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FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 7855
RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHMFISS/JOINT STAFF WASHINGTON DC
RUEKJCS/OSD WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL//J5/J2/POLAD//

C O N F I D E N T I A L PANAMA 000723 
 
SIPDIS 
 
SIPDIS 
 
 
DEPARTMENT FOR WHA/CEN GREG SCHIFFER 
SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: DECL: 04/17/2016 
TAGS: OVIP PGOV PM PREL
SUBJECT: SCENESETTER:  AMBASSADOR ARCOS APRIL 26-28 VISIT 
TO PANAMA 
 
REF: 06 PANAMA 00303 
 
Classified By: DCM Luis Arreaga for reasons 1.4 (c), (d), and (g) 
 
¶1. (U) This message is confidential.  Please protect 
accordingly. 
 
¶2. (SBU) On behalf of Embassy Panama, I would like to extend 
our warmest welcome on your upcoming visit to Panama.  We see 
your visit as a key element of our strategy to partner with 
Panama on its Secure Trade and Transportation Initiative, as 
was discussed during the President's November 2005 visit. 
You will be able to continue our ongoing senior-level 
dialogue with officials from the Ministry of Foreign Affairs, 
the Panama Canal Authority, the Ministry of Government and 
Justice, National Security Council (Consejo) and the Maritime 
Authority on the wide-range of homeland security issues, 
including the Container Security Initiative (CSI) and our 
proposal for expanded P-3 operations from Panama. In addition 
to your participation in the U.S.-SICA Dialogue on Security, 
we would like to take advantage of your presence in Panama to 
advance our outreach efforts to the Panama Muslim Community 
(reftel).  In a broader context, your visit signals our 
continued interest in strengthening our excellent relations 
with Panama. 
 
¶3. (SBU) As you are aware, in September 2005, USG and 
Government of Panama (GOP) officials met to discuss Panama's 
Secure Trade and Transportation Initiative (PST&TI), 
including the possibility of P-3 flights originating from 
Panama.  We have continued to raise this issue with senior 
GOP counterparts, but believe it is important that you 
explain the rationale for our request and be prepared to 
answer some tough questions from the GOP regarding why Panama 
is the ideal location for these flights. In April 
representatives from Customs and Border Protection (CBP) and 
the U.S. Coast Guard (USCG) visited with the GOP to review 
the Container Security Initiative (CSI).  This visit went 
extremely well, and Panamanian officials are currently 
reviewing a draft Declaration of Principles for CSI. 
Reaching an agreement and beginning a CSI program by the end 
of 2006 are both achievable, and desirable, goals for the GOP 
and the Embassy. 
 
 --------------- 
A Brief History 
--------------- 
¶4. (U) From its founding in 1903 until 1968, the Republic of 
Panama was a constitutional democracy dominated by a 
commercially-oriented oligarchy focused on Panama as an 
entrepot for international trade.  In October 1968, Dr. 
Arnulfo Arias Madrid, the deceased husband of former 
Panamanian President Mireya Moscoso, was deposed from the 
presidency by the Panamanian military.  General Omar Torrijos 
(d. 1981), the deceased father of current Panamanian 
President Martin Torrijos, became dictator and was succeeded 
in infamy by General Manuel Noriega.  On December 20, 1989, 
President George H.W. Bush ordered the U.S. military into 
Panama to restore democracy, protect AmCits and their 
property, fulfill U.S. treaty responsibilities to operate and 
defend the Canal, and bring Noriega to justice.  Noriega is 
still serving a 30-year sentence in Miami for drug 
trafficking.  Panama has held free and fair elections three 
times since 1989, transferring power from/to opposition 
parties. 
 
