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RR RUEHWEB

DE RUEHZP #0545/01 1852153
ZNY CCCCC ZZH
R 032153Z JUL 08
FM AMEMBASSY PANAMA
TO RUEKJCS/SECDEF WASHDC
RUEHC/SECSTATE WASHDC 2242
INFO RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RUEABND/DEA WASHDC
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHMFISS/DEPT OF JUSTICE WASHINGTON DC
RHEFDIA/DIA WASHDC
RHMFISS/JOINT STAFF WASHINGTON DC
RHEHAAA/NSC WASHDC

C O N F I D E N T I A L PANAMA 000545 
 
SIPDIS 
 
FROM THE AMBASSADOR FOR SECDEF AND STATE INL A/S JOHNSON 
 
E.O. 12958: DECL: 07/03/2018 
TAGS: PREL PGOV SNAR MASS PM
SUBJECT: PANAMA: JULY VISIT OF MINISTER OF GOVERNMENT AND 
JUSTICE 
 
Classified By: Ambassador William A. Eaton.  Reasons:  1.4 (b), 
(c) and (d). 
 
------- 
Summary 
------- 
 
¶1. (C) Following up on Panamanian President Martin Torrijos' 
May 7-8 visit to Washington and meetings with the President 
and the Secretaries of State and Defense, Panamanian Minister 
of Government and Justice Daniel Delgado will travel to 
Washington July 7-10 to continue security-related 
discussions.  Delgado's visit also comes on the heels of 
Deputy Assistant Secretary of Defense Stephen Johnson's June 
24-25 visit to Panama City.  First and foremost on Delgado's 
mind will be securing USG security assistance to better 
enable Panama to confront illegal narcotics trafficking, 
combat terrorism (including increasingly bolder incursions by 
the Revolutionary Armed Forces of Colombia (FARC) into 
Panama), and ensure the continued security of the Panama 
Canal.  Torrijos told DASD Johnson on June 24, "I want to 
leave Panama's security apparatus in order by the time I 
leave office" on July 1, 2009. 
 
-------------------------------- 
Security Issues Come to the Fore 
-------------------------------- 
 
¶2. (C) Over the past six months, security concerns have 
become one of the top issues on the minds of Panamanian 
voters. (Note:  Panamanians go to the polls on May 3, 2009 to 
select Torrijos' successor; the primary season is already in 
full swing.)  Panama experienced a significant up-tick in 
crime, not only in Panama City but also across the country, 
leading to an increasing clamor that the GOP do something to 
improve law and order.  FARC incursions into Panama -- 
including a February 22, 2008 fire fight between PNP and FARC 
launches off the Darien coast that resulted in the capture of 
six FARC members, the discovery by a PNP patrol of a 
semi-permanent FARC base outside of the town of Guayabo in 
the Darien, and the kidnapping of a U.S. citizen from Panama 
City with the collusion of the FARC -- have focused the 
Torrijos Administration's attention on the threat posed by 
the FARC, challenging Panama's traditional live-and-let-live 
attitude toward the FARC. 
 
¶3. (C) Continued record seizures of illegal narcotics in 
Panama serve to underscore that Panama remains a cross roads 
for illicit trade.  Panama has cooperated well with U.S. law 
enforcement agencies in combating narcotics trafficking and 
transnational crime.  For example, of the 120 metric tons of 
cocaine seized by authorities in the hemisphere during 2007, 
Panama accounted for about 60 tons or nearly 40 percent of 
the total.  So far in 2008, law enforcement authorities have 
seized some 20 metric tons of cocaine. 
 
------------------ 
What Delgado Wants 
------------------ 
 
¶4. (C) Presently, Panama is transfixed on acquiring 
equipment, primarily helicopters, but has not given 
sufficient consideration to the level and speed of the 
assistance it would like from the USG nor specified what help 
it would like from the USG.  The right level and speed of USG 
assistance directly depends upon Panama's ability to 
politically absorb our help.  Additionally, Panama would like 
great information exchange on security matters.  Delgado is 
likely to lay out his five-year plan for strengthening 
Panama's security apparatus and to simply ask where the USG 
believes it can plug into his plan.  Increasingly, the 
"militarization" debate -- an ever-present political 
undercurrent -- is coming to the forefront as Panama strives 
to address legitimate security needs while also coming to 
terms with its experience with military dictatorship. 
Delgado's visit provides an opportunity to enhance our 
already strong bilateral relationship by strengthening our 
security cooperation, but both the U.S. and Panama will need 
to tread carefully to navigate the political complexities of 
our bilateral relationship in this area. 
 
