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### Viewing cable 06PANAMA10, SCENESETTER: CODEL BURTON JANUARY 12-13 VISIT TO

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06PANAMA10 | 2006-01-04 20:08 | 2011-04-28 00:12 | UNCLASSIFIED | Embassy Panama

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 03 PANAMA 000010

    SIPDIS

    DEPARTMENT FOR H BFLECK AND WHA/CEN FOR GSCHIFFER

    E.O. 12958: N/A
    TAGS: OREP PGOV PREL AMGT ASEC ETRD PM CA GT ECONOMIC AFFAIRS
    SUBJECT: SCENESETTER: CODEL BURTON JANUARY 12-13 VISIT TO
    PANAMA

    ¶1. (U) This message is sensitive but unclassified.  Please
    protect accordingly.

    ¶2. (SBU) Embassy Panama extends its warmest welcome on your
    upcoming visit to Panama. You will have the opportunity to
    review a wide range of issues, including bilateral security
    and the economic/trade environment.  Your visit follows the
    highly successful visit by President and Mrs. Bush on
    November 6th and 7th, 2005 as well as recent visits by DEA
    Administrator Karen Tandy (June 20-22, 2005), a USG
    inter-agency delegation (September 28-30, 2005) to discuss
    U.S.-Panama cooperation on Panama's Secure Trade and
    Transportation Initiative (PST & TI), and FBI Director Muller
    (October 27-28, 2005).

    ¶3.  (SBU) As the government of President Martin Torrijos
    enters its second year in office, your January 12-13 visit to
    Panama can help to strengthen our already excellent bilateral
    relationship.  Elected as a modernizing, anti-corruption
    reformer by the largest post-1989 plurality on record (47% of
    the vote and 41 out of 78 legislative seats), Torrijos has
    made clear that his most important foreign policy priority is
    relations with the United States.  He also has acted to
    deepen our two countries' mutual focus on counter-terrorism
    capabilities, combating international criminal networks, and
    expanding trade and investment.  Your visit coincides with
    the ninth (and possibly final) round of U.S. - Panama
    negotiations on a Free Trade Agreement (FTA) in Washington.

    Panama Canal Expansion
    ----------------------

    ¶4. (SBU) The Torrijos team sees Canal expansion as a top
    priority.  The proposed Canal expansion project to construct
    a third set of locks could cost $8 billion and take 8-10
    years to complete.  The GOP expects the project will be a
    transforming event for Panama that will provide jobs and set
    the tone economically for years to come.  Given growing trade
    between East Asia and the U.S. eastern seaboard, the
    expansion is central to maintaining the Canal's future
    viability and is expected to be financed through a
    combination of Canal revenues, new user fees, and bridge
    loans.  However, Panama's constitution requires a national
    referendum to approve the idea.  This referendum could occur
    in late 2006 or 2007.  A September 2005 CID-Gallup poll
    showed that a majority of Panamanians would vote in favor of
    Canal expansion, although the outcome of a referendum cannot
    be predicted.

    Panama Canal Stewardship
    ------------------------

    ¶5. (SBU) Since the 1999 handover, the Panama Canal Authority
    (ACP) has proven itself an able administrator, turning the
    Panama Canal into an efficient and profitable business.
    During the past five years, the ACP has reduced average Canal
    transit times, accidents in Canal waters, and has overseen
    large-scale upgrade and maintenance projects.  The ACP also
    has increased revenues, which in FY 2004, exceeded $1 billion
    for the first time and contributed $332 million to the GOP
    budget.

    GOP Priorities
    --------------

    ¶6. (SBU) The Torrijos government's principal priorities are
    canal and maritime security, economic development, job
    creation, poverty alleviation, investment, fiscal reform, and
    government transparency.  Torrijos has faced large challenges
    from the outset: a serious budget shortfall; a near-bankrupt
    national retirement and medical system (the Social Security
    Fund); and faltering public confidence in government
    institutions and the rule of law.  Pressures from entrenched
    interest groups have slowed the Torrijos administration's
    reform plans.  Torrijos has worked to complete FTA
    negotiations with the United States, and launch a more
    activist and "coherent" foreign policy (including closer
    relations with Western Europe).  After a "review" of Panama's
    relations with Taiwan and China, the GOP has decided to stick
    with Taiwan.

