Cablegate: Scenesetter: The Secretary's Visit to Panama's

This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 04 PANAMA 002105



E.O. 12958: DECL: 08/18/2014

REF: 03 PANAMA 2773


1. (SBU) On behalf of Embassy Panama, I want to express our
warmest welcome on your upcoming September 1, 2004 visit to
Panama's Presidential Inauguration. Following your November
3, 2003 visit to Panama's Centennial celebrations (reftel),
your presence here as the government of Martin Torrijos takes
power strongly signals the great interest of the United
States in expanding further our excellent relations with the
Panamanians. Our cooperation on a wide range of issues --
including law enforcement and security policy -- promise to
reach new levels under the new government. Elected on a
reform and anti-corruption platform by the largest post-1989
plurality on record, Torrijos has made clear that his
government's most important foreign policy priority will be
relations with the United States and that he intends to
deepen our mutual focus on counter-terrorism capabilities,
combat international criminal networks, and expand trade and
investment. The new president and his Democratic
Revolutionary Party (PRD) -- largely purged of its
anti-democratic, anti-U.S. tendencies and which holds an
absolute majority in the Legislative Assembly -- will face
large challenges from the outset: a serious budget shortfall
and tide of red ink left by the out-going government;
urgently required action to right the nation's foundering
retirement and medical system (the Social Security Fund);
completing the Free Trade Agreement negotiations with the
United States; launching a more activist and "coherent"
foreign policy (closer relations with Western Europe and a
review of Panama's relations with Taiwan and China); and a
decision on how to proceed on Canal expansion, leading to a
2005 national referendum. The new government's principal
domestic priorities will be sustainable economic development,
attracting investment, and job creation.

The Political Landscape: Torrijos and a New Generation
--------------------------------------------- ---------

2. (SBU) Martin Erasto Torrijos Espino won Panama's May 2,
2004 general elections with 47% of the popular vote, a 16%
margin over his nearest competitor. Torrijos's Democratic
Revolutionary Party (PRD) joined forces with its historical
opponent, the Popular Party (PP) to propel him and its
legislative candidates to victory. Torrijos has surrounded
himself with young, primarily US-educated professionals like
himself and has changed the face of the PRD by marginalizing
"old guard" supporters of former President Ernesto Perez
Balladares (1994-99). Torrijos and those closest to him have
indicated that they intend to work closely with U.S.
officials, especially on security, law enforcement, trade and
investment. Overall, his cabinet appointments have been
inspired choices -- mostly young technocrats with a pro-U.S.
outlook. Most of Torrijos's cabinet appointments are
respected professionals without excessive baggage from
Panama's 21-year military dictatorship or the PRD's anti-U.S.
faction, a promising sign. Anticipated pressures from a
well-entrenched oligarchy could frustrate the Torrijos
administration's reform plans.

Promoting Good Governance

3. (SBU) Torrijos campaigned on a "zero-corruption"
platform, promises to run a clean government, and hopes to
clean up Panama's politicized Supreme Court. This Embassy
launched a strong Good Governance initiative with Ambassador
Watt's 2003 speech against corruption in government. That
speech resonated firmly with Panamanians from all walks of
life and generated front-page headlines. More recently, the
Ambassador followed up with a speech about the dangers that
poverty and skewed income distribution pose to democracy,
factors that exacerbate social conflict and increase the
appeal of unscrupulous populist demagogues. The Embassy
currently supports good governance activities directed toward
judicial reform, civic education, business ethics, and
strengthening anti-corruption prosecutors' institutional
capacity. Another key element of the Embassy's Good
Governance initiative is its visa revocation program. Based
on Embassy recommendations, the State Department recently
revoked the U.S. visas of two former senior GOP officials,
which provoked a spate of mostly favorable press commentary
and huge support (85% according to one poll) from average

Law Enforcement and Security Policy

4. (C) President-elect Torrijos comes to office with clear
focus on security matters, largely because his Democratic
Revolutionary Party (PRD) is the most security-oriented of
all Panamanian parties. We expect to maintain or improve the
already extraordinary level of access and cooperation we now
enjoy with Panamanian officials on law enforcement and
security. Last May's signing in Washington of a
counter-terrorism and weapons of mass destruction amendment
to our basic shipriders agreement with Panama under the
Proliferation Security Initiative (PSI) underscores our
excellent cooperation, which the Torrijos transition team has
assured us will continue or improve. During August 11-13 the
Embassy organized an offsite bilateral National Security
Planning workshop, which Torrijos and virtually the entire
new cabinet attended, along with high USG officials. The
conference gave us an excellent opportunity to get to know
the incoming officials on a personal level and to begin
concrete discussions on security matters.

