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 002274
SIPDIS
DEPT. FOR WHA/CEN, EAP/CM, AND EAP/TC
E.O. 12958: DECL: 09/07/2014
TAGS: PREL PINR PGOV PM CM TW POL CHIEF
SUBJECT: PANAMA: TAIWAN‐PRC RECOGNITION ISSUE SIMMERS AS
NEW GOVERNMENT TAKES OFFICE
REF: A. BEIJING 13497
¶B. TAIPEI 2208
¶C. PANAMA 1953
¶D. 03 PANAMA 2895
¶E. 03 PANAMA 3211
Classified By: Ambassador Linda E. Watt for reasons 1.5 (B) AND (D).

SUMMARY AND INTRODUCTION
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¶1. (C) With a new, more PRC‐friendly Panama government in
office on September 1, the question of whether newly
inaugurated President Martin Torrijos might drop Panama's
long‐standing diplomatic recognition of the Republic of China
(Taiwan) in favor of the People's Republic of China (PRC)
continues to simmer. Taiwan, Panama, and the PRC all agree
that Panama is Taiwan's most important formal diplomatic
relationship, and the PRC would like to pluck it out of
Taiwan's grasp (Ref B). Panama has deftly leveraged its
relations with both sides to extract maximum resources, in
particular from Taiwan. As a modernizing Panamanian
government (GOP) with a heavy economic agenda that includes
expanding the Panama Canal takes power, Panama will
increasingly see PRC‐vs.‐Taiwan through the prism of its
global interests, which include Canal traffic, shipping,
container ports, trade, and investment, all areas where the
PRC is becoming increasingly prominent.

¶2. (C) The Democratic Revolutionary Party (PRD) of President
Torrijos (who took office on September 1) is closer
historically to the PRC than the Arnulfista Party of outgoing
President Mireya Moscoso. Torrijos and his team have sent
mixed messages on PRC‐vs.‐Taiwan, sometimes seeming to lean
toward the PRC (saying that he would "reevaluate" PRC‐Taiwan
relations), then backtracking and leaning the other way
(saying that he has no intention of changing relations).
Despite showing clear interest in the issue, Torrijos has not
signaled that he actually is considering derecognizing
Taiwan. Also, the incoming foreign minister has assured that
he will consult the Embassy if and when serious internal
discussions on PRC‐vs.‐Taiwan take place. The Embassy's
bottom line has not changed: We do not expect Panama to
derecognize Taiwan in the near future. (See Reftel C.) In
the medium term (during the 2004‐2009 Torrijos
administration), we only would expect Panama to derecognize
Taiwan if Panama's cost/benefit analysis of PRC‐vs.‐Taiwan
relations also changes. For now, the calculus still favors
Taiwan. This message will analyze the issue and report
recent Embassy meetings with the main players. End
Introduction.

June 2004 Visit of PRC Vice FM Zhou Accomplishes Little
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¶3. (C) PRC Vice Foreign Minister Zhou Wenzhong's June 18,
2004 pre‐Presidential‐inauguration visit to Panama was
disappointing from the PRC perspective, apparently
accomplishing little besides raising speculation. In a
recent meeting, China‐Panama Commercial Development
Representative Yang Fajin told PolCouns that Zhou got
noncommittal responses from the Torrijos inner circle on his
pitch to derecognize Taiwan and was denied access to top GOP
policy makers.

¶4. (C) Torrijos and Foreign Minister‐designate Lewis both
refused to meet with VFM Zhou, Yang said. Instead, Zhou met
with (now Minister of the Presidency) Ubaldino Real (former
foreign minister Jorge Ritter and former Torrijos campaign
manager (and first cousin) Hugo Torrijos also may have been
present). With the Panamanians in listening mode, Zhou told
them that the PRC wants to establish formal diplomatic
relations with Panama, if Panama will cut all official
contacts with Taiwan, although Panama could still maintain
"civil" relations with Taiwan. Zhou also suggested that
formal Panama‐PRC relations would bring increased economic
cooperation.

¶5. (C) In response to a question from PolCouns, Yang denied
reports that the PRC was willing to assist Panama with Canal
expansion but emphasized recent newspaper reporting that
Taiwan would provide Panama US$ 7 billion in private and
government financing for Canal expansion. Yang added that
Vice FM Minister Zhou met with 22 members of the local
Chinese expatriate community to discuss the peaceful
reunification of China. (Comment: Reports about the PRC's
willingness and deep pockets to finance Canal expansion
appeared in the Panama press last March, during the
presidential election campaign. End Comment.)

