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 03 PANAMA 001496

SIPDIS

DEPARTMENT FOR WHA/CEN AND WHA/AND
SOUTHCOM ALSO FOR POLAD

E.O. 12958: DECL: 07/12/2015
TAGS: PREL PGOV EFIN EAIR EPET PM VE OAS IDB POL CHIEF
SUBJECT: PANAMA-VENEZUELA RELATIONS STUCK ON INTERNAL
SECURITY CONCERNS, HIGH OIL PRICES

REF: A. PANAMA 1415
     ¶B. PANAMA 1423

Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.4 (B) AND (D).

SUMMARY
-------

¶1.  (C) Panamanian concerns about suspected Venezuelan
meddling in Panama's internal politics and domestic headaches
due to high oil prices prompted Panamanian Vice
President/Foreign Minister Samuel Lewis and two GOP cabinet
officials to meet Venezuelan Foreign Minister Ali Rodriguez
in Caracas on July 6.  (Minister of Government and Justice
Hector Aleman (MOGJ) and Minister of Commerce and Industries
(MOCI) Alejandro Ferrer accompanied Lewis.  See Reftel B.)
In recent conversations with POL Counselor, FM Lewis and MOCI
Ferrer both complained that GOV officials were not prepared
to discuss substance and treated the visit as a press
event/photo-op.  MOGJ Aleman told A/DCM that he wanted to
explore what the GOV could offer on oil sales to stop
Panamanian bus operators from going on strike for higher
fares and prevent further internal political turmoil in
Panama.  To add insult to injury, GOV officials at the last
moment canceled a sub-cabinet-level meeting planned for July
12 in Panama.  The only thing GOP officials could say for
sure is that Hugo Chavez is supposed to attend the July 28-29
Caribbean summit in Panama.  The backdrop for the Caracas
visit is the GOP's perceived need to isolate seditious union
activists following the June 22 suspension of Law 17 on CSS
(social security) reform.  (See Reftel A.)  End Summary.

Concerns About Domestic Stability
---------------------------------

¶2.  (C) Panamanian FM Lewis and MOCI Ferrer separately told
POL Counselor that their July 6 meeting with Venezuelan
Foreign Minister Ali Rodriguez in Caracas was prompted by
concerns that Venezuela might be sending financial aid to the
GOP's radical opposition and to explore what the GOV might be
willing to offer Panama on oil.  The question in everyone's
mind, FM Lewis explained, is whether Venezuela is supporting
the GOP's most strident opponents -- the leftist SUNTRACS
construction union and its eminence grise, former CSS boss
Juan Jovane -- who recently have led attempts to derail
CSS-social security reform.  Given the poor state of
Panama-Venezuela relations, Lewis said it was time to improve
communications with the GOV.  In addition, Lewis and MOGJ
Aleman wanted to signal both the Venezuelans and SUNTRACS
that the GOP will be closely watching for any signs of
foreign financial support.  Also, Lewis explained, the high
price of oil has potential implications for domestic
political stability.  SUNTRACS is trying to convince angry
Panamanian bus operators and taxi drivers to strike for
permission to hike fares, which the GOP has refused.  To head
off such a strike, which would be debilitating, the GOP wants
to lower the cost of gasoline or at least be seen trying to
do so.

GOP Advises Chavez Not To Meddle
--------------------------------

¶3.  (C) Lewis said that Venezuelan President Hugo Chavez had
suggested the idea for visit at the June 18 MERCOSUR summit
in Asuncion, Paraguay.  According to MOGJ Aleman, Chavez
asked Lewis, then in Asuncion representing Torrijos (who had
stayed in Panama due to anti-CSS reform strikes), why
bilateral relations were not better.  Chavez noted he was a
legitimately elected President and questioned why Panama had
given him the cold shoulder.  That was the genesis for the
invitation to visit Caracas.  Aleman said when he and Lewis
told Chavez they would not tolerate Venezuelan meddling in
Panama's internal affairs, Chavez denied supporting the
radicals but added that he could not guarantee that no one
else in Venezuela (such as governors or mayors) was
"free-lancing."  Later, in a pull aside in Caracas on July 6,
FM Lewis and MOGJ Aleman told Venezuelan FM Rodriguez that,
although they had no firm proof, they were watching the
situation closely for evidence of Venezuelan support for
radical groups in Panama.  Lewis explained that he and Aleman
wanted to put FRENADESSO (anti-CSS-reform activists) on
warning that the GOP has its own means of tracking their
alleged foreign sponsors.

Diplomacy By Photo-Op
---------------------

¶4.  (C) The July 6 Caracas visit quickly became a comedy of
errors for the Panamanians, who complained about the GOV's
management abilities.  "I never saw people so disorganized in
my life," Ferrer said.  First, the Panamanians had to
scramble to arrive on July 6 because the Venezuelans gave
them just three days notice.  Unexpectedly, on that day the
Caracas airport temporarily closed.  The Panamanians had to
land in Maracaibo and spent several hours waiting to fly to
Caracas.  The meeting planned for 9 a.m. did not begin until
2 p.m.  When the GOP delegation arrived, the Venezuelan
ministers concerned with housing, health, and social issues,
who were supposed to meet them, already had left.  Lewis had
a 20-minute, ceremonial meeting with Venezuelan Vice
President Jose Vicente Rangel.  From there, the Venezuelans
led them directly into a news conference, where they had to
face reporters' questions about their "discussions."