    President Torrijos and a New Generation
    ---------------------------------------

    ¶7. (SBU)  Torrijos has surrounded himself with young,
    primarily U.S.-educated professionals like himself, and has
    marginalized "old guard" supporters of former President
    Ernesto Perez Balladares (1994-99).  He has appointed many
    pro-U.S. technocrats to his cabinet, although they lack
    experience.  Most of the cabinet are respected professionals
    without excessive baggage from Panama's
    21-year military dictatorship or the PRD's anti-U.S. faction.

    Poverty: Hampers Economic Prospects
    -----------------------------------

    ¶8. (U) At $4500, Panama's per capita GDP is Latin America's
    fifth highest.  However, Panama's solid GDP growth in recent
    years (7.6% in 2004, 6% in 2005) and pursuit of trade
    liberalization have yet to translate into broadly shared
    prosperity.  Panama faces the second-worst income
    distribution pattern in Latin America, persistent poverty
    (40% overall, higher than 80% in some rural areas), and
    stubbornly high unemployment (officially about 12%, with
    20-25% underemployment).  Moreover, Panama's dollarized
    economy currently faces the highest rate of inflation (about
    3%) the country has seen in the past 23 years, as rising fuel
    and food prices place greater hardship on low-income
    Panamanians.

    FTA - Ninth Negotiating Round Jan 10-12
    ---------------------------------------

    ¶9. (SBU) Negotiations on a bilateral FTA began in April 2004
    under President Moscoso.  To date, eight negotiating rounds
    (the last one in February 2005) have failed to produce an
    agreement, mainly due to Panamanian sensitivities in
    agriculture, such as rice, poultry, and pork.  Panama also
    wants to increase its sugar quota.  The Torrijos
    administration views a bilateral FTA as imperative to attract
    investment, increase exports, and make Panama competitive
    with the CAFTA countries.  Your visit will coincide with the
    ninth, and likely final, round of negotiations in Washington.

    Security and Law Enforcement Policy
    -----------------------------------

    ¶10. (SBU) The Torrijos government is highly focused on Canal
    and maritime security and combating terrorism and
    transnational crime, although it has not yet found the
    resources to adequately patrol Panama's long Caribbean and
    Pacific coastlines and to secure Panama's porous border with
    Colombia against guerrilla infiltration.  U.S.-Panamanian
    cooperation in law enforcement and security has steadily
    improved in recent years.  This has led to increasing
    narcotics seizures, better investigations, active maritime
    law enforcement, more specialized units, and better detection
    of money laundering and illicit financial flows.  While the
    USG-GOP relationship is good, Panama's law enforcement
    institutions are weak and suffer from limited resources and
    professionalism.  On May 12, 2004, the U.S. and Panama signed
    a Proliferation Security Initiative (PSI) Shipboarding
    Agreement.  Panama gave early
    political support to the Coalition of the Willing and
    ratified a bilateral Article 98 Agreement.

    Security Cooperation
    --------------------

    ¶11. (SBU) The GOP recognizes that securing the Canal and
    Panama's borders requires a mature, collaborative bilateral
    relationship.  Panamanians are eager to accept mil-to-mil
    security training and equipment, as was shown during the
    August 2004 and August 2005 multinational PANAMAX naval
    exercises that centered on Canal defense.  PANAMAX 2005
    counted 15 participating nations.  The GOP has welcomed an
    increased number of USG-sponsored Medical Readiness Exercises
    and other DOD rural humanitarian programs, which construct
    schools and clinics, and highlight the U.S. military's
    humanitarian side.  New Horizons 2005, in the Azuero
    Peninsula, received wide and favorable press coverage.

