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 05 PANAMA 002162

SIPDIS

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

E.O. 12958: DECL: 10/27/2025
TAGS: PREL PGOV ETRD ECON PM POL CHIEF
SUBJECT: PANAMANIAN OFFICIALS OPTIMISTIC THAT CANAL
EXPANSION WILL LIFT ALL BOATS, BOOST POLITICAL PROSPECTS,
DEFINE LEGACY AS PATRIA NUEVA ENTERS SECOND YEAR IN OFFICE
-- AN ANALYSIS (PART 2)

REF: A. PANAMA 1729
     ¶B. PANAMA 2141

Classified By: CDA LUIS ARREAGA FOR REASONS 1.4 (B) AND (D).

¶1.  (SBU) This message is the second in a three-part series
on views of the Torrijos administration's performance as it
passes its September 1, 2005 first anniversary.  Part One
(Reftel A) evaluated the performance of the Panamanian
government (GOP), citing the views of critics outside and
inside the GOP.  Part Two elaborates on the GOP's view of
itself; analyzes reasons for its domestic failures; and
examines the interplay between the GOP's domestic performance
and U.S.-Panamanian bilateral issues.  It also reviews how
U.S. interests, especially security and the Canal, may be
affected by GOP initiatives and political prospects, in the
context of the November 6-7 visit to Panama of President
Bush.  Part Three will examine the Torrijos administration's
progress in achieving its economic priorities.

SUMMARY AND INTRODUCTION
------------------------

¶2.  (C) As it tries to find its political moorings following
what was widely seen as political ineptitude during its first
year, the Panamanian government (GOP) of Martin Torrijos is
actively leveraging its relations with the United States.  It
is counting on President Bush's November 6-7 visit and a
November 7 bilateral statement, with possible mention of
"secure trade and transportation" and a Free Trade Agreement
(FTA), to help its domestic political prospects.  Given the
GOP's self-perceived vulnerabilities, the key for the USG
will be to find a formulation of shared interests that boosts
the GOP without highlighting its failures, such as its
failure to conclude the FTA.

¶3.  (C) The GOP is friendly to U.S. interests (and the
population is over-90% pro-American) but its aura of weakness
encourages its domestic opponents.  That weakness, combined
with the "Chavez factor" -- the constant spectacle of Hugo
Chavez trying to poke his finger in Uncle Sam's' eye -- in
turn encourages local extremists.  Given the GOP's weakened
domestic position and the president's under-50%-approval
ratings, hopes to cultivate Torrijos as a foil to Hugo Chavez
in an increasingly unstable region probably are far-fetched.
Torrijos does not have a secure enough domestic platform --
or fire in the belly -- to be a high-profile democratic
crusader in the "anti-Chavez" mold.  On the contrary, the GOP
is cautiously courting Chavez to buy oil products on credit.
In general, Torrijos wants good relations with Chavez and
Fidel Castro, to allay its fears of Venezuelan and Cuban
meddling in local politics.

¶4.  (C) As the Torrijos government emphasizes Panama's
traditional reliance on its geographical endowments as an
epicenter of world trade and its relations with the U.S., its
lack of direction domestically is a major impediment to
foreign and domestic policy objectives.  Torrijos probably
can recoup his internal position by building on the momentum
he gains from President Bush's November 6-7 visit, but only
if he moves quickly to wrap up CSS-Social Security reform and
finalize a U.S.-Panama FTA, which are intended to improve the
government's finances and its attractiveness to investors.
Torrijos is betting his government's  political prospects and
his legacy on expanding the Canal -- and on winning a 2006 or
2007 referendum to expand it -- confident that the massive
infrastructure project will set off a long economic boom.
End Summary and Introduction.

The Torrijos Dilemma
--------------------

¶5.  (C) Operationally, the Torrijos government often seems to
be at sea.  The government's poor decision-making apparatus
and its public relations deficit partly are to blame, as is
Torrijos's "government of rookies," where his close friends
hold a lot of the important jobs.  With friendship playing so
large a role, Torrijos hesitates to fire or criticize them,
as became clear in September's half-hearted cabinet
reshuffle.  For example, replacing his school chum Javier
Acha with Leonel Solis at Panama's intelligence-gathering
Consejo was arguably the biggest change Torrijos made, with
the result that Acha and Torrijos were not on speaking terms
for some time, and their friendship is strained.