--------------------------------------- 
President Torrijos and a New Generation 
--------------------------------------- 
¶5. (SBU) In his September 1, 2004, inaugural address, 
Torrijos clearly identified his government's principal 
priorities as sustainable economic development and poverty 
alleviation, investment, fiscal reform, increased government 
transparency, and job creation.  The new president and his 
Democratic Revolutionary Party (PRD) -- largely purged of its 
former anti-democratic, anti-U.S. tendencies and holding an 
absolute majority in the Legislative Assembly -- have faced 
large challenges from the outset: a serious budget shortfall 
and tide of red ink left by the outgoing government; nation 
wide demonstrations against legislation to reform the 
nation's foundering retirement and medical system (the Social 
Security Fund); restoring public confidence in government 
 
institutions and the rule of law; completing the Free Trade 
Agreement negotiations with the United States; launching a 
more activist and "coherent" foreign policy (including closer 
relations with Western Europe and a review of Panama's 
relations with Taiwan and China); and a decision on how to 
proceed with Canal expansion, leading to a possible 2006 
national referendum.  The GOP has responded to the deficit 
with belt-tightening measures, including passing an unpopular 
fiscal reform package in late January.  Legislation for the 
reform of the social security system was also approved in 
December 2005. 
 
¶6. (SBU) Martin Torrijos Espino won the presidency on May 2, 
2004, in general elections that amounted to a local 
"landslide" (47% of the popular vote), which propelled his 
Democratic Revolutionary Party (PRD) into control of the 
Legislative Assembly (41 out of 78 legislative seats). 
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).  Torrijos and those 
closest to him have indicated that they intend to work 
closely with U.S. officials, especially on security, law 
enforcement, trade and investment.  Overall, his cabinet 
appointments have been inspired choices -- many of them 
technocrats with a pro-U.S. outlook.  Most (but not all) of 
Torrijos's cabinet-level and other high-level appointments 
are respected professionals without excessive baggage from 
Panama's 21-year military dictatorship or the PRD's anti-U.S. 
faction, a promising sign.  Anticipated pressures from a 
well-entrenched oligarchy could frustrate the Torrijos 
administration's reform plans. 
 
¶7. (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. 
His most controversial action was the October 2004 removal 
and replacement of Supreme Court President Cesar Pereira 
Burgos, who had passed retirement age, in a bid to clean up 
Panama's politicized Supreme Court.  The controversy over 
corruption within the Supreme Court continues to play out in 
the media, especially after a recent spate of 
characteristically egregious rulings.  In March 2005, 
President Torrijos formed a commission to make proposals on 
justice sector reform.  The Embassy supports this effort, and 
the Embassy continues to build its strong Good Governance 
initiative, which began with Ambassador Watt's 2003 speech 
against official corruption.  That speech resonated firmly 
with Panamanians from all walks of life and generated 
front-page headlines.  The Ambassador has 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. 
 
¶8. (SBU) An important element of the Embassy's Good 
Governance initiative is its visa revocation program against 
corrupt public officials.  Based on Embassy recommendations, 
the State Department in November 2005 revoked the visa of 
Supreme Court Justice Winston Spadafora for soliciting and 
accepting bribes related to cases before his court.  Earlier, 
in March 2005, the State Department revoked the visa of 
former Maritime Authority Director Bertilda Garcia for 
selling Panamanian seafarer's licenses at inflated prices to 
unqualified individuals.  The summer 2004 visa revocation 
against two former senior GOP officials received a spate of 
mostly favorable press commentary and huge support (85% 
according to one poll) from average Panamanians.  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. 
 
----------------------------------- 
Security and Law Enforcement Policy 
----------------------------------- 
¶9. (SBU) President Torrijos came to office with a clear focus 
on security, particularly regarding Canal and maritime 
security, and combating terrorism and transnational crime. 
 
His government is taking steps to impose order, efficiency, 
and organization on Panama's security agencies.  On May 12, 
2004, the U.S. and Panama signed a Proliferation Security 
Initiative (PSI) Shipboarding Agreement, underscoring the 
excellent bilateral cooperation that the new GOP has assured 
us will continue or improve.  The GOP must sort out its 
financial priorities to address issues such as how to 
adequately patrol Panama's long Caribbean and Atlantic 
coastlines and how to secure Panama's porous border with 
Colombia against guerrilla infiltration. 
 
