Cablegate: Codel Hagel Whirlwind Tour of Panama


DE RUEHZP #0714/01 2422058
P 292058Z AUG 08 ZDS

C O N F I D E N T I A L PANAMA 000714



E.O. 12958: DECL: 08/28/2018



1. (U) CODEL Hagel met in Panama on August 28 with President
Martin Torrijos to discuss the strong bilateral relationship
and Panama's economic future. In a meeting with
Vice-president and Foreign Minister Samuel Lewis, CODEL Hagel
discussed the Trade Promotion Agreement (TPA) and the Panama
Canal widening project. Foreign investment and the need for
qualified workers were the topics of discussion between
Minister of Commerce and Industry Carmen Gisela Vergara and
the CODEL. Senator Hagel and the CODEL received a briefing
on the Panama Canal and discussed the widening project
further with Minister for Canal Affairs and Secretary of
Energy Dani Kuzniecky and Panama Canal Administrator Alberto
Aleman. Finally, CODEL Hagel had lunch with representatives
of the U.S. Chamber of Commerce, who discussed the business
climate, the tourism boom and the need for qualified
technical labor.

--------------------------------------------- ------
Pres. Torrijos: New Stage in Bilateral Relationship
--------------------------------------------- ------

2. (C) The U.S.-Panama bilateral relationship "is on a great
trajectory," Panamanian President Martin Torrijos told
Senator Hagel at the opening of their meeting. Reaching out
to the Senator on short notice, Torrijos invited Senator
Hagel to meet with him in a previously unplanned meeting.
"We are entering a new stage of our bilateral relationship,"
Torrijos explained. Not only had the Trade Promotion
Agreement (TPA) been signed last year, but the Panama Canal
expansion project, for example, would draw the U.S. and
Panama closer together in a strategic relationship, the
President said. The expansion project would double the
capacity of the canal and was already forcing U.S. East Coast
ports to begin working to upgrade their facilities to
accommodate not only higher volume, but also the larger ships
that would now be able to transit the canal. Panama was
essentially "the maritime frontier of the U.S.," an aspect of
the relationship that the President said needed to be
explored further. "I am confident," Torrijos said, "that we
will leave the country on a good path for development."
Noting that he had recently met with Colombian President
Alvaro Uribe who had made "great advances against the FARC,"
Torrijos acknowledged the importance, as noted by Senator
Hagel, of working together regionally to deal with challenges
and to foster greater cooperation.

3. (C) Torrijos agreed with Senator Hagel that Sinagpore's
experience offered an example of development from which
Panama could draw. Singapore itself was investing in Panama,
Torrijos noted. For example, he pointed to the establishment
of a Singaporean companies airplane maintenance and flight
simulator training facilities as examples of where Panama was
able to leverage its geographic location to launch new
economic initiatives. This Singaporean airplane maintenance
center could serve as a repair facility for aircraft from
across the hemisphere, Torrijos explained. Furthermore,
Panama was striving to become an energy hub by refurbishing a
trans-isthmian pipeline, moving ahead on an Occidental
Petroleum-Qatar Oil joint venture to build refinery in
Panama, and connecting Panama's electric grid not only with
Central America, but also with Colombia. He added that
Panama had much to learn from Singapore's success at making
itself a world class logistics platform.

4. (C) "We have changed the structure of our security
forces," the President told Senator Hagel, "to be able to
meet challenges to our security." Torrijos explained that he
had enacted laws to establish: an independent frontier force
(SENAFRONT), a coast guard or rather aero-naval service
(SENAN), and a civilian intelligence service (SENIS). Also
the law had been amended to enable him to name a uniformed
police officer to lead the Panamanian National Police (PNP).
"Some say unfairly that I am trying to re-militarize,"
Torrijos stated. "I am trying to update the security forces.
We did it fast and with limited time for debate. There are
some people who simply cannot be convinced on the need to
make these changes, but the past cannot hinder us from
meeting the future." By setting up an intelligence service,
Torrijos asserted that he was trying to give the existing
service that operated in a gray area a legal framework. "We
know that the FARC is preparing to conduct operations in
Panama and that they have done so in the past. If given the
opportunity, criminal organization will shift their presence
to Panamanian territory if they were given the opportunity,"
Torrijos said. "We need to be prepared to stop that."
5. (C) Answering the Senator's question, Torrijos said that
in his post-presidency that he would like to help develop new
leaders in the region. "I would like to create a knowledge
bank that can serve as a resource for up-and-coming leaders,"
the President said. Working with former Chilean President
Lagos and former Brazilian President Cardozo and the
Ibero-American Summit, Torrijos hoped to contribute to
efforts to create a public policy school for the hemisphere.
"We share a lot of the same problems in Latin America," he
said, "and we should be able to share experiences for what