PRC Vice FM Zhou Meets Minister Jacome
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¶6. (C) If anything, Zhou's interaction with the Moscoso
government was even less satisfying. Yang's negotiations
with then‐Foreign Minister Harmodio Arias only yielded a
meeting for Zhou with then‐Minister of Commerce and
Industries Joaquin Jacome ‐‐ but as Zhou only wanted to talk
politics, Jacome replied that was not his area of competence
and expertise but promised to forward Zhou's comments to
President Moscoso.

¶7. (C) According to Yang, the 20‐minute Zhou‐Jacome meeting
was a one‐way tirade of complaints about the Moscoso
government's "poor treatment" of the PRC. Zhou criticized
the Moscoso administration for failing to invite Yang to
official events in Panama and for shunning PRC‐hosted
functions, such as China national day celebrations.
Reminding Jacome that PRC officials regularly attend events
hosted by Panama's "unofficial" representatives in Beijing,
Zhou blamed Panamanian former Vice Minister of Foreign
Affairs Nivia Rossana Castrellon for enacting and enforcing
the Moscoso government's "anti‐PRC" policy. Zhou also
complained that Panama was denying visa applications of PRC
citizens unless the applicants already had U.S. visas in
their passports, which he blamed on Taiwan pressure on
President Moscoso.

Will Relations Hinge on Chen Shui‐bian's Visit?
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¶8. (C) Yang believes that President‐elect Martin Torrijos
has not yet decided anything about PRC‐vs.‐Taiwan and is
waiting to see what kind of inducement package Taiwan
President Chen Shui‐bian may offer during his August
31‐September 1 visit to Panama's September 1, 2004
inauguration. Yang noted that an August 13 La Prensa story
reported that President‐elect Torrijos had announced the
formation of a Panama‐Taiwan working group to study Taiwan's
interest in investing in Canal expansion and "alternative
financing" options.

¶9. (C) Yang added that the Taiwan Ambassador and his staff
in Panama are politically linked to Taiwan's former
Guomintang government and may not enjoy close relations with
the present government in Taipei. The PRC has no plans for
ministerial visits in the near future, Yang continued, but
PRC commercial delegations will continue to come to Panama.
Yang added that the PRC government is encouraging Chinese to
invest overseas, adding that Panama is a location of much
interest. According to Yang, President Torrijos has visited
the PRC twice, but not since the mid‐1980s.

A "Non‐Substantive" Meeting
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¶10. (C) Samuel Lewis Navarro, now Foreign Minister,
corroborated much of Yang's account, in a recent meeting with
PolCouns. Lewis described Deputy Foreign Minister Zhou's
June 18 meeting with Ubaldino Real as "non‐substantive" and
sought to downplay its importance. "He's the same as the
other Chinese who come through here. They always say the
same thing: 'You're on the wrong side of the issue.' They
want to intensify relations," he explained. Prior to
Panama's May 2, 2004 national elections, Lewis continued,
Martin Torrijos said there is no reason to change our
relations with Taiwan, "and that was it."

No Plans, No Discussions...
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¶11. (C) Lewis insisted that Panama has no plans, imminent or
otherwise, to alter its current formal diplomatic
relationship with Taiwan in favor of China, adding that the
Torrijos team had not yet held any discussions on the matter.
He assured PolCouns that the United States is Panama's most
important foreign relationship and that his government would
consult closely with the Embassy if discussions on China and
Taiwan take place. (Comment: Lewis's denial of "internal
discussions" somewhat contradicts his June 30 query to the
Ambassador asking for U.S. views on such a change. See
Reftel C. End Comment.)

But Lots of Pressure... and "Shrinkage"
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¶12. (C) Asked whether Panama is one of Taiwan's most
important diplomatic relationships, Lewis said he thought it
is the most important one. Both sides had placed a lot of
pressure on the Torrijos team, Lewis said. He added that
some of Taiwan's methods made him uncomfortable, implying
that Taiwan had made some "non‐transparent" offers.
¶13. (C) In a separate meeting with Ambassador, Lewis claimed
Taiwan had given US$ 75 million in official and non‐official
contributions to Panama during the Moscoso administration and
noted that significant "shrinkage" had occurred. Lewis
recounted that at a recent meeting he had attended with
then‐First Lady Ruby Moscoso (President Moscoso's sister) and
Taiwan Ambassador David Hu, Amb. Hu had vocally insisted
several times that the funds that Taiwan had donated to the
Office of the First Lady must remain after Ruby Moscoso
departs. Apparently Ruby Moscoso wanted to keep those funds
for her private foundation, Lewis explained, while in‐coming
First Lady Vivian Torrijos equally wanted to ensure that the
funds remained available for her use after September 1.

