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UNCLAS PANAMA 000896 
 
SENSITIVE 
SIPDIS 
 
USTR FOR JOHN MELLE; COMMERCE FOR ANNE DRISCOLL, TREASURY 
FOR DAS O'NEIL, LABOR FOR CHARLOTTE PONTICELLI 
 
E.O. 12958: N/A 
TAGS: ECON ENIV ETRD OVIP PGOV PM PREL
SUBJECT: SCENESETTER: SECRETARY RICE,S VISIT TO PANAMA FOR 
THE PATHWAYS TO PROSPERITY MINISTERIAL 
 
------- 
SUMMARY 
------- 
 
1.(SBU) Embassy Panama warmly welcomes your December 9-10 
visit for the inaugural Pathways to Prosperity (Pathways) 
Ministerial. In many ways, Panama's social and economic 
journey since the 1989 restoration of democracy mirrors the 
goals of the Pathways initiative: establish and consolidate a 
democratic, stable and responsive government; accelerate 
economic growth through open markets; and strive to ensure 
that the benefits of that growth reach all citizens. While a 
hemispheric leader in progress on these fronts, Panama today 
stands at a crossroads. Its political establishment is 
approaching its fourth presidential election since 1990 in 
May 2009, yet cynicism abounds. Panama has leveraged its 
superb stewardship of the Canal and central location to 
create an economic and logistical architecture that is 
yielding stellar economic growth and a substantial reduction 
in poverty. However, opportunities created by the growth 
remain elusive to the poor and middle class due to continued 
income inequality fostered by lack of access to quality 
education, inadequate public infrastructure (especially 
transportation) and the disproportionate effect of inflation 
on lower income citizens. 
 
¶2. (SBU) If Pathways develops as planned, it will directly 
address a theme you have stressed - overcoming the left/right 
divide in Latin America to achieve agreement on common 
principles for governing wisely and enabling the private 
sector and civil society to participate fundamentally in that 
process. Throughout its history, Panama has served as a 
facilitator between left and right. Marked by its 
multi-ethnic population, non-ideological pedigree, and its 
comparative advantage as the conduit for goods and funds in 
the hemisphere, Panama is an ideal host for the Pathways 
ministerial. Your will visit will reinforce key Pathways 
themes via your signing of a bilateral education agreement to 
provide pre-academic English instruction and your steadfast 
support of completion of the free trade agreements for Panama 
and Colombia. End Summary. 
 
----------------- 
PANAMA'S PROGRESS 
----------------- 
 
¶3. (SBU). During your visit to Panama, you will find much of 
the progress envisioned in the Pathways initiative. Behind 
the construction cranes and traffic jams lies an expanding 
economic/logistical architecture. Its foundation is the Canal 
through which passes roughly 5% of world commerce. The Panama 
Canal Authority (ACP) has embarked on a $5.25 billion dollar 
expansion, the centerpiece of which is a third set of locks 
capable of handling the largest class of container vessels. A 
growing network of ports, including Manzanillo International 
Terminal in Colon (partially owned by U.S. firm Carrix), 
facilitates trans-isthmian logistics along with the 
revitalized Kansas City Southern Railway between Panama City 
and Colon. Panama Ports (Hutchison Port Holdings, Inc. of 
Hong Kong) launched a $240 million expansion of its Pacific 
and Caribbean terminals, augmenting the GOP's construction of 
the $215 million Panama-Colon Highway. The Colon Free Zone 
generated over $16 billion in trade last year. It serves as a 
hemispheric "one-stop shop" for sourcing, financing, and 
delivering products (mostly from Asia) to Latin American 
markets. 
 
¶4. (SBU) Panama's robust financial center, with 90 banks and 
$63 billion in assets fuels the purchase and movement of 
cargo and facilitates the absorption of robust foreign direct 
investment (FDI) inflows that totaled $1.1 billion for the 
first half of 2008. Through generally prudent management, it 
has been able to finance construction projects and consumer 
spending, key drivers of GDP growth - 11.5% last year and 
9.5% in the first half of 2008. 
 
 
¶5. (SBU) In recent years, Panama has reached beyond its 
traditional maritime and financial networks to build 
connectivity of data, knowledge, and people. Panama lies at 
the junction of five high bandwidth submarine fiber optic 
cables, placing Panama City second only to New York City in 
bandwidth availability. This feature was key in the decisions 
of Dell and Hewlett-Packard to locate regional headquarters 
in at the former Howard Air Base, which is undergoing a $705 
million transformation as a regional manufacturing hub. You 
will sign a bilateral education agreement at the former U.S. 
Army base Fort Clayton, today the home of the City of 
Knowledge (Ciudad de Saber - CDS). Ciudad de Saber is 
executing its vision to be a center of learning and 
innovation by creating a community of academic institutions, 
international organizations and NGO's and technology oriented 
businesses and organizations. The number of entities 
established at the CDS has grown from 43 in 2001 to 120 in 
2007, currently employing 2000 people. The Business Incubator 
Program alone within the CDS has created more than 300 jobs 
and led to the registration of 5 international patents. 
 
