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Cablegate: Scenesetter: Defense Secretary Rumsfeld's November

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 06 PANAMA 002691

SIPDIS


STATE FOR WHA/CEN
SOUTHCOM ALSO FOR POLAD
PENTAGON FOR SECRETARY OF DEFENSE DONALD RUMSFELD


E.O. 12958: DECL: 11/01/2009
TAGS: PGOV PREL EINV SNAR PM POL CHIEF
SUBJECT: SCENESETTER: DEFENSE SECRETARY RUMSFELD'S NOVEMBER
13-14 VISIT TO PANAMA


REF: A. PANAMA 2105
B. PANAMA 2452


Classified By: AMBASSADOR LINDA E. WATT FOR REASONS 1.4 (B) AND (D)


SUMMARY
-------

1. (C) On behalf of Embassy Panama I would like to extend
our warmest welcome on your upcoming November 13-14, 2004
visit to Panama. Your presence here as the government of
Martin Torrijos enters its third month signals the great
interest of the United States in strengthening our excellent
relations with the Panamanians. (Secretary of State Colin
Powell visited Panama on November 3, 2003 to attend Panama's
Centennial celebrations and on September 1, 2004 to attend
the presidential inauguration. See Reftel A.) Cooperation
on a wide range of issues -- including security and law
enforcement policy -- promises to reach new levels under the
new government. Elected as a modernizing, anti-corruption
reformer by the largest post-1989 plurality on record,
Torrijos has made clear that his most important foreign
policy priority is relations with the United States and that
he intends to deepen our mutual focus on counter-terrorism
capabilities, combating international criminal networks, and
expanding trade and investment. Torrijos is the first
Panamanian president elected after the handover of the Canal
on December 31, 1999 and the final withdrawal of U.S. forces.
U.S. relations with Panama are more mature than in the past,
based on mutual economic and security interests.


2. (SBU) In his September 1 inaugural address, Torrijos
clearly identified his government's principal priorities as
sustainable economic development and poverty alleviation,
investment, fiscal reform, increased government transparency,
and job creation. The new president and his Democratic
Revolutionary Party (PRD) -- largely purged of its former
anti-democratic, anti-U.S. tendencies and holding an absolute
majority in the Legislative Assembly -- faced 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); restoring
public confidence in government institutions and the rule of
law; completing the Free Trade Agreement negotiations with
the United States; launching a more activist and "coherent"
foreign policy (including 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 GOP has responded
to the deficit by, among other measures, proposing reductions
in security spending, which will adversely affect Panama's
ability to respond to transnational threats. End Summary.


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

3. (SBU) Martin Erasto Torrijos Espino won Panama's May 2,
2004 general elections by a local landslide (47% of the
popular vote), while his Democratic Revolutionary Party (PRD)
was propelled to a lopsided victory (42 out of 78 legislative
seats). 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 -- many of them 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
-------------------------

4. (SBU) After campaigning on a "zero-corruption" platform,
Torrijos launched numerous anti-corruption investigations and
initiatives in the opening weeks of his administration. His
most controversial action was his recent removal and
replacement of Supreme Court President Cesar Pereira Burgos,
who had passed retirement age, in a bid to clean up Panama's
politicized Supreme Court. This Embassy launched a strong
Good Governance initiative with Ambassador Watt's 2003 speech
against official corruption. That speech resonated firmly
with Panamanians from all walks of life and generated
front-page headlines. In a more recent speech the Ambassador
warned that poverty could pose dangers for democracy and that
skewed income distribution and social injustice increase the
appeal of unscrupulous populist demagogues. The Embassy
currently supports good governance activities directed toward
judicial reform, civic education, business ethics, and
strengthening the anti-corruption prosecutors' institutional
capacity. An important 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
Panamanians. Several other corrupt officials have lost their
visas for money laundering or related issues.


