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C O N F I D E N T I A L PANAMA 000087 
 
SIPDIS 
 
E.O. 12958: DECL: 2020/02/16 
TAGS: PREL PGOV PM CH TW ECON
SUBJECT: No Recognition for PRC Anytime Soon - Panama Sticks with 
Taiwan 
 
REF: 09 PANAMA 461; 09 SAN JOSE 985; 10 PANAMA 29 
 
CL...

C O N F I D E N T I A L PANAMA 000087 
 
SIPDIS 
 
E.O. 12958: DECL: 2020/02/16 
TAGS: PREL PGOV PM CH TW ECON
SUBJECT: No Recognition for PRC Anytime Soon - Panama Sticks with 
Taiwan 
 
REF: 09 PANAMA 461; 09 SAN JOSE 985; 10 PANAMA 29 
 
CLASSIFIED BY: Stephenson, Ambassador; REASON: 1.4(B), (D) 
 
Summary 
 
 
 
¶1. (U) The GOP has renewed its commitment to Panama's longstanding 
relationship with Taiwan, despite public statements by President 
Ricardo Martinelli in 2009 that Panama would opt for formal 
diplomatic ties with the People's Republic of China (PRC). 
Martinelli attempted to follow through with his plan for 
recognizing the PRC but was told to back off by the Chinese. 
Taiwan has used financial incentives to retain the backing of the 
Martinelli administration, generating controversy over the recent 
"donation" of a $22 million business jet for the government's 
official use. End Summary. 
 
 
 
Hurry up and Wait 
 
 
 
¶2. (C) On January 6, Foreign Minister Juan Carlos Varela agreed to 
a "five-year cooperation" plan which includes the donation of $25 
million for construction of a hospital on the outskirts of Panama 
City in Chilibre - Las Cumbres, and the donation of a $22 million 
executive business jet.  Varela had to backtrack in announcing the 
cooperation plan; during their 2009 presidential campaign, both he 
and President Martinelli publicly indicated that Panama would 
recognize the growing economic relationship with China, as well as 
China's particular interests in Panama, by establishing formal 
diplomatic relations.   During his first meeting as President with 
the Ambassador in May 2009, Martinelli said that he was "going to 
recognize Beijing" as he thought that Panama's business community 
would benefit as a result (Ref A). 
 
 
 
¶3. (C) Martinelli may have had in mind the type of cooperation that 
Costa Rica has been enjoying with the PRC since establishing formal 
ties in 2007 (Ref B).  However, FM Varela stated to the Ambassador 
on February 18 that he was told by the Chinese Foreign Minister 
during his visit to Asia the previous month that, due to diplomatic 
overtures underway between Beijing and Taipei, now was not the time 
for Panama to recognize the PRC.  On February 1, Costa Rican 
President Oscar Arias informed a Colombian diplomat that Martinelli 
told him Panama wanted to follow Costa Rica's lead but that the 
Chinese had asked him to "remain calm" and that the PRC was not 
interested in furthering diplomatic ties in the region for the time 
being.   Chinese diplomats have related to Poloff in Costa Rica 
that the PRC was concerned that diplomatic recognition from other 
Latin American countries might damage their recently improved 
relations with Taiwan (Ref B). 
 
 
 
¶4. (U) While Panama and Taiwan have full diplomatic relations, the 
PRC maintains only a trade mission in Panama.  The PRC  has 
important economic interests in Panama; Hong Kong-based companies 
operate two of the four ports on both the Atlantic and Pacific 
terminus of the Panama Canal and the PRC is the second most 
frequent user of the waterway.  The PRC is also the largest 
supplier of goods to the Colon Free Zone (CFZ), the world's second 
largest free trade zone.  Taiwan and Panama, meanwhile, signed a 
free trade agreement in 2003. The ethnic Chinese community in 
Panama remains publicly agnostic on the issue of official 
recognition for the PRC. "Chino-Panamanos" number between 130,000 
and 200,000 (roughly 4-6% of the population) and are ubiquitous in 
the convenience store or "mini-super" industry. 
 
 
Where Does the Money Go? 
 
 
 
¶5. (U) Varela's confirmation of the renewal of ties with Taiwan 
came on the heels of Taiwan's gift to the GOP of a $22 million 
Embraer Legacy 600 executive business jet in December 2009. 
Martinelli had previously received criticism for his plans to 
purchase a new official jet, which ran counter to his campaign 
rhetoric indicating that, with an officially declared personal 
fortune of approximately $300 million, he would not need to charge 
the public treasury for executive travel. The government of Taiwan 
has historically used financial incentives to sweeten its 
relationship with Panama: political science professor Miguel 
Antonio Bernal estimated aid to be $125 million per year during the 
previous administration of President Martin Torrijos. 
Scholarships for study in Taiwan and grants to various ministries 
are among the ways Taiwan has donated to Panama.  Last year during 
an address to the Panamanian National Assembly, President Ma 
expressed interest in "project-based" aid, specifically mentioning 
planned improvements to Panama's mass transit system. 
 
 
 
¶6. (U) The longstanding financial aid has been derided on both 
sides of the Pacific as "checkbook diplomacy" and there is a 
traditional lack of transparency in how the money received from 
Taiwan is spent.  Varela stated to Polcouns and the Ambassador that 
the money is simply deposited in the treasury. In mid-February of 
this year reports surfaced that former president Mireya Moscoso was 
facing investigation for the misuse of up to $70 million in funds 
from Taiwan.  Moscoso has denied any involvement in distribution of 
money received by Mar Del Sur, a foundation set up for the sole 
purpose of distributing Taiwanese funds. 
 
 
 
Comment 
 
 
 
¶7. (C) The GOP decision to publicly back Taiwan is the result of 
financial incentives and a current lack of interest by the PRC. 
Martinelli seems to have been yearning for a dramatic diplomatic 
maneuver in pursuing recognition of the PRC but did not appear to 
have factored in the possibility that China would use (or, rather, 
not use) Panama for its own ends in improving its relationship with 
Taiwan. 
STEPHENSON