Taiwan Ambassador Clams Up
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¶14. (C) In a separate meeting with PolCouns, Taiwan
Ambassador David Hu apparently was unwilling to reveal
anything of substance. He called the formation of a
Panama‐Taiwan Canal Working Group "a fiction" and cast doubt
on Taiwan's intention to help finance Canal expansion. (See
para 16.) Besides confirming that a Chen‐Torrijos meeting
would take place, Hu claimed to know nothing about President
Chen's plans for discussions with the Torrijos government.
Also, Hu denied that Panama was Taiwan's most important
formal diplomatic relationship, saying all the Central
American countries that recognize Taiwan are equal. (Note:
Taiwan's embassy in Panama has 13 officers, Hu said, and
15‐16 Taiwanese technical cooperation volunteers working in
Panama. End note.) Hu betrayed some uneasiness about the
incoming PRD government, trying to paint it as having
"socialist" sympathies and organization. (Note: The PRC's
Commercial Development Office in Panama was established under
the 1994‐1999 PRD administration of Ernesto Perez Balladares.
End note.)

¶15. (C) Hu called relations with Panama "excellent" and
cooperation "marvelous," though he acknowledged that his
Embassy traditionally had had little contact with the PRD,
Panama's new ruling party. He noted that many countries
(including France, China, and Brazil) have interests in the
Canal but suggested that the PRC would seek to increase its
"influence" in the Panamanian government (GOP). Hu doubted
the PRC government had the ability to support expanding the
Canal or that was prepared to offer significant sums to aid
Panama in financing Canal expansion. The new Torrijos
government will be occupied with economic issues, Hu said.
(Comment: In a later meeting with PolCouns,
Chinese‐Panamanian Cultural Center President Jose Chong‐Hon
suggested that Ambassador Hu is reluctant to share
information with U.S. officials because the lack of
diplomatic relations between the U.S. and Taiwan. For
instance, Chong‐Hon affirmed the existence of the bilateral
working group. End Comment.)

COMMENT
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¶16. (C) Successive Panamanian governments skillfully have
used the carrot and stick of diplomatic recognition to
extract maximum resources from both sides of the Taiwan
straits. (See Reftels D and E.) The GOP is aware that it
will lose the ability to play one side off against the other
if it derecognizes Taiwan. Despite the recent conclusion of
a Panama‐Taiwan Free Trade Agreement, some observers believe
Panama may derecognize Taiwan due to burgeoning PRC‐Panama
commercial relations but others disagree. The skeptics point
out that PRC trade with the eastern U.S. seaboard has no
alternative to using the Panama Canal, whatever Panama's
diplomatic orientation. Also, they dismiss suggestions that
lack of formal relations with Panama would deter serious PRC
investors and point out that a Hong Kong company (Hutchinson
Whampoa) already owns 51% of two of Panama's large container
ports. According to Yang, the primary obstacle to PRC
investment in Panama is the PRC's ban on investment by
Chinese state‐owned enterprises in countries which have
relations with Taiwan.

¶17. (C) Panama has a large, widely dispersed ethnic Chinese
population, estimated to comprise up to 5% of Panama's 3
million people. The local Chinese community traditionally is
oriented toward Taiwan (increasingly because of Taiwan's
democracy), but the community is politically inactive and
probably would play a minimal role in any GOP decision to
switch sides.

¶18. (C) PRC officials will find many more sympathetic ears
in the new Torrijos government than under President Moscoso
and may well be able to increase their influence and access.
For instance, PRC Representative Yang noted that he has many
influential Panamanian friends, who include: Hugo Giraud (now
PRD Presdient), Juan Jose Amado (former ambassador to Japan
and the U.S., former Minister of Foreign Affairs, and former
Minister of Commerce and Industry), Marco Ameglio (Arnulfista
legislator, former Assembly President, former Foreign
Relations Commission President), and Arturo Vallarino
(out‐going First Vice President).
WATT