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 001700 
 
SIPDIS 
 
 
DEPARTMENT FOR WHA/CEN WHA/AND 
 
 
E.O. 12958: DECL: 06/28/2014 
TAGS: PREL PGOV ECON ETRD PM POL CHIEF
SUBJECT: WHERE IS PANAMA'S NEW GOVERNMENT HEADING? 
 
 
REF: A. PANAMA 1537 
     ¶B. PANAMA 1116 
     ¶C. PANAMA 0802 
     ¶D. PANAMA 1274 
     ¶E. PANAMA 1396 
 
 
Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.5 (B) AND (D). 
 
 
SUMMARY 
------- 

¶1.  (C) Martin Torrijos and his inner circle, due to take 
power on September 1, are pushing an energetic and ambitious 
transition agenda featuring clear-cut goals in foreign policy 
(priority to the U.S. and Colombia), security (cooperation 
with U.S. objectives, new attention to the Caribbean coast), 
the economy (free trade agreement, Canal reconstruction, 
social security reform, making Panama a regional focal point 
for investment, eco-tourism, and transshipment), and politics 
(constitutional reform).  (See Refs B and C for background.) 
They have publicly named only a few cabinet members (see Ref 
A) so far but have floated names for Minister of Government 
and Justice and for Ambassador to the U.S.  The Torrijos 
inner circle -- Vice President/Foreign Minister-designate 
Samuel Lewis Navarro, Minister of the Presidency-designate 
Ubaldino ("Uba") Real, and Minister of Commerce-designate 
Alejandro ("Andy") Ferrer -- all FOMs ("Friends of Martin"), 
have repeatedly told us that the new government will take a 
strong anti-corruption stand that will begin with cleaning up 
Panama's notoriously deficient Supreme Court (Ref D) and have 
asked for our "help," without being more specific.  If the 
new Torrijos government prevents officials from using their 
offices for personal gain, and if it makes an attempt to run 
a clean government and establishes a respected, politically 
neutral Supreme Court that would mark a change of 
revolutionary proportions in Panama.  Despite the good 
intentions of the Torrijos inner circle, anticipated 
pressures from a well-entrenched oligarchy could frustrate 
these plans.  End Summary. 
 
 
"Don't Step Out of Line" 
------------------------ 

¶2.  (C) The Ambassador's late-May meeting with Martin 
Torrijos (Ref E) and numerous subsequent Emboff discussions 
with FOMs have confirmed the Embassy's view that the new 
government is pursuing an energetic, ambitious agenda that 
aims at making permanent changes and improvements in Panama. 
At that meeting Torrijos made clear that he would not 
tolerate deviations by cabinet members from his pro-U.S., 
anti-corruption policies, and he will not hesitate to fire 
those who step out of line.  Public expectations are high, 
perhaps impossibly so, that Torrijos will break decisively 
with the now-discredited, out-going Moscoso government's 
corruption and inefficiency.  Torrijos has done nothing so 
far to disappoint in his few cabinet appointments and in his 
intensive strategic planning during the transition period. 
Following is a subject-by-subject analysis of issues that the 
Torrijos team has emphasized in private conversations with 
Emboffs. 
 
 
Foreign Policy -- A Focus On the U.S. 
------------------------------------- 

¶3.  (C) As the Torrijos team has emphasized many times, 
relations with the United States will be the new government's 
top foreign policy priority, with emphasis on security and 
law enforcement matters.  Frederic "Freddie" Humbert Arias is 
the probable nominee for ambassador to the U.S.; the Torrijos 
team plans to ask the current government to send an agrement 
request ASAP.  (Strictly protect -- this is still 
close-hold.)  Humbert, a long-standing FOM and La Prensa 
newspaper president with interests in shipping and shrimp 
fishing, is young, energetic, and has excellent connections 
with US press and international organizations.  Torrijos 
believes that Humbert has the personal skills to network 
Congress and other power centers in Washington.  (Note: 
Following a request from Samuel Lewis during his May 2004 
visit to Washington, NSC is exploring whether a 
Torrijos-President Bush meeting may be possible before 
September 1.) 
 
