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### Viewing cable 07PANAMA910, SCENESETTER FOR SECRETARY OF STATE RICES' JUNE 4 VISIT TO

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07PANAMA910 | 2007-06-01 16:32 | 2011-05-29 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Panama

`

    VZCZCXYZ0001
    RR RUEHWEB

    DE RUEHZP #0910/01 1521632
    ZNR UUUUU ZZH
    R 011632Z JUN 07
    FM AMEMBASSY PANAMA
    TO RUEHC/SECSTATE WASHDC 0510
    INFO RHEHAAA/NSC WASHDC
    RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
    RUCPDOC/DEPT OF COMMERCE WASHDC
    RUEAUSA/DEPT OF HHS WASHDC

` `

    UNCLAS PANAMA 000910

    SIPDIS

    SENSITIVE
    SIPDIS

    E.O. 12958: N/A
    TAGS: PREL PGOV ETRD ECON OVIP OTRA PM
    SUBJECT: SCENESETTER FOR SECRETARY OF STATE RICES' JUNE 4 VISIT TO
    PANAMA

    This message is sensitive but unclassified.  Please protect
    accordingly.

    ¶1.  (SBU) Welcome and Summary.  Embassy Panama extends a warm
    welcome to you and your delegation.  Your engagement in Panama can
    help strengthen our excellent bilateral relationship, solidify
    support for the U.S.-Panama Trade Promotion Agreement (TPA),
    reinforce U.S. support for, and interest in, the $5.25 billion
    Panama Canal expansion project, and advance broader U.S. economic
    and social interests.  Your visit comes at a time when Panama enjoys
    an economic boom while, at the same time, it endeavors to overcome
    stubbornly high levels of poverty, yawning income disparities, high
    unemployment, widespread corruption, and poor educational and
    healthcare systems.  Public support nonetheless remains solid for
    both the Torrijos Administration and the TPA.  Panamanians have
    noted that the FY08 elimination of U.S. foreign assistance for
    Panama will end our direct assistance for good governance programs,
    anti-corruption efforts, and other basic development work.  You
    will:

    - have the opportunity address the Organization of American States
    General Assembly (OASGA);
    - hold informal discussions over lunch and in a private dialogue
    with FMs and other leaders from this hemisphere's thirty-four
    countries;
    - hold separate bilateral meetings with the Peruvian FM and the
    Ecuadoran FM;
    - meet with Panamanian President Martin Torrijos; and
    - conduct two television interviews with U.S. Spanish-language
    outlets.

    Your visit follows President Bush's March 2007 Latin America tour
    and President Torrijos' February 2007 Washington visit.  Your visit
    will also come on the heels of Transportation Secretary Mary Peters'
    May 6-9 visit and Deputy Secretary of State John Negroponte's May 11
    visit.  Deputy U.S. Trade Representative John Veroneau visited
    Panama March 15-16.  While Secretary of Health and Human Services
    Mike Leavitt will also be traveling with you, he will engage in a
    separate program in Panama.  CODEL Skelton will also be in Panama
    during your visit for bilateral discussions on security matters, and
    CODEL Meeks will have departed the day before your arrival. End
    Summary.

    --------------------------------------
    Panama Sees Boom in GDP and Investment
    --------------------------------------

    ¶2.  (U) With 8.1% GDP growth in 2006, Panama's economy saw its
    fastest growth in 14 years, topping solid levels of 6.9% in 2005 and
    7.5% in 2004.  Panama's dollarized $15 billion/year 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.  The Panama Canal accounts for
    approximately 5% of Panama's GDP directly, and between 23% and 35%
    indirectly.  The maritime industry accounts for approximately 20% of
    Panama's GDP.

    ¶3. (U) The GOP estimates that inflows of Foreign Direct Investment
    (FDI) exceeded $2.4 billion in 2006, more than double that of 2005.
    However, this result was skewed by HSBC's $1.8 billion purchase of
    Banistmo (Panama's largest bank) in November 2006.  The stock of
    U.S. FDI in Panama, which currently totals about $5.2 billion, is
    concentrated primarily in the maritime, energy, and financial
    sectors.  Growing numbers of U.S. and other foreign retirees have
    helped drive Panama City's skyline upward, boosted the country's
    impressive construction boom over the past several years, and
    prompted closer ties between U.S. and Panamanian real estate
    industries.  Although the GOP has tightened its banking supervision
    considerably over the past decade, money laundering remains an
    ongoing challenge and is increasingly of concern in other sectors,
    such as real estate and the gaming industry.