Security and Law Enforcement Policy
-----------------------------------

5. (C) President Torrijos came to office with a clear focus
on security matters highly compatible with our own priorities
of canal and maritime security and combating terrorism and
transnational crime. His government is taking steps to
impose order, efficiency, and organization on Panama's
security agencies. On May 12, 2004 the U.S. and Panama
signed a Proliferation Security Initiative (PSI) Shipboarding
Agreement, underscoring the excellent bilateral cooperation
that the new GOP has assured us will continue or improve.
Despite its intentions, the Panamanian government (GOP) will
be hard pressed to find the financial means, for example, to
adequately patrol Panama's long Caribbean and Atlantic
coastlines or to secure Panama's porous border with Colombia
against guerrilla infiltration.


Security Cooperation
--------------------

6. (SBU) Panama's sovereignty sensitivities are slowly
receding with recognition that the challenge of securing the
Canal and Panama's borders requires a more mature and
collaborative bilateral relationship. Panama early on joined
the Coalition of the Willing. It signed and, on October 8,
2003, ratified a bilateral Article 98 Agreement. Related to
Canal and border security, Panamanians have become much more
willing to accept mil-to-mil security training, equipment,
and other assistance, as was shown during the August 2004
multinational Panamax naval exercise that centered on Canal
defense. The GOP has welcomed Amb. Watt's initiative to
increase the number of Medical Readiness Exercises and other
DOD humanitarian programs that provide much-needed assistance
to rural Panamanians. During last year's New Horizons
exercise both the GOP and local press praised U.S. military
for constructing schools and clinics. The next New Horizons
begins February 2005. Together, these programs highlight the
humanitarian side of the U.S. military and foster positive
public perceptions of the USG.


National Security Planning Workshop
-----------------------------------

7. (SBU) During August 11-13 the Embassy organized an
offsite bilateral National Security Planning workshop, which
Torrijos and virtually the entire new cabinet attended,
giving us an excellent opportunity to get to know the
incoming officials on a personal level and to begin concrete
discussions on security matters. As a counterpoint, the GOP
recently turned down our proposal to establish an
International Law Enforcement Academy (ILEA) in Panama,
fearing that political heat could derail its domestic
legislative priorities. This demonstrates that sensitivities
about U.S. security and law enforcement cooperation still
linger.


Our Third Border
----------------

8. (C) Canal security and its continued viability remain
essential to our domestic security and economic interests.
Although the present terrorist threat to the Canal is
considered low, it remains an inviting, hard-to-defend
target. 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 robust 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. Despite
significant progress, Panama continues to be an important
transit point for drug smugglers, money launderers, illicit
arms merchants, and undocumented immigrants heading north.
We have every expectation that GOP-Embassy cooperation on
these matters will continue to be excellent. While the GOP
has pressed us for closer cooperation on intelligence sharing
on Canal and maritime issues, U.S. intelligence agencies have
failed to respond to GOP proposals that would enhance our own
homeland security, despite considerable prodding from this
Embassy.


Darien, Atlantic Coast
----------------------

9. (C) Torrijos aims to establish a greater GOP presence at
the Panama-Colombia border and along the Atlantic coast to
improve civilian-police relations, intelligence gathering,
and security. The new government has proposed rehabilitating
WWII-era landing strips in the Darien and on the Atlantic
Coast, lessening the use of helicopters, and increasing
reliance on cheaper-to-operate single-engine fixed-wing
aircraft. By improving landing fields and communication with
remote areas, Torrijos hopes to lure more teachers and
medical personnel to serve there, create local goodwill, and
give the government more intelligence capability and control.
The Embassy has been working to convince the GOP to pay more
attention to the Atlantic coast city of Colon, where a vacuum
of state authority has attracted organized violent crime,
drug smugglers, and money launderers (including a worrisome
Colombian element).