¶6. (SBU) Panama's tourism industry has similarly mushroomed 
in the past five years, with tourist arrivals increasing 133% 
between 2000 and 2007. Arrivals at Tocumen International 
Airport reflect a similar trend, climbing from over 2.1 
million in 2000 to an estimated 4.5 million in 2008. Tocumen 
recently completed an $85 million expansion of its 
international terminal, complimented by the concurrent growth 
in its flag carrier, Copa (which codeshares with Continental 
Airlines). 
 
---------------- 
CHALLENGES AHEAD 
---------------- 
 
¶7. (SBU) Amidst Panama's partial, yet impressive, realization 
of Pathways goals lies an equally impressive set of 
challenges. The global economic crisis is beginning to curb 
growth across the board in this internationally dependent 
economy. Inflation this year has been running just under ten 
percent, causing food and fuel needs to curb discretionary 
spending in lower income families. A recent United Nations 
report highlighted true progress in poverty reduction from 
2001 to 2007 - overall poverty fell from 37% to 29% and 
extreme poverty fell from 19% to 12%. Yet, the distribution 
of Panama's wealth and income remains highly skewed, and 
Panama has one of the highest degrees of inequality in the 
Americas. This situation creates palpable resentment as BMWs 
and Land Rovers zip past hot, crowded, buses that subject 
riders to unreliable multi-hour commutes. Most inhabitants of 
Panama City have never visited an indigenous area or the 
Darien, where poverty predominates and government services 
are minimal. 
 
¶8. (SBU) The fragility of Panama's rural infrastructure was 
on full display this week, as the worst floods in 40 years 
washed away crops, farm-to-market roads, and thousands of 
homes. SOUTHCOM, through Joint Task Force Bravo operating out 
of Soto Cano in Honduras, played a leading role in disaster 
relief in Chirqui and Bocas del Toro provinces as well as the 
Nogbe Bugle indigenous people's autonomous region (comarca). 
Over a nine day period, two Blackhawk and two Chinook 
helicopters flew more than 97 flights that resulted in 16 
rescue MEDEVACS and delivery of more than 200,000 pounds of 
cargo, including $250,000 in USAID food, water, and other 
supplies. 
 
¶9. (SBU) Panama's educational system falls well short of what 
is needed to prepare its students to take advantage of 
opportunities in the global economy to improve their lives. 
Subpar training in English, math and science - if allowed to 
continue -- will profoundly curtail opportunity for another 
generation of Panamanians. Lack of opportunity could heighten 
instability, as youth unable to compete in legal activities 
 
could turn instead to illicit pursuits. 
 
¶10. (SBU) Panama's status as a regional hub carries a darker 
side. Illegal activities piggyback on Panama's location and 
commercial/financial infrastructure, namely the transshipment 
of narcotics and contraband, and money laundering. While 
crime currently is low by regional standards, it is 
increasing. There is a very real prospect of losing 
adolescents who see the benefits of free markets all around 
them, but are unable to share in those benefits via 
educational attainment. In this context, your visit to the 
City of Knowledge to sign a bilateral education agreement 
bodes well for our bilateral relationship and as an example 
of turning Pathways goals into practice. This agreement more 
than doubles the number of Panamanian Fulbright participants 
and provides pre-academic English instruction to national 
scholarship winners who want to pursue graduate study in the 
United States. 
 
--------- 
ELECTIONS 
--------- 
 
¶11. (SBU) Panama will hold general elections on May 3, 2009, 
to choose a president and to fill every elected seat in 
Panama's National Assembly. We fully expect this date to 
herald the fourth free and fair election since Operation Just 
Cause. However, this contest is particularly personal and 
nasty. According to polls, a population focused on the rising 
cost of living, wage stagnation, and increasing crime has 
grown cynical about its government's ability to deliver 
sustained social and economic progress. Until recently, 
President Torrijos' PRD party successor, Balbina Herrera, 
looked like a strong front runner. Yet, missteps by both have 
eroded Herrera's standing, especially President Torrijos' 
decision to remain in Spain at an event with the Spanish 
royal family while floods were ravaging the Western 
provinces. The Panamanian press juxtaposed photos of 
Ambassador Stephenson leading USG relief efforts and cartoons 
of President Torrijos clinking champagne glasses in Spain. 
Independent Ricardo Martinelli has thus far successfully 
positioned himself as the candidate for change, bolstered by 
financing from his substantial fortune. Meanwhile Juan Carlos 
Varela, of the traditional opposition Panamenista party lags 
far behind. 
 
----------------- 
FTA STILL ON HOLD 
----------------- 
 
¶12. (SBU) Finally, the uncertain status of the U.S.-Panama 
FTA (along with the U.S.-Colombia FTA) is certain to arise 
during the Pathways Ministerial. President Torrijos will 
express disappointment that his close relationship with 
President Bush has not yielded submission of the FTA to 
Congress. However, recent positive statements of Democratic 
Congressional leaders, endorsement of the pact by prominent 
newspapers such as the New York Times, Washington Post, and 
Los Angeles Times, and the Brookings Institution's 
enthusiastic embrace of the agreement in its November 
"Rethinking Latin American Relations" report augur well for 
prospects for passage of the Panama FTA in the new Congress. 
 
GILMOUR