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INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 2698
RUEHBR/AMEMBASSY BRASILIA 0352
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RHMFISS/CDR USSOUTHCOM MIAMI FL
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RHMFISS/JOINT STAFF WASHINGTON DC
RHEHAAA/NSC WASHDC
RUEKJCS/SECDEF WASHDC

C O N F I D E N T I A L PANAMA 000714 
SIPDIS 
 
DEPT PASS TO H 
 
C O R R E C T E D COPY - CLASSBY REASON ADDED, PARA NUMBERS CHANGED 
 
E.O. 12958: DECL: 08/28/2018 
TAGS: PGOV PREL ECON EWWT ETRD OVIP PM EINV EAIR
ENRG, BEXP 
SUBJECT: CODEL HAGEL WHIRLWIND TOUR OF PANAMA 
 
REF: PANAMA 682 
 
Classified by:  POULCONS BRIAN R. NARANJO FOR REASONS 1.4 (B) AND (D) 
------- 
SUMMARY 
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¶1.  (U) CODEL Hagel met in Panama on August 28 with President 
Martin Torrijos to discuss the strong bilateral relationship 
and Panama's economic future.  In a meeting with 
Vice-president and Foreign Minister Samuel Lewis, CODEL Hagel 
discussed the Trade Promotion Agreement (TPA) and the Panama 
Canal widening project.  Foreign investment and the need for 
qualified workers were the topics of discussion between 
Minister of Commerce and Industry Carmen Gisela Vergara and 
the CODEL.  Senator Hagel and the CODEL received a briefing 
on the Panama Canal and discussed the widening project 
further with Minister for Canal Affairs and Secretary of 
Energy Dani Kuzniecky and Panama Canal Administrator Alberto 
Aleman.  Finally, CODEL Hagel had lunch with representatives 
of the U.S. Chamber of Commerce, who discussed the business 
climate, the tourism boom and the need for qualified 
technical labor. 
 
--------------------------------------------- ------ 
Pres. Torrijos: New Stage in Bilateral Relationship 
--------------------------------------------- ------ 
 
¶2. (C) The U.S.-Panama bilateral relationship "is on a great 
trajectory," Panamanian President Martin Torrijos told 
Senator Hagel at the opening of their meeting.  Reaching out 
to the Senator on short notice, Torrijos invited Senator 
Hagel to meet with him in a previously unplanned meeting. 
"We are entering a new stage of our bilateral relationship," 
Torrijos explained.  Not only had the Trade Promotion 
Agreement (TPA) been signed last year, but the Panama Canal 
expansion project, for example, would draw the U.S. and 
Panama closer together in a strategic relationship, the 
President said.  The expansion project would double the 
capacity of the canal and was already forcing U.S. East Coast 
ports to begin working to upgrade their facilities to 
accommodate not only higher volume, but also the larger ships 
that would now be able to transit the canal.  Panama was 
essentially "the maritime frontier of the U.S.," an aspect of 
the relationship that the President said needed to be 
explored further.  "I am confident," Torrijos said, "that we 
will leave the country on a good path for development." 
Noting that he had recently met with Colombian President 
Alvaro Uribe who had made "great advances against the FARC," 
Torrijos acknowledged the importance, as noted by Senator 
Hagel, of working together regionally to deal with challenges 
and to foster greater cooperation. 
 
¶3. (C) Torrijos agreed with Senator Hagel that Sinagpore's 
experience offered an example of development from which 
Panama could draw.  Singapore itself was investing in Panama, 
Torrijos noted.  For example, he pointed to the establishment 
of a Singaporean companies airplane maintenance and flight 
simulator training facilities as examples of where Panama was 
able to leverage its geographic location to launch new 
economic initiatives.  This Singaporean airplane maintenance 
center could serve as a repair facility for aircraft from 
across the hemisphere, Torrijos explained.  Furthermore, 
Panama was striving to become an energy hub by refurbishing a 
trans-isthmian pipeline, moving ahead on an Occidental 
Petroleum-Qatar Oil joint venture to build refinery in 
Panama, and connecting Panama's electric grid not only with 
Central America, but also with Colombia.  He added that 
Panama had much to learn from Singapore's success at making 
itself a world class logistics platform. 
 