Darien, Atlantic Coast

5. (C) Torrijos plans to introduce strengthened security
policies and a greater GOP presence in the Darien-Colombian
border and Atlantic coastal regions. The aim is to improve
civilian-police relations in both areas, improve intelligence
gathering, and boost security. The transition team has told
us of plans to rehabilitate WWII-era landing strips in the
Darien and on the Atlantic Coast, along with a shift away
from the use of helicopters toward a greater reliance on
cheaper-to-operate single-engine fixed wing aircraft. By
improving the landing fields and communication with remote
areas, Torrijos hopes to lure more teachers and medical
personnel to serve in remote areas, which will create local
goodwill and give the government more intelligence capability
and control. The Embassy has been working to convince the
Torrijos team that more attention needs to be paid to the
Atlantic coast city of Colon, where a vacuum of state
authority has attracted organized violent crime, drug
smugglers, and money launderers

Our Third Border

6. (SBU) Panama's "sovereignty sensitivities" are slowly
receding. Panama early on joined the Coalition of the
Willing and signed and, on October 8, 2003, ratified a
bilateral Article 98 Agreement. On May 12, 2004 the U.S. and
Panama signed a Proliferation Security Shipboarding
Agreement. Related to Canal and border security, Panamanians
have become increasingly willing, even eager, to accept
mil-to-mil security training, equipment and other assistance.
The Canal's viability remains essential to our domestic
security and economic interests.

7. (SBU) Panama's ship registry blossomed from the third
largest in the world in 1990 to the largest -- currently
comprising around 5,525 large commercial vessels or
one-quarter of the world's ocean-going vessels. About 13% of
US ocean-going cargo transits the Canal each year. Panama's
seafarer registry currently licenses over 264,000
crewmembers. Panama has privatized and developed some former
U.S. military ports and other related facilities. Port
services grew dramatically from about 200,000 containers per
year in the early 1990s to two million by 2003. Panama now
boasts the leading complex of port facilities in Latin
America. Although the present terrorist threat to the Canal
is considered low, Panamanian planning, risk assessment,
layered defenses and security resources are generally well
regarded. Continued U.S. training, equipment and other
assistance are vital to preempt a terrorist attack. To
protect water resources, the Panama Canal Authority (ACP) has
committed to match dollar-for-dollar AID's three-year US$2.5
million integrated watershed management program. Panama
committed to a maritime security agenda, which has led to its
timely adoption of the new International Maritime
Organization (IMO) International Shipping and Port Security
(ISPS) Code, which entered into force July 1, 2004.

Foreign Policy

8. (C) Torrijos has made clear that his top foreign policy
priority is the United States. Foreign Minister-designate
Samuel Lewis Navarro traveled to Washington in May to meet
with the Deputy Secretary and other senior officials in the
Department and the NSC. Next on the priority list is
Colombia, Panama's giant, troubled neighbor, and Torrijos
twice has traveled to Bogota to meet president Uribe. One
negative item on the bilateral agenda is undocumented
Colombia immigrants in Panama, conservatively estimated in
excess of 100,000 people. Torrijos transition team officials
believe that ordinary Panamanians are growing resentful of
illegal Colombians because of job displacement, and the new
government has pledged to put an end to illegal immigration
practices. Torrijos and his team have already toured
capitals in Western Europe and South America and promise a
new, more activist, more "coherent" foreign policy that will
support Panama's global interests. Specifically, Panama
would like to attract investment from France, possibly in
Canal enlargement, and expects a visit from French President
Jacques Chirac in the near future.

