Cablegate: Panama: The Way Ahead


DE RUEHZP #1737/01 3061854
R 021854Z NOV 07

C O N F I D E N T I A L PANAMA 001737



E.O. 12958: DECL: 10/25/2017

Classified By: Ambassador William A. Eaton. Reasons: 1.4 (b) and (d).


1. (C) The election of Pedro Miguel Gonzalez (PMG), who is
under federal indictment on five counts related to the 1992
murder of U.S. serviceman Zak Hernandez, as president of
Panama's National Assembly marks a watershed for the
U.S.-Panama bilateral relationship and Panamanian domestic
politics. Only two months earlier, on June 28,
U.S.-Panamanian relations reached a new high water mark with
the signing in Washington of the Trade Promotion Agreement
(TPA). Panama quickly ratified this agreement, and both
nations pinned their hopes on quick ratification in
Washington. PMG's September 1 election as National Assembly
President abruptly placed the TPA in limbo. Over the course
of eight short weeks, the tenor of U.S.-Panamanian relations
shifted from one punctuated with euphoria to one
characterized by questions. Embassy Panama has assessed the
current status of our relations and programs and offers its
insights into the way ahead to accentuate existing positive
elements of the bilateral relation while pre-positioning
ourselves for the upcoming electoral period. Politically,
the U.S. should seek to promote a robust political season
that results in a competitive presidential campaign that
leads to free, fair and transparent elections. Economically,
the U.S. should continue to promote our bilateral trade and
commercial ties and crease pressure on the GOP for judicial
reform and anti-corruption efforts. On the law
enforcement/security front, the U.S. relationship with Panama
will be largely unaffected and could even improve
particularly in the areas of institution building and
international cooperation. End Summary.

PMG to Stay; TPA Frozen

2. (C) President Torrijos seems unlikely to do the political
heavy lifting necessary to clear the way for U.S.
congressional action on the TPA (i.e., compel PMG to step
down), despite his recent commitments to Principals in
Washington. The GOP has already shifted its posture with
respect to U.S. ratification of the TPA: Panama has done its
duty by ratifying, the matter now rests with the U.S.
Congress, and, if not ratified this year, the TPA will be
ratified soon thereafter. Most of the Embassy's
interlocutors fail to understand the amount of enthusiasm,
forward momentum, and vigor that have been squandered by
PMG's election. As the TPA gets put on hold, lest it be
rejected by the U.S. Congress, a significant chapter in our
bilateral agenda closes on an inconclusive note.

Entering a Politically Dynamic Period

3. (C) Panama is now entering a more dynamic political
period as political leaders turn to the May 2009 elections.
The PMG affair revealed more profound divisions and troubles
within the governing Democratic Revolutionary Party (PRD),
highlighted Torrijos' and First VP and FM Samuel Lewis' weak
political management skills, and opened the door to a more
fluid PRD internal election process that will unfold from
January to March 2008. The opposition is beginning to feel
its way toward the formation of a coalition to challenge the
PRD. Panama's left wing is in disarray, but the PMG
phenomenon merits observation.

4. (C) While the PRD remains Panama's most powerful
political force, the race for the PRD's presidential race is
less clear today. Lewis has been wounded by the Torrijos
Administration's failure to secure implementation of the TPA,
and he continues to poll in the low single digits. Panama
City Mayor Juan Carlos Navarro told Ambassador on October 10
that his campaign for the PRD's presidential nomination was
gaining steam, particularly in the wake of his cousin Lewis'
TPA challenges. Minister of Housing Balbina Herrera's star,
however, is rising the fastest reaching ever higher levels of
popularity each time she asserts that she does not wish to
run for president.

5. (C) Opposition leaders are paying lip service to unity,
but real progress toward this goal is fleeting. In the
meantime, there will be much jockeying for position among
opposition presidential contenders, including: Ricardo
Martinelli (Democratic Change - CD); Alberto Vallarino, Juan
Carlos Varela and Marco Ameglio (Panamenista Party);
Guillermo Endara (Moral Vanguard of the Nation - VMP); and
Guillermo "Billy" Ford (Patriotic Union - UP). Though more
opposition contenders are not likely to enter the contest at
this stage, significant thinning of the opposition's
candidates will not happen until the PRD decides what team it
will field in March 2008. The fear of being left out of
power for five more years, something that could be the death
knell for smaller opposition parties, is the most significant
factor for opposition unification.

