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RHMFISS/JOINT STAFF WASHINGTON DC
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RUCNDT/USMISSION USUN NEW YORK 0287

C O N F I D E N T I A L PANAMA 001737 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 10/25/2017 
TAGS: PREL PGOV ECON SNAR MARR MOPS KCRM PM
SUBJECT: PANAMA:  THE WAY AHEAD 
 
Classified By: Ambassador William A. Eaton.  Reasons:  1.4 (b) and (d). 
 
------- 
Summary 
------- 
 
¶1.  (C) The election of Pedro Miguel Gonzalez (PMG), who is 
under federal indictment on five counts related to the 1992 
murder of U.S. serviceman Zak Hernandez, as president of 
Panama's National Assembly marks a watershed for the 
U.S.-Panama bilateral relationship and Panamanian domestic 
politics.  Only two months earlier, on June 28, 
U.S.-Panamanian relations reached a new high water mark with 
the signing in Washington of the Trade Promotion Agreement 
(TPA).  Panama quickly ratified this agreement, and both 
nations pinned their hopes on quick ratification in 
Washington.  PMG's September 1 election as National Assembly 
President abruptly placed the TPA in limbo.  Over the course 
of eight short weeks, the tenor of U.S.-Panamanian relations 
shifted from one punctuated with euphoria to one 
characterized by questions.  Embassy Panama has assessed the 
current status of our relations and programs and offers its 
insights into the way ahead to accentuate existing positive 
elements of the bilateral relation while pre-positioning 
ourselves for the upcoming electoral period.  Politically, 
the U.S. should seek to promote a robust political season 
that results in a competitive presidential campaign that 
leads to free, fair and transparent elections.  Economically, 
the U.S. should continue to promote our bilateral trade and 
commercial ties and crease pressure on the GOP for judicial 
reform and anti-corruption efforts.  On the law 
enforcement/security front, the U.S. relationship with Panama 
will be largely unaffected and could even improve 
particularly in the areas of institution building and 
international cooperation.  End Summary. 
 
----------------------- 
PMG to Stay; TPA Frozen 
----------------------- 
 
¶2.  (C) President Torrijos seems unlikely to do the political 
heavy lifting necessary to clear the way for U.S. 
congressional action on the TPA (i.e., compel PMG to step 
down), despite his recent commitments to Principals in 
Washington.  The GOP has already shifted its posture with 
respect to U.S. ratification of the TPA:  Panama has done its 
duty by ratifying, the matter now rests with the U.S. 
Congress, and, if not ratified this year, the TPA will be 
ratified soon thereafter.  Most of the Embassy's 
interlocutors fail to understand the amount of enthusiasm, 
forward momentum, and vigor that have been squandered by 
PMG's election.  As the TPA gets put on hold, lest it be 
rejected by the U.S. Congress, a significant chapter in our 
bilateral agenda closes on an inconclusive note. 
 
------------------------------------- 
Entering a Politically Dynamic Period 
------------------------------------- 
 
¶3.  (C) Panama is now entering a more dynamic political 
period as political leaders turn to the May 2009 elections. 
The PMG affair revealed more profound divisions and troubles 
within the governing Democratic Revolutionary Party (PRD), 
highlighted Torrijos' and First VP and FM Samuel Lewis' weak 
political management skills, and opened the door to a more 
fluid PRD internal election process that will unfold from 
January to March 2008.  The opposition is beginning to feel 
its way toward the formation of a coalition to challenge the 
PRD.  Panama's left wing is in disarray, but the PMG 
phenomenon merits observation. 
 
¶4.  (C) While the PRD remains Panama's most powerful 
political force, the race for the PRD's presidential race is 
less clear today.  Lewis has been wounded by the Torrijos 
Administration's failure to secure implementation of the TPA, 
and he continues to poll in the low single digits.  Panama 
City Mayor Juan Carlos Navarro told Ambassador on October 10 
that his campaign for the PRD's presidential nomination was 
gaining steam, particularly in the wake of his cousin Lewis' 
TPA challenges.  Minister of Housing Balbina Herrera's star, 
however, is rising the fastest reaching ever higher levels of 
popularity each time she asserts that she does not wish to 
run for president. 
 
¶5. (C) Opposition leaders are paying lip service to unity, 
but real progress toward this goal is fleeting.  In the 
meantime, there will be much jockeying for position among 
opposition presidential contenders, including:  Ricardo 
Martinelli (Democratic Change - CD); Alberto Vallarino, Juan 
Carlos Varela and Marco Ameglio (Panamenista Party); 
Guillermo Endara (Moral Vanguard of the Nation - VMP); and 
Guillermo "Billy" Ford (Patriotic Union - UP).  Though more 
opposition contenders are not likely to enter the contest at 
this stage, significant thinning of the opposition's 
candidates will not happen until the PRD decides what team it 
will field in March 2008.  The fear of being left out of 
power for five more years, something that could be the death 
knell for smaller opposition parties, is the most significant 
factor for opposition unification. 
 