Maritime Security
-----------------

10. (SBU) The GOP has sent strong signals that it intends to
clamp down on what it calls abuses countenanced by previous
governments in administering Panama's open ship registry and
mariner identification documents. Panama's ship registry now
is the world's largest and comprises around one-quarter of
the world's ocean-going fleet (5,525 large commercial
vessels). About 13% of US ocean-going cargo transits the
Canal each year. Panama's seafarer registry currently
licenses over 264,000 crewmembers. In response to our
homeland security concerns, the new GOP had announced
intentions to greatly improve security and transparency in
documenting ships and the crews that work on them. 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 2 million by 2003. Panama now boasts the
leading complex of port facilities in Latin America.


"Legacy" Issue One -- Unexploded Ordnance (UXO)
--------------------------------------------- --

11. (C) Under the 1979 Carter-Torrijos Panama Canal
treaties, the United States was obligated to clean up the
former firing ranges (comprising around 2% of the former
Canal Zone) "to the point practicable." The USG believes
that it has fulfilled that obligation. Any further attempt
to remove unexploded ordnance from the former ranges (or
"poligonos," as they are called locally) would be dangerous,
prohibitively costly, and damaging to the environment,
particularly because the former ranges often form part of the
rainforest watershed that is critical to Canal operations.
The GOP never responded to the USG's offer several years ago
of training and technical assistance to foster responsible
environmental management of former rangeland areas. Areas
where unexploded ordnance remains are not appropriate for
development and should be permanently sealed off from human
access. The GOP recently built an access road for Panama's
second trans-Canal bridge that skirts the former "Empire"
firing range, on the west side of the Canal, an action that
raises the possibility that people will be injured or killed
by UXO in those areas. Unexploded ordnance on the former
firing ranges continues to attract comment in the local
press. Many Panamanians believe that the USG should be
obligated to "do something" about the UXO problem. Despite
that, we believe the present GOP will not make an issue of
the poligonos, fearing that doing so will harm bilateral
relations. Ambassador Watt has stated repeatedly in public
remarks that the USG has fulfilled its treaty obligations.


"Legacy" Issue Two -- Unexploded Chemical Weapons on San
--------------------------------------------- -----------
Jose Island
-----------

12. (C) The issue of UXO in the former firing ranges near
the Canal (see para 11 above) and the issue of unexploded
chemical weapons on privately-owned San Jose Island often are
conflated and confused in the public mind. During World War
II U.S., Canadian, and United Kingdom military forces used
San Jose Island in the Las Perlas Archipelago to test
chemical weapons (such as mustard gas). Several years ago,
after local developers identified the island (which lies off
Panama's Pacific coast) as a potential tourism site, the
Panamanian government filed a complaint with the Organization
for the Prohibition of Chemical Weapons (OPCW) in The Hague.
An OPCW report, conducted during July 12-18, 2001 and dated
Aug. 14, 2001, indicated the presence of numerous intact
weapons (500 lb. and 1,000 lb. bombs), partially intact
weapons, and fragments of weapons lying on the surface in
nine separate sites. Since that time, at least five intact
weapons have been found. Following months of negotiation, in
the summer of 2003 the USG made a fair and equitable offer to
help Panama to clean up the identified unexploded ordnance on
the island. The GOP refused the offer on Sept. 5, 2003,
mainly because of the offer,s "quit claim" language. The
issue of chemical weapons on San Jose Island continues to
attract much comment in the local and international press.
With Panama,s rejection of our offer, the USG considers the
matter of San Jose Island closed.


Foreign Policy
--------------

13. (C) Torrijos has made clear that his top foreign policy
priority is the United States. Foreign Minister Samuel Lewis
Navarro traveled to Washington in May 2004 to meet with
Deputy Secretary of State Richard Armitage and other senior
officials at State and the NSC. Minister of Government and
Justice Hector Aleman traveled to Washington in October 2004
for meetings with Pentagon and State Department officials.
Next on the priority list is Colombia, Panama's giant,
troubled neighbor, and Torrijos has traveled three times to
meet President Uribe. One negative item on that bilateral
agenda is the large number of undocumented Colombian
immigrants in Panama, conservatively estimated in excess of
100,000 people. Many 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 already has toured capitals
in Western Europe and South America and promises a new, more
activist, more "coherent" foreign policy to support Panama's
global interests. (See Reftel B.) The GOP would like to
attract European investment and tourists and is negotiating
new direct air routes between Panama and Western European
capitals, such as Paris and Madrid.


