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RR RUEHWEB

DE RUEHZP #0894/01 3371419
ZNR UUUUU ZZH
R 031417Z DEC 09
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 0133
INFO RHEFDIA/DIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/DIRJIATF SOUTH
RHMFISS/JOINT STAFF WASHINGTON DC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS
RUEHGT/AMEMBASSY GUATEMALA
RUEHME/AMEMBASSY MEXICO 0029
RUEHMU/AMEMBASSY MANAGUA
RUEHSJ/AMEMBASSY SAN JOSE
RUEHSN/AMEMBASSY SAN SALVADOR
RUEHTG/AMEMBASSY TEGUCIGALPA 0027
RUEHZP/AMEMBASSY PANAMA
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS PANAMA 000894 
 
SENSITIVE 
SIPDIS 
PASS TO REPRESENTATIVE BOEHNER 
STATE PASS TO USAID AND USTR 
 
E.O. 12958: N/A 
TAGS: PREL ECON SOCI ASEC SNAR PGOV KPAO CASC PM
SUBJECT: Scenesetter for CODEL Boehner 
 
¶1. (SBU) Since the restoration of democracy after Operation Just 
Cause twenty years ago, Panama has established and consolidated a 
democratic, stable government, achieving a new confidence, 
dynamism, and psychological sovereignty that complements the 1999 
completion of its territorial sovereignty.  Panama has leveraged 
its superb stewardship of the Canal and central location to create 
an economic and logistical architecture that is now yielding strong 
economic growth.  However, opportunities created by the growth 
remain elusive to many Panamanians due to weak government resulting 
in continued income inequality, lack of access to quality public 
education, inadequate public infrastructure (especially 
transportation and health), and limited attention to economic 
development outside metropolitan Panama City.  Furthermore, the 
recent rise in violent crime related to narco-trafficking has 
alarmed citizens, investors, and tourists alike, as well as the 
U.S. Government, which wishes to see Panama secure and prosperous. 
Panama is at a crossroads where it could either complete its path 
to becoming a fully developed nation, fueled by the needs of 
growing businesses serving a global market; or Panama could falter 
as criminal enterprises and poor governance block the openness and 
opportunity needed for it to succeed. 
 
 
 
Government and Politics 
 
-------------------------------- 
 
¶2. (SBU) Businessman Ricardo Martinelli won the Presidency in May 
elections, and his "Alliance for Change" government was sworn into 
office on July 1.  In addition to Martinelli's "Democratic Change" 
party, the coalition includes the Panamenista Party led by Vice 
President/Foreign Minister Juan Carlos Varela, and two smaller 
parties: Molirena and Patriotic Union.  The Alliance also controls 
the unicameral National Assembly with 44 of 71 seats. 
Martinelli's program of providing subsidies to elderly Panamanians 
without pensions, his vow to end impunity for corrupt officials, 
and his promise to overhaul public transportation in Panama City 
have kept his popularity ratings above 80 percent.  On the other 
hand, his fledgling government has been criticized for 
non-transparent procurement processes, cronyism in government 
appointees, and changing terms of contracts and concessions 
previously granted to investors.  The main opposition party, the 
Revolutionary Democratic Party (PRD), is still reeling from its 
resounding electoral defeat.  The PRD elected a temporary national 
executive committee in October, and hopes to revise its bylaws and 
elect new party leadership well before the primary process for 2014 
national elections begins. 
 
 
 
Bilateral relations 
 
------------------------- 
 
¶3. (SBU) For 96 years, the United States maintained extensive 
influence in Panama, establishing close and enduring 
people-to-people contacts, building and operating the Canal and a 
series of military bases, and exercising sovereignty over the Canal 
Zone.  Panamanians admired many things about the U.S., but at the 
same time they saw the U.S. as a colonial and paternalistic power, 
and they considered the 1903 treaty that granted the U.S. rights 
over the Canal to be exceptionally unfair.  For decades, bilateral 
relations were punctuated by frequent and occasionally violent 
protests, until the 1977 Panama Canal treaties created a process to 
hand over the Canal Zone. 
 
