Cablegate: Panama: July Visit of Minister of Government And


DE RUEHZP #0545/01 1852153
R 032153Z JUL 08

C O N F I D E N T I A L PANAMA 000545



E.O. 12958: DECL: 07/03/2018

Classified By: Ambassador William A. Eaton. Reasons: 1.4 (b),
(c) and (d).


1. (C) Following up on Panamanian President Martin Torrijos'
May 7-8 visit to Washington and meetings with the President
and the Secretaries of State and Defense, Panamanian Minister
of Government and Justice Daniel Delgado will travel to
Washington July 7-10 to continue security-related
discussions. Delgado's visit also comes on the heels of
Deputy Assistant Secretary of Defense Stephen Johnson's June
24-25 visit to Panama City. First and foremost on Delgado's
mind will be securing USG security assistance to better
enable Panama to confront illegal narcotics trafficking,
combat terrorism (including increasingly bolder incursions by
the Revolutionary Armed Forces of Colombia (FARC) into
Panama), and ensure the continued security of the Panama
Canal. Torrijos told DASD Johnson on June 24, "I want to
leave Panama's security apparatus in order by the time I
leave office" on July 1, 2009.

Security Issues Come to the Fore

2. (C) Over the past six months, security concerns have
become one of the top issues on the minds of Panamanian
voters. (Note: Panamanians go to the polls on May 3, 2009 to
select Torrijos' successor; the primary season is already in
full swing.) Panama experienced a significant up-tick in
crime, not only in Panama City but also across the country,
leading to an increasing clamor that the GOP do something to
improve law and order. FARC incursions into Panama --
including a February 22, 2008 fire fight between PNP and FARC
launches off the Darien coast that resulted in the capture of
six FARC members, the discovery by a PNP patrol of a
semi-permanent FARC base outside of the town of Guayabo in
the Darien, and the kidnapping of a U.S. citizen from Panama
City with the collusion of the FARC -- have focused the
Torrijos Administration's attention on the threat posed by
the FARC, challenging Panama's traditional live-and-let-live
attitude toward the FARC.

3. (C) Continued record seizures of illegal narcotics in
Panama serve to underscore that Panama remains a cross roads
for illicit trade. Panama has cooperated well with U.S. law
enforcement agencies in combating narcotics trafficking and
transnational crime. For example, of the 120 metric tons of
cocaine seized by authorities in the hemisphere during 2007,
Panama accounted for about 60 tons or nearly 40 percent of
the total. So far in 2008, law enforcement authorities have
seized some 20 metric tons of cocaine.

What Delgado Wants

4. (C) Presently, Panama is transfixed on acquiring
equipment, primarily helicopters, but has not given
sufficient consideration to the level and speed of the
assistance it would like from the USG nor specified what help
it would like from the USG. The right level and speed of USG
assistance directly depends upon Panama's ability to
politically absorb our help. Additionally, Panama would like
great information exchange on security matters. Delgado is
likely to lay out his five-year plan for strengthening
Panama's security apparatus and to simply ask where the USG
believes it can plug into his plan. Increasingly, the
"militarization" debate -- an ever-present political
undercurrent -- is coming to the forefront as Panama strives
to address legitimate security needs while also coming to
terms with its experience with military dictatorship.
Delgado's visit provides an opportunity to enhance our
already strong bilateral relationship by strengthening our
security cooperation, but both the U.S. and Panama will need
to tread carefully to navigate the political complexities of
our bilateral relationship in this area.

Two Steps Forward, One Step Back

5. (C) Following Torrijos' meeting with the President, DEA
quickly acted to deploy a FAST team of U.S.-piloted
helicopters to assist the GOP security forces in the remote
Darien region. Delgado abruptly turned off this deployment
-- a decision eventually supported by Torrijos and First VP
and FM Lewis -- asserting a lack of adequate coordination and
the fear that AMCIT pilots would be put in danger. The GOP
is also very concerned, however, about maintaining tight
control over access to the Darien. Although the GOP is
prepared to accept equipment for their own use -- Panama at
its own expense sent 10 pilots to the U.S. for helicopter
training -- allowing greater access to the Darien that would
enhance USG situational awareness in the region may be one
bridge too far for the Panamanians at this stage. The GOP is
aware that Colombia's continuing successes against the FARC
will likely push them into Panama, but has yet to come to
terms with how to address this threat, let alone whether to
try to do so alone or in concert with its leading
international partner, the U.S.