6. (C) Finally, the PMG phenomenon merits close observation.
PMG's fiery, populist, nationalist inaugural address to the
National Assembly on September 1 may point to a more serious
populist threat rising from within the PRD, not from the
ranks of Panama's poorly organized and led leftist activists.
To a large extent, PMG's election had more to do with PRD
deputies' desire to rebel against their president whom they
believed had been disrespectful and dismissive of
legislators' prerogatives than with true support for PMG's
populist, anti-American, and nationalist rhetoric. In fact,
PMG has been silent and almost invisible. Since September 1
though, PMG has consolidated his base among the one-third of
the PRD that indulges in nostalgia for the
populist/nationalist political direction of the Omar Torrijos
and Noriega dictatorships and that never fully accepted
Martin Torrijos' more progressive, modernist direction.

------------------------------ -----------------
PMG's Rise and the TPA's Fall: Economic Fall-out
------------------------------ -----------------

7. (C) Regardless of the fate of the TPA, Panama's economy is
widely expected to continue growing at a rapid clip
(currently outpacing the rest of Latin America at 9.6 percent
annual growth) over the next several years. This continued
growth will be driven by strong growth in construction,
trade, tourism, Colon Free Zone (CFZ) activities,
port/logistics operations, and financial services offered by
Panama's international banking center. The seven-year, USD
5.25 billion Panama Canal expansion project is now underway.
The GOP is ramping up its investment in other infrastructure
projects to about USD 3 billion over the next five years,
twice the amount invested over the past five years. Foreign
investment continues to pour in at record levels, with U.S.
firms such as Caterpillar, Hewlett Packard, and Procter and
Gamble announcing plans to establish major regional
operations in Panama. Occidental Petroleum and Qatar
Petroleum are partnering on an effort to build a USD 7-8
billion regional refinery in Panama, and other firms are
looking to build much needed hydro and thermal power
generating plants and other energy projects. The GOP has
also earned high marks for making it much easier for
entrepreneurs to launch new businesses and for putting the
government's fiscal house in order (i.e., posting a huge
budget surplus for the first time in ten years and putting
the social security system on a more solid footing).
Unemployment has been cut nearly in half, down from about 14
percent in 2003 to 7.3 percent today. However, nearly forty
percent of Panamanians remain mired in poverty, Panama
continues to have vast income disparities between rich and
poor, and unchecked corruption could undermine the
government's ability to meet social demands for education,
health and other services.

8. (SBU) Since 96 percent of Panama's exports to the U.S.
already enter duty-free either unconditionally or under the
Caribbean Basin Economic Recovery Act (CBERA) and the
Generalized System of Preferences (GSP), the U.S. should not
expect Panamanian exports to feel any significant pain
resulting from the TPA's delay or demise. The TPA's main
impact on Panama would be to prod the GOP into further -- and
much needed -- institutional reforms that would benefit U.S.

9. (C) PMG's rise and the lack of a TPA with Panama's
primary trading partner may tarnish Panama's "brand
identity." In particular, it would bring into bold relief
Panama's shortcomings in the rule of law. Momentum toward
necessary institutional reforms would slow, thereby
discouraging those foreign investors that are most sensitive
to rule of law issues, such as real estate developers and
small- and medium-sized enterprises. Nonetheless, the U.S.
should expect continued growth in foreign direct investment
(FDI) over the near- to mid-term driven by major
infrastructure projects, increased demand for canal and
logistics services, growth in the CFZ, and further
consolidation of the banking sector. However, the U.S.
should be vigilant should PMG and/or other retrograde PRD
elements pursue policies that seek to reverse the GOP's
economic reforms or to embark on populist, anti-market
pursuits. Such a prospect -- which the Embassy does not see
as imminent -- would tarnish Panama's "brand identity" as a
business-friendly location and could bring a quick chill to
investor enthusiasm and ultimately cool Panama's hot economic

10. (C) Panama's business community is resigned to losing
their long sought after TPA and are unwilling or unable to
voice more than a whimper of a complaint or concern for fear
of antagonizing a National Assembly President who could exact
revenge with anti-business legislation or at least with
legislation that would have a negative impact on one's
particular interests.