¶10. (SBU) A centerpiece of U.S.-Panamanian relations in 
recent years has been a steadily improving law enforcement 
and security relationship.  Close bilateral cooperation with 
our Panamanian counterparts has yielded many successes 
including, but not limited to, steadily increasing narcotics 
seizures, more sophisticated investigations, an active 
maritime law enforcement relationship, the development of 
specialized units, and an enhanced ability to combat money 
laundering and other illicit financial flows.  While the 
USG's relationship with the Torrijos Administration has been 
positive, there remains work to be done to solidify these 
gains and enhance the effectiveness of joint operations. 
Panama's law enforcement institutions remain weak and all 
suffer from a paucity of resources and limited professional 
capacity. Through our limited assistance programs, we are 
trying to address these shortcomings, but real success will 
require additional resources from the Panamanian budget. 
 
-------------------- 
Security Cooperation 
-------------------- 
¶11. (SBU) Panama's former sovereignty sensitivities are 
slowly receding with recognition that the challenge of 
securing the Canal and Panama's borders requires a more 
mature and collaborative bilateral relationship.  Panama 
early on gave political support to the Coalition of the 
Willing.  It signed and, on October 8, 2003, ratified a 
bilateral Article 98 Agreement.  Related to Canal and border 
security, Panamanians have become much more willing to accept 
mil-to-mil security training, equipment, and other 
assistance, as was shown during the August 2005 sixteen 
nation Panamax naval exercise that centered on Canal defense. 
 The GOP has welcomed Embassy initiative to increase the 
number of Medical Readiness Exercises and other DOD 
humanitarian programs that provide much-needed assistance to 
rural Panamanians.  During the 2005 New Horizons exercise, 
both the GOP and local press praised U.S. military for 
constructing schools and clinics.  Together, these programs 
highlight the humanitarian side of the U.S. military and 
foster positive public perceptions of the USG.  In April 
2006, a U.S. HVT (the decommissioned attack submarine USS 
Portsmouth) completed a successful three-day transit of the 
Canal. 
 
---------------- 
Our Third Border 
---------------- 
¶12. (SBU) Panamanian planning, layered defenses and security 
resources are generally well-regarded, as the Canal remains 
an attractive and vulnerable threat to terrorists. Continued 
U.S. training, equipment and other assistance reduce GOP 
vulnerabilities to any potential terrorist attack.  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.  Panama 
committed to a robust maritime security agenda, which led to 
its timely adoption of the new International Maritime 
Organization (IMO) International Shipping and Port Security 
(ISPS) Code, which entered into force July 1, 2004.  In May 
2004, Panama signed a shipboarding agreement with the United 
States to support the Proliferation Security Initiative 
(PSI).  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 has sent strong signals that it intends to 
clamp down on what it calls abuses countenanced by previous 
governments in administering Panama's open ship registry and 
mariner identification documents.  Panama's ship registry now 
is the world's largest and comprises around one-quarter of 
the world's ocean-going fleet (5,525 large commercial 
vessels).  About 13% of the U.S. merchandise trade transits 
the Canal each year.  Panama's seafarer registry currently 
licenses over 264,000 crew members.  In response to our 
homeland security concerns, the new GOP has announced 
intentions to greatly improve security and transparency in 
documenting ships and the crews that work on them.  Panama 
has privatized and developed some former U.S. military ports 
and other related facilities.  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.  We are 
actively discussing with GOP counterparts ways in which we 
can enhance maritime security through more robust information 
sharing-- a subject that will likely come up during your 
visit. 
 
---------------------------------- 
International Trade and Investment 
---------------------------------- 
¶14. (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 approximately $2.5 billion in 2005.  U.S. exports 
were about $2.2 billion and imports were $327 million in 
¶2005. The stock of U.S. Foreign Direct Investment (FDI) in 
2002 was $20 billion.  U.S. FDI is primarily concentrated in 
the financial sector.  Per capita GDP is around $4,500. 
 