Foreign Minister Lewis: Gravitas
--------------------------------

¶6.  (C) (Comment: Son of a respected former foreign minister
and ambassador to Washington, whose well-connected family
once hosted the Shah of Iran on Contadora Island, Vice
president/Foreign Minister Samuel Lewis is a businessman with
politics in his blood.  He is close to every major decision
that the Torrijos government makes.  For lack of a better
word, Lewis's broad judgment and perspective lends gravitas
to the administration, although he is better versed on
foreign affairs than internal politics.  A 2009 presidential
hopeful, Lewis is not politically disinterested.  That may be
an advantage because his political fate is closely tied to
Torrijos, thus he may give the best advice the president
gets.  Political consultant Jose Blandon, Sr. told POL
Counselor he agrees that Lewis probably is Martin Torrijos's
best advisor but he wonders, as the president's close
personal friend, whether Lewis "pulls his punches" to avoid
offending Martin and is more eager to preserve his friendship
than engage in "hard talk".  Others suspect that Lewis's
business interests at times may influence GOP decisionmaking.
 End comment.)

No Chief Of Staff
-----------------

¶7.  (C) Minister of the Presidency Ubaldino Real, a political
neophyte, is a leading Friend of Martin.  Real's excellent
access and personal relations with Torrijos combined with his
ministerial position mean he is uniquely placed to be the
president's chief of staff, to combine, as one wag put it,
the roles of the president's alter-ego and cabron (heavy).
But Real has chosen not to do it and the president has not
insisted.  Instead, Real concentrates on a myriad of special
projects.  Without a chief of staff Torrijos has no orderly,
dependable method of receiving information or making
decisions.  The decision-making "process," then, relies on
the haphazard order that issues reach the president's desk
(or not), how they happen to be presented, and on his mood.
That means no one, including Torrijos himself, is pushing the
president's agenda in an orderly, coherent way.  And no one
is pushing the president to make decisions.  (Note: Lucho
Melo, Torrijos's personal assistant, is not a chief of staff.
 End note.)  In effect, the GOP has no self-regulating
mechanism, no rudder.

Security To The Fore
--------------------

¶8.  (C) In contrast to its lethargy and indirection in its
internal political strategy, the GOP has been almost
hyperactive on security policy.  The GOP's "Panama Secure
Trade & Transportation Initiative" (PST&TI), which pitches
improvements to Panama's security and border preparedness and
closer Panama-U.S. security cooperation and enhanced
security-related information sharing and training is one
example.  (Note: A DAS-level inter-agency USG team came to
Panama to discuss the proposal in late September.  End note.)
 Further, the GOP wants to split off the so-called
"paramilitary" border units of the Panamanian National Police
(PNP) and place them in a new PNP "border force."  The
National Air (SAN) and National Maritime (SMN) Services also
are to be merged into a new "Coast Guard."  All are
interesting proposals but resources to make the new systems
"go" are lacking.  Most of the credit for these initiatives
belongs to Minister of Government and Justice Hector Aleman,
although whether he will get the money he needs to pay for
new patrol boats, aircraft, training, and maintenance is far
from clear.  If he does not, then a combined SAN-SMN will
make little difference.

Regional Role?
--------------

¶9.  (C) Minister Aleman wants Panama to play a bigger role
regionally and spur regional security coordination as Panama
chairs SICA (CentAm Integration System) for the next 12
months.  Meanwhile, the Embassy's access to high-level
Panamanian officials, including President Torrijos, remains
unmatched, while the level of cooperation between Panamanian
and U.S. drug enforcement, immigration, and security
officials, in many ways is even better under Torrijos than it
was under President Moscoso.  But given the GOP's sensitivity
to criticism from local anti-military opinion (the GOP is
routinely accused of planning to re-militarize Panama), the
GOP seems to have two minds about how much attention to draw
to its forward thinking on security.  That, combined with
lack of progress on the bilateral FTA, could make it awkward
for Presidents Bush and Torrijos to say much of substance on
security or trade on November 7, frustrating important U.S.
objectives.

Minister of Presidency Real: Intentions vs. Performance
--------------------------------------------- ----------

¶10.  (C) Nowhere are the Torrijos administration's
contradictions between good intentions and performance, and
its confusion of strategy with wishful thinking more apparent
than in a discussion with Ubaldino Real.  In his final
meeting with Ambassador Watt late June, following weeks of
noisy, sometimes violent demonstrations protesting the GOP's
CSS-reform law, Real complained that the government faced a
situation where it had no allies.  What was happening in the
streets was contrary to all the advice and predictions that
the GOP had received, he said, but "We still know we're doing
the right thing."  "Don't explain this to me," the Ambassador
said bluntly.  "Explain it to the Panamanian people.  You've
got to get your president out there," she rejoined.