¶4. (C) "We have changed the structure of our security 
forces," the President told Senator Hagel, "to be able to 
meet challenges to our security."  Torrijos explained that he 
had enacted laws to establish:  an independent frontier force 
(SENAFRONT), a coast guard or rather aero-naval service 
(SENAN), and a civilian intelligence service (SENIS).  Also 
the law had been amended to enable him to name a uniformed 
police officer to lead the Panamanian National Police (PNP). 
"Some say unfairly that I am trying to re-militarize," 
Torrijos stated.  "I am trying to update the security forces. 
 We did it fast and with limited time for debate.  There are 
some people who simply cannot be convinced on the need to 
make these changes, but the past cannot hinder us from 
meeting the future."  By setting up an intelligence service, 
Torrijos asserted that he was trying to give the existing 
service that operated in a gray area a legal framework.  "We 
know that the FARC is preparing to conduct operations in 
Panama and that they have done so in the past.  If given the 
opportunity, criminal organization will shift their presence 
to Panamanian territory if they were given the opportunity," 
Torrijos said.  "We need to be prepared to stop that." 
¶5.  (C) Answering the Senator's question, Torrijos said that 
in his post-presidency that he would like to help develop new 
leaders in the region.  "I would like to create a knowledge 
bank that can serve as a resource for up-and-coming leaders," 
the President said.  Working with former Chilean President 
Lagos and former Brazilian President Cardozo and the 
Ibero-American Summit, Torrijos hoped to contribute to 
efforts to create a public policy school for the hemisphere. 
"We share a lot of the same problems in Latin America," he 
said, "and we should be able to share experiences for what 
works." 
 
----------------------------------------- 
Meeting with First VP and FM Samuel Lewis 
----------------------------------------- 
 
¶6. (C) "I am very grateful for your efforts over the last few 
years to support Panama's free trade agreement with the 
U.S.," First VP and FM Samuel Lewis told Senator Hagel.  As 
would the pending Trade Promotion Agreement (TPA), Lewis also 
commented that Panama's "ambitious" canal expansion program 
would "contribute to an ever strengthening relationship with 
the U.S."  Regarding the TPA, Lewis expressed his hope that 
the TPA would "get unstuck" and help contribute to "our 
evolving and strengthening relationship."  Senator Hagel 
stated that he thought it was unlikely that the U.S.-Panama 
TPA would be acted on in September before Congress went out 
of session before the U.S. elections, but the Senator said it 
might be possible to take up the treaty in a post-election 
lame duck session.  Lewis noted that President Torrijos would 
be in Washington September 16 and 17 to "raise the profile" 
of the TPA and would meet with President Bush, Members of 
Congress, and others.  Senator Hagel encouraged Lewis to make 
the most of this trip and underscored that he remained a 
strong advocate that this treaty "needed to get done." 
 
¶7. (C) Noting that the Panama TPA would be considered after 
the Colombia TPA, Lewis said, "We need to consider the 
Colombia and Panama trade agreements in light of both 
countries strategic relationships with the U.S.  While the 
agreement with Panama did not face opposition, we trail the 
Colombia agreement that does face opposition.  The issue then 
becomes how do we break that obstacle and get over that 
hurdle" should the Colombia agreement face the prospect of 
not garnering sufficient votes.  "President Torrijos is going 
to make a plea to President Bush that, though we want to see 
Colombia go through, if both treaties cannot get through, we 
should consider getting one (i.e., Panama) through."  Senator 
Hagel cautioned Lewis to be careful not to encourage too 
publicly this kind of approach as it would open up new kinds 
of political competition.   "I think we can get both 
agreements done and can sell them on a strategic basis," 
Senator Hagel assured. 
 
