Cablegate: Scenesetter: Codel Renzi April 1-3 Visit to Panama

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





E.O. 12958: N/A

1. (U) This message is sensitive but unclassified. Please
protect accordingly.

2. (SBU) On behalf of Embassy Panama, I would like to
extend our warmest welcome on the upcoming visit of your
delegation to Panama. You will have the opportunity to
review a wide range of issues, including bilateral security
and information-sharing proposals. Your visit here, as
the government of President Martin Torrijos enters its
ninth month, signals the interest of the United States in
strengthening our excellent relations with Panama.
(Secretary of State Powell visited Panama on November 3,
2003, to attend Panama's Centennial celebrations and,
again, on September 1, 2004, to attend the presidential
inauguration. Secretary of Defense Rumsfeld visited Panama
November 13-14, 2004, to discuss ongoing security and law
enforcement cooperation and Canal issues.) Panama's
exemplary cooperation on a wide range of issues including
security, law enforcement policy, and trade -- promises to
reach new levels under the Torrijos 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 hand over of the Canal on December 31,
1999, and the final withdrawal of the U.S. forces. U.S.
relations with Panama are more mature than in the past,
based on mutual economic and security interests.

President Torrijos and a New Generation

3. (SBU) In his September 1, 2004, 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 -- have faced large challenges from
the outset: a serious budget shortfall and tide of red ink
left by the outgoing 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 with Canal
expansion, leading to a 2005 national referendum. The GOP
has responded to the deficit with belt-tightening measures,
including passing an unpopular fiscal reform package in
late January. Reform of the social security system is
currently under discussion, with legislative action likely
in April 2005.

4. (SBU) Martin Torrijos Espino won the presidency on May
2, 2004, in general elections that amounted to a landslide
(47 percent of the popular vote), which propelled his
Democratic Revolutionary Party (PRD) into control of the
Legislative Assembly (42 out of 78 legislative seats).
Torrijos has surrounded himself with young, primarily
U.S.-educated professionals like himself, and has
marginalized "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
technocrats with a pro-U.S. outlook. Most (but not all) of
Torrijos's cabinet-level and other high-level 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.
5. (SBU) After campaigning on a "zero-corruption" platform,
Torrijos launched a number of anti-corruption
investigations and initiatives in the opening weeks of his
administration. His most controversial action was the
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. The
controversy over corruption within the Supreme Court
continues to play out in the media, and President Torrijos
recently formed a commission to look at justice sector
reform. We support this effort, and the Embassy continues
to build its strong Good Governance initiative, which began
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.
The Ambassador has also stated publicly 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 in summer 2004 revoked the U.S. visas of two
former senior GOP officials, which provoked a spate of
mostly favorable press commentary and huge support (85
percent according to one poll) from average Panamanians. A
third visa, of former Maritime Authority Director Bertilda
Garcia, was revoked in early March. Several other corrupt
officials have lost their visas for money laundering or
related issues and we are ever alert to ensure that other
corrupt officials who have harmed USG interests may not
travel to the United States.

Security and Law Enforcement Policy

6. (SBU) President Torrijos came to office with a clear
focus on security, particularly regarding 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. The Government of Panama (GOP) must
sort out its financial priorities to address issues such as
how to adequately patrol Panama's long Caribbean and
Atlantic coastlines and how to secure Panama's porous
border with Colombia against guerrilla infiltration.

7. (SBU) A centerpiece of U.S.-Panamanian relations in
recent years has been a steadily improving law enforcement
and security relationship. Close bilateral cooperation
with our Panamanian counterparts has yielded many successes
including, but not limited to, steadily increasing
narcotics seizures, more sophisticated investigations, an
active maritime law enforcement relationship, the
development of specialized units, and an enhanced ability
to combat money laundering and other illicit financial
flows. While the USG's relationship with the Torrijos
Administration has been positive, there remains work to be
done to solidify these gains and enhance the effectiveness
of joint operations. Panama's law enforcement institutions
remain weak and all suffer from a paucity of resources and
limited professional capacity. Through our limited
assistance programs, we are trying to address these
shortcomings, but real success will require additional
resources from the Panamanian budget.