    Our Third Border
    ----------------

    ¶12. (SBU) The Canal remains an attractive and vulnerable
    terrorist target, although good Panamanian defense planning
    and U.S. training and equipment have made any potential
    terrorist attack more difficult.  To protect water resources,
    the Panama Canal Authority (ACP) has committed to match
    dollar-for-dollar AID's three-year $2.5 million integrated
    watershed management program.  Despite
    significant progress, Panama continues to be an important
    transit point for drug smugglers, money launderers, illicit
    arms merchants, and undocumented immigrants heading north.

    Maritime Security
    -----------------

    ¶13. (SBU) The GOP is acting to end abuses in Panama's open
    ship registry and mariner identification documents.  Panama's
    ship registry, the world's largest, comprises one-quarter of
    the world's ocean-going fleet (5,525 large commercial
    vessels).  About 13% of the U.S. ocean-going cargo transits
    the Canal each year.  Panama's seafarer registry currently
    licenses over 264,000 crew members.
    Port services grew dramatically from about 200,000 containers
    per year in the early 1990s to 2 million by 2003.  Panama now
    boasts the leading complex of port facilities in Latin
    America.  In response to our homeland security concerns, the
    Torrijos Administration is working to greatly improve
    security and transparency in documenting ships and the crews
    that work on them.  We are actively discussing with GOP
    counterparts ways in which we can enhance maritime security
    through more robust information sharing.

    Anti-Corruption
    ---------------

    ¶14. (SBU) After campaigning on a "zero-corruption" platform,
    Torrijos has run a notably more honest government than his
    predecessors.  In October 2004 Torrijos replaced the
    controversial Supreme Court president, Cesar Pereira Burgos,
    who had passed retirement age.  Controversy over corruption
    within the Supreme Court continues to attract popular
    interest, especially after the USG revoked the visa of
    Supreme Court Magistrate Winston Spadafora in late November.
    Torrijos' December 2005 appointments to replace two outgoing
    Supreme Court Justices were generally well-received.

    ¶15. (SBU) At the end of September 2005, a commission that
    President Torrijos formed in March to make proposals on
    justice sector reform released its detailed report and
    recommendations.  The Embassy supports that effort, and good
    governance activities directed toward judicial reform, civic
    education, business ethics, and strengthening the
    anti-corruption prosecutors' institutional capacity.

    Visa Revocations
    ----------------

    ¶16. (SBU) An important element of the Embassy's Good
    Governance initiative is its visa revocation program.  Based
    on Embassy recommendations, the State Department in summer
    2004 revoked the U.S. visas of two former senior GOP
    officials, which provoked a spate of mostly favorable press
    commentary and huge support (85% according to one poll) from
    average Panamanians.  A third visa, of former Maritime
    Authority Director Bertilda Garcia, was revoked in early
    March, 2005.  In December, 2005 the visa of sitting Supreme
    Court Justice Winston Spadafora was revoked under section
    212(f) of the Immigration and Naturalization Act based on
    credible allegations of corruption, sparking considerable
    controversy.  Several other corrupt officials have lost their
    visas for money laundering or related issues and we are ever
    alert to ensure that other corrupt officials who have harmed
    USG interests may not travel to the United States.

    Macroeconomic Climate
    ---------------------
    ¶17. (U) Panama's approximately $14 billion economy is based
    primarily on a well-developed services sector that accounts
    for roughly 80% of GDP.  Services include the Panama Canal,
    banking and financial services, legal services, container
    ports, the Colon Free Zone (CFZ), and flagship registry.
    Panama also maintains one of the most liberalized trade
    regimes in the hemisphere.  U.S. bilateral trade with Panama
    came to $2.1 billion in 2004.  U.S. exports were $1.8 billion
    and imports were $316 million in 2004.  The stock of U.S.
    Foreign Direct Investment (FDI) is approximately $20 billion.
     U.S. FDI is primarily concentrated in the maritime, energy
    and financial sector.
    EATON

`