    ¶4.  (U) Panama also maintains one of the most liberalized trade
    regimes in the hemisphere.  The U.S. is Panama's largest trade
    partner, with two-way trade reaching nearly $3.1 billion in 2006, an
    increase of 24% over 2005's trade of nearly $2.5 billion.  With 2006
    exports of $2.7 billion and imports $378 million, the U.S. continued
    to maintain its huge trade surplus with Panama.  Panama has existing
    free trade agreements in place with El Salvador, Taiwan, and
    Singapore, as well as partial trade agreements with Mexico,
    Colombia, and the Dominican Republic.  In December 2006, the
    National Assembly unanimously approved a bilateral free trade deal
    with Chile.  On March 1, 2007 Panama and Honduras concluded their
    FTA negotiations.  Panama continues to negotiate separate FTAs with
    Costa Rica, Guatemala, and Nicaragua.

    --------------------------------------------- ---------

    Persistent Poverty, Unemployment, Corruption and Lack of Skilled
    Labor Cloud the Horizon
    --------------------------------------------- ---------

    ¶5.  (SBU) At $4,600, Panama's per capita GDP ranks among Latin
    America's highest.  President Torrijos hopes that sustained growth
    resulting from the Panama Canal expansion project and the TPA will
    help push Panama into "first world" status.  However, neither the
    Canal nor the TPA is a panacea, as cronyism and weak institutions
    (especially the notoriously corrupt judiciary and troubled health
    and education sectors) have kept Panama's solid GDP growth from
    translating into broadly shared prosperity.  Panama is second only
    to Brazil in having Latin America's worst income distribution.
    Poverty persists at nearly 40% overall (higher than 80% in some
    rural areas), and unemployment remains high (officially about 8.6%,
    with more than 20% underemployed) despite showing some signs of
    improvement in the past two years.  The Embassy is focused on
    working with Panamanians to promote good governance and to help them
    better address the risks posed by public mismanagement, corruption,
    and persistent urban poverty and hopelessness.  With the FY08
    elimination of U.S. foreign assistance for Panama, our USAID mission
    has begun to plan for an orderly close-out of its programs,
    including those that have helped to promote good governance,
    empowered anti-corruption NGOs, advanced sustainable development,
    and boosted trade capacity building for small and medium-sized
    businesses.

    ¶6. (SBU) Corruption is widespread in the Panamanian judiciary.
    Despite campaign promises by President Torrijos to eradicate
    corruption, there have been no significant indictments or
    prosecutions for official corruption. In December 2005, the USG
    revoked the visa of sitting Panamanian Supreme Court Justice Winston
    Spadafora.  In September 2000, the USG revoked the visa of
    ex-President Ernesto Perez Balladares.

    ¶7. (SBU) Despite spending 12% of the national budget and 5% of GDP
    on education, Panama suffers from a poorly educated workforce.
    About half of prospective University of Panama students recently
    failed their entrance exams, prompting university authorities to
    lower the threshold for entrance.  Acutely aware of the political
    blow-up the could result from filling the Panama Canal expansion
    project with skilled foreign workers, the GOP is spending $85
    million to train Panamanian workers hoping to work on the project.
    However, about one-third the training program's applicants cannot
    begin the program because they lack the basic literacy and math
    skills required.

    ----------------------------------------
    U.S.-Panama TPA Enjoys Solid 62% Support
    ----------------------------------------

    ¶8. (U) On December 19, 2006, the USG and GOP announced closure of
    TPA negotiations subject to resolution of certain labor issues.  On
    March 30, 2007, President Bush notified Congress of the
    administration's intent to sign the TPA. USTR and Congressional
    leaders recently agreed on the labor portion of the TPA, opening the
    way for a signing in late June.  .