¶6. (C) Finally, the PMG phenomenon merits close observation. 
PMG's fiery, populist, nationalist inaugural address to the 
National Assembly on September 1 may point to a more serious 
populist threat rising from within the PRD, not from the 
ranks of Panama's poorly organized and led leftist activists. 
 To a large extent, PMG's election had more to do with PRD 
deputies' desire to rebel against their president whom they 
believed had been disrespectful and dismissive of 
legislators' prerogatives than with true support for PMG's 
populist, anti-American, and nationalist rhetoric.  In fact, 
PMG has been silent and almost invisible.  Since September 1 
though, PMG has consolidated his base among the one-third of 
the PRD that indulges in nostalgia for the 
populist/nationalist political direction of the Omar Torrijos 
and Noriega dictatorships and that never fully accepted 
Martin Torrijos' more progressive, modernist direction. 
 
------------------------------ ----------------- 
PMG's Rise and the TPA's Fall: Economic Fall-out 
------------------------------ ----------------- 
 
¶7. (C) Regardless of the fate of the TPA, Panama's economy is 
widely expected to continue growing at a rapid clip 
(currently outpacing the rest of Latin America at 9.6 percent 
annual growth) over the next several years.  This continued 
growth will be driven by strong growth in construction, 
trade, tourism, Colon Free Zone (CFZ) activities, 
port/logistics operations, and financial services offered by 
Panama's international banking center.  The seven-year, USD 
5.25 billion Panama Canal expansion project is now underway. 
The GOP is ramping up its investment in other infrastructure 
projects to about USD 3 billion over the next five years, 
twice the amount invested over the past five years. Foreign 
investment continues to pour in at record levels, with U.S. 
firms such as Caterpillar, Hewlett Packard, and Procter and 
Gamble announcing plans to establish major regional 
operations in Panama.  Occidental Petroleum and Qatar 
Petroleum are partnering on an effort to build a USD 7-8 
billion regional refinery in Panama, and other firms are 
looking to build much needed hydro and thermal power 
generating plants and other energy projects.  The GOP has 
also earned high marks for making it much easier for 
entrepreneurs to launch new businesses and for putting the 
government's fiscal house in order (i.e., posting a huge 
budget surplus for the first time in ten years and putting 
the social security system on a more solid footing). 
Unemployment has been cut nearly in half, down from about 14 
percent in 2003 to 7.3 percent today.  However, nearly forty 
percent of Panamanians remain mired in poverty, Panama 
continues to have vast income disparities between rich and 
poor, and unchecked corruption could undermine the 
government's ability to meet social demands for education, 
health and other services. 
 
¶8. (SBU)  Since 96 percent of Panama's exports to the U.S. 
already enter duty-free either unconditionally or under the 
Caribbean Basin Economic Recovery Act (CBERA) and the 
Generalized System of Preferences (GSP), the U.S. should not 
expect Panamanian exports to feel any significant pain 
resulting from the TPA's delay or demise.  The TPA's main 
impact on Panama would be to prod the GOP into further -- and 
much needed -- institutional reforms that would benefit U.S. 
investors. 
 
¶9. (C)  PMG's rise and the lack of a TPA with Panama's 
primary trading partner may tarnish Panama's "brand 
identity."  In particular, it would bring into bold relief 
Panama's shortcomings in the rule of law. Momentum toward 
necessary institutional reforms would slow, thereby 
discouraging those foreign investors that are most sensitive 
to rule of law issues, such as real estate developers and 
small- and medium-sized enterprises.  Nonetheless, the U.S. 
should expect continued growth in foreign direct investment 
(FDI) over the near- to mid-term driven by major 
infrastructure projects, increased demand for canal and 
logistics services, growth in the CFZ, and further 
consolidation of the banking sector.  However, the U.S. 
should be vigilant should PMG and/or other retrograde PRD 
elements pursue policies that seek to reverse the GOP's 
economic reforms or to embark on populist, anti-market 
pursuits.  Such a prospect -- which the Embassy does not see 
as imminent -- would tarnish Panama's "brand identity" as a 
business-friendly location and could bring a quick chill to 
investor enthusiasm and ultimately cool Panama's hot economic 
expansion. 
 
¶10.  (C) Panama's business community is resigned to losing 
their long sought after TPA and are unwilling or unable to 
voice more than a whimper of a complaint or concern for fear 
of antagonizing a National Assembly President who could exact 
revenge with anti-business legislation or at least with 
legislation that would have a negative impact on one's 
particular interests. 
 