¶8. (C) Turning to the Panama Canal, Lewis said, "At first, 
Panama needed to overcome the idea that Panama would not be 
able to run the canal, a perception held by many both in the 
U.S. and Panama."  Since 1999 when the canal was handed over 
to Panama, Lewis said that Panama had demonstrated that it 
could do an excellent job running the canal.  The next 
challenge was how to keep the canal up to date as trade 
volumes increased and the size of ships grew.  Therefore, 
Lewis explained, Panama put together a program to maximize 
the public benefit and mitigate the negative effects of 
expanding the canal while putting it on a firm financial 
footing.  "Ultimately, running the canal is all about water 
management," Lewis said, explaining that Panama would 
incorporate water recycling technology on its largest scale 
ever.  "We won approval via referendum to implement a USD 
5.25 billion expansion project that would double the canal's 
volume by the 2014 completion date of the project and enable 
it to handle larger ships. "This expansion will drive other 
developments in logistics, finance, trade, and 
manufacturing," Lewis asserted.  Contracts for dry 
excavation, dredging, and engineering management had already 
been awarded, Lewis said.  The big contract though would be 
for the design/build of the locks.  Four consortia had been 
short-listed to participate in the tender process, one of 
which was lead by the U.S. firm Bechtel.  "Ideally, tenders 
will be due in December, though that may slip to January," 
Lewis said.  The goal was to inaugurate the canal expansion 
project on August 15, 2014, the 100th anniversary of the 
original opening of the canal. 
 
¶9. (C) "Last year Panama grew at 11.2 percent, and we expect 
to close this year at 8.5 percent growth," Lewis said.  "One 
of the highest growth rates in the Americas."  Sustainable 
over time, this growth, Lewis said, would enable Panama to 
focus on necessary social investment.  "We have only 3.25 
million people.  Investment to address social problems can 
see a big difference over a short period of time," Lewis 
explained. 
 
--------------------------------------------- - 
Meeting with Minister of Commerce and Industry 
--------------------------------------------- - 
 
¶10. (C) "Foreign investment is the key to Panama's economic 
development; it spins off promising economic 
activity,"Minister of Commerce and Industry (MICI) Carmen 
Gisela Vergara told the Senator.  As an example, she 
emphasized that a film law passed this year to create 
incentives for production in Panama.  She added that the 
latest Bond movie was filmed in Panama, and 12 other 
productions were underway.  Minister Vergara also mentioned 
Law 41, the 2007 Regional Headquarters law, to encourage 
companies to establish regional headquarters in Panama to 
order to enhance employment opportunities.  She listed 
companies that have established regional headquarters in 
Panama including Hewlett-Packard, Proctor & Gamble, 
Caterpillar, and 3M.  In the last year of the Torrijos 
Administration, Vergara said the GOP hoped to close several 
big investment projects including an Occidental/Qatar 
refinery, an energy park in Colon, and the Ports 
America-Cosco megaport on the Pacific side.  She touted 
growth in tourism, noting Panama's 95 percent hotel occupancy 
year-round. 
 
¶11.  (C) "Everyday in the paper you see employment 
opportunities, but people don't have jobs because they are 
not qualified," Vergara stated in addressing the difficulty 
of foreign companies in finding qualified workers.  Panama's 
unemployment rate was 6.4% in 2008, a large decrease from the 
2004 rate of 14%. Income disparity continued to be a 
challenge, but it should be addressed with market solutions, 
according to Vergara.  "This is exactly what the government 
is doing," stressed Vergara, in creating the National 
Institute for Workforce Development (INADEH) that works with 
companies to solicit their expectations for future human 
resources needs and then works to meet that demand. 
Continuing to discuss GOP remedies for income inequality, 
Vergara noted the Network of Opportunities program which 
provides a USD 50 subsidy to families, in exchange for 
meeting certain health and educational goals, and the GOP's 
deep subsidization of gas and electricity.  Tax law changes 
implemented at the beginning of the Torrijos administration 
widened the tax base, focused on collection, and therefore 
enabled more robust funding of social programs, she concluded. 
 
