabling the private sector and civil society to participate fundamentally in that process. Throughout its history, Panama has served as a facilitator between left and right. Marked by its multi-ethnic population, non-ideological pedigree, and its comparative advantage as the conduit for goods and funds in the hemisphere, Panama is an ideal host for the Pathways ministerial. Your will visit will reinforce key Pathways themes via your signing of a bilateral education agreement to provide pre-academic English instruction and your steadfast support of completion of the free trade agreements for Panama and Colombia. End Summary. -------------- PANAMA'S PROGRESS -------------- ¶3. (SBU). During your visit to Panama, you will find much of the progress envisioned in the Pathways initiative. Behind the construction cranes and traffic jams lies an expanding economic/logistical architecture. Its foundation is the Canal through which passes roughly 5% of world commerce. The Panama Canal Authority (ACP) has embarked on a $5.25 billion dollar expansion, the centerpiece of which is a third set of locks capable of handling the largest class of container vessels. A growing network of ports, including Manzanillo International Terminal in Colon (partially owned by U.S. firm Carrix), facilitates trans-isthmian logistics along with the revitalized Kansas City Southern Railway between Panama City and Colon. Panama Ports (Hutchison Port Holdings, Inc. of Hong Kong) launched a $240 million expansion of its Pacific and Caribbean terminals, augmenting the GOP's construction of the $215 million Panama-Colon Highway. The Colon Free Zone generated over $16 billion in trade last year. It serves as a hemispheric "one-stop shop" for sourcing, financing, and delivering products (mostly from Asia) to Latin American markets. ¶4. (SBU) Panama's robust financial center, with 90 banks and $63 billion in assets fuels the purchase and movement of cargo and facilitates the absorption of robust foreign direct investment (FDI) inflows that totaled $1.1 billion for the first half of 2008. Through generally prudent management, it has been able to finance construction projects and consumer spending, key drivers of GDP growth - 11.5% last year and 9.5% in the first half of 2008. ¶5. (SBU) In recent years, Panama has reached beyond its traditional maritime and financial networks to build connectivity of data, knowledge, and people. Panama lies at the junction of five high bandwidth submarine fiber optic cables, placing Panama City second only to New York City in bandwidth availability. This feature was key in the decisions of Dell and Hewlett-Packard to locate regional headquarters in at the former Howard Air Base, which is undergoing a $705 million transformation as a regional manufacturing hub. You will sign a bilateral education agreement at the former U.S. Army base Fort Clayton, today the home of the City of Knowledge (Ciudad de Saber - CDS). Ciudad de Saber is executing its vision to be a center of learning and innovation by creating a community of academic institutions, international organizations and NGO's and technology oriented businesses and organizations. The number of entities established at the CDS has grown from 43 in 2001 to 120 in 2007, currently employing 2000 people. The Business Incubator Program alone within the CDS has created more than 300 jobs and led to the registration of 5 international patents. ¶6. (SBU) Panama's tourism industry has similarly mushroomed in the past five years, with tourist arrivals increasing 133% between 2000 and 2007. Arrivals at Tocumen International Airport reflect a similar trend, climbing from over 2.1 million in 2000 to an estimated 4.5 million in 2008. Tocumen recently completed an $85 million expansion of its international terminal, complimented by the concurrent growth in its flag carrier, Copa (which codeshares with Continental Airlines). -------------- CHALLENGES AHEAD -------------- ¶7. (SBU) Amidst Panama's partial, yet impressive, realization of Pathways goals lies an equally impressive set of challenges. The global economic crisis is beginning to curb growth across the board in this internationally dependent economy. Inflation this year has been running just under ten percent, causing food and fuel needs to curb discretionary spending in lower income families. A recent United Nations report highlighted true progress in poverty reduction from 2001 to 2007 - overall poverty fell from 37% to 29% and extreme poverty fell from 19% to 12%. Yet, the distribution of Panama's wealth and income remains highly skewed, and Panama has one of the highest degrees of inequality in the Americas. This situation creates palpable resentment as BMWs and Land Rovers zip past hot, crowded, buses that subject riders to unreliable multi-hour commutes. Most inhabitants of Panama City have never visited an indigenous area or the Darien, where poverty predominates and government services are minimal. ¶8. (SBU) The fragility of Panama's rural infrastructure was on full display this week, as the worst floods in 40 years washed away crops, farm-to-market roads, and thousands of homes. SOUTHCOM, through Joint Task Force Bravo operating out of Soto Cano in Honduras, played a leading role in disaster relief in Chirqui and Bocas del Toro provinces as well as the Nogbe Bugle indigenous people's autonomous region (comarca). Over a nine day period, two Blackhawk and two Chinook helicopters flew more than 97 flights that resulted in 16 rescue MEDEVACS and delivery of more than 200,000 pounds of cargo, including $250,000 in USAID food, water, and other supplies. ¶9. (SBU) Panama's educational system falls well short of what is needed to prepare its students to take advantage of opportunities in the global economy to improve their lives. Subpar training in English, math and science - if allowed to continue -- will profoundly curtail opportunity for another generation of Panamanians. Lack of opportunity could heighten instability, as youth unable to compete in legal activities could turn instead to illicit pursuits. ¶10. (SBU) Panama's status as a regional hub carries a darker side. Illegal activities piggyback on Panama's location and commercial/financial infrastructure, namely the transshipment of narcotics and contraband, and money laundering. While crime currently is low by regional standards, it is increasing. There is a very real prospect of losing adolescents who see the benefits of free markets all around them, but are unable to share in those benefits via educational attainment. In this context, your visit to the City of Knowledge to sign a bilateral education agreement bodes well for our bilateral relationship and as an example of turning Pathways goals into practice. This agreement more than doubles the number of Panamanian Fulbright participants and provides pre-academic English instruction to national scholarship winners who want to pursue graduate study in the United States. -------------- ELECTIONS -------------- ¶11. (SBU) Panama will hold general elections on May 3, 2009, to choose a president and to fill every elected seat in Panama's National Assembly. We fully expect this date to herald the fourth free and fair election since Operation Just Cause. However, this contest is particularly personal and nasty. According to polls, a population focused on the rising cost of living, wage stagnation, and increasing crime has grown cynical about its government's ability to deliver sustained social and economic progress. Until recently, President Torrijos' PRD party successor, Balbina Herrera, looked like a strong front runner. Yet, missteps by both have eroded Herrera's standing, especially President Torrijos' decision to remain in Spain at an event with the Spanish royal family while floods were ravaging the Western provinces. The Panamanian press juxtaposed photos of Ambassador Stephenson leading USG relief efforts and cartoons of President Torrijos clinking champagne glasses in Spain. Independent Ricardo Martinelli has thus far successfully positioned himself as the candidate for change, bolstered by financing from his substantial fortune. Meanwhile Juan Carlos Varela, of the traditional opposition Panamenista party lags far behind. -------------- FTA STILL ON HOLD -------------- ¶12. (SBU) Finally, the uncertain status of the U.S.-Panama FTA (along with the U.S.-Colombia FTA) is certain to arise during the Pathways Ministerial. President Torrijos will express disappointment that his close relationship with President Bush has not yielded submission of the FTA to Congress. However, recent positive statements of Democratic Congressional leaders, endorsement of the pact by prominent newspapers such as the New York Times, Washington Post, and Los Angeles Times, and the Brookings Institution's enthusiastic embrace of the agreement in its November "Rethinking Latin American Relations" report augur well for prospects for passage of the Panama FTA in the new Congress. GILMOUR