Taiwan/China Rivalry over Panama

9. (C) Panama is Taiwan's most important formal diplomatic
relationship. Rivalry between the PRC and Taiwan in Panama
has been intense and seems likely to grow hotter after
September 1. In the past Panama has been quite skillful in
leveraging its diplomatic relations with Taiwan to extract
maximum resources from both sides, in particular from Taiwan.
The incoming Torrijos government will have another
opportunity to milk Taiwan during the upcoming September 1
visit of Taiwan President Chen Shui-bian, who may discuss
proposals for Taiwan's participation in Canal reconstruction
financing. Both Taiwan and China have made
less-than-transparent contributions to Panamanian political

10. (C) During the election campaign, then-candidate Martin
Torrijos said that he would not immediately change Panama's
Taiwan-PRC diplomatic orientation but also implied that a
review of relations was warranted. Indeed, there are strong
currents within the PRD that favor the PRC over Taiwan. And
Panama must determine how best to serve its own interests.
As Torrijos mentioned on August 12 at the National Security
workshop, Panama wants to foster its growing commercial
relationship with the PRC, as more and more China trade
passes through the Canal, and as China is poised to become
the Canal's number-two user nation. Following PRC Vice
Foreign Minister Zhou Wenzhong's June 18 meetings with Panama
government (GOP) and PRD transition team officials, on June
30 Foreign Minister-designate Samuel Lewis asked the
Ambassador how the United States would view a switch of
diplomatic recognition by Panama to the PRC. The
Ambassador's reply was that the United States is "strictly
neutral" on such matters but would not fail to note any hint
of direct PRC involvement in Canal matters. Lewis recently
told PolCouns that "no internal discussions" on the issue had
yet taken place and assured us that Panama would consult
closely with the Embassy when and if such discussions occur.

International Trade and Investment

11. (C) Economic issues top Panama's agenda with the United
States. President Moscoso pushed to move forward quickly on
a bilateral FTA. Negotiations began in April 2004, and to
date the U.S. and Panama have held four negotiating rounds
(the last one in Tampa was cut short by Hurricane Charley).
A fifth round is scheduled for October 18-22. The incoming
Torrijos administration has attended the talks and views a
bilateral FTA as imperative for attracting investment and not
being disadvantaged by the CAFTA countries. While strong
advances were made during the last round in the areas of
industrial market access and banking services, areas
important to both economies, substantial work remains.
Politically sensitive issues remaining include Panama's
requests for expanded access to the U.S. sugar market and
designation as a "distant foreign port" and U.S. requests for
improved agricultural access and specific inclusion of the
Panama Canal Authority under the FTA.

12. (C) The GOP has long lobbied the USG to re-designate
Panama as a "distant foreign port (it is now a "near foreign
port") under the U.S. Passenger Vessels Services Act (PVSA)
-- most recently by raising it in the FTA negotiations.
Panama believes that a redesignation will help it capture a
larger share of the cruise ship trade. The U.S. regulation,
administered by U.S. Customs, prevents foreign flag vessels
from carrying passengers (thus interfering with cruise
operations) between two points in the United States via
Panamanian ports, which are considered "nearby" for the
purposes of the Act. The GOP estimates that a change in
designation could gain up to US$50 million annually for
Panama's growing tourism industry. While a 2004 Commerce
Department study found that a change in designation would not
negatively affect U.S. shipbuilding, important elements of
the U.S. maritime industry are vehemently opposed and have
vigorously expressed their opposition in letters to
Administration principals and the Hill. While the USG has
not totally closed the door on this issue in the FTA context,
it has noted that the Panamanians have not yet worked
effectively to get the necessary support for the

13. (SBU) Over the past year, the Moscoso administration has
shown marked improvement in settling investment disputes
involving U.S. companies, to address bilateral trade issues,
and to enhance cooperation/coordination in regional and
multilateral trade fora. We believe that the incoming
Torrijos administration will show us the same level of
cooperation or better, as well as greater transparency,
predictability, and openness for U.S. investors.

Canal Expansion

14. (SBU) The Torrijos team plans to make Canal expansion a
top priority. It expects this $2-7 billion, nine-year
project to contruct a third set of Canal locks to be a
transforming event for Panama that will provide jobs and set
the tone economically for years to come. Given the driving
forces of international shipping -- "containerization",
construction of "post-Panamax" mega-ships currently unable to
traverse the Canal, and growing trade between East Asia and
the U.S. eastern seaboard, the expansion is central to
maintaining the Canal's future viability. The U.S. Army
Corps of Engineers (USACE) has provided feasibility and
engineering studies for one set of locks for the proposed
expansion and looks forward to further involvement with the
ACP (Panama Canal Authority). A constitutionally-required
national referendum on the issue is likely in 2005. Actual
groundbreaking, if the referendum passes, could be three
years off.


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