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DE RUEHZP #0421/01 1462240
ZNR UUUUU ZZH
R 262240Z MAY 09
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 3419
INFO RUEHBO/AMEMBASSY BOGOTA 2806
RUEHBR/AMEMBASSY BRASILIA 0359
RUEHBU/AMEMBASSY BUENOS AIRES 0215
RUEHPE/AMEMBASSY LIMA 0742
RUEHSJ/AMEMBASSY SAN JOSE 2017
RUEHSO/AMCONSUL SAO PAULO 0072
RHMFISS/COMDT COGARD WASHINGTON DC
RHMFISS/DIRJIATF SOUTH
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHMFISS/JOINT STAFF WASHINGTON DC
RHEHAAA/NSC WASHDC
RUEKJCS/SECDEF WASHDC

UNCLAS PANAMA 000421 
 
SENSITIVE 
SIPDIS 
 
PLEASE SHARE WITH CODEL THOMPSON 
 
E.O. 12958: N/A 
TAGS: PGOV PREL PM
SUBJECT: PANAMA: SCENESETTER FOR CODEL THOMPSON 
 
--------------------------------- 
Panama After Operation Just Cause 
--------------------------------- 
 
¶1. (SBU) Since the 1989 restoration of democracy, Panama has 
established and consolidated a democratic, stable and 
responsive government; accelerated economic growth through 
open markets; and worked 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. Panama has leveraged its superb stewardship of 
the Canal and central location to create an economic and 
logistical architecture that is now yielding comparatively 
stellar economic growth and a substantial reduction in 
poverty. However, opportunities created by the growth remain 
elusive to many Panamanians due to continued income 
inequality fostered by lack of access to quality education 
and inadequate public infrastructure (especially 
transportation and health). 
 
--------------- 
May 3 Elections 
--------------- 
 
¶2. (SBU) Panama held general elections on May 3, to elect the 
President of the Republic and every elected position in the 
country. Businessman Ricardo Martinelli won a landslide 
victory, gaining 60% of the vote, and his "Alliance for 
Change" coalition won a comfortable majority in the National 
Assembly. The alliance features Martinelli's own Democratic 
Change (CD) party, the Panamenista Party, led by his Vice 
President-elect and Foreign Minister-designate Juan Carlos 
Varela, the Patriotic Union (UP) party, and the MOLIRENA 
party. Martinelli's government and the new National Assembly 
will be sworn in on July 1. The governing Revolutionary 
Democratic Party (PRD) was badly defeated, and is mired in 
mutual recrimination among several leaders trying to 
establish their leadership as the party prepares to rebuild. 
The outgoing government has maintained excellent ties with 
the USG, and there is every reason to believe relations will 
continue to be close under the new government. 
 
--------------- 
Booming Economy 
--------------- 
 
¶3.  (SBU) Panama's economic 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 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 $19 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. 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 $2.4 billion for 2008. 
Through generally prudent management, it has been able to 
finance construction projects and consumer spending, key 
drivers of GDP growth - 11.5% in 2007 and roughly 9% in 2008. 
Although the global financial crisis will impact Panama, 
growth is expected to be 1-3% - one of the only countries in 
the hemisphere expecting positive growth. 
 
¶4. (SBU) In recent years, Panama has reached beyond its 
traditional maritime and financial networks to build 
connectivity of data and 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 
at the former Howard Air Base, which is undergoing a $705 
million transformation as a regional manufacturing and 
distribution hub. Panama's tourism industry has similarly 
mushroomed in the past five years, with tourist arrivals 
increasing from 600,000 to 1.6 million between 2000 and 2008. 
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). 
 
¶5. (SBU) 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. 
 
----------------- 
MERIDA and PANAMA 
----------------- 
 
¶6. (SBU) Though it is in the transit zone for narcotic 
smuggling and has large amounts of drugs flowing through its 
territorial waters, Panama has taken decisive action against 
drug traffickers, and is one of the top countries in Latin 
America in terms of drug seizures, with 60 tons seized in 
2007, 51 seized last year, and 23 tons seized so far this 
year. This is due primarily to its excellent collaborative 
counter-narcotics relationship with the U.S., and the work of 
a small group of elite police officers. Major international 
drug trafficking organizations from Colombia and Mexico are 
present in Panama, as is the FARC's 57th Front, which 
traffics drugs and weapons through Panama. 
 
¶7. (SBU) While Panama's security apparatus racks up 
impressive drug seizures, the Panamanian public is alarmed by 
a perceived wave of crime and insecurity. Constant killings 
among drug traffickers and a growing indigenous youth gang 
problem have left the public feeling uneasy in this 
traditionally low-crime country. Taking advantage of Merida 
Initiative funds, Embassy Panama is implementing an 
integrated inter-agency approach to the problem. The 
foundation for our strategy is community policing. Post is 
working with the Panamanian National Police (PNP) to 
implement a Community Policing strategy, in conjunction with 
the Miami Dade Police Department, to train the highest level 
of the police leadership in the concept of community 
policing. Community organizations are also being established 
to interact with the police, not just to identify criminal 
activities, but to report on police corruption and 
malfeasance. Post will use additional funds allotted through 
Merida to strengthen the PNP's ability to investigate and 
discipline internal corruption as a prerequisite for 
effective community policing. In addition, USAID Panama will 
use Merida funds to develop youth centers in high risk areas, 
in conjunction with Panamanian NGOs and faith-based 
organizations, which will provide vocational training, 
extra-curricular activities, safe-haven recreational 
activities. 
 