Taiwan/China Rivalry over Panama
--------------------------------

14. (C) Panama is Taiwan's most important formal diplomatic
relationship. Rivalry between the PRC and Taiwan in Panama
will continue to simmer below the surface. 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 Moscoso
administration's considerably less-than-transparent use of
millions of dollars of Taiwan government funds now is a
political hot potato in Panama. Both Taiwan and China have
made contributions to Panamanian political campaigns.


15. (C) Torrijos has said that a review of relations is
warranted. Indeed, there are strong currents within the PRD
that favor the PRC over Taiwan. Torrijos has mentioned that
Panama's commercial relations with the PRC are becoming
important, 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 visit to Panama, then-VP-elect Samuel
Lewis asked the Ambassador how the United States would view a
switch of diplomatic recognition by Panama to the PRC. The
Ambassador, after conferring with Senior State Department
officials, replied that the United States is "strictly
neutral" on recognition but would not fail to note any hint
of direct PRC involvement in the Canal. Lewis recently told
POL Counselor that "no internal discussions" on the issue had
yet taken place and has assured us repeatedly that Panama
would consult closely with the Embassy when and if such
discussions occur.


International Trade and Investment
----------------------------------

16. (C) Economic issues top Panama's agenda with the United
States. President Moscoso pushed to move forward quickly on
a bilateral Free Trade Agreement (FTA). Negotiations began
in April 2004; to date the U.S. and Panama have held five
negotiating rounds. The Torrijos administration views a
bilateral FTA as imperative to attract investment, increase
exports, and make Panama competitive with the CAFTA
countries. Substantial work remains. Politically sensitive
issues include Panama's requests for expanded access to the
U.S. sugar market and U.S. requests for improved agricultural
access. Both sides hope to conclude the talks in December
2004.


Canal Stewardship
-----------------

17. (SBU) During the past four years the Panama Canal
Authority (ACP) has proven itself an able administrator,
turning the Panama Canal into an efficient and profitable
business. Since the 1999 handover, the ACP has reduced
average transit times by one-third (from 36 hours to 24
hours), has reduced accidents in Canal waters significantly,
and has overseen large-scale upgrade and maintenance
projects, such as widening the Gaillard Cut to allow
simultaneous two-way transits. The ACP also has increased
revenues, which in FY2004 exceeded US$1 billion for the first
time.


Canal Expansion
---------------

18. (SBU) The Torrijos team plans to make Canal expansion a
top priority. It expects the ten-year, $5-7 billion project
to construct 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.


Colon Free Zone (CFZ) -- A Source of Concern
--------------------------------------------

19. (C) An important pillar of Panama's service-based
economy, the Colon Free Zone (CFZ) is the largest duty free
zone in the hemisphere and the second largest in the world.
Offering more than just duty-free wholesale shopping, the CFZ
draws on the strengths of Panama's world-class shipping and
financial services to offer cargo services and, especially,
credit to its customers throughout Latin America. The "value
added" provided by Zone merchants has frequently amounted to
helping customers skirt customs duties and exchange rate laws
in the importing country. Law enforcement in the zone is
weak. More serious criminal (and terrorist) activities could
flourish in such an environment. To improve prospects for
future growth, the CFZ must address its security and law
enforcement weaknesses. The incoming Torrijos
administration has already begun to focus on the CFZ's
weaknesses by naming a highly respected community activist to
the Zone's top slot, and the Embassy is focusing assets on
better understanding CFZ financial flows and exploring ways
to work with the CFZ administration to strengthen
enforcement.


WATT

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