This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 PANAMA 002190 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT FOR S/ES, WHA/FO AND WHA/CEN 
SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: AMGT ASEC OREP PGOV PREL PM POLITICS FOREIGN POLICY
SUBJECT: SCENE SETTER: POTUS NOVEMBER 6-7 VISIT TO PANAMA 
 
¶1. (U) This message is sensitive but unclassified.  Please 
protect accordingly. 
 
¶2. (SBU) Embassy Panama extends its warmest welcome to 
President Bush for his upcoming visit to Panama.  Canal 
expansion, bilateral security cooperation, and good 
governance initiatives currently top the bilateral agenda. 
 
¶3.  (SBU) President Bush's November 6-7 visit to Panama, as 
the government of President Martin Torrijos enters its 
fifteenth month, signals the interest of both countries in 
strengthening their already excellent relations.  Elected as 
a modernizing, anti-corruption reformer by the largest 
post-1989 plurality on record (47% of the vote and 41 out of 
78 legislative seats), Torrijos has made clear that his most 
important foreign policy priority is relations with the 
United States.  He also has acted to deepen our 
two-countries' mutual focus on counter-terrorism 
capabilities, combating international criminal networks, and 
expanding trade and investment.  A USG inter-agency 
delegation visited Panama September 28-30 to discuss 
U.S.-Panama cooperation on Panama's Secure Trade and 
Transportation Initiative (PST & TI), a proposal to 
re-structure and improve Panama's security infrastructure. 
 
Canal Expansion 
--------------- 
¶4. (SBU) The Torrijos team has made Canal expansion a top 
priority.  The proposed Canal expansion project to construct 
a third set of locks could cost $8 billion and take 8-10 
years to complete.  The GOP expects the project will be a 
transforming event for Panama that will provide jobs and set 
the tone economically for years to come.  Given growing trade 
between East Asia and the U.S. eastern seaboard the expansion 
is central to maintaining the Canal's future viability and is 
expected to be financed through a combination of Canal 
revenues, new user fees, and bridge loans.  However, Panama's 
constitution requires a national referendum to approve the 
idea.  This referendum could occur in 2006 or 2007.  A 
September 2005 CID-Gallup poll showed that a majority of 
Panamanians would vote in favor of Canal expansion. 
 
Canal Stewardship 
----------------- 
¶5. (SBU) During the past five 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 hand over, the ACP has reduced 
average Canal transit times, has reduced accidents in Canal 
waters, and has overseen large-scale upgrade and maintenance 
projects.  The ACP also has increased revenues, which in FY 
2004, exceeded $1 billion for the first time and contributed 
$332 million to the GOP budget. 
 
GOP Priorities 
-------------- 
¶6. (SBU) The Torrijos government's principal priorities are 
economic development, job creation, poverty alleviation, 
investment, fiscal reform, and government transparency. 
Torrijos has faced large challenges from the outset: a 
serious budget shortfall; a near-bankrupt national retirement 
and medical system (the Social Security Fund); and faltering 
public confidence in government institutions and the rule of 
law.  Pressures from well-entrenched interest groups have 
frustrated the Torrijos administration's reform plans. 
Torrijos has worked to complete Free Trade Agreement (FTA) 
negotiations with the United States, and launch a more 
activist and "coherent" foreign policy (including closer 
relations with Western Europe).  After a "review" of Panama's 
relations with Taiwan and China, the GOP has decided to stick 
with Taiwan. 
 
President Torrijos and a New Generation 
--------------------------------------- 
¶7. (SBU)  Torrijos has surrounded himself with young, 
primarily U.S.-educated professionals like himself, and has 
marginalized "old guard" supporters of former President 
Ernesto Perez Balladares (1994-99).  He has appointed many 
pro-U.S. technocrats to his cabinet, although they lack 
experience.  Most of the cabinet are respected professionals 
without excessive baggage from Panama's 21-year military 
dictatorship or the PRD's anti-U.S. faction. 
 
Poverty: Chief Structural Issue 
------------------------------- 
¶8. (U) At $4500, Panama's per capita GDP is Latin America's 
third highest (following Mexico and Chile).  However, 
Panama's solid GDP growth in recent years (6.2% in 2004, 
about 5.7% so far in 2005) and pursuit of trade 
liberalization have yet to translate into broadly shared 
prosperity.  Panama faces the second-worst income 
distribution pattern in Latin America, persistent poverty 
(40% overall, higher than 90% in some rural areas), and 
stubbornly high unemployment (officially about 12%, with 
20-25% underemployment).  Moreover, Panama's dollarized 
economy currently faces the highest rate of inflation (about 
3%) the country has seen in the past 23 years, as rising fuel 
and food prices place greater hardship on low-income 
Panamanians. 
 
Free Trade Agreement 
-------------------- 
¶9. (SBU) Negotiations on a bilateral Free Trade Agreement 
(FTA) began in April 2004 under President Moscoso.  To date, 
eight negotiating rounds (the last one in February 2005) have 
failed to produce an agreement, mainly due to Panamanian 
sensitivities in agriculture, such as rice, poultry, and 
pork.  Panama also wants to increase its sugar quota.  The 
Torrijos administration views a bilateral FTA as imperative 
to attract investment, increase exports, and make Panama 
competitive with the CAFTA countries.  USTR and GOP 
negotiators are discussing next steps. 
 