Security Cooperation

8. (SBU) Panama's former 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 gave political support to 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 Ambassador 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 the 2003 New
Horizons exercise, both the GOP and local press praised
U.S. military for constructing schools and clinics.
Together, these programs highlight the humanitarian side of
the U.S. military and foster positive public perceptions of
the USG. New Horizons 2005 is currently underway and has
received wide and favorable press coverage.

Our Third Border

9. (SBU) Panamanian planning, layered defenses and
proactive security measures are generally well-regarded,
although the Canal remains an attractive and vulnerable
threat to terrorists. Continued U.S. training, equipment
and other assistance reduce GOP vulnerabilities to any
potential terrorist attack. To protect water resources,
the Panama Canal Authority (ACP) has committed to match
dollar-for-dollar AID's three-year USD 2.5 million
integrated watershed management program. Panama committed
to a robust maritime security agenda, which 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. In May
2004, Panama amended its shipboarding agreement with the
United States to support the Proliferation Security
Initiative (PSI). Despite significant progress, Panama
continues to be an important transit point for drug
smugglers, money launderers, illicit arms merchants, and
undocumented immigrants heading north.

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 percent of the U.S.
ocean-going cargo transits the Canal each year. Panama's
seafarer registry currently licenses over 264,000
crew members. In response to our homeland security
concerns, the new GOP has 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. We are actively discussing
with GOP counterparts ways in which we can enhance maritime
security through more robust information sharing--a subject
that will likely come up during your visit.

International Trade and Investment

11. (U) Panama's approximately $14 billion economy is based
primarily on a well-developed services sector that accounts
for roughly 80 percent of GDP. Services include the Panama
Canal, banking and financial services, legal services,
container ports, the Colon Free Zone (CFZ), and flagship
registry. Panama also maintains one of the most
liberalized trade regimes in the hemisphere. U.S.
bilateral trade with Panama came to USD 2.1 billion in
2003. U.S. exports were USD 1.8 billion and imports were
USD 301 million in 2003. The stock of U.S. Foreign Direct
Investment (FDI) in 2002 was USD 20 billion. U.S. FDI is
primarily concentrated in the financial sector. Per capita
GDP is around $4,000.

Free Trade Agreement

12. (SBU) Former 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 eight negotiating rounds. The last round,
held January 31 to February 6 in Washington, failed to
close the agreement, primarily because of Panamanian
agricultural sensitivities surrounding rice, poultry, and
pork. Panama also has a strong desire to increase its
existing sugar quota. It is not clear when a new round
will be scheduled; however, the GOP needs to be more
realistic regarding its aspirations if the agreement is to
close. The Torrijos administration views a bilateral FTA
as imperative to attract investment, increase exports, and
make Panama competitive with the CAFTA countries. Jerry
Wilson, President of Panama's Legislative Assembly, has
commented to Embassy officials that, once negotiated, the
FTA agreement "will pass."

Canal Stewardship

13. (SBU) During the past five 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 hand over the ACP has reduced the
average Canal 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 FY 2004, exceeded USD one
billion for the first time. The Government of Panama
received USD 332 million from the Canal in FY 2004
(payments for government services, tolls, and profits).

Canal Expansion

14. (SBU) The Torrijos team plans to make Canal expansion a
top priority. The proposed Canal expansion project to
construct a third-set of locks has an estimated price tag
of USD 4-6 billion and is expected to take 8-10 years to
complete. It expects the project 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 expansion is expected to
be financed through a combination of Canal revenues, new
user fees, and bridge loans. However, Panama's
constitution requires a national referendum first be
submitted to the Panamanian people for their approval. GOP
officials have stated this referendum will most likely
occur in late 2005 or early 2006.


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