6. (C) It should be kept in mind, however, that the USG has
made significant progress in engaging Panama in a broader
security discussion on tough issues, including the FARC's
presence in the Darien and its operations (primarily drug
trafficking) throughout Panama. Indeed, Torrijos' use of the
term "FARC" in his conversations with DASD Johnson where
previously high-level Panamanian officials preferred to refer
generically to "drug traffickers" or "organized crime" is an
indication that Panama is becoming aware of the need to meet
this threat head on. Post's Office of Defense Cooperation
(ODC) enjoys greater access to the Darien, particularly
Meteti, though it is not yet able to conduct training in the
region. However, we enjoy full access to the region to
conduct Humanitarian and Assistance initiatives such as
Medical Readiness Training Exercises. Additionally, we have
a 12-man Joint Planning and Assistance Team preparing to
provide technical assistance to the Frontier Force.

--------------------------------------------- ---
Torrijos' Legislative Powers on Security Matters
--------------------------------------------- ---

7. (C) Before going into recess on June 30, Panama's
National Assembly granted Torrijos extraordinary powers to
enact legislation: establishing the National Aero-Naval
Service (SENAN), the National Frontier Service (SENAFRONT),
modifying and adding additional authorities to the Council
for Public Security and National Defense (CSPDN), and, most
controversially, enabling the President to name a uniformed
officer to head the Panamanian National Defense (PNP). While
these updates to Panama's security architecture are much
needed, the Torrijos Administration has failed at explaining
the need for these reforms to the general public and has
gotten itself on the wrong side of the "militarization"
debate. Now on the defensive, the Torrijos Administration
finds itself in the awkward position of trying to explain
how, despite its secretive treatment of these issues and the
governing Revolutionary Democratic Party (PRD) roots in
military dictatorship, that these reforms seek to strengthen
civilian control of the security forces, are not aimed at
restoring the military, and will be conducted in a way that
not only respects, but strengthens, democracy.

Booming Economy, But Problems Linger

8. (SBU) Delgado's visit comes at a time when Panama's
economic boom contrasts starkly with high levels of poverty,
wide income disparities, persistent corruption, and decaying
educational and healthcare systems. Panama's 11.2 percent
GDP growth in 2007 topped the region, driven largely by
significant growth in construction, ports and maritime
services, banking and financial services, and tourism.
Foreign investment, which topped USD 1 billion in 2007,
continues to pour into Panama, as U.S. multinationals such as
Procter and Gamble, Hewlett Packard, 3M, and Caterpillar move

into Panama. Occidental Petroleum and Qatar Petroleum will
soon decide whether to proceed with their proposed USD 8-9
billion refinery project in the Puerto Armuelles area of
western Panama, which would be a significant addition to
Panama's USD 17 billion economy. With the country's strong
economic growth over the past five years, Panama has cut
unemployment by about half, dropping from about 14 percent in
2003 to just over 6 percent today. However, an estimated 20
percent of Panama's workforce remains underemployed.

9. (SBU) Panama also maintains one of the most liberalized
trade regimes in the hemisphere. As Panama's largest trade
partner (with two-way trade of USD 4.1 billion in 2007, an
increase of 33 percent over 2006), the U.S. consistently runs
a huge trade surplus with Panama, exporting about ten times
more than it imports. The U.S. and Panama signed a bilateral
Trade Promotion Agreement (TPA) last June that the Panamanian
National Assembly ratified two weeks later by an overwhelming
vote. However, U.S. ratification remains on hold as a result
of the National Assembly's September 2007 election as
president of the chamber of Pedro Miguel Gonzalez who is
under federal indictment in connection with the 1992 slaying
of a U.S. soldier.

10. (SBU) Despite being one of Latin America's fastest
growing economies over the past 15 years, Panama's poverty
rate has persisted at nearly 40 percent overall and has
exceeded 80 percent in rural indigenous areas. Torrijos
hopes that sustained growth resulting from the Panama Canal
expansion project and the TPA will help push Panama into
"first world" status. However, neither the Canal nor the TPA
is a panacea, as cronyism and weak institutions (especially
the notoriously corrupt judiciary and troubled health and
education sectors) have kept Panama from attaining more
broadly shared prosperity.