-------------------------- 
Security/Counter-Terrorism 
-------------------------- 
 
¶8. (SBU) Panama's main terrorism concern is an attack against 
the Canal. The Panama Canal Authority and the Government of 
Panama work closely together to protect the Canal, and the 
Embassy's Office of Defense Cooperation (ODC) has trained 
several elite squads of security forces to support protection 
of the Canal in the event of an attack. Panama co-hosts the 
annual PANAMAX exercise, a multinational security training 
exercise tailored to the defense of the Panama Canal. The 
exercise replicates real world threats to the Canal in order 
to develop appropriate responses and guarantee safe passage 
to the approaches to the canal and through the waterway. 
Twenty nations, including the United States, participate. On 
the margins of PANAMAX, Panama hosts a tabletop exercise 
specifically designed to enhance its ability to address 
asymmetric threats. 
 
¶9. (SBU) Panama's other main terrorism concern is the 
presence of drug trafficking organizations (DTOs) and 
elements of the FARC in the Darien. With a population of no 
more than 50,000 and only one main road, the Darien is a very 
underdeveloped region on the border with Colombia, which is 
physically and psychologically remote for most Panamanians. 
Elements of the FARC have long used the parts of this region 
closest to the border as a rest and relaxation zone, in 
addition to organizing drug trafficking and logistical 
operations in support of other FARC units inside of Colombia. 
In trying to confront this threat, Panama is limited by the 
fact that it has no military forces, following their 
dissolution after Operation Just Cause in 1989. Panama's 
security is the responsibility of the Panamanian National 
Police (PNP), the National Aero-Naval Service (SENAN), the 
National Frontier Service (SENAFRONT), and the Institutional 
Protection Service (SPI, a Secret Service equivalent). The 
Torrijos government spun SENAFRONT off from the PNP late last 
year in an attempt to stand up a more capable force on the 
border that could keep the DTOs and the FARC under control. 
While this was a good first step, SENAFRONT is still far away 
in terms of size, training and equipment from being able to 
take on the FARC. Post, through our Narcotics Affairs Section 
(NAS) and ODC, has been working with limited funds to assist 
the development of SENAFRONT with training and equipment. 
 
¶10. (SBU) Post is developing a proposal for DOD 
counter-insurgency funds that would stress a "whole of 
government" strategy, based on the idea that the real danger 
of the FARC and DTOs in the Darien is that they may be able 
to usurp the legitimacy of the state in an area where the 
state had little effective presence beyond the main road and 
a few SENAFRONT bases, and the FARC and DTOs are able to buy 
consciences by paying premium prices for goods and assistance 
with the drug trade. The funds would be used to leverage GOP 
funds and spearhead an effort to develop effective techniques 
for improving government services in remote areas. This 
program would go hand in hand with other DOD funded programs 
to improve SENAFRONT's logistical capabilities so it could 
cut the drug, weapons and supply trafficking routes in the 
Darien. 
 
----------------------------- 
Homeland Security Cooperation 
----------------------------- 
 
¶11.  (SBU)  Post's Country Team features representatives of 
ICE, CBP, and CIS. ICE has recently developed a vetted unit 
within the PNP, funded by State Department Narcotics Affairs 
Section (NAS) funds. This unit has already had several 
successes and is expanding the Embassy's ability to 
investigate and combat the organizations trafficking in 
weapons, money and people. ICE is also working to develop a 
Trade Transparency Unit (TTU) together with the Panamanian 
Customs Authority. This program would allow the GOP and 
ICE/CBP to get a much better understanding of the trade 
patterns in Panama, and especially into and out of the Colon 
Free Zone (the second largest in the world). At the same 
time, CBP has been working with SENAFRONT and other 
Panamanian security services to man a checkpoint on the 
Pan-American Highway to try to stop the flow of drugs and 
other illegal contraband along this critical roadway. They 
have also brought teams down from the Border Patrol, funded 
by NAS, to work with SENAFRONT and develop its professional 
skills. 
 
¶12.  (SBU)  One of the most important Homeland Security 
programs in Panama is the Container Security Initiative 
(CSI), a joint CBP and ICE program, which currently features 
three scanners at Panama's three busiest ports scanning 
containers heading to the U.S. and CBP officers in-country 
assisting in the ports. The GOP was so impressed with this 
program that it bought nine additional scanners to scan 
additional containers at additional ports. 
 
