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 000010 
 
SIPDIS 
 
DEPARTMENT FOR H BFLECK AND WHA/CEN FOR GSCHIFFER 
 
E.O. 12958: N/A 
TAGS: OREP PGOV PREL AMGT ASEC ETRD PM CA GT ECONOMIC AFFAIRS
SUBJECT: SCENESETTER: CODEL BURTON JANUARY 12-13 VISIT TO 
PANAMA 
 
 
¶1. (U) This message is sensitive but unclassified.  Please 
protect accordingly. 
 
¶2. (SBU) Embassy Panama extends its warmest welcome on your 
upcoming visit to Panama. You will have the opportunity to 
review a wide range of issues, including bilateral security 
and the economic/trade environment.  Your visit follows the 
highly successful visit by President and Mrs. Bush on 
November 6th and 7th, 2005 as well as recent visits by DEA 
Administrator Karen Tandy (June 20-22, 2005), a USG 
inter-agency delegation (September 28-30, 2005) to discuss 
U.S.-Panama cooperation on Panama's Secure Trade and 
Transportation Initiative (PST & TI), and FBI Director Muller 
(October 27-28, 2005). 
 
¶3.  (SBU) As the government of President Martin Torrijos 
enters its second year in office, your January 12-13 visit to 
Panama can help to strengthen our already excellent bilateral 
relationship.  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.  Your visit coincides with 
the ninth (and possibly final) round of U.S. - Panama 
negotiations on a Free Trade Agreement (FTA) in Washington. 
 
Panama Canal Expansion 
---------------------- 
 
¶4. (SBU) The Torrijos team sees Canal expansion as 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 late 2006 or 2007.  A September 2005 CID-Gallup poll 
showed that a majority of Panamanians would vote in favor of 
Canal expansion, although the outcome of a referendum cannot 
be predicted. 
 
Panama Canal Stewardship 
------------------------ 
 
¶5. (SBU) Since the 1999 handover, the Panama Canal Authority 
(ACP) has proven itself an able administrator, turning the 
Panama Canal into an efficient and profitable business. 
During the past five years, the ACP has reduced average Canal 
transit times, 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 
canal and maritime security, 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 entrenched 
interest groups have slowed the Torrijos administration's 
reform plans.  Torrijos has worked to complete 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: Hampers Economic Prospects 
----------------------------------- 
 
¶8. (U) At $4500, Panama's per capita GDP is Latin America's 
fifth highest.  However, Panama's solid GDP growth in recent 
years (7.6% in 2004, 6% 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 80% 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. 
 
FTA - Ninth Negotiating Round Jan 10-12 
--------------------------------------- 
 
¶9. (SBU) Negotiations on a bilateral 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.  Your visit will coincide with the 
ninth, and likely final, round of negotiations in Washington. 
 
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 
Pacific 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.  This 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 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 
Torrijos Administration 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 has run a notably more honest government than his 
predecessors.  In October 2004 Torrijos replaced the 
controversial Supreme Court president, Cesar Pereira Burgos, 
who had passed retirement age.  Controversy over corruption 
within the Supreme Court continues to attract popular 
interest, especially after the USG revoked the visa of 
Supreme Court Magistrate Winston Spadafora in late November. 
Torrijos' December 2005 appointments to replace two outgoing 
Supreme Court Justices were generally well-received. 
 
¶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 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.  In December, 2005 the visa of sitting Supreme 
Court Justice Winston Spadafora was revoked under section 
212(f) of the Immigration and Naturalization Act based on 
credible allegations of corruption, sparking considerable 
controversy.  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 2004.  U.S. exports were $1.8 billion 
and imports were $316 million in 2004.  The stock of U.S. 
Foreign Direct Investment (FDI) is approximately $20 billion. 
 U.S. FDI is primarily concentrated in the maritime, energy 
and financial sector. 
EATON