----------------------------------- 
Meeting with Panama Canal Authority 
----------------------------------- 
 
¶12. (C) The expansion project was going well and attracting 
world-wide attention, according to Minister of Canal Affairs 
Dani Kuzniecky.  Kuzniecky is Chairman of the Board of the 
Panama Canal Authority (ACP) and the GOP's Secretary of 
Energy.  He briefed the CODEL with a powerpoint presentation 
on the 4-phase canal expansion project and explained its open 
and transparent bidding process that involves clear 
communication with each team of bidders about the rules of 
the process (such as the number of points awarded for certain 
technical performance specifications) and constant updates 
for all teams on issues of concern raised by any of the teams 
to avoid future problems.  Bidders would submit their 
proposal in a package and their price in an envelope that 
would stored in a bank in Panama.  The envelopes would be 
opened in a public forum, and the contract would be awarded 
to the company that scored highest by combining the technical 
points with points awarded for price.  As the companies would 
be spending USD 15-20 million to develop bids, the ACP sought 
to ensure that bidders felt the process was transparent and 
open, according to Kuzniecky.  The ACP would give each losing 
company a USD 3 million stipend to offset their losses.  All 
contracts should be in place by 2009.  The third set of locks 
would double the canal's capacity enabling it to handle twice 
as many ships and will allow larger individual ships to 
transit.  The U.S., the source or destination of 70% of canal 
trade, would directly benefit from this increase in capacity 
and ability, Kuzniecky asserted.  Panama's energy mix was 60% 
hydroelectric and 40% thermoelectric, Kuzniecky replied to a 
question by Senator Hagel. 
 
--------------- 
AmCham luncheon 
--------------- 
 
¶13. (C) American businesses were very enthusiastic about 
Panama, but recognized there were challenges, according to a 
representative of the American Chamber of Commerce at a lunch 
meeting with CODEL Hagel.  In attendance were Don Elder, 
Panama Project Manager of Caterpillar, Inc; Joseph Cazares, 
Vice President, CH2MHill Panama - the project management firm 
that is advising the ACP on the canal expansion project; 
Thomas Kenna, President of the Panama Canal Railway Company 
(a joint venture of Kansas City Southern and Mi-Jack 
Products, Inc.); Anette Cardenas, Marriot Hotels; Glen 
Champion, Vice President, Bern Hotels and Resorts; David 
Hunt, Executive Director, American Chamber of Commerce and 
Industry of Panama; and Robert Banker, Vice President, 
Association of American Chambers of Commerce.  Champion 
stated that the TPA would provide the perception of stability 
that was vital in Panama's small economy.  Several other 
representatives echoed this view.  Kenna, Elder, and Cardenas 
also said that their respective companies would be focusing 
heavily on lobbying during President Torrijos' upcoming visit 
to the U.S. 
 
¶14. (C) Panama had been transformed since 2000 in terms of 
corruption, according to Kenna.  The Panama Canal Railway 
Company was "very bullish" with respect to both the maritime 
and the tourist industries of Panama.  Elder of Caterpillar 
agreed with this positive assessment, but also noted ongoing 
challenges, such as the difficulty in securing land titles. 
The canal expansion project had been very transparent and 
open, according to Cazares of CH2MHill, with the greatest 
challenge being the politicization of decisions slowing the 
process.  A deficit of engineers and highly trained 
construction professionals was expected during the peak of 
the project (around 2011), when the project would demand more 
than 12,000 employees in the middle of a construction boom. 
Difficulties in finding qualified labor continued, according 
to the participants, except for Caterpillar, that was not 
reliant on large numbers of employees and would have the 
capacity to train its staff a part of the center's main core 
business in Panama.  A hotel and tourism boom had taken place 
and capital was readily available for hotel construction. 
 
¶15.  (U) CODEL Hagel cleared this cable. 
STEPHENSON