The Joint Statement
-------------------

¶5.  (C) The two-hour Lewis-Rodriguez meeting that followed
achieved little of substance and apparently was devoted to
editing the joint statement released after the visit.  Ferrer
and Lewis said they objected when the Venezuelans wanted to
make reference to ALBA (the anti-FTAA Alternativa
Bolivariana) and PetroCaribe, which the two sides had never
discussed.  The Panamanians agreed to include a reference to
Venezuela's right to request the extradition of Luis Posada
Carriles.  Lewis said the message to FM Rodriguez on
suspected Venezuelan support for Panamanian radicals was
accomplished in a pull-aside.  On July 11, GOV officials
faxed Panama to cancel their return visit without further
explanation.  (Note: In August 2004, a day or two before she
left office, Panamanian President Mireya Moscoso pardoned
Cuban-born Posada Carriles, now in the United States, and
three Cuban-Americans, all of whom had been tried, convicted,
and jailed in Panama for their roles in an alleged plot to
assassinate Fidel Castro at the Ibero-American Summit in
November 2000.  That action led to a rupture of diplomatic
relations with Cuba that continues and a temporary upset of
relations with Venezuela.  End Note.)

GOV Denies Agrement To Panama's Ambassador
------------------------------------------

¶6.  (C) Lewis said that he did not want Panama's poor
relations with Venezuela to "make it easy" for Venezuela to
channel money to the GOP's internal radical opposition.
Lewis explained that he had inherited bad relations with
Venezuela from the Moscoso government.  Venezuela recently
denied Agrement to Panama's choice for ambassador to Caracas,
career diplomat Jose Maria Cabrera, due to his allegedly
strong ties to former Venezuelan president Carlos Andres
Perez, Lewis said.  That action may have been tit-for-tat, as
the Moscoso government had let a GOV November 2003 Agrement
request for Venezuelan General de Division Eugenio Antonio
Gutierres Ramos lapse after 60 days, as the GOP thought the
choice of a military officer inappropriate as an ambassador
to Panama, a country without a military.  On July 12, 2005 a
new Venezuelan ambassador, Jose Luis Perisse (formerly vice
minister of infrastructure in 2002, then ambassador to
Algeria and Tunisia, not a military officer), arrived in
Panama to replace ambassador Flavio Granados, who served for
three years.  Aleman noted that Panama was unusual in Latin
America in not having open lines of communication with
Venezuela, adding that Colombia, Argentina, Brazil, and the
Dominican Republic all maintained ties.

2000 Caracas Agreement, COPA, Tax Havens, Chiriqui Oil
Pipeline
--------------------------------------------- -----------------

¶7.  (C) Ferrer said he was "not optimistic" about reaching
agreements with the Venezuelans.  "For them, it's all about
optics," he said.  On July 6, Ferrer said he had planned to
discuss the November 2000 Caracas Agreement, which Panama
wants to implement.  The Caracas Agreement offers
concessionary Venezuelan financing for Panamanian oil
purchases.  Ferrer also wanted to see what price breaks were
on offer on oil, if any.  Panama is not interested in joining
PetroCaribe, Ferrer said, adding that the GOV never raised
the issue.  Also, COPA Airlines would like to increase its
flight frequencies to Caracas to 21 a week (from 14 now).  In
addition, Ferrer said he wanted to convince Venezuela to take
Panama off its tax havens "black list."  Finally,
GOV-proposed renovations to a U.S.-operated pipeline in
western Panama to carry Venezuelan crude to a Pacific Ocean
port were never raised on July 6, Ferrer said.

No Middle Ground
----------------

¶8.  (C) Aleman told A/DCM that polarization within Venezuela,
with families divided between Chavista and opposition,
reminded him of the situation in Panama in the late 1980s.
He said there was no middle ground in Venezuela.  Chavez's
social programs are gaining support for the regime, and
Aleman thought Chavez likely to win an election in 2007.
Thus, the GOP reckons that Chavez may be around until 2012
and that Panama will have to deal with him.

"Pact With the Devil?"
----------------------

¶9.  (C) To POL Counselor's query on whether Panama was making
a "pact with the devil" by looking for concessionary oil
prices from the Chavez government, Lewis said the high price
of oil is causing great stress in Panama.
Sixty-dollar-a-barrel oil kills economies like ours, Lewis
explained, and puts small countries in a desperate position.
It probably was inevitable that someone like Chavez would try
to use his "outrageous wealth" to try to become a regional
godfather, Lewis continued.  With PetroCaribe, Chavez will be
trying to control 14 votes at the OAS and eight at the IDB.
But what's the alternative?  The oil price issue by itself
could make some countries ungovernable, he added.  Panama's
case is different because Panama "will not change its
trajectory, we're committed to open markets," he said, but
Panama is also interested in lower prices.  If oil prices
turn around, Lewis said, those guys (the Venezuelans) will be
in trouble.  The GOV is banking on prices of $80-100 per
barrel by the end of 2005 and "they're pissing it away like
there's no tomorrow."  Every dollar added to the oil price
represents another billion dollars in annual oil revenues for
Venezuela, he said.

Comment
-------

¶10.  (C) Lewis's July 6 trip to Caracas raised eyebrows at
the Embassy and in Washington, as the GOP knew it would.
That is why FM Lewis contacted POL Counselor on July 5 with a
heads up about the visit.  (See Reftel B.)  POL Counselor
told MOCI Ferrer and FM Lewis separately that Washington was
concerned about the optics of the visit.  Both were at pains
to palliate our concerns, except that Panama wants to find a
way to lower the price of gasoline and head off the potential
for a crippling bus and taxi strike.  In any case, the
estrangement, not to say the antipathy between the two
governments may prove resistant to a quick fix.  Given the
low level of engagement reported, it seems unlikely that in
the short term the GOP will accomplish much more than laying
down a marker on internal security.

WATT