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 002105 
 
SIPDIS 
 
 
TO THE SECRETARY FROM AMBASSADOR WATT 
DEPARTMENT PLEASE PASS TO USTR 
 
 
E.O. 12958: DECL: 08/18/2014 
TAGS: PREL PGOV ETRD OVIP PM POL CHIEF
SUBJECT: SCENESETTER: THE SECRETARY'S VISIT TO PANAMA'S 
SEPTEMBER 1, 2004 PRESIDENTIAL INAUGURATION 
 
 
REF: 03 PANAMA 2773 
 
 
Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.5 (B) AND (D). 
 
 
¶1.  (SBU) On behalf of Embassy Panama, I want to express our 
warmest welcome on your upcoming September 1, 2004 visit to 
Panama's Presidential Inauguration.  Following your November 
3, 2003 visit to Panama's Centennial celebrations (reftel), 
your presence here as the government of Martin Torrijos takes 
power strongly signals the great interest of the United 
States in expanding further our excellent relations with the 
Panamanians.  Our cooperation on a wide range of issues -- 
including law enforcement and security policy -- promise to 
reach new levels under the new government.  Elected on a 
reform and anti-corruption platform by the largest post-1989 
plurality on record, Torrijos has made clear that his 
government's most important foreign policy priority will be 
relations with the United States and that he intends to 
deepen our mutual focus on counter-terrorism capabilities, 
combat international criminal networks, and expand trade and 
investment.  The new president and his Democratic 
Revolutionary Party (PRD) -- largely purged of its 
anti-democratic, anti-U.S. tendencies and which holds an 
absolute majority in the Legislative Assembly -- will face 
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); 
completing the Free Trade Agreement negotiations with the 
United States; launching a more activist and "coherent" 
foreign policy (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 new government's principal 
domestic priorities will be sustainable economic development, 
attracting investment, and job creation. 
 
 
The Political Landscape: Torrijos and a New Generation 
--------------------------------------------- --------- 

¶2.  (SBU) Martin Erasto Torrijos Espino won Panama's May 2, 
2004 general elections with 47% of the popular vote, a 16% 
margin over his nearest competitor.  Torrijos's Democratic 
Revolutionary Party (PRD) joined forces with its historical 
opponent, the Popular Party (PP) to propel him and its 
legislative candidates to victory.  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 -- mostly 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 
------------------------- 

¶3.  (SBU) Torrijos campaigned on a "zero-corruption" 
platform, promises to run a clean government, and hopes to 
clean up Panama's politicized Supreme Court.  This Embassy 
launched a strong Good Governance initiative with Ambassador 
Watt's 2003 speech against corruption in government.  That 
speech resonated firmly with Panamanians from all walks of 
life and generated front-page headlines.  More recently, the 
Ambassador followed up with a speech about the dangers that 
poverty and skewed income distribution pose to democracy, 
factors that exacerbate social conflict and increase the 
appeal of unscrupulous populist demagogues.  The Embassy 
currently supports good governance activities directed toward 
judicial reform, civic education, business ethics, and 
strengthening anti-corruption prosecutors' institutional 
capacity.  Another key 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. 
  
Law Enforcement and Security Policy 
---------------------------------- 

¶4.  (C) President-elect Torrijos comes to office with clear 
focus on security matters, largely because his Democratic 
Revolutionary Party (PRD) is the most security-oriented of 
all Panamanian parties.  We expect to maintain or improve the 
already extraordinary level of access and cooperation we now 
enjoy with Panamanian officials on law enforcement and 
security.  Last May's signing in Washington of a 
counter-terrorism and weapons of mass destruction amendment 
to our basic shipriders agreement with Panama under the 
Proliferation Security Initiative (PSI) underscores our 
excellent cooperation, which the Torrijos transition team has 
assured us will continue or improve.  During August 11-13 the 
Embassy organized an offsite bilateral National Security 
Planning workshop, which Torrijos and virtually the entire 
new cabinet attended, along with high USG officials.  The 
conference gave us an excellent opportunity to get to know 
the incoming officials on a personal level and to begin 
concrete discussions on security matters. 
 
Darien, Atlantic Coast 
---------------------- 

¶5.  (C) Torrijos plans to introduce strengthened security 
policies and a greater GOP presence in the Darien-Colombian 
border and Atlantic coastal regions.  The aim is to improve 
civilian-police relations in both areas, improve intelligence 
gathering, and boost security.  The transition team has told 
us of plans to rehabilitate WWII-era landing strips in the 
Darien and on the Atlantic Coast, along with a shift away 
from the use of helicopters toward a greater reliance on 
cheaper-to-operate single-engine fixed wing aircraft.  By 
improving the landing fields and communication with remote 
areas, Torrijos hopes to lure more teachers and medical 
personnel to serve in remote areas, which will create local 
goodwill and give the government more intelligence capability 
and control.  The Embassy has been working to convince the 
Torrijos team that more attention needs to be paid to the 
Atlantic coast city of Colon, where a vacuum of state 
authority has attracted organized violent crime, drug 
smugglers, and money launderers 
 
Our Third Border 
---------------- 

¶6.  (SBU) Panama's "sovereignty sensitivities" are slowly 
receding.  Panama early on joined the Coalition of the 
Willing and signed and, on October 8, 2003, ratified a 
bilateral Article 98 Agreement.  On May 12, 2004 the U.S. and 
Panama signed a Proliferation Security Shipboarding 
Agreement.  Related to Canal and border security, Panamanians 
have become increasingly willing, even eager, to accept 
mil-to-mil security training, equipment and other assistance. 
 The Canal's viability remains essential to our domestic 
security and economic interests. 
 
