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FM AMEMBASSY PANAMA
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RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
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RHMFISS/JOINT STAFF WASHINGTON DC
RHEHAAA/NSC WASHDC
RUEKJCS/OSD WASHDC
RUEKJCS/SECDEF WASHDC
RHEHAAA/WHITE HOUSE WASHDC

C O N F I D E N T I A L PANAMA 000439 
 
SIPDIS 
NOFORN 
 
WHSR PLEASE PASS TO USTR 
 
E.O. 12958: DECL: 06/01/2019 
TAGS: PREL PGOV ECON ETRD EFTA PM
SUBJECT: PANAMA: NEITHER TORRIJOS NOR MARTINELLI CAN 
DELIVER ON FTA LABOR PACKAGE 
 
Classified By: Ambassador Barbara J. Stephenson. 
Reasons:  1.4 (b) and  (d) 
 
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Summary 
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¶1. (C) While President-elect Ricardo Martinelli would very 
much like to secure U.S. ratification of the pending 
bilateral Free Trade Agreement (FTA), Martinelli and his 
closest advisors assess that President Martin Torrijos and 
his Revolutionary Democratic Party (PRD) deputies in the 
National Assembly will not be able to deliver on its promised 
legislative reforms to Panama's labor code, Minister of the 
Presidency-designate Demetrio "Jimmy" Papadimitriu told 
POLCOUNS on May 26.  Organized labor's opposition to the 
proposed changes to the code virtually ensure that PRD 
deputies, most of whom are not returning to the National 
Assembly after the July 1 inauguration, will not vote for the 
legislative changes to the labor code.  If the PRD, which has 
the strongest ties to labor, cannot provide the "lion's share 
of the lift on labor," why should Martinelli's four-party 
Alliance for Change invest any political capital in an 
endeavor that is doomed, Papadimitriu asked rhetorically. 
Keenly aware that expectations for "change" would be sky high 
following their 23-point victory that decimated the PRD, 
Papadimitriu noted that the Alliance would have only a short 
period to galvanize their political movement and consolidate 
the major political in-roads already achieved by the 
Martinelli phenomenon.  The only way to lock in this 
unprecedented victory was to make significant advancement on 
top domestic priorities -- security, education, 
transportation, and healthcare -- over the next year, 
Papadimitriu asserted.  As much as they might want to secure 
U.S. ratification of the FTA, Papadimitriu noted that 
Martinelli needed to make the tough political calculation to 
invest his political capital on domestic priorities; "The FTA 
simply does not help us much domestically." 
 
--------------------------------- 
Labor Fears Opening Pandora's Box 
--------------------------------- 
 
¶2.  On May 25, CONATO, Panama's largest labor umbrella group, 
announced its opposition to opening the labor code to 
legislative reform.  Union leaders assessed that the proposed 
legislative changes -- reducing from forty to twenty people 
the minimum number of workers necessary to organize a union 
(a provision of the Labor Code) and expressly extending labor 
protections to export processing zones (EPZs) (which requires 
changing legislation not in the labor code) -- were not 
important enough to risk backsliding on other areas of the 
labor code at the behest of employers.  Papadimtriu explained 
that organized labor did not want to "open Pandora's box" to 
make changes that it viewed as "inconsequential" for fear 
that more important parts of the labor code would be 
"manipulated" by the private sector.  Papadimitriu 
acknowledged that the PRD had significantly more influence 
over organized labor than did any party in the Alliance for 
Change.  Martinelli, Papadimitriu explained, wanted to avoid 
a clash with labor and concluded that, if the PRD could not 
deliver the lion's share of the political lift on legislative 
changes to the labor code, it would be a fool's task for the 
Alliance to even try. 
 
--------------------------------------------- ---- 
Consolidating Victory, Harnessing it for "Change" 
--------------------------------------------- ---- 
 
¶3.  "We want to outflank labor and other key interest groups, 
not incite them or start off with frontal assaults on them," 
Papadimitriu explained.  In the wake of the Alliance's 
23-point victory that decimated the PRD, Papadimitriu said 
that expectations would be very high for Martinelli to start 
delivering on the change he promised.  The Alliance needed to 
focus on top domestic priorities -- security, healthcare, 
education, and transportation -- not international 
priorities, if it was to consolidate its impressive victory 
at the polls.  Desiring to fundamentally re-align the way 
politics is done in Panama, Papadimitriu explained that 
Martinelli had to create facts on the ground quickly that 
demonstrated that a new era had dawned in Panama.  Perhaps, 
at some indeterminate point down the road the political 
landscape would have changed significantly enough to allow 
Martinelli to consider investing political capital to 
finalize the legislative changes to the labor code sought by 
the U.S., according to Papadimitriu.  As for the U.S. 
pressure to immobilize the bearer shares of anonymous 
corporations and negotiate a tax information exchange 
agreement (TIEA) with the U.S., Papadimtriu assessed that, if 
the PRD could not deliver on the labor reforms, the pressure 
to enact financial sector reforms would be lessened in that 
it would not be as linked to FTA ratification.  "We would be 
better off allowing the OECD/G-20 calls to close down tax 
havens to play out at their own pace," Papadimitriu said, 
stating that it would be better to grapple with key interest 
groups in the legal and banking sectors in due course. 
"Eventually we will need to negotiate a TIEA," Papadimitriu 
acknowledged, noting that immobilizing bearer shares would be 
essential to any such agreement. 
 
----------------------------- 
La Prensa:  "Panama can wait" 
----------------------------- 
 
¶4.  (SBU)  Momentum to await a better time to finalize the 
bilateral trade deal appears to be gaining momentum.  "Now 
the country must wait for a better moment or for Washington 
to appreciate its relationship with a good neighbor that is 
poor, but not naive," Panama City's leading daily declared in 
its front-page opinion article on May 30. "Definitely, Panama 
can wait" for U.S. congressional ratification of the 
U.S.-Panama Free Trade Agreement (FTA).  Noting that "the 
time for negotiations had passed," La Prensa asserted, "It is 
unjust for the U.S. superpower to impose more conditions -- 
proper and yet harmful conditions -- on our service economy." 
 
 
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Comment 
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¶5. (C) Martinelli and his closest advisors are dismayed that 
the FTA may slip away.  Martinelli lays the blame for the 
"loss" of the FTA at Torrijos' and the PRD's dithering over 
extra rounds of FTA negotiations, electing Pedro Miguel 
Gonzalez to be President of the National Assembly, though he 
is under U.S. federal indictment in connection with the 1992 
murder of a U.S. soldier, and not being able to deliver all 
the legislative fixes on labor.  Not only has the incoming 
Martinelli Administration concluded that pushing through the 
labor reforms is out of their hands, but Papadimitriu and 
Martinelli have arrived at the shrewd political calculation 
that they must capitalize now on their impressive victory at 
the polls by delivering the "change" that voters demanded by 
making significant progress on top domestic, not 
international, priorities. 
 
STEPHENSON