 
 
¶4. (SBU) Because of this shared history, our relationship with 
 
Panama is complex and nuanced.  While the vast majority of 
Panamanians have a favorable view of the U.S., and the Martinelli 
Administration is eager to be seen as pro-American, Panama also 
maintains a strong sense of independence, fiercely guards its 
sovereignty, and has often sought to limit U.S. influence.  Because 
of its key location and role in global trade, Panama is vital to 
the prosperity and security of the United States, and the long-term 
interests of both Panama and the U.S. are best served by 
cultivating a strong partnership on economic and security issues. 
Our goal is for Panama to remain a secure, prosperous, and 
democratic country that continues to view the U.S. as its partner 
of choice. 
 
 
 
Security Issues: Narcotrafficking and Counter-terrorism 
 
--------------------------------------------- ---------------------- 
- 
 
¶5. (SBU) The Embassy's top priority is the security of the Canal 
and ports as vital economic infrastructure.  Without security, 
Panama cannot build or maintain the long-term prosperity and strong 
democratic systems required to take it to "First World" status. 
Panama has a serious problem with skyrocketing violent crime, which 
is the number one concern of Panamanians.  Significantly increased 
drug trafficking is the cause of that spike in violent crime, and 
we believe Panama's best strategy is to push drug trafficking away 
from its shores and make it difficult for organized crime networks 
to operate. 
 
 
 
¶6. (SBU) Panama's territorial waters are one of the main drug 
trafficking routes in Central America, with recent estimates 
indicating as much as 50% of all cocaine reaching Mexico has 
transited through Panama.  This trafficking threatens Panama's 
security and stability.  Drug trafficking organizations move drugs 
through Panama's territorial waters on short hops, requiring a 
sophisticated network of lookouts, refueling stations, and 
logistical support as loads are moved on to land and back to water. 
This activity leads to local corruption and strengthens gangs that 
are used to distribute drugs, support the traffickers, carry out 
murders, and contribute to logistical networks.  Major 
international drug trafficking organizations from Colombia and 
Mexico are present, as is the FARC's 57th Front, which traffics 
drugs and weapons through Panama. 
 
 
 
¶7. (SBU) Our extensive cooperation with numerous GOP entities 
consistently produces some of the highest cocaine seizures in the 
hemisphere, with 60 tons seized in 2007, 45 in 2008, and 38 so far 
this year.  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 to implement a 
community policing strategy, in conjunction with the Miami-Dade 
Police Department, to train both police and communities to identify 
criminal activities and to report on police corruption and 
malfeasance.   In addition, USAID Panama is using 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, and safe-haven 
recreational activities, supporting the government of Panama's own 
youth-at-risk programs. 
 
 
 
¶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 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 Canal. 
 
 
 
¶9. (SBU) Panama's other main terrorism concern is the presence of 
drug trafficking organizations and elements of the FARC in the 
Darien province along the Colombian border.  With a population of 
no more than 50,000 and only one main road, the Darien is an 
underdeveloped region 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 
Colombia.  In trying to confront this threat, Panama is limited by 
the fact 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).  Through our Narcotics Affairs Section and 
Office of Defense Cooperation, the Embassy has been working with 
limited funds to assist the development of these forces with 
training, equipment, and logistical support. 
 
 
 
¶10. (SBU) The Embassy is implementing a new program funded with 
Section 1207 of the NDAA security funds, which is designed to deny 
the FARC a safe haven and disrupt criminal organizations in Darien. 
That program aims for a whole-of-government approach to the region 
by improving government/citizen coordination, preventing 
recruitment into criminal organizations, encouraging demobilization 
and/or the arrest of current members, and improving citizen 
security. 
 
 
 
¶11. (SBU) Post's Country Team features representatives of DEA and 
FBI, the Department of Homeland Security's ICE, CBP, CIS, and Coast 
Guard, as well as new officers from the IRS and Federal Aviation 
Administration.  The Office of Defense Cooperation manages a robust 
security assistance and training program.  These offices are 
expanding the Embassy's and the Panamanian government's ability to 
investigate and combat the organizations trafficking in weapons, 
money, and people. 
 
 
 
Economic Issues and Trade 
 
--------------------------- 
 
¶12. (SBU) Panama is cognizant of the benefits of its geographic 
location and is working to build upon it by building a third set of 
locks for the Canal to facilitate additional East-West trade, and 
expanding the logistics operations to facilitate additional 
North-South trade.  It also aims to increase domestic and 
international investment in tourism and agriculture. Panama has 
been one of the few countries in the region to maintain positive 
economic growth over the past year, largely due to maintaining 
sound macroeconomic policies designed to increase infrastructure 
investment, reduce government debt, and liberalize its trade 
regimes. 
 