Meeting with First VP and FM Samuel Lewis

6. (C) "I am very grateful for your efforts over the last few
years to support Panama's free trade agreement with the
U.S.," First VP and FM Samuel Lewis told Senator Hagel. As
would the pending Trade Promotion Agreement (TPA), Lewis also
commented that Panama's "ambitious" canal expansion program
would "contribute to an ever strengthening relationship with
the U.S." Regarding the TPA, Lewis expressed his hope that
the TPA would "get unstuck" and help contribute to "our
evolving and strengthening relationship." Senator Hagel
stated that he thought it was unlikely that the U.S.-Panama
TPA would be acted on in September before Congress went out
of session before the U.S. elections, but the Senator said it
might be possible to take up the treaty in a post-election
lame duck session. Lewis noted that President Torrijos would
be in Washington September 16 and 17 to "raise the profile"
of the TPA and would meet with President Bush, Members of
Congress, and others. Senator Hagel encouraged Lewis to make
the most of this trip and underscored that he remained a
strong advocate that this treaty "needed to get done."

7. (C) Noting that the Panama TPA would be considered after
the Colombia TPA, Lewis said, "We need to consider the
Colombia and Panama trade agreements in light of both
countries strategic relationships with the U.S. While the
agreement with Panama did not face opposition, we trail the
Colombia agreement that does face opposition. The issue then
becomes how do we break that obstacle and get over that
hurdle" should the Colombia agreement face the prospect of
not garnering sufficient votes. "President Torrijos is going
to make a plea to President Bush that, though we want to see
Colombia go through, if both treaties cannot get through, we
should consider getting one (i.e., Panama) through." Senator
Hagel cautioned Lewis to be careful not to encourage too
publicly this kind of approach as it would open up new kinds
of political competition. "I think we can get both
agreements done and can sell them on a strategic basis,"
Senator Hagel assured.

8. (C) Turning to the Panama Canal, Lewis said, "At first,
Panama needed to overcome the idea that Panama would not be
able to run the canal, a perception held by many both in the
U.S. and Panama." Since 1999 when the canal was handed over
to Panama, Lewis said that Panama had demonstrated that it
could do an excellent job running the canal. The next
challenge was how to keep the canal up to date as trade
volumes increased and the size of ships grew. Therefore,
Lewis explained, Panama put together a program to maximize
the public benefit and mitigate the negative effects of
expanding the canal while putting it on a firm financial
footing. "Ultimately, running the canal is all about water
management," Lewis said, explaining that Panama would
incorporate water recycling technology on its largest scale
ever. "We won approval via referendum to implement a USD
5.25 billion expansion project that would double the canal's
volume by the 2014 completion date of the project and enable
it to handle larger ships. "This expansion will drive other
developments in logistics, finance, trade, and
manufacturing," Lewis asserted. Contracts for dry
excavation, dredging, and engineering management had already
been awarded, Lewis said. The big contract though would be
for the design/build of the locks. Four consortia had been
short-listed to participate in the tender process, one of
which was lead by the U.S. firm Bechtel. "Ideally, tenders
will be due in December, though that may slip to January,"
Lewis said. The goal was to inaugurate the canal expansion
project on August 15, 2014, the 100th anniversary of the
original opening of the canal.

9. (C) "Last year Panama grew at 11.2 percent, and we expect
to close this year at 8.5 percent growth," Lewis said. "One
of the highest growth rates in the Americas." Sustainable
over time, this growth, Lewis said, would enable Panama to
focus on necessary social investment. "We have only 3.25
million people. Investment to address social problems can
see a big difference over a short period of time," Lewis

--------------------------------------------- -
Meeting with Minister of Commerce and Industry
--------------------------------------------- -

10. (C) "Foreign investment is the key to Panama's economic
development; it spins off promising economic
activity,"Minister of Commerce and Industry (MICI) Carmen
Gisela Vergara told the Senator. As an example, she
emphasized that a film law passed this year to create
incentives for production in Panama. She added that the
latest Bond movie was filmed in Panama, and 12 other
productions were underway. Minister Vergara also mentioned
Law 41, the 2007 Regional Headquarters law, to encourage
companies to establish regional headquarters in Panama to
order to enhance employment opportunities. She listed
companies that have established regional headquarters in
Panama including Hewlett-Packard, Proctor & Gamble,
Caterpillar, and 3M. In the last year of the Torrijos
Administration, Vergara said the GOP hoped to close several
big investment projects including an Occidental/Qatar
refinery, an energy park in Colon, and the Ports
America-Cosco megaport on the Pacific side. She touted
growth in tourism, noting Panama's 95 percent hotel occupancy