 
Colombia is a Priority 
---------------------- 

¶4.  (C)  Torrijos has traveled as candidate and as 
president-elect to Spain (where he met former president 
Aznar), Mexico (where he recently met President Fox), Costa 
Rica, and Brazil.  (Note: Torrijos plans to travel to Paris, 
Madrid, Brussels, and Berlin in mid-July.  He will also 
travel to Argentina, Brazil, and Chile in mid-August.) 
Torrijos traveled to Colombia to meet with Colombian 
President Uribe shortly before and shortly after Panama's May 
2 election.  Panama's most important issues with Colombia are 
security, illegal immigration and job displacement, and drug 
trafficking.  The Torrijos-Uribe personal chemistry was 
described as "very good," (as was the Torrijos-Fox 
chemistry).  Uribe and Torrijos discussed possible fallout 
from Colombia's "Plan Patriota," a Colombian military 
offensive currently focused on Colombia's south.  Uribe 
pledged to warn Torrijos when the offensive moves north, 
where it could affect security on the Panamanian side of the 
border.  Uribe reportedly was shocked when Torrijos told him 
that between 250,000 and 300,000 Colombians are living in 
Panama, most of them illegally.  (Colombian estimates were 
one-third of that number.)  The ELN peace negotiations 
figured prominently in their recent talks, and Torrijos has 
left open the possibility that Panama may serve as a neutral 
site for the GOC/ELN negotiations.  Uribe pitched the idea of 
building a highway and an electrical transmission line 
through Panama's eastern Darien province.  Torrijos promised 
to "study" the matter. 
 
 
¶5.  (C) (Comment: The two nations never have had a road link. 
 For environmental and security reasons, the Panamanians 
probably will want to keep it that way.  Currently, the Pan 
American Highway ends in Yaviza in Panama's Darien province, 
not far from a national park that skirts the border. 
Electrical power reportedly is cheaper in Colombia than 
Panama, which lacks adequate investment in power generation, 
two reasons why a cross-border transmission line may be 
attractive to the Torrijos government.  But power line 
construction probably will bring a road along with it, which 
the Panamanians want to avoid.  End Comment.) 
 
 
Security 
-------- 

¶6.  (C) This Embassy, in conjunction with the Center for 
Hemispheric Defense Studies (CHDS) and the Torrijos team, is 
organizing an August 11-13 bilateral "National Security 
Planning Workshop" to encourage the new GOP to focus on 
security issues in general (such as border, canal, police, 
and narcotics) and on cooperation with the USG in particular. 
 Reception by both sides to the workshop has been highly 
positive and planning is already well advanced.  (See 
Septel.)  Torrijos's Democratic Revolutionary Party (PRD) is 
the Panamanian party traditionally most focused on security 
matters, but Torrijos planners admit that they have not 
progressed very far in terms of their overall security 
strategy.  Torrijos contacts for security planning are 
(legislator) Hector Aleman and (former PDF officer) Daniel 
Delgado.  In private, even these members of the PRD "Old 
Guard" have pledged close cooperation with the USG on 
national security and law enforcement issues.  To enhance GOP 
control over its Caribbean north coast and improve its 
intelligence, and attract more teachers and doctors to the 
area, FOMs have floated the idea of starting regular 
fixed-wing air service to selected World War Two-vintage air 
strips near the coast. 
 
 
The Economy 
----------- 

¶7.  (C) The Moscoso Administration is leaving a strongly 
growing economy.  Growth last year was 4.1% (vs. 0.6% in 
2001); the optimistic forecast for 2004 is 4.5%.  Nominal GDP 
in 2003 was $12.8 billion or around $3,900 per capita.  The 
incoming Torrijos government initially will face tight budget 
constraints, with short-fuse imperatives to make Panama's 
Social Security Fund solvent and launch a strategy on Canal 
expansion.  FOMs often have expressed concern about the state 
of public finances after September 1 and are worried that 
they could inherit up to $300-600 million in accounts payable 
from the Moscoso administration.  (The year-end budget 
deficit could top 3%, exceeding the 2% legal maximum.)  The 
Finance Ministry's (MEF) welcome decision to cut spending by 
$361 million ($125m in current expenditures, $113m in capital 
expenditures, and $123 million in public enterprise 
expenditure) was probably already vitiated by the Moscoso 
administration's pre-election spending (e.g., subsidizing 
electricity) and below-forecast tax revenues.  Torrijos's 
party (with its previous populist focus) vastly increased 
public employment in the 1970s and 1980s, now would like to 
reduce the government's role.  One senior Torrijos insider 
noted that the GOP currently employs 181,000 people, quite 
extraordinary for a country of 3.1 million. 
 
 
Debt Service Unaffected 
----------------------- 

¶8.  (C) Rating agencies agree that the deficit will not 
affect Panama's ability to service its large debt load, which 
Panamanian governments treat as a priority.  International 
observers will only be concerned if Torrijos does not act 
soon to reform the actuarially bankrupt social security 
system and appoint competent leadership at MEF, which he 
plans to do.  Currently, the leading candidate for minister 
is Ricaurte "Catin" Vasquez, now Deputy Canal administrator. 
(Note: Vasquez would bring considerable experience and 
expertise to the job, having served as Minister of Planning 
and Economic Policy 1984-1988, and as chief negotiator for 
Panama's debt refinancing program in 1995.)  Although it will 
be costly in political capital, the Torrijos inner circle 
plans to make social security reform a top priority early on, 
to get rid of a millstone that could destabilize Panama's 
finances by 2010-2014. 
 
