PANAMA: NEITHER TORRIJOS NOR MARTINELLI CAN

C O N F I D E N T I A L PANAMA 000439 SIPDIS NOFORN WHSR PLEASE PASS TO USTR E.O. 12958: DECL: 06/01/2019 TAGS: PREL PGOV ECON ETRD EFTA PM SUBJECT: PANAMA: NEITHER TORRIJOS NOR MARTINELLI CAN DELIVER ON FTA LABOR PACKAGE Classified By: Ambassador Barbara J. Stephenson. Reasons: 1.4 (b) and (d) -------------- Summary -------------- ¶1. (C) While President-elect Ricardo Martinelli would very much like to secure U.S. ratification of the pending bilateral Free Trade Agreement (FTA),Martinelli and his closest advisors assess that President Martin Torrijos and his Revolutionary Democratic Party (PRD) deputies in the National Assembly will not be able to deliver on its promised legislative reforms to Panama's labor code, Minister of the Presidency-designate Demetrio "Jimmy" Papadimitriu told POLCOUNS on May 26. Organized labor's opposition to the proposed changes to the code virtually ensure that PRD deputies, most of whom are not returning to the National Assembly after the July 1 inauguration, will not vote for the legislative changes to the labor code. If the PRD, which has the strongest ties to labor, cannot provide the "lion's share of the lift on labor," why should Martinelli's four-party Alliance for Change invest any political capital in an endeavor that is doomed, Papadimitriu asked rhetorically. Keenly aware that expectations for "change" would be sky high following their 23-point victory that decimated the PRD, Papadimitriu noted that the Alliance would have only a short period to galvanize their political movement and consolidate the major political in-roads already achieved by the Martinelli phenomenon. The only way to lock in this unprecedented victory was to make significant advancement on top domestic priorities -- security, education, transportation, and healthcare -- over the next year, Papadimitriu asserted. As much as they might want to secure U.S. ratification of the FTA, Papadimitriu noted that Martinelli needed to make the tough political calculation to invest his political capital on domestic priorities; "The FTA simply does not help us much domestically." -------------- Labor Fears Opening Pandora's Box -------------- ¶2. On May 25, CONATO, Panama's largest labor umbrella group, announced its opposition to opening the labor code to legislative reform. Union leaders assessed that the proposed legislative changes -- reducing from forty to twenty people the minimum number of workers necessary to organize a union (a provision of the Labor Code) and expressly extending labor protections to export processing zones (EPZs) (which requires changing legislation not in the labor code) -- were not important enough to risk backsliding on other areas of the labor code at the behest of employers. Papadimtriu explained that organized labor did not want to "open Pandora's box" to make changes that it viewed as "inconsequential" for fear that more important parts of the labor code would be "manipulated" by the private sector. Papadimitriu acknowledged that the PRD had significantly more influence over organized labor than did any party in the Alliance for Change. Martinelli, Papadimitriu explained, wanted to avoid a clash with labor and concluded that, if the PRD could not deliver the lion's share of the political lift on legislative changes to the labor code, it would be a fool's task for the Alliance to even try. -------------- -------------- Consolidating Victory, Harnessing it for "Change" -------------- -------------- ¶3. "We want to outflank labor and other key interest groups, not incite them or start off with frontal assaults on them," Papadimitriu explained. In the wake of the Alliance's 23-point victory that decimated the PRD, Papadimitriu said that expectations would be very high for Martinelli to start delivering on the change he promised. The Alliance needed to focus on top domestic priorities -- security, healthcare, education, and transportation -- not international priorities, if it was to consolidate its impressive victory at the polls. Desiring to fundamentally re-align the way politics is done in Panama, Papadimitriu explained that Martinelli had to create facts on the ground quickly that demonstrated that a new era had dawned in Panama. Perhaps, at some indeterminate point down the road the political landscape would have changed significantly enough to allow Martinelli to consider investing political capital to finalize the legislative changes to the labor code sought by the U.S., according to Papadimitriu. As for the U.S. pressure to immobilize the bearer shares of anonymous corporations and negotiate a tax information exchange agreement (TIEA) with the U.S., Papadimtriu assessed that, if the PRD could not deliver on the labor reforms, the pressure to enact financial sector reforms would be lessened in that it would not be as linked to FTA ratification. "We would be better off allowing the OECD/G-20 calls to close down tax havens to play out at their own pace," Papadimitriu said, stating that it would be better to grapple with key interest groups in the legal and banking sectors in due course. "Eventually we will need to negotiate a TIEA," Papadimitriu acknowledged, noting that immobilizing bearer shares would be essential to any such agreement. -------------- La Prensa: "Panama can wait" -------------- ¶4. (SBU) Momentum to await a better time to finalize the bilateral trade deal appears to be gaining momentum. "Now the country must wait for a better moment or for Washington to appreciate its relationship with a good neighbor that is poor, but not naive," Panama City's leading daily declared in its front-page opinion article on May 30. "Definitely, Panama can wait" for U.S. congressional ratification of the U.S.-Panama Free Trade Agreement (FTA). Noting that "the time for negotiations had passed," La Prensa asserted, "It is unjust for the U.S. superpower to impose more conditions -- proper and yet harmful conditions -- on our service economy." -------------- Comment -------------- ¶5. (C) Martinelli and his closest advisors are dismayed that the FTA may slip away. Martinelli lays the blame for the "loss" of the FTA at Torrijos' and the PRD's dithering over extra rounds of FTA negotiations, electing Pedro Miguel Gonzalez to be President of the National Assembly, though he is under U.S. federal indictment in connection with the 1992 murder of a U.S. soldier, and not being able to deliver all the legislative fixes on labor. Not only has the incoming Martinelli Administration concluded that pushing through the labor reforms is out of their hands, but Papadimitriu and Martinelli have arrived at the shrewd political calculation that they must capitalize now on their impressive victory at the polls by delivering the "change" that voters demanded by making significant progress on top domestic, not international, priorities. STEPHENSON