11. (C) "Everyday in the paper you see employment
opportunities, but people don't have jobs because they are
not qualified," Vergara stated in addressing the difficulty
of foreign companies in finding qualified workers. Panama's
unemployment rate was 6.4% in 2008, a large decrease from the
2004 rate of 14%. Income disparity continued to be a
challenge, but it should be addressed with market solutions,
according to Vergara. "This is exactly what the government
is doing," stressed Vergara, in creating the National
Institute for Workforce Development (INADEH) that works with
companies to solicit their expectations for future human
resources needs and then works to meet that demand.
Continuing to discuss GOP remedies for income inequality,
Vergara noted the Network of Opportunities program which
provides a USD 50 subsidy to families, in exchange for
meeting certain health and educational goals, and the GOP's
deep subsidization of gas and electricity. Tax law changes
implemented at the beginning of the Torrijos administration
widened the tax base, focused on collection, and therefore
enabled more robust funding of social programs, she concluded.

Meeting with Panama Canal Authority

12. (C) The expansion project was going well and attracting
world-wide attention, according to Minister of Canal Affairs
Dani Kuzniecky. Kuzniecky is Chairman of the Board of the
Panama Canal Authority (ACP) and the GOP's Secretary of
Energy. He briefed the CODEL with a powerpoint presentation
on the 4-phase canal expansion project and explained its open
and transparent bidding process that involves clear
communication with each team of bidders about the rules of
the process (such as the number of points awarded for certain
technical performance specifications) and constant updates
for all teams on issues of concern raised by any of the teams
to avoid future problems. Bidders would submit their
proposal in a package and their price in an envelope that
would stored in a bank in Panama. The envelopes would be
opened in a public forum, and the contract would be awarded
to the company that scored highest by combining the technical
points with points awarded for price. As the companies would
be spending USD 15-20 million to develop bids, the ACP sought
to ensure that bidders felt the process was transparent and
open, according to Kuzniecky. The ACP would give each losing
company a USD 3 million stipend to offset their losses. All
contracts should be in place by 2009. The third set of locks
would double the canal's capacity enabling it to handle twice
as many ships and will allow larger individual ships to
transit. The U.S., the source or destination of 70% of canal
trade, would directly benefit from this increase in capacity
and ability, Kuzniecky asserted. Panama's energy mix was 60%
hydroelectric and 40% thermoelectric, Kuzniecky replied to a
question by Senator Hagel.

AmCham luncheon

13. (C) American businesses were very enthusiastic about
Panama, but recognized there were challenges, according to a
representative of the American Chamber of Commerce at a lunch
meeting with CODEL Hagel. In attendance were Don Elder,
Panama Project Manager of Caterpillar, Inc; Joseph Cazares,
Vice President, CH2MHill Panama - the project management firm
that is advising the ACP on the canal expansion project;
Thomas Kenna, President of the Panama Canal Railway Company
(a joint venture of Kansas City Southern and Mi-Jack
Products, Inc.); Anette Cardenas, Marriot Hotels; Glen
Champion, Vice President, Bern Hotels and Resorts; David
Hunt, Executive Director, American Chamber of Commerce and
Industry of Panama; and Robert Banker, Vice President,
Association of American Chambers of Commerce. Champion
stated that the TPA would provide the perception of stability
that was vital in Panama's small economy. Several other
representatives echoed this view. Kenna, Elder, and Cardenas
also said that their respective companies would be focusing
heavily on lobbying during President Torrijos' upcoming visit
to the U.S.

14. (C) Panama had been transformed since 2000 in terms of
corruption, according to Kenna. The Panama Canal Railway
Company was "very bullish" with respect to both the maritime
and the tourist industries of Panama. Elder of Caterpillar
agreed with this positive assessment, but also noted ongoing
challenges, such as the difficulty in securing land titles.
The canal expansion project had been very transparent and
open, according to Cazares of CH2MHill, with the greatest
challenge being the politicization of decisions slowing the
process. A deficit of engineers and highly trained
construction professionals was expected during the peak of
the project (around 2011), when the project would demand more
than 12,000 employees in the middle of a construction boom.
Difficulties in finding qualified labor continued, according
to the participants, except for Caterpillar, that was not
reliant on large numbers of employees and would have the
capacity to train its staff a part of the center's main core
business in Panama. A hotel and tourism boom had taken place
and capital was readily available for hotel construction.

15. (U) CODEL Hagel cleared this cable.

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