 
¶7.  (SBU) Panama's ship registry blossomed from the third 
largest in the world in 1990 to the largest -- currently 
comprising around 5,525 large commercial vessels or 
one-quarter of the world's ocean-going vessels.  About 13% of 
US ocean-going cargo transits the Canal each year.  Panama's 
seafarer registry currently licenses over 264,000 
crewmembers.  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 two million by 2003.  Panama now 
boasts the leading complex of port facilities in Latin 
America.  Although the present terrorist threat to the Canal 
is considered low, 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 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. 
 
 
Foreign Policy 
-------------- 

¶8.  (C) Torrijos has made clear that his top foreign policy 
priority is the United States.  Foreign Minister-designate 
Samuel Lewis Navarro traveled to Washington in May to meet 
with the Deputy Secretary and other senior officials in the 
Department and the NSC.  Next on the priority list is 
Colombia, Panama's giant, troubled neighbor, and Torrijos 
twice has traveled to Bogota to meet president Uribe.  One 
negative item on the bilateral agenda is undocumented 
Colombia immigrants in Panama, conservatively estimated in 
excess of 100,000 people.  Torrijos transition team officials 
believe that 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 and his team have already toured 
capitals in Western Europe and South America and promise a 
new, more activist, more "coherent" foreign policy that will 
support Panama's global interests.  Specifically, Panama 
would like to attract investment from France, possibly in 
Canal enlargement, and expects a visit from French President 
Jacques Chirac in the near future. 
 
 
Taiwan/China Rivalry over Panama 
-------------------------------- 

¶9.  (C) Panama is Taiwan's most important formal diplomatic 
relationship.  Rivalry between the PRC and Taiwan in Panama 
has been intense and seems likely to grow hotter after 
September 1.  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 incoming Torrijos government will have another 
opportunity to milk Taiwan during the upcoming September 1 
visit of Taiwan President Chen Shui-bian, who may discuss 
proposals for Taiwan's participation in Canal reconstruction 
financing.  Both Taiwan and China have made 
less-than-transparent contributions to Panamanian political 
campaigns. 
 
 
¶10.  (C) During the election campaign, then-candidate Martin 
Torrijos said that he would not immediately change Panama's 
Taiwan-PRC diplomatic orientation but also implied that a 
review of relations was warranted.  Indeed, there are strong 
currents within the PRD that favor the PRC over Taiwan.  And 
Panama must determine how best to serve its own interests. 
As Torrijos mentioned on August 12 at the National Security 
workshop,  Panama wants to foster its growing commercial 
relationship with the PRC, 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 meetings with Panama 
government (GOP) and PRD transition team officials, on June 
30 Foreign Minister-designate Samuel Lewis asked the 
Ambassador how the United States would view a switch of 
diplomatic recognition by Panama to the PRC.  The 
Ambassador's reply was that the United States is "strictly 
neutral" on such matters but would not fail to note any hint 
of direct PRC involvement in Canal matters.  Lewis recently 
told PolCouns that "no internal discussions" on the issue had 
yet taken place and assured us that Panama would consult 
closely with the Embassy when and if such discussions occur. 
 
 
International Trade and Investment 
---------------------------------- 

¶11.  (C) Economic issues top Panama's agenda with the United 
States.  President Moscoso pushed to move forward quickly on 
a bilateral FTA.  Negotiations began in April 2004, and to 
date the U.S. and Panama have held four negotiating rounds 
(the last one in Tampa was cut short by Hurricane Charley). 
A fifth round is scheduled for October 18-22.  The incoming 
Torrijos administration has attended the talks and views a 
bilateral FTA as imperative for attracting investment and not 
being disadvantaged by the CAFTA countries.  While strong 
advances were made during the last round in the areas of 
industrial market access and banking services, areas 
important to both economies, substantial work remains. 
Politically sensitive issues remaining include Panama's 
requests for expanded access to the U.S. sugar market and 
designation as a "distant foreign port" and U.S. requests for 
improved agricultural access and specific inclusion of the 
Panama Canal Authority under the FTA. 
 
 
¶12.  (C) The GOP has long lobbied the USG to re-designate 
Panama as a "distant foreign port (it is now a "near foreign 
port") under the U.S. Passenger Vessels Services Act (PVSA) 
-- most recently by raising it in the FTA negotiations. 
Panama believes that a redesignation will help it capture a 
larger share of the cruise ship trade.  The U.S. regulation, 
administered by U.S. Customs, prevents foreign flag vessels 
from carrying passengers (thus interfering with cruise 
operations) between two points in the United States via 
Panamanian ports, which are considered "nearby" for the 
purposes of the Act.  The GOP estimates that a change in 
designation could gain up to US$50 million annually for 
Panama's growing tourism industry.  While a 2004 Commerce 
Department study found that a change in designation would not 
negatively affect U.S. shipbuilding, important elements of 
the U.S. maritime industry are vehemently opposed and have 
vigorously expressed their opposition in letters to 
Administration principals and the Hill.  While the USG has 
not totally closed the door on this issue in the FTA context, 
it has noted that the Panamanians have not yet worked 
effectively to get the necessary support for the 
redesignation. 
 
 
¶13.  (SBU) Over the past year, the Moscoso administration has 
shown marked improvement in settling investment disputes 
involving U.S. companies, to address bilateral trade issues, 
and to enhance cooperation/coordination in regional and 
multilateral trade fora.  We believe that the incoming 
Torrijos administration will show us the same level of 
cooperation or better, as well as greater transparency, 
predictability, and openness for U.S. investors. 
 
 
Canal Expansion 
--------------- 

¶14.  (SBU) The Torrijos team plans to make Canal expansion a 
top priority.  It expects this $2-7 billion, nine-year 
project to contruct 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. 
 
 
WATT