--------------------------------------------- -- 
Law Enforcement/Security Cooperation Unaffected 
--------------------------------------------- -- 
 
¶11. (C)  PMG's election and the upcoming electoral season 
will have little impact on our on-going law enforcement and 
security cooperation, including U.S. top priority activities 
such as:  interdicting illegal narcotics; prosecuting major 
narcotics traffickers; securing the Panama Canal; securing 
Panama's land and sea borders (especially with Colombia); and 
stopping the illegal flow of persons and contraband goods. 
One area, drug seizures, particularly highlights the 
excellent state of our cooperation.  Thus far in 2007, 
Panama's drug seizures -- driven by close U.S.-Panamanian law 
enforcement cooperation -- has reached 53 metric tons, 
handily exceeding the 40 metric tons seized in 2006, which 
was itself a record year.  The U.S. continues extensive 
training and equipment programs with the Panamanian National 
Police (PNP), the National Maritime Service (SMN), and the 
National Air Service (SAN). 
 
¶12. (C) The new Minister of Government and Justice, Daniel 
Delgado, provides reason to believe that our law enforcement 
and security cooperation will remain unaffected and could 
indeed be improved.  A competent and proven manager, Delgado 
also understands the challenges facing Panama in this area. 
Delgado also gets the political imperative to address crime, 
an issue that is routinely cited as one of the top two issues 
of concern to Panamanian voters. 
 
------------------------ ------------------------------ 
The Political Way Ahead: Promoting Competitive Politics 
------------------------ ------------------------------ 

¶13.  (C) The U.S. should seek to promote a robust political 
season that results in a competitive presidential campaign 
and leads to free, fair and transparent elections.  The U.S. 
does not need to nor should pick winners, but rather should 
promote the democratic process.  The PRD should be encouraged 
to continue its process of internal democratic reforms; item 
number one on its to-do list should be coming to terms with 
the election of PMG as National Assembly President.  Finally, 
the U.S. should encourage consolidation in the opposition.  A 
consolidated opposition is essentially to ensuring the kind 
of competitive political season that will strengthen Panama's 
democracy, keep the PRD honest and on its reform path, and 
provide an adequate counterbalance should the opposition lose 
the May 2009 presidential election. 
 
----------------------- 
The Economic Way Ahead: 
----------------------- 
 
¶14. (C) Regardless of the TPA's fate, the Embassy will 
continue to encourage the continued expansion of our 
bilateral trade and commercial ties.  To protect and advance 
U.S. investor interests, the Embassy will increase pressure 
on the GOP to reform its judiciary and to make good on its 
commitments to combat corruption.  Toward that end, the 
Embassy will: 
 
-- press for stronger measures demonstrating the GOP's 
genuine commitment to the rule of law, particularly within 
the Executive's prerogatives (e.g., the nomination of Supreme 
Court magistrates); 
-- boost the focus of USG assistance and public diplomacy on 
civil society groups and others engage on transparency and 
anti-corruption good governance and grassroots democracy 
(e.g., make our "bully pulpit" available to experts to 
expound on the costs of corruption on business and the body 
politic); 
-- expand our existing efforts with other diplomatic missions 
to present a unified front to defend foreign investors 
against corrupt and capricious GOP entities; 
-- enhance collaboration with the private sector to advocate 
pro-market, pro-investor politics and resist any efforts to 
reverse positive GOP reforms; and 
-- encourage reform-minded private sector leaders to create a 
"scholarship fund for democracy" to support emerging young 
leaders committed to public careers to advance good 
governance. 
 
--------------------------------------------- ----- 
The Law Enforcement/Security Cooperation Way Ahead 
--------------------------------------------- ----- 
 
¶15. (C)  There remains much work to be done on our law 
enforcement and security cooperation particularly in the 
areas of institution building and international cooperation. 
The U.S. should: 
 
-- support GOP efforts to launch a new coast guard modeled on 
the USCG, an area where there has been much discussion but 
little action over the past year; 
-- engage the GOP to ensure that any effort to incorporate 
the Technical Judicial Police (PTJ) into the PNP preserves 
our fruitful law enforcement cooperation and ensures an 
aggressive, independent and professional support to 
prosecution of major narcotics and other criminals and in 
particular ensures that the direction of investigations 
remains in the hands of prosecutors operating under the 
semi-autonomous Attorney General; 
-- support the establishment and institutionalization of a 
stand-alone border security entity, a proposal that has been 
languishing in its implementation; 
-- build upon U.S. cooperation with the Attorney General in 
carrying out major investigations and extraditions of 
particular interest to the U.S. urging further improvements 
in Panama's own prosecutions and strengthening in particular 
the drug prosecutor's ranks; 
-- foster greater engagement, particularly at the senior-most 
levels, between Panamanian officials and their Mexican and 
Colombian counterparts and encourage greater engagement with 
the U.S. dialogue with the Central American Integration 
System (SICA). 
 
EATON