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Cablegate: Scene Setter: Potus November 6-7 Visit to Panama

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

UNCLAS SECTION 01 OF 03 PANAMA 002190

SIPDIS

SENSITIVE

DEPARTMENT FOR S/ES, WHA/FO AND WHA/CEN
SOUTHCOM ALSO FOR POLAD

E.O. 12958: N/A
TAGS: AMGT ASEC OREP PGOV PREL PM POLITICS FOREIGN POLICY
SUBJECT: SCENE SETTER: POTUS NOVEMBER 6-7 VISIT TO PANAMA

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

2. (SBU) Embassy Panama extends its warmest welcome to
President Bush for his upcoming visit to Panama. Canal
expansion, bilateral security cooperation, and good
governance initiatives currently top the bilateral agenda.

3. (SBU) President Bush's November 6-7 visit to Panama, as
the government of President Martin Torrijos enters its
fifteenth month, signals the interest of both countries in
strengthening their already excellent relations. Elected as
a modernizing, anti-corruption reformer by the largest
post-1989 plurality on record (47% of the vote and 41 out of
78 legislative seats), Torrijos has made clear that his most
important foreign policy priority is relations with the
United States. He also has acted to deepen our
two-countries' mutual focus on counter-terrorism
capabilities, combating international criminal networks, and
expanding trade and investment. A USG inter-agency
delegation visited Panama September 28-30 to discuss
U.S.-Panama cooperation on Panama's Secure Trade and
Transportation Initiative (PST & TI), a proposal to
re-structure and improve Panama's security infrastructure.

Canal Expansion
---------------
4. (SBU) The Torrijos team has made Canal expansion a top
priority. The proposed Canal expansion project to construct
a third set of locks could cost $8 billion and take 8-10
years to complete. The GOP expects the project will be a
transforming event for Panama that will provide jobs and set
the tone economically for years to come. Given growing trade
between East Asia and the U.S. eastern seaboard the expansion
is central to maintaining the Canal's future viability and 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 to approve the
idea. This referendum could occur in 2006 or 2007. A
September 2005 CID-Gallup poll showed that a majority of
Panamanians would vote in favor of Canal expansion.

Canal Stewardship
-----------------
5. (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
average Canal transit times, has reduced accidents in Canal
waters, and has overseen large-scale upgrade and maintenance
projects. The ACP also has increased revenues, which in FY
2004, exceeded $1 billion for the first time and contributed
$332 million to the GOP budget.

GOP Priorities
--------------
6. (SBU) The Torrijos government's principal priorities are
economic development, job creation, poverty alleviation,
investment, fiscal reform, and government transparency.
Torrijos has faced large challenges from the outset: a
serious budget shortfall; a near-bankrupt national retirement
and medical system (the Social Security Fund); and faltering
public confidence in government institutions and the rule of
law. Pressures from well-entrenched interest groups have
frustrated the Torrijos administration's reform plans.
Torrijos has worked to complete Free Trade Agreement (FTA)
negotiations with the United States, and launch a more
activist and "coherent" foreign policy (including closer
relations with Western Europe). After a "review" of Panama's
relations with Taiwan and China, the GOP has decided to stick
with Taiwan.

President Torrijos and a New Generation
---------------------------------------
7. (SBU) 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). He has appointed many
pro-U.S. technocrats to his cabinet, although they lack
experience. Most of the cabinet are respected professionals
without excessive baggage from Panama's 21-year military
dictatorship or the PRD's anti-U.S. faction.

Poverty: Chief Structural Issue
-------------------------------
8. (U) At $4500, Panama's per capita GDP is Latin America's
third highest (following Mexico and Chile). However,
Panama's solid GDP growth in recent years (6.2% in 2004,
about 5.7% so far in 2005) and pursuit of trade
liberalization have yet to translate into broadly shared
prosperity. Panama faces the second-worst income
distribution pattern in Latin America, persistent poverty
(40% overall, higher than 90% in some rural areas), and
stubbornly high unemployment (officially about 12%, with
20-25% underemployment). Moreover, Panama's dollarized
economy currently faces the highest rate of inflation (about
3%) the country has seen in the past 23 years, as rising fuel
and food prices place greater hardship on low-income
Panamanians.