    ¶9. (U) Following the December 19, 2006 closure of TPA negotiations
    in Washington, the GOP intensified its campaign to promote the
    agreement throughout the country, touting the TPA as the "best deal"
    negotiated by a Latin American country with the U.S.  Through an
    aggressive media campaign and hundreds of seminars with business
    chambers, labor unions, civic groups, and communities around the
    country, the GOP has gained the support of 62% of Panamanians.  This
    is substantially higher than the 39% level of support reported in a
    May 2006 poll.  (Note: The 2006 poll reflected uncertainties and
    fears generated by former Agriculture Minister Laurentino Cortizo's
    flamboyant resignation at the outset of the ill-fated ninth round of
    negotiations in January 2006.)

    ¶10.  (SBU) Despite some anti-TPA noise from extreme left-wing
    quarters, TPA opponents are currently sparse and disorganized.
    Since December, leaders of various political opposition parties have
    told Embassy officers that they expect Panama's National Assembly to
    pass the deal by a wide margin.  One prominent opposition party
    leader noted that virtually all business sectors have lined up for
    the TPA and that any politician opposed to the agreement would fear
    being associated with Panama's most extreme leftists.  Moreover,
    many of Panama's political leaders also have business interests that
    stand to benefit from the TPA.

    --------------------------------------------- -----
    $5.25 Billion Panama Canal Expansion Gets Underway
    --------------------------------------------- -----

    ¶11.  (U) Since the December 31, 1999 handover of the Panama Canal by
    the U.S., 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 tripled Canal revenues since the handover, topping $1.5
    billion in 2006.  In 2006, the ACP remitted to the national
    government $570 million.  To protect the Canal's vital water
    resources, the Panama Canal Authority (ACP) has matched a $2.5
    million fund that USAID put in place to better manage the Canal
    watershed.

    ¶12.  (SBU) In October 2006, Panamanians voted overwhelmingly (78% to
    22%) in favor of the proposed expansion of the Panama Canal.  This
    project is due for completion in 2014 and will entail primarily
    construction of a "third lane" and two new sets of locks.  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.  The ACP plans to finance the project through a

    combination of Canal revenues, increased tolls, and $2.3 billion in
    bridge loans.  The Embassy has consistently stressed the USG's
    desire for clear and transparent contracting rules that offer fair
    opportunities to U.S. bidders.  Bidding on the construction manager
    contract is scheduled for third quarter of 2007.  This contract will
    account for approximately 50% of the entire project cost.
    Prospective bidders worry that Panama has nowhere near the number of
    skilled workers necessary for the expansion project, particularly
    English-speaking workers.

    ¶13. (U) On February 2, 2007, the ACP announced toll increases of 10%
    over the next three years commencing in July 2007.  Chile, Peru,
    Japan and Ecuador have vigorously opposed the toll increases.  The
    ACP pricing policy is to charge what it perceives to be the market
    value of its services.

    --------------------------------------------- ---
    Health Diplomacy: HHS-GOP Launch Regional Center
    --------------------------------------------- ---

    ¶14. (SBU) HHS Secretary Leavitt and Panamanian Health Minister
    Camilo Alleyne have gained solid support from Central American
    partners to create in Panama the "Regional Healthcare Training
    Center" announced by President Bush in March 2007.  Although this
    Center is to be formally inaugurated on June 4, HHS and Alleyne
    successfully launched its first course on April 16, drawing more
    than 50 participants from the region for training on Avian Flu
    preparedness and response.  HHS has devoted $4 million and the GOP
    $1.5 million to lay the groundwork for what HHS and the GOP envision
    as a permanent, hemispheric training center for community health
    workers, nurses, and other health professionals.  (Note: Alleyne has
    been embattled for several months following the late 2006 deaths of
    more than60 Panamanians from contaminated GOP-produced medicines.
    He has also taken heat for promoting Cuba's "Operation Miracle"
    program in Panama and for a controversial healthcare system reform
    proposal.  End note.)

    --------------------------------------------- -----
    Despite Challenges, Torrijos Enjoys Solid Approval
    --------------------------------------------- -----

    ¶15.  (SBU) Since taking office for a five-year term in September
    2004, the Torrijos government set its principal priorities as canal
    and maritime security, economic development, job creation, poverty
    alleviation, investment, fiscal reform, and "eradicating
    corruption."  Torrijos 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.  Although
    pressures from entrenched interest groups slowed GOP fiscal reform
    efforts, Torrijos' 2005 fiscal reform package - together with tax
    revenues driven by impressive economic growth - brought the GOP into
    a fiscal surplus (0.5% of GDP) by early 2007, Panama's first such
    surplus in ten years.