 
Free Trade Agreement 
-------------------- 

¶9.  (C) Led by Minister of Commerce and Industries-designate 
Alejandro Ferrer, the new GOP will be pro-trade 
liberalization, strongly supportive of a bilateral FTA, and 
less beholden to agricultural interests than the Moscoso 
government.  But for now they are willing to let the current 
government carry the flag for now.  The new GOP will have the 
task of ratifying the FTA.  The new GOP plans to have a 
coherent overall economic policy, which will include making 
Panama an investment, eco-tourism, and transshipment magnet, 
where trade policy will be one important component. 
 
 
Canal Expansion 
--------------- 

¶10.  (C) The new GOP expects this $5-10 billion (estimates 
vary widely), 10-year project to be a transforming event for 
Panama that will provide jobs and set the tone economically 
for years to come.  It plans to make Canal expansion a top 
priority.  A national referendum on the issue is likely in 
2005; we are told Torrijos wants the referendum to take place 
as early as possible.  Actual groundbreaking, if the 
referendum passes, could be three years off. 
 
 
Political Reform 
---------------- 

¶11.  (C) In mid-June, Torrijos publicly announced ambitious 
ideas for constitutional reform (see septel), which crucially 
involve the cooperation of the out-going Moscoso government 
and legislative assembly.  (The constitution can be amended 
if two consecutive legislatures back the same provisions.) 
Somewhat surprisingly, following a meeting with Torrijos, 
Moscoso called a special legislative session starting July 5 
to consider the wide-ranging proposals: 
 
 
-Reduce the size of the legislative assembly; 
 
 
-Eliminate one (of two) vice presidents and limit each 
legislator to one alternate (from two); 
 
 
-Reduce legislative immunity; permit the Supreme Court to 
remove a legislator from office without asking the Assembly 
to lift immunity; 
 
 
-Permit independent legislative candidates to run for office; 
 
 
-Halve the transition period between governments to two 
months; 
 
 
-Make the Electoral Tribunal financially independent and not 
subject to Supreme Court oversight; 
 
 
-Fix the number of Supreme Court justices by law, rather than 
in the constitution;  Note: Critics have charged that 
Torrijos will be able to "pack" the Court if the number of 
justices is set by law because laws are much more easily 
changed than the constitution.) 
 
 
-Ban active politicians from serving on the Supreme Court; 
 
 
-Require greater qualifications for would-be justices and 
legislators; 
 
 
-Establish a clear constitutional requirement for referendums 
on Canal expansion; 
 
 
-Establish procedures for convoking constitutional 
conventions. 
 
 
Strategy Seminar 
---------------- 

¶12.  (C) Showing that he is serious about planning an 
efficient government (and despite his lack of haste to 
announce appointments), in mid-June Torrijos convened a 
week-long strategy seminar for PRD leaders.  The retreat 
produced good results, insiders said, with 13 working groups 
(mirroring 13 ministries) hammering out 100-day and one-year 
action plans, complete with specific goals and benchmarks. 
Torrijos plans to monitor each minister's progress in meeting 
his respective objectives. 
 
 
Comment 
------- 

¶13.  (C) Even more intriguing than the incoming team's 
confident enthusiasm and apparent efficiency is its avowed 
and oft-repeated intention to bring lasting change to Panama, 
especially in eliminating government corruption.  FOMs insist 
that efforts to make the government more honest will founder 
without a credible, effective, politically neutral Supreme 
Court.  They are entertaining various expedients to cleanse 
the Court, from mass impeachment to packing it.  Expectations 
of the new government's ability to end corruption are 
sky-high (and unrealistic).  A serious attempt to run an 
honest government would have revolutionary implications in 
Panama, overturning the long-accepted consensus among the 
political class that using one's office for personal gain is 
acceptable behavior, if not the name of the game.  Officials 
in Panama almost never go to jail for corrupt acts.  In a 
small country, where practically everyone is related by 
blood, marriage, or friendship a presiding official or 
magistrate typically finds himself deciding cases that 
involve relatives or friends.  In Panama, "official" actions 
are construed personally.  Government decisions are seldom 
viewed as solely motivated by a desire to uphold the law, as 
based on objective facts, or devoid of caprice or 
arbitrariness.  To be willing to act in disregard of personal 
and political ties implies tremendous change, and will 
require great courage because it will bring tremendous 
dissension, even within Torrijos's own party.  Until the 
evidence is in, skepticism of the new government's ability to 
bring about such sweeping change is justified.  (Septel will 
address Torrijos's proposed constitutional reforms.) 
 
 
WATT