11. (SBU) After some twenty years of enjoying low inflation
(ranging between 1.5 and 2 percent), Panamanians now face an
upward spiral in the cost of living. Annual inflation
reached 4.7 percent by the end of 2007 and is now running at
about 8.8 percent. Increases in the price of food have run
at nearly twice the overall inflation rate. The monthly cost
of a "basic basket" of foodstuffs defined by the GOP as the
minimal amount needed by a typical Panamanian has skyrocketed
by more than 20 percent over the past year, reaching nearly
USD 250 per month. This means that workers earning the
minimum monthly wage of USD 310 must spend more than 80
percent of their income on food, while those earning the
average wage of USD 400 spend more than 60 percent of their
earnings just to buy the basic food items. This, combined
with fast-rising electricity and gasoline prices, has
tightened the squeeze on low and middle-income families.

12. (SBU) Despite spending about 12 percent of the GOP's
budget and 5 percent of GDP on education, Panama suffers from
a poorly educated workforce. About half of prospective
University of Panama students fail their entrance exams,
prompting university authorities to lower the threshold for
entrance. About one-third of the applicants to GOP worker
training programs are rejected because they lack the
requisite literacy and math skills. Panamanian and
multi-national firms must draw from a labor pool that is
poorly equipped to compete in the global economy. One U.S.
multi-national found that less than 1 percent of some 200
prospective Panamanian employees passed the firm's qualifying
examination. By comparison, the firm found that pass rates
elsewhere in the region typically ranged from 15 to 20
percent. This dynamic is exacerbated by laws that require
foreign firms to staff 90 percent of their local operations
with Panamanian employees.

Panama Canal Expansion Underway

13. (U) In September 2007, the Panama Canal Authority (ACP)
formally launched its eight-year, USD 5.25 billion program to
expand and modernize the Panama Canal. This project is due
for completion in 2014. The ACP plans to finance the project
through a combination of Canal revenues, increased tolls, and
USD 2.3 billion in bridge loans. U.S.-based engineering and

law firms have won initial contracts to provide project
management and legal advisory services to the ACP. Four
consortia, one led by Bechtel, are preparing to bid in late
2008 on the design/build contract for the new, much larger
sets of locks that will be built in parallel to the existing
locks. With an estimated contract value of about USD 3.5
billion, this represents the largest share of
expansion-related work. The winning consortium will have to
contend with the upward spiral in fuel and construction
materials costs, Panama's shallow pool of skilled labor, and
constraints on housing, transportation, and other

Panama's Politicos Jockey for 2009 Elections

14. (SBU) Twelve months from the end of his five-year term,
President Torrijos has seen his public approval rating erode
considerably, declining, according to some polls, by as much
as 60 percent. His Revolutionary Democratic Party (PRD)
dominates Panama's unicameral National Assembly and other
governmental institutions. Opposition parties remain
fractured and, so far, unable to coalesce into an effective
counterweight. One is the Panamenista Party, the largest
opposition party, has held its primary elections on July 6,
opposition parties may turn in earnest to the task of
alliance formation. For now though, the PRD appears well
positioned for the May 2009 elections. Torrijos is
constitutionally prohibited from a consecutive term, and his
former Housing Minister and long-time PRD figure, Balbina
Herrera, currently leads the pack of aspiring PRD successors.
In the most recent national poll conducted in late June by
Unimer, however, opposition maverick Ricardo Martinelli of
Democratic Change (CD) recaptured his lead in the national
polls after a three month lapse by polling 22.7 percent,
followed by Herrera at 20.9 percent, PRD candidate Juan
Carlos Navarro at 11.2 percent, and Panamenista Party
candidate Juan Carlos Varela at 9.4 percent and Alberto
Vallarino at 7.4 percent. Unable to draw more than 3 percent
in earlier polls, First VP and FM Samuel Lewis did not
register to run for the PRD presidential nomination and will
sit out the 2009 campaign.

Panama at the UN Security Council

15. (SBU) In late 2006, Panama emerged as Latin America's
consensus candidate for a two-year seat on the UN Security
Council (UNSC). This followed a prolonged deadlock between
Venezuela and Guatemala in the voting for non-permanent
members in the UN General Assembly. Panama has consistently
voted with the U.S. and has played a constructive role on the
UNSC. In other foreign policy matters, Torrijos has pursued
a policy of maintaining friendly relations with all countries
that seek friendly relations with Panama, including Cuba and

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