-------------------------------- 
Two Steps Forward, One Step Back 
-------------------------------- 
 
¶5.  (C) Following Torrijos' meeting with the President, DEA 
quickly acted to deploy a FAST team of U.S.-piloted 
helicopters to assist the GOP security forces in the remote 
Darien region.  Delgado abruptly turned off this deployment 
-- a decision eventually supported by Torrijos and First VP 
and FM Lewis -- asserting a lack of adequate coordination and 
the fear that AMCIT pilots would be put in danger.  The GOP 
is also very concerned, however,  about maintaining tight 
control over access to the Darien.  Although the GOP is 
prepared to accept equipment for their own use -- Panama at 
its own expense sent 10 pilots to the U.S. for helicopter 
training -- allowing greater access to the Darien that would 
enhance USG situational awareness in the region may be one 
bridge too far for the Panamanians at this stage.  The GOP is 
aware that Colombia's continuing successes against the FARC 
will likely push them into Panama, but has yet to come to 
terms with how to address this threat, let alone whether to 
try to do so alone or in concert with its leading 
international partner, the U.S. 
 
¶6. (C) It should be kept in mind, however, that the USG has 
made significant progress in engaging Panama in a broader 
security discussion on tough issues, including the FARC's 
presence in the Darien and its operations (primarily drug 
trafficking) throughout Panama.  Indeed, Torrijos' use of the 
term "FARC" in his conversations with DASD Johnson where 
previously high-level Panamanian officials preferred to refer 
generically to "drug traffickers" or "organized crime" is an 
indication that Panama is becoming aware of the need to meet 
this threat head on.  Post's Office of Defense Cooperation 
(ODC) enjoys greater access to the Darien, particularly 
Meteti, though it is not yet able to conduct training in the 
region.  However, we enjoy full access to the region to 
conduct Humanitarian and Assistance initiatives such as 
Medical Readiness Training Exercises.  Additionally, we have 
a 12-man Joint Planning and Assistance Team preparing to 
provide technical assistance to the Frontier Force. 
 
--------------------------------------------- --- 
Torrijos' Legislative Powers on Security Matters 
--------------------------------------------- --- 
 
¶7.  (C) Before going into recess on June 30, Panama's 
National Assembly granted Torrijos extraordinary powers to 
enact legislation: establishing the National Aero-Naval 
Service (SENAN), the National Frontier Service (SENAFRONT), 
modifying and adding additional authorities to the Council 
for Public Security and National Defense (CSPDN), and, most 
controversially, enabling the President to name a uniformed 
officer to head the Panamanian National Defense (PNP).  While 
these updates to Panama's security architecture are much 
needed, the Torrijos Administration has failed at explaining 
the need for these reforms to the general public and has 
gotten itself on the wrong side of the "militarization" 
debate.  Now on the defensive, the Torrijos Administration 
finds itself in the awkward position of trying to explain 
how, despite its secretive treatment of these issues and the 
governing Revolutionary Democratic Party (PRD) roots in 
military dictatorship, that these reforms seek to strengthen 
civilian control of the security forces, are not aimed at 
restoring the military, and will be conducted in a way that 
not only respects, but strengthens, democracy. 
 
------------------------------------ 
Booming Economy, But Problems Linger 
------------------------------------ 
 
¶8. (SBU) Delgado's visit comes at a time when Panama's 
economic boom contrasts starkly with high levels of poverty, 
wide income disparities, persistent corruption, and decaying 
educational and healthcare systems.  Panama's 11.2 percent 
GDP growth in 2007 topped the region, driven largely by 
significant growth in construction, ports and maritime 
services, banking and financial services, and tourism. 
Foreign investment, which topped USD 1 billion in 2007, 
continues to pour into Panama, as U.S. multinationals such as 
Procter and Gamble, Hewlett Packard, 3M, and Caterpillar move 
 
into Panama.  Occidental Petroleum and Qatar Petroleum will 
soon decide whether to proceed with their proposed USD 8-9 
billion refinery project in the Puerto Armuelles area of 
western Panama, which would be a significant addition to 
Panama's USD 17 billion economy.  With the country's strong 
economic growth over the past five years, Panama has cut 
unemployment by about half, dropping from about 14 percent in 
2003 to just over 6 percent today.  However, an estimated 20 
percent of Panama's workforce remains underemployed. 
 
¶9. (SBU) Panama also maintains one of the most liberalized 
trade regimes in the hemisphere.  As Panama's largest trade 
partner (with two-way trade of USD 4.1 billion in 2007, an 
increase of 33 percent over 2006), the U.S. consistently runs 
a huge trade surplus with Panama, exporting about ten times 
more than it imports.  The U.S. and Panama signed a bilateral 
Trade Promotion Agreement (TPA) last June that the Panamanian 
National Assembly ratified two weeks later by an overwhelming 
vote.  However, U.S. ratification remains on hold as a result 
of the National Assembly's September 2007 election as 
president of the chamber of Pedro Miguel Gonzalez who is 
under federal indictment in connection with the 1992 slaying 
of a U.S. soldier. 
 
¶10.  (SBU) Despite being one of Latin America's fastest 
growing economies over the past 15 years, Panama's poverty 
rate has persisted at nearly 40 percent overall and has 
exceeded 80 percent in rural indigenous areas.  Torrijos 
hopes that sustained growth resulting from the Panama Canal 
expansion project and the TPA will help push Panama into 
"first world" status.  However, neither the Canal nor the TPA 
is a panacea, as cronyism and weak institutions (especially 
the notoriously corrupt judiciary and troubled health and 
education sectors) have kept Panama from attaining more 
broadly shared prosperity. 
 