Public Relations Deficit
------------------------

¶11.  (C) Real acknowledged the GOP's long-standing public
relations problem, which begins at the top, with President
Torrijos.  In reply to implorings for Torrijos to get out the
government's message, Real admitted, Torrijos "doesn't
communicate well" and comes across as "wooden."  Telling Real
that the PRD's possible political fragmentation is "the
biggest problem you've got," the Ambassador reminded him that
Torrijos's political opponents, especially former president
Ernesto Perez Balladares, is "trying to peel off your people."

Poverty: The Single Biggest Problem
-----------------------------------

¶12.  (C) Poverty is the biggest single threat to Panama's
democracy, Real said at the June meeting, a point he also
emphasized with Ambassador Eaton during a mid-September
courtesy call.  In June Real said that he is more worried
about the poorest 40-plus-percent of the population who are
not covered by Social Security than those who are, adding
that he is "amazed we don't have more unrest with our levels
of poverty."  Real did not explain how the government plans
to reduce poverty levels.  In his September meeting with
Ambassador Eaton, Real implied that Canal expansion would
provide a way out.

Economic Boom Is Coming
-----------------------

¶13.  (C) The proposed Panama Canal expansion -- a massive,
multi-billion-dollar infrastructure project, billed as the
biggest in Latin America -- will set off a decades-long
economic boom, Real claimed.  The GOP will hold a referendum
on Canal widening in September 2006, Real told Ambassador
Eaton.  Although polls show that 60% of the public will vote
"yes," Real quickly added that the government must approach
the issue (and the date for the vote) "carefully and calmly."
 Real agreed with Ambassador Eaton's suggestion that a visit
by President Bush to the Canal during his November visit
could help the GOP's referendum prospects.  (Comment: The
GOP's inability thus far to resolve the CSS issue and other
internal problems has led it to continually postpone the date
for the Canal referendum.  Also, the Panama Canal Authority
(ACP) has been reluctant so far to reveal its plans and
financing ideas.  In a separate late-June meeting with
Ambassador Watt, Real had said the Canal referendum would be
held in March 2006.  End comment.)  Real also said that
"99.9%" of Panamanians favor an FTA with the United States (a
wishful figure, at best) and vowed that the GOP would not
hold it up "just for a small group."

"We're Not Bolivia"
-------------------

¶14.  (C) One of the GOP's pillars and strongest defenders,
Vice President/Foreign Minister Samuel Lewis often insists,
as does Real, that he is "very optimistic" about the GOP's
political prospects.  In a July meeting with POL Counselor,
Lewis emphasized that he is "absolutely positive" that the
GOP will fulfill its agenda.  President Torrijos is
politically "savvy" and knows what he wants to do, Lewis
said.  "Panama is not Bolivia," he said, adding that Panama
is not unstable.  But Lewis also recited a long list of GOP
mistakes, including several failures to consult widely and
well in advance (on the still-pending fiscal reform and
CSS-social security), ministerial incompetence in allaying
discontent among teachers and health workers, broken promises
from professional groups, costly missteps in timing (that led
to the midnight passage of the CSS bill), failures in
judgment in dealing with the leftist opposition, all of which
damaged the government's credibility and led to a mass
rejection of the CSS bill, which was passed at midnight on
June 1.  The GOP's ill-considered actions forced it to lower
its expectations on what it could accomplish on CSS reform,
Lewis acknowledged, who also said that fixing CSS is the key
to the GOP's financial well being.

The Leftist Agenda
------------------

¶15.  (C) Leftist forces -- specifically the SUNTRACS
construction union bosses Genaro Lopez and Saul Mendez and
ally, former CSS director Juan Jovane (fired in 2003) -- have
quietly prepared for years to use the CSS issue as a
battleground to mobilize wide support, Lewis said.  With the
connivance of former president Moscoso, Lewis claimed, Jovane
padded the CSS payroll with thousands of former SUNTRACS
workers or spouses.  (Note: According to Lewis, Moscoso's
quid pro quo was that Jovane would add one of her nominees to
the CSS payroll for every two of his.  End note.)  At the
same time, Jovane accelerated the CSS crisis by pushing it
closer to bankruptcy.  The leftist "rejectionists," Lewis
continued, want to make changes to the state and overthrow
Panama's democratic political system.  No other issue --
Canal expansion, Free Trade Agreement, fiscal reform -- is as
useful to them.  Lewis believes the GOP now has the leftists
in a box, as it may be on the verge of striking separate
deals with teacher and health practitioners -- whose
interests diverge sharply from SUNTRACS -- depriving the
radicals of their mass support.  One of the GOP's best
achievements during the May 2005 anti-CSS FRENADESSO strike
was police restraint, Lewis said.  "We created no martyrs."