¶13. (SBU) Panama's GDP grew 8.5 percent  in 2006, 11.5 percent in 
2007, and 9.2 percent in 2008.  However, due to the global economic 
crisis, its GDP growth rate was 2.4 percent in the first half of 
¶2009. The main drivers of growth have been capital investment, port 
activity, tourism, construction, and goods and services exports. 
Despite the impressive economic growth which has resulted in 
Panama's GDP being almost $40 billion, the distribution of Panama's 
wealth and income remains highly skewed, with Panama having the 
second highest degree of inequality in the Americas. The poverty 
rate is 28.5 percent, and extreme poverty is 12 percent, which 
creates palpable resentment.   The 2010 government budget is $10.5 
billion, up over 5 percent from the 2009 budget.  Panama projects a 
deficit of a healthy 1.9 percent of the annual nominal GDP, 
resulting in a total public debt which has dropped to 42 percent of 
the GNP.  The Martinelil Administration has an extensive 
infrastructure investment plan, including building a Panama City 
metro, expanding the highway network, and building or expanding 
airports throughout the country. 
 
 
 
¶14. (SBU) The United States maintains extensive trade and 
investment ties with Panama.  The U.S. exported $4.9 billion to 
Panama in 2008, and imported $379.1 million, resulting in a trade 
surplus of $4.5 billion.  US exports were dominated by oil and 
capital- and technology-intensive manufactured goods, such as 
aircraft, pharmaceuticals, machinery, medical equipment, and motor 
vehicles.  Most US imports from Panama are seafood, including fresh 
fish and shrimp, and repaired goods.  The stock of U.S. foreign 
direct investment in Panama was $6.2 billion in 2007 (latest data 
available), up from $4.7 billion in 2006.  US FDI in Panama is 
concentrated largely in the non-bank holding companies, energy, 
finance, insurance and wholesale trade sectors. 
 
 
 
¶15. (SBU) Panama's economic foundation is the Canal through which 
passes roughly five percent of world commerce.  The Panama Canal 
Authority (ACP) has embarked on a $5.25 billion 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 (which 
is partially owned by U.S. firm Carrix and has invested $500 
million), 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 Trade Zone, the second 
largest free trade zone in the world, 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 $62 billion in assets fuels the purchase and movement of 
cargo and facilitates the absorption of robust foreign direct 
investment inflows that totaled $2.4 billion for 2008. 
 
 
 
¶16. (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 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. 
Tocumen International Airport 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). 
 
 
 
¶17. (SBU) On the other hand, financial transparency remains an 
issue.  The GOP has concluded double-taxation treaties (DTTs) with 
Mexico and Italy, and is in the process of negotiating DTTs with 
Spain and several other countries (it needs a total of 12) in order 
to avoid being black-listed by the Organization for Economic 
Cooperation and Development (OECD) as a tax haven.  Panama 
continues to send mixed signals about negotiating a Tax Information 
Exchange Agreement (TIEA) with the United States, especially given 
the uncertainty of securing a Panama-U.S. Free Trade Agreement. 
The GOP's current stated position is that it wishes first to 
complete double-taxation treaties with countries willing to 
negotiate them before turning to TIEAs.  While Panama has generally 
effective anti-money laundering/ anti-terrorist financing banking 
regulations, increasing regulation of "bearer shares" is the U.S. 
government's most predominant financial crimes recommendation for 
Panama.  Held anonymously by "the bearer," these instruments allow 
the persons possessing them to store and transfer funds with little 
risk of detection.  Bearer shares are used extensively in money 
laundering and by U.S. taxpayers concealing assets from the IRS in 
overseas banks.  Additionally, the Martinelli Administration has 
taken some steps which have caused people to question whether the 
government will maintain its traditionally open investment climate. 
Actions taken against international companies, including U.S. 
investments Manzanillo International Terminal and AES, to change 
the terms of public concessions, and proposed Law 71 affecting 
coastal property rights, have contributed to an impression that the 
security of an investment in Panama has decreased. 
 