--------------------------------------------- --
Law Enforcement/Security Cooperation Unaffected
--------------------------------------------- --

11. (C) PMG's election and the upcoming electoral season
will have little impact on our on-going law enforcement and
security cooperation, including U.S. top priority activities
such as: interdicting illegal narcotics; prosecuting major
narcotics traffickers; securing the Panama Canal; securing
Panama's land and sea borders (especially with Colombia); and
stopping the illegal flow of persons and contraband goods.
One area, drug seizures, particularly highlights the
excellent state of our cooperation. Thus far in 2007,
Panama's drug seizures -- driven by close U.S.-Panamanian law
enforcement cooperation -- has reached 53 metric tons,
handily exceeding the 40 metric tons seized in 2006, which
was itself a record year. The U.S. continues extensive
training and equipment programs with the Panamanian National
Police (PNP), the National Maritime Service (SMN), and the
National Air Service (SAN).

12. (C) The new Minister of Government and Justice, Daniel
Delgado, provides reason to believe that our law enforcement
and security cooperation will remain unaffected and could
indeed be improved. A competent and proven manager, Delgado
also understands the challenges facing Panama in this area.
Delgado also gets the political imperative to address crime,
an issue that is routinely cited as one of the top two issues
of concern to Panamanian voters.

------------------------ ------------------------------
The Political Way Ahead: Promoting Competitive Politics
------------------------ ------------------------------

13. (C) The U.S. should seek to promote a robust political
season that results in a competitive presidential campaign
and leads to free, fair and transparent elections. The U.S.
does not need to nor should pick winners, but rather should
promote the democratic process. The PRD should be encouraged
to continue its process of internal democratic reforms; item
number one on its to-do list should be coming to terms with
the election of PMG as National Assembly President. Finally,
the U.S. should encourage consolidation in the opposition. A
consolidated opposition is essentially to ensuring the kind
of competitive political season that will strengthen Panama's
democracy, keep the PRD honest and on its reform path, and
provide an adequate counterbalance should the opposition lose
the May 2009 presidential election.

The Economic Way Ahead:

14. (C) Regardless of the TPA's fate, the Embassy will
continue to encourage the continued expansion of our
bilateral trade and commercial ties. To protect and advance
U.S. investor interests, the Embassy will increase pressure
on the GOP to reform its judiciary and to make good on its
commitments to combat corruption. Toward that end, the
Embassy will:

-- press for stronger measures demonstrating the GOP's
genuine commitment to the rule of law, particularly within
the Executive's prerogatives (e.g., the nomination of Supreme
Court magistrates);
-- boost the focus of USG assistance and public diplomacy on
civil society groups and others engage on transparency and
anti-corruption good governance and grassroots democracy
(e.g., make our "bully pulpit" available to experts to
expound on the costs of corruption on business and the body
-- expand our existing efforts with other diplomatic missions
to present a unified front to defend foreign investors
against corrupt and capricious GOP entities;
-- enhance collaboration with the private sector to advocate
pro-market, pro-investor politics and resist any efforts to
reverse positive GOP reforms; and
-- encourage reform-minded private sector leaders to create a
"scholarship fund for democracy" to support emerging young
leaders committed to public careers to advance good

--------------------------------------------- -----
The Law Enforcement/Security Cooperation Way Ahead
--------------------------------------------- -----

15. (C) There remains much work to be done on our law
enforcement and security cooperation particularly in the
areas of institution building and international cooperation.
The U.S. should:

-- support GOP efforts to launch a new coast guard modeled on
the USCG, an area where there has been much discussion but
little action over the past year;
-- engage the GOP to ensure that any effort to incorporate
the Technical Judicial Police (PTJ) into the PNP preserves
our fruitful law enforcement cooperation and ensures an
aggressive, independent and professional support to
prosecution of major narcotics and other criminals and in
particular ensures that the direction of investigations
remains in the hands of prosecutors operating under the
semi-autonomous Attorney General;
-- support the establishment and institutionalization of a
stand-alone border security entity, a proposal that has been
languishing in its implementation;
-- build upon U.S. cooperation with the Attorney General in
carrying out major investigations and extraditions of
particular interest to the U.S. urging further improvements
in Panama's own prosecutions and strengthening in particular
the drug prosecutor's ranks;
-- foster greater engagement, particularly at the senior-most
levels, between Panamanian officials and their Mexican and
Colombian counterparts and encourage greater engagement with
the U.S. dialogue with the Central American Integration
System (SICA).


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