¶11. (SBU) After some twenty years of enjoying low inflation 
(ranging between 1.5 and 2 percent), Panamanians now face an 
upward spiral in the cost of living.  Annual inflation 
reached 4.7 percent by the end of 2007 and is now running at 
about 8.8 percent.  Increases in the price of food have run 
at nearly twice the overall inflation rate.  The monthly cost 
of a "basic basket" of foodstuffs defined by the GOP as the 
minimal amount needed by a typical Panamanian has skyrocketed 
by more than 20 percent over the past year, reaching nearly 
USD 250 per month.  This means that workers earning the 
minimum monthly wage of USD 310 must spend more than 80 
percent of their income on food, while those earning the 
average wage of USD 400 spend more than 60 percent of their 
earnings just to buy the basic food items.  This, combined 
with fast-rising electricity and gasoline prices, has 
tightened the squeeze on low and middle-income families. 
 
¶12. (SBU) Despite spending about 12 percent of the GOP's 
budget and 5 percent of GDP on education, Panama suffers from 
a poorly educated workforce.  About half of prospective 
University of Panama students fail their entrance exams, 
prompting university authorities to lower the threshold for 
entrance.  About one-third of the applicants to GOP worker 
training programs are rejected because they lack the 
requisite literacy and math skills. Panamanian and 
multi-national firms must draw from a labor pool that is 
poorly equipped to compete in the global economy.  One U.S. 
multi-national found that less than 1 percent of some 200 
prospective Panamanian employees passed the firm's qualifying 
examination.  By comparison, the firm found that pass rates 
elsewhere in the region typically ranged from 15 to 20 
percent.  This dynamic is exacerbated by laws that require 
foreign firms to staff 90 percent of their local operations 
with Panamanian employees. 
 
------------------------------- 
Panama Canal Expansion Underway 
------------------------------- 
 
¶13. (U) In September 2007, the Panama Canal Authority (ACP) 
formally launched its eight-year, USD 5.25 billion program to 
expand and modernize the Panama Canal.  This project is due 
for completion in 2014.  The ACP plans to finance the project 
through a combination of Canal revenues, increased tolls, and 
USD 2.3 billion in bridge loans.  U.S.-based engineering and 
 
law firms have won initial contracts to provide project 
management and legal advisory services to the ACP.  Four 
consortia, one led by Bechtel, are preparing to bid in late 
2008 on the design/build contract for the new, much larger 
sets of locks that will be built in parallel to the existing 
locks.  With an estimated contract value of about USD 3.5 
billion, this represents the largest share of 
expansion-related work.  The winning consortium will have to 
contend with the upward spiral in fuel and construction 
materials costs, Panama's shallow pool of skilled labor, and 
constraints on housing, transportation, and other 
infrastructure. 
 
-------------------------------------------- 
Panama's Politicos Jockey for 2009 Elections 
-------------------------------------------- 
 
¶14. (SBU)  Twelve months from the end of his five-year term, 
President Torrijos has seen his public approval rating erode 
considerably, declining, according to some polls, by as much 
as 60 percent.  His Revolutionary Democratic Party (PRD) 
dominates Panama's unicameral National Assembly and other 
governmental institutions.  Opposition parties remain 
fractured and, so far, unable to coalesce into an effective 
counterweight.  One is the Panamenista Party, the largest 
opposition party, has held its primary elections on July 6, 
opposition parties may turn in earnest to the task of 
alliance formation. For now though, the PRD appears well 
positioned for the May 2009 elections.  Torrijos is 
constitutionally prohibited from a consecutive term, and his 
former Housing Minister and long-time PRD figure, Balbina 
Herrera, currently leads the pack of aspiring PRD successors. 
 In the most recent national poll conducted in late June by 
Unimer, however, opposition maverick Ricardo Martinelli of 
Democratic Change (CD) recaptured his lead in the national 
polls after a three month lapse by polling 22.7 percent, 
followed by Herrera at 20.9 percent, PRD candidate Juan 
Carlos Navarro at 11.2 percent, and Panamenista Party 
candidate Juan Carlos Varela at 9.4 percent and Alberto 
Vallarino at 7.4 percent. Unable to draw more than 3 percent 
in earlier polls, First VP and FM Samuel Lewis did not 
register to run for the PRD presidential nomination and will 
sit out the 2009 campaign. 
 
--------------------------------- 
Panama at the UN Security Council 
--------------------------------- 
 
¶15. (SBU) In late 2006, Panama emerged as Latin America's 
consensus candidate for a two-year seat on the UN Security 
Council (UNSC).  This followed a prolonged deadlock between 
Venezuela and Guatemala in the voting for non-permanent 
members in the UN General Assembly.  Panama has consistently 
voted with the U.S. and has played a constructive role on the 
UNSC.  In other foreign policy matters, Torrijos has pursued 
a policy of maintaining friendly relations with all countries 
that seek friendly relations with Panama, including Cuba and 
Venezuela. 
EATON