 
 
Education 
 
-------------- 
 
¶18. (SBU) Employers, and particularly U.S. firms, consistently 
report a lack of skilled labor, in particular a lack of 
English-speaking workers.  There is a general perception in Panama 
that the national education system must be drastically improved to 
have a well-trained workforce that meets demand.  Public education 
expenditures have increased and represent about 6% of GDP, most of 
which is spent on current expenses such as salaries.  The Ministry 
of Education is charged with improving instructional facilities, 
curriculum, and teacher preparation and is looking for ways to 
improve English teaching and learning throughout the country. 
Unfortunately progress has been slow on that front; particularly in 
English learning, since the Minstry of Education declined to extend 
funding to one large, independent English teaching program that 
yielded excellent results.  School teachers are inadequately 
prepared and have insufficient materials and support in the 
classroom.  A recent UNESCO study indicated that Panama is below 
the average in Latin America for basic education infrastructure 
indicators such as restrooms and potable water. 
 
 
 
¶19. (SBU) The workforce has on average only nine years of 
education.  School attendance is compulsory between the ages of 
seven and fifteen, or until the six grades of primary school have 
been completed.  Primary school is free for all children. Nearly 
all Panamanians (94 percent) of primary school age are enrolled and 
92.5 percent of the age group completes primary school.  At the 
 
secondary level, 57.8 percent of those in the corresponding age 
group are enrolled and of those, only half complete their studies. 
Inequities in access and completion are acute for children living 
in indigenous, rural, and marginal urban communities, with a 
difference in years of schooling between urban and indigenous 
groups of seven years.  University level study has progressed from 
the 7 percent enrollment rate prevalent in the 1950s to a current 
rate of 25 percent.  Nevertheless, there are still significant 
socioeconomic discrepancies as only 3 percent of the poor attend 
university compared to 31 percent of the non-poor, according to a 
2002 study. 
 
 
 
¶20. (SBU) Because of our historic engagement, Panama has uniquely 
strong cultural ties with the U.S.  Recent governments have worked 
to extend that shared legacy by significantly boosting funding for 
overseas higher education, including in the U.S.  Many Panamanians, 
however, do not speak English well enough to undertake U.S. study. 
The Embassy is working to provide more opportunities for English 
language study for college-bound students through an extension of 
the Fulbright program and by providing an increasing number of 
English-language Access Micro-scholarships.  The Embassy also 
offers programs for undergraduates and high school students from 
economically underprivileged sectors that expose them to the U.S. 
and allow them to improve their English skills, making them more 
competitive for admission to colleges in the U.S.  We are exploring 
ways to work with the private sector and NGOs to increase 
scholarship opportunities and foster a robust public dialogue about 
education reform. 
 
 
 
Consular Issues 
 
---------------------- 
 
¶21. (SBU) The American citizen population resident in Panama is 
estimated to be 27,000.  Because of historic ties between the two 
countries and specific language in the Immigration and Nationality 
Act dealing with employees of the Panama Canal Zone, many of these 
Americans have Panamanian roots and are dual citizens. 
 
 
 
¶22. (SBU) Retirees:  Our best guess, based on estimates of persons 
receiving federal pensions and Social Security benefits, is that 
there are perhaps 10,000 Americans who have moved to Panama to 
retire.  They come to take advantage of the favorable climate, 
dollarized economy and heretofore low cost of living.  We estimate 
about 15 Americans join this group daily, based on notarizations we 
provide as part of the process for them to obtain Panamanian 
drivers licenses.  Many of these Americans have no significant 
problems adjusting to life in Panama.  However, complaints about 
property disputes have been steadily increasing, as have concerns 
about corruption, violent crime and Panama's slow and opaque 
judicial system. 
 
 
 
¶23. (SBU) Prisoners:  Currently, there are 20 Americans 
incarcerated in Panama, all but three of whom are imprisoned for 
drug smuggling. 
 
 
 
¶24. (SBU) Child Custody Cases:  We are aware of 18 children who 
have been taken to Panama by one parent without the permission of 
the parent remaining in the United States.  At the request of the 
U.S. parent, we often conduct Welfare and Whereabouts visits to the 
 
children's homes. 
 
 
 
¶25. (SBU) Nonimmigrant and Immigrant Visas:  Nonimmigrant visa 
demand continues to grow by approximately 10% annually.  In FY2009, 
we processed 35,387 nonimmigrant visa applications, including for 
recipients of Fulbright scholarships and international visitor 
program participants, and 651 immigrant visa applications, uniting 
friends and families. 
STEPHENSON