    ¶16.  (SBU) Midway through his term, Torrijos enjoys high public
    approval ratings (over 60%) despite weathering bruising battles over
    fiscal and social security reforms, the Canal referendum, crises in
    healthcare and transport sectors, and having little to show for his
    promise to eliminate corruption.  His Revolutionary Democratic Party
    (PRD) controls Panama's unicameral National Assembly and other
    governmental institutions.  With opposition parties remaining
    fractured and so far unable to coalesce into an effective
    counterweight, the PRD appears well positioned to control Panama's
    political agenda going into the 2009 elections.  As Torrijos is
    constitutionally prohibited from a consecutive term, various PRD
    members - including former President Ernesto Perez Balladares, First
    Vice President/Foreign Minister Samuel Lewis Navarro and his cousin,

    the Mayor of Panama City Juan Carlos Navarro- have already begun to
    jockey for position as the PRD's 2009 candidate.

    ------------------------------------------
    Panama Active on Global and Regional Stage
    ------------------------------------------

    ¶17.  (SBU) In late 2006, Panama emerged as Latin America's consensus
    candidate for a two-year seat on the UN Security Council.  This
    followed a prolonged deadlock between Venezuela and Guatemala.
    Faced with a steep learning curve at the UNSC, Panama has thus far
    played a responsible and constructive role.  Panama will also host
    the Organization of American States (OAS) General Assembly in June
    2007, which will focus on "energy for development."  President
    Torrijos has pursued a policy of maintaining friendly relations with
    all nations, including hemispheric neighbors such as Cuba and
    Venezuela.

    --------------------------------------------- -
    Good Cooperation on Security & Law Enforcement
    --------------------------------------------- -

    ¶18.  (SBU) As a key link in the global supply chain and a vital
    transit point for U.S. trade (about two-thirds of the Canal's
    traffic is bound to or from the U.S.), the Canal presents an
    attractive and vulnerable terrorist target.  Moreover, despite
    significant progress, Panama continues to be an important transit
    point for drug smugglers, money launderers, illicit arms merchants,
    and undocumented immigrants heading north thanks to its proximity to
    drug-producing neighbors and its status as an important, dollarized,
    financial center.  With USG assistance, Panama has strengthened its
    ability to detect illegal money and narcotics shipments through
    Tocumen International Airport.  Several GOP agencies participate as
    part of a Joint Task Force that averages several seizures of
    narcotics and/or money each week.  For example, Embassy law
    enforcement agencies and the Task Force recently conducted two joint
    operations that seized at total of $1.5 million in cash and gold.
    In March 2007, Panamanian authorities, with critical USG law
    enforcement support, conducted the largest ever maritime narcotics
    seizure on the Pacific Coast of Panama.  Authorities confiscated a
    ship containing approximately 20 tons of cocaine with an estimated
    value of $500 million.  A USG built checkpoint near the Costa Rican
    border that is manned by various GOP agencies has also made
    consistent narcotics seizures and interdictions of undocumented
    aliens.

    ¶19.  (SBU) The GOP recognizes that securing the Canal requires a
    mature, collaborative bilateral relationship.  The Torrijos
    government is 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.  The GOP is moving ahead with plans
    to merge its National Maritime Service and its National Air Service
    into a single "Coast Guard" type of operation.  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.

    ¶20. (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 (over 5,000 large commercial vessels).  About 13%
    of the U.S. ocean-going cargo transits the Canal each year.
    Panama's seafarer registry currently licnses over 300,000 crew
    members.  Port services have grown dramatically in the past decade,
    as Panama now boasts the leading complex of port facilities in Latin
    America.  In February 2007, the GOP and U.S. Department of Homeland
    Security executed a "Container Security Initiative" agreement aimed
    at enhancing the security of container traffic between our two
    countries.  CSI equipment will first be installed this June at the
    U.S.-run Manzanillo International Terminal (MIT) in Colon.

    Eaton

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