"A Leaf On A Pond"
------------------

¶16.  (C) GOP Secretary of Goals and Planning Ebrahim Asvat
described Panama for POL Counselor as a country like a leaf
on the surface of a pond being blown by the wind, due to lack
of far-sighted leadership.  Things take much too long to get
done, Asvat complained.  About 80% of what a president needs
to do is communicate, he added.  The political process
depends on the president making decisions, formulating
strategy, and identifying political allies, but by moving
slowly, the government has lost control over time, he griped.
 Consultant Blandon told POL Counselor on October 20 that the
government usually does not explain things, and when it does
explain, it explains badly.  "Who tells Martin the truth?" he
asked.  (Comment: A consistent low-key critic of Torrijos,
Asvat is a member of the Popular Party, a PRD-ally, and
briefly served as Panamanian National Police Director in the
1989-1994 Endara government.  Formerly the editor of the
tabloid El Siglo, Asvat retains the strong opinions of a
newspaper editorialist.  In the Torrijos government, Asvat
does not hold cabinet minister rank.  he is more like a
presidential advisor.  End comment.)

Torrijos's PR Problem
---------------------

¶17.  (C) The GOP's press coordinator is Jorge Sanchez,
rumored to be on the way out since November 2004.  Sanchez
(who holds U.S., Spanish, and Panamanian passports) has no
public relations experience.  His main qualification for PR
chief is that he is childhood friend of Martin Torrijos.  As
a local businessman told POL Counselor, a competent PR chief,
could have avoided the week-long public relations gaffe,
during which Torrijos could not decide whether to attend the
April 2005 funeral of Pope John Paul II.  Torrijos finally
went to Rome, but not before many ordinary Panamanians were
saying, "Panama is a Catholic country and our president is
not going to the Pope's funeral?"  A competent PR chief or
chief of staff also could have corrected Torrijos when he is
reported to have said, "I don't care if fiscal reform costs
me 20 points in my popularity" or could have questioned his
appointment of Sandra Noriega, Manuel Noriega's daughter, as
consul in Santo Domingo.

Comment
-------

¶18.  (C) Explicit mention of "security cooperation" in the
joint bilateral statement on November 7 would send a strong
signal to regional troublemakers (read Chavez and Castro) by
seeming to place a "virtual" U.S. security umbrella over
Panama.  Late indications are that the GOP is nervous about a
joint statement on security (despite its forward-leaning
activity on security matters) due to its local security
sensitivities, which are exacerbated by not having anything
to "balance" mention of security, such as sufficient progress
on the FTA.  Most local critics fault Panama, not the United
States, for failure to conclude a timely agreement.  Torrijos
an unlikely candidate to play an "anti-Chavez" regional
democratic heavyweight role.  Worse, the GOP at this moment
is fighting hard to keep local focus on President Bush's
visit from shifting to a "negative" agenda, such as the still
unresolved issue (from Panama's point of view) of unexploded
ordnance (UXO) on former U.S. Canal Zone firing ranges or
failure to conclude the FTA.

¶19.  (C) GOP officials are clearly torn over the coming
referendum to widen the Canal, which they say will preserve
the Canal (whose biggest user is the United States) as a
major international trade transit point.  They would like to
think of the inherently chancy referendum as "too big to
fail."  On the other hand, the GOP's hallmark procrastination
(and worry over losing the vote) repeatedly has pushed back
the referendum until mid-2006 or possibly 2007, when it will
become prey to as-yet-unanticipated storm and stress.  One
looming stress is the PRD's 2007 convention to choose a new
secretary general.  Former president Ernesto Perez
Balladares, who is hostile to Torrijos, is openly angling for
the job (and to become president again).  The convention
could distract the GOP's already ADD-afflicted concentration
for months.

¶20.  (C) Torrijos is doing little to address Panama's primary
structural issue -- its 40-plus-percent poverty rate.  What's
needed is investment-driven job creation (which would imply
attacking corruption and costly education and social outlays,
as discussed in Reftel B), which Canal expansion will not
resolve by itself.  Nor does Torrijos seem likely to look for
legal means to rid the Supreme Court of several of its most
egregiously corrupt Justices (such as encouraging them to
resign after starting impeachment procedures), or to
prosecute corrupt former officials.  That means he has not
yet convinced ordinary Panamanians that the people running
the country are not crooks.  (A recent poll showed 90% of
Panamanians believe changes are needed at the Supreme Court.)

¶21.  (C) While the Torrijos government may ultimately prove
to be mediocre, especially by the high standards that it set
for itself coming into office, a government that does no harm
is not the worst possible outcome for Panama.  What could be
disappointing for the United States is that Panama -- as one
of only several, relatively prosperous, pro-U.S. Latin
American democracies -- may not be ready to play a stronger
and more prominent regional role to counter Chavista
destabilization.

Arreaga