---------------------- 
Torrijos wants the FTA 
---------------------- 
 
¶13. (SBU) President Torrijos, who leaves office July 1, 
asserts he fulfilled all major campaign promises, but one - 
the FTA. The FTA is a legacy issue; President Torrijos 
desires a 'book-end' to his father's Canal treaties. Thus 
President Torrijos and his administration are willing to 
spend political capital to legislatively address labor and 
bearer share issues brought up by the U.S. legislative and 
executive branches. However, this late in his administration, 
that capital is rapidly diminishing. The choreography of the 
potential movement of the FTA through Congress and 
synchronization with potential Panamanian reforms is 
difficult. The U.S. legislative and executive branches must 
signal to the Panamanians that the U.S. Congress will vote on 
the FTA in order to rally the PRD majority in the National 
Assembly to pass legislation on labor issues and bearer 
shares during the Panamanian lame duck session,  before the 
July 1 transfer of power. Torrijos has already issued three 
executive decrees instituting labor reforms. But the rest of 
the issues require National Assembly action, and the 
legislation is politically difficult. On labor, President 
Torrijos' center-left majority can muster the votes, but 
cannot appear to be kowtowing to the United States. On bearer 
shares, the Torrijos Administration faces powerful and 
persistent opposition by lawyers who issue those shares, two 
of whom are former Panamanian ambassadors to the United 
States, and many of whom are stalwart contributors to the 
PRD. 
 
¶14. (SBU) After July 1, a new Administration assumes power. 
The incoming Martinelli administration, thanks to lobbying 
from Obama administration officials and G-20/OECD pressure, 
has already agreed to start TIEA negotiations in 2009. 
However, that agreement is fragile, especially in light of 
recent statements by Obama administration officials that seem 
to indicate a reconsideration of U.S. trade policy as a 
whole, including forward movement on the Panama FTA. It would 
also be very difficult for Martinelli's administration to 
take on the labor reforms. Martinelli's administration, based 
on a small and weak party (Democratic Change), will spend 
considerable effort merely maintaining an unwieldy four party 
coalition to govern. His coalition might very well splinter 
if forced to vote on labor reforms, and complex issues will 
be difficult to deal with as the government assembles its 
team and learns to work together. A failed FTA will be a blow 
to reformers and will strengthen both traditional and 
nationalist voices in Panama and those in a new generation 
who simply call for fewer American-centric policies. Failure 
could also increase uncertainty about the $6.2 billion stock 
of U.S. investment in Panama. 
 
------------------------------ 
Panamanian Reforms - Tax Haven 
------------------------------ 
¶15. (SBU) Many sources have labeled Panama as a tax haven. 
However, Panama is not the stereotypical post office box 
destination for corporations seeking to avoid U.S. taxation. 
Rather, the vast majority of U.S. companies that locate 
subsidiaries in Panama do so to expand market share in Latin 
America. U.S. businesses are attracted to Panama due to the 
use of the U.S. dollar, modern banking system, the Colon Free 
Zone, and transportation/logistical architecture that 
includes the Panama Canal, Panama Canal railroad, major 
ports, and a regional air hub. Companies use Panama as a 
marketing and distribution platform to expand brand awareness 
and sales in the region, often leading to increased 
employment in the United States. 
 
¶16. (SBU) The reason Panama does not fit into this stereotype 
is that Panama has effective anti-money 
laundering/anti-terrorist finance banking regulation. 
However, transparency issues remain, concentrated in the 
corporate practices of Panama's loosely regulated legal 
profession. Under Panamanian law, lawyers are the only group 
empowered to establish corporations, including shell 
corporations that issue bearer shares. Bearer shares serve as 
an extremely powerful 'cloaking device' for financial crimes. 
Held anonymously by "the bearer," these instruments allow the 
persons possessing them to store and transfer funds with 
little risk of detection. Often wealthy individuals or 
companies will open an "anonymous society" corporation in 
Panama. The President and Directors of the company are random 
people paid a nominal sum to sign a legal document that 
allows them to be the "leadership" of the anonymous society 
corporation. However, true ownership lies in the person who 
physically controls the bearer shares. The person who 
physically controls bearer shares likely will not be able to 
deposit them in a Panamanian bank without strict disclosure 
requirements, as the banks are tightly bound by 
know-your-customer rules. However, nothing stops bearer 
shares holders from traveling to a country with lax banking 
regulations and opening bank accounts through an attorney or 
other proxy (who can hide the identity of the holder of the 
bearer shares). 
 
¶17. (SBU) After substantial engagement from the U.S. 
Government, the Government of Panama announced on April 7 
that it intends to regulate bearer shares. This breakthrough, 
when fully executed, will fulfill the USG's most prominent 
financial crimes regulatory recommendation, and remedy 
Panama's sole grave remaining anti-money 
laundering/counter-terrorism finance (AML/CFT) deficiency. 
 
¶18. (U)  End Scenesetter. 
STEPHENSON