Free Trade Agreement
--------------------
9. (SBU) Negotiations on a bilateral Free Trade Agreement
(FTA) began in April 2004 under President Moscoso. To date,
eight negotiating rounds (the last one in February 2005) have
failed to produce an agreement, mainly due to Panamanian
sensitivities in agriculture, such as rice, poultry, and
pork. Panama also wants to increase its sugar quota. The
Torrijos administration views a bilateral FTA as imperative
to attract investment, increase exports, and make Panama
competitive with the CAFTA countries. USTR and GOP
negotiators are discussing next steps.

Security and Law Enforcement Policy
-----------------------------------
10. (SBU) The Torrijos government is highly focused on Canal
and maritime security and combating terrorism and
transnational crime, although it has not yet found the
resources to adequately patrol Panama's long Caribbean and
Atlantic coastlines and to secure Panama's porous border with
Colombia against guerrilla infiltration. U.S.-Panamanian
cooperation in law enforcement and security has steadily
improved in recent years. That has led to increasing
narcotics seizures, better investigations, active maritime
law enforcement, more specialized units, and better detection
of money laundering and illicit financial flows. While the
USG-GOP relationship is good, Panama's law enforcement
institutions are weak and suffer from limited resources and
professionalism. On May 12, 2004, the U.S. and Panama signed
a Proliferation Security Initiative (PSI) Shipboarding
Agreement. Panama gave early political support to the
Coalition of the Willing and ratified a bilateral Article 98
Agreement.

Security Cooperation
--------------------
11. (SBU) The GOP recognizes that securing the Canal and
Panama's borders requires a mature, collaborative bilateral
relationship. Panamanians now are eager to accept mil-to-mil
security training and equipment, as was shown during the
August 2004 and August 2005 multinational PANAMAX naval
exercises that centered on Canal defense. PANAMAX 2005
counted 15 participating nations. The GOP has welcomed an
increased number of USG-sponsored Medical Readiness Exercises
and other DOD rural humanitarian programs, which construct
schools and clinics, and highlight the U.S. military's
humanitarian side. New Horizons 2005, in the Azuero
Peninsula, received wide and favorable press coverage.

Our Third Border
----------------
12. (SBU) The Canal remains an attractive and vulnerable
terrorist target, although good Panamanian defense planning
and U.S. training and equipment have made any potential
terrorist attack more difficult. To protect water resources,
the Panama Canal Authority (ACP) has committed to match
dollar-for-dollar AID's three-year $2.5 million integrated
watershed management program. 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
-----------------
13. (SBU) The GOP is acting to end abuses in Panama's open
ship registry and mariner identification documents. Panama's
ship registry, the world's largest, comprises one-quarter of
the world's ocean-going fleet (5,525 large commercial
vessels). About 13% of the U.S. ocean-going cargo transits
the Canal each year. Panama's seafarer registry currently
licenses over 264,000 crew members. 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. In
response to our homeland security concerns, the new GOP is
working to greatly improve security and transparency in
documenting ships and the crews that work on them. We are
actively discussing with GOP counterparts ways in which we
can enhance maritime security through more robust information
sharing.

Anti-Corruption
---------------
14. (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,
including the formation of an Anti-Corruption Council. The
controversy over corruption within the Supreme Court
continues to attract popular interest, especially after a
recent spate of characteristically egregious rulings. In
December 2005, two Supreme Court seats will open up when the
10-year terms expire. In a bid to clean up Panama's
politicized Supreme Court, in October 2004 Torrijos replaced
the controversial Supreme Court president, Cesar Pereira
Burgos, who had passed retirement age.

15. (SBU) At the end of September 2005, a commission that
President Torrijos formed in March to make proposals on
justice sector reform released its detailed report and
recommendations. The Embassy supports that effort, and
continues to build its strong Good Governance initiative,
which began with the former Ambassador's 2003 speech against
official corruption. Her speech resonated firmly with
Panamanians from all walks of life and generated front-page
headlines. She 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.

Visa Revocations
----------------
16. (SBU) 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% according to one poll) from
average Panamanians. A third visa, of former Maritime
Authority Director Bertilda Garcia, was revoked in early
March, 2005. 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.

Macroeconomic Climate
---------------------
17. (U) Panama's approximately $14 billion economy is based
primarily on a well-developed services sector that accounts
for roughly 80% 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 $2.1 billion in 2003. U.S. exports were $1.8 billion
and imports were $301 million in 2003. The stock of U.S.
Foreign Direct Investment (FDI) in 2002 was $20 billion.
U.S. FDI is primarily concentrated in the financial sector.

EATON

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