Security and Law Enforcement Policy 
----------------------------------- 
¶10. (SBU) The Torrijos government is highly focused on Canal 
and maritime security and combating terrorism and 
transnational crime, although it has not yet found the 
resources to adequately patrol Panama's long Caribbean and 
Atlantic coastlines and to secure Panama's porous border with 
Colombia against guerrilla infiltration.  U.S.-Panamanian 
cooperation in law enforcement and security has steadily 
improved in recent years.  That has led to increasing 
narcotics seizures, better investigations, active maritime 
law enforcement, more specialized units, and better detection 
of money laundering and illicit financial flows.  While the 
USG-GOP relationship is good, Panama's law enforcement 
institutions are weak and suffer from limited resources and 
professionalism.  On May 12, 2004, the U.S. and Panama signed 
a Proliferation Security Initiative (PSI) Shipboarding 
Agreement.  Panama gave early political support to the 
Coalition of the Willing and ratified a bilateral Article 98 
Agreement. 
 
Security Cooperation 
-------------------- 
¶11. (SBU) The GOP recognizes that securing the Canal and 
Panama's borders requires a mature, collaborative bilateral 
relationship.  Panamanians now are eager to accept mil-to-mil 
security training and equipment, as was shown during the 
August 2004 and August 2005 multinational PANAMAX naval 
exercises that centered on Canal defense.  PANAMAX 2005 
counted 15 participating nations.  The GOP has welcomed an 
increased number of USG-sponsored Medical Readiness Exercises 
and other DOD rural humanitarian programs, which construct 
schools and clinics, and highlight the U.S. military's 
humanitarian side.  New Horizons 2005, in the Azuero 
Peninsula, received wide and favorable press coverage. 
 
Our Third Border 
---------------- 
¶12. (SBU) The Canal remains an attractive and vulnerable 
terrorist target, although good Panamanian defense planning 
and U.S. training and equipment have made any potential 
terrorist attack more difficult.  To protect water resources, 
the Panama Canal Authority (ACP) has committed to match 
dollar-for-dollar AID's three-year $2.5 million integrated 
watershed management program.  Despite significant progress, 
Panama continues to be an important transit point for drug 
smugglers, money launderers, illicit arms merchants, and 
undocumented immigrants heading north. 
 
Maritime Security 
----------------- 
¶13. (SBU) The GOP is acting to end abuses in Panama's open 
ship registry and mariner identification documents.  Panama's 
ship registry, the world's largest, comprises one-quarter of 
the world's ocean-going fleet (5,525 large commercial 
vessels).  About 13% of the U.S. ocean-going cargo transits 
the Canal each year.  Panama's seafarer registry currently 
licenses over 264,000 crew members.  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.  In 
response to our homeland security concerns, the new GOP is 
working to greatly improve security and transparency in 
documenting ships and the crews that work on them.  We are 
actively discussing with GOP counterparts ways in which we 
can enhance maritime security through more robust information 
sharing. 
 
Anti-Corruption 
--------------- 
¶14. (SBU) After campaigning on a "zero-corruption" platform, 
Torrijos launched a number of anti-corruption investigations 
and initiatives in the opening weeks of his administration, 
including the formation of an Anti-Corruption Council.  The 
controversy over corruption within the Supreme Court 
continues to attract popular interest, especially after a 
recent spate of characteristically egregious rulings.  In 
December 2005, two Supreme Court seats will open up when the 
10-year terms expire.  In a bid to clean up Panama's 
politicized Supreme Court, in October 2004 Torrijos replaced 
the controversial Supreme Court president, Cesar Pereira 
Burgos, who had passed retirement age. 
 
¶15. (SBU) At the end of September 2005, a commission that 
President Torrijos formed in March to make proposals on 
justice sector reform released its detailed report and 
recommendations.  The Embassy supports that effort, and 
continues to build its strong Good Governance initiative, 
which began with the former Ambassador's 2003 speech against 
official corruption.  Her speech resonated firmly with 
Panamanians from all walks of life and generated front-page 
headlines.  She also stated publicly 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. 
 
Visa Revocations 
---------------- 
¶16. (SBU) An important element of the Embassy's Good 
Governance initiative is its visa revocation program.  Based 
on Embassy recommendations, the State Department in summer 
2004 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.  A third visa, of former Maritime 
Authority Director Bertilda Garcia, was revoked in early 
March, 2005.  Several other corrupt officials have lost their 
visas for money laundering or related issues and we are ever 
alert to ensure that other corrupt officials who have harmed 
USG interests may not travel to the United States. 
 
Macroeconomic Climate 
--------------------- 
¶17. (U) Panama's approximately $14 billion economy is based 
primarily on a well-developed services sector that accounts 
for roughly 80% of GDP.  Services include the Panama Canal, 
banking and financial services, legal services, container 
ports, the Colon Free Zone (CFZ), and flagship registry. 
Panama also maintains one of the most liberalized trade 
regimes in the hemisphere.  U.S. bilateral trade with Panama 
came to $2.1 billion in 2003.  U.S. exports were $1.8 billion 
and imports were $301 million in 2003.  The stock of U.S. 
Foreign Direct Investment (FDI) in 2002 was $20 billion. 
U.S. FDI is primarily concentrated in the financial sector. 
 
EATON