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