-------------------- 
Free Trade Agreement 
-------------------- 
¶15. (SBU) Former President Moscoso pushed to move forward 
quickly on a bilateral Free Trade Agreement (FTA). 
Negotiations began in April 2004; to date, the U.S. and 
Panama have held nine negotiating rounds.  The last round, 
held January 10-13, 2006 in Washington, failed to close the 
agreement because of Panamanian agricultural sensitivities 
surrounding sanitary and phytosanitary (SPS) issues.  Panama 
also has a strong desire to increase its existing sugar 
quota.  Pending further progress on SPS issues, a tenth (and 
final) negotiating round has not been scheduled.  The 
Torrijos administration views a bilateral FTA as imperative 
to attract investment, increase exports, and make Panama 
competitive with the CAFTA countries.  Jerry Wilson, a member 
of Panama's Legislative Assembly and its former President, 
has commented to Embassy officials that, once negotiated and 
signed, the FTA agreement "will pass." 
 
------------------------------------ 
Damage Control with Panama's Muslims 
------------------------------------ 
¶16. (C) Panama's Muslim Community of approximately 8,000 
persons, is divided in two main national and ethic groups - 
the Gujarati Indians and Lebanese Arabs.  The 2500 Gujaratis 
mainly live in Panama City and generally work in retail and 
used car businesses.  The more prosperous Lebanese Arabs 
mainly live 50 miles from Panama City in the Caribbean port 
city of Colon.  The Lebanese group overwhelmingly works in 
the export-import trade at the Colon Free Zone.  Starting in 
2003-2004, many Panamanian Muslims -- often well-heeled, 
middle-aged businessmen who had traveled to the United States 
for many years -- began to experience problems at U.S. 
airports with visa cancellations.  The Ambassador launched 
the Embassy's reconciliation effort to Panama's Muslims 
following public allegations -- including newspaper articles 
-- of abusive treatment at the hands of U.S. port-of-entry 
officials.  Ambassador Eaton hosted dinners at his residence 
for both communities to mark important Muslim religious 
holidays in late 2005 and early 2006..  Both events were 
mostly social in nature but recently the Colon Muslims met 
with EmbOffs for a frank discussion of the negative 
experiences they - and some of their family members - 
encountered while traveling through U.S. airports.  Embassy 
has arranged a one-hour meeting for you with members of the 
 
Colon Muslim Community during your upcoming visit. 
 
----------------- 
Canal Stewardship 
----------------- 
¶17. (SBU) During the past six 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 the 
average Canal transit times by one-third (from 36 hours to 24 
hours), has reduced accidents in Canal waters significantly, 
and has overseen large-scale upgrade and maintenance 
projects, such as widening the Gaillard Cut to allow 
simultaneous two-way transits.  During this time, the ACP 
also has nearly doubled Canal revenues, which in FY 2004, 
exceeded $1 billion for the first time.  The Government of 
Panama received $350 million from the Canal in FY 2005 
(payments for government services, tolls, and profits). 
 
--------------- 
Canal Expansion 
--------------- 
¶18. (SBU) Canal expansion is a top priority for the Torrijos 
administration.  The proposed Canal expansion project to 
construct a wider third set of locks has an estimated price 
tag of $4-6 billion and is expected to take 8-10 years to 
complete.  The GOP expects the project to be a transforming 
event for Panama that will provide jobs and set the tone 
economically for years to come.  Given the driving forces of 
international shipping -- containerization, construction of 
"post-Panamax" mega-ships currently unable to traverse the 
Canal, and growing trade between East Asia and the U.S. 
eastern seaboard -- the expansion is central to maintaining 
the Canal's future viability.  The expansion 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 first be submitted to the 
Panamanian people for their approval.  GOP officials are 
huddling to discuss a date for the referendum but have not 
announced any dates.  A May 2005 public poll showed that 70% 
of Panamanians polled supported Canal expansion. 
EATON