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### Viewing cable 05PANAMA1352, AS HIS POPULARITY PLUMMETS, PANAMANIAN PRESIDENT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05PANAMA1352 | 2005-06-21 22:38 | 2011-05-31 00:00 | CONFIDENTIAL | Embassy Panama

`

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

` `

    C O N F I D E N T I A L SECTION 01 OF 03 PANAMA 001352

    SIPDIS

    DEPARTMENT FOR WHA/CEN
    SOUTHCOM ALSO FOR POLAD
    VANCOUVER FOR CG ARREAGA

    E.O. 12958: DECL: 06/21/2015
    TAGS: PREL PGOV ETRD PM POL CHIEF
    SUBJECT: AS HIS POPULARITY PLUMMETS, PANAMANIAN PRESIDENT
    TORRIJOS PROPOSES A 90-DAY "NATIONAL DIALOGUE" ON SOCIAL
    SECURITY REFORM -- AN ANALYSIS

    REF: PANAMA 1184

    Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.4 (B) AND (D).

    SUMMARY
    -------

    ¶1.  (C) Apparently surprised by the persistence of anti-CSS
    (Social Security) reform agitation following passage of a
    June 1 reform bill (see Reftel), and as one poll placed his
    approval rating at just over 20%, Panamanian President Martin
    Torrijos on June 16 proposed a 90-day social security reform
    "national dialogue."  But anti-reform forces have refused to
    sit down with the government unless it "suspends" the new
    law, which Torrijos has ruled out.  Simmering ill feeling
    left over from February's fiscal reform has multiplied the
    strength of CSS reform opponents and produced a defacto
    alliance between white collar professionals (teachers and
    physicians) and labor union radicals.  The Torrijos
    government's present difficulties bespeak its political
    inexperience: it failed to consult widely leading up to the
    law's passage, rammed the law through the National Assembly
    on a party-line vote literally at midnight, and ran a poor
    public relations campaign to "sell" the need for reform.  As
    a sign of how seriously he considers the current political
    situation, Torrijos canceled plans to attend a June 18-19
    MERCOSUR summit in Asuncion, Paraguay, and sent Foreign
    Minister Lewis instead.  End Summary.

    A Dialogue, But No One Is Talking
    ---------------------------------

    ¶2.  (C) The 90-day National Dialogue on CSS reform, which
    President Torrijos proposed last week, is a toothless
    exercise designed to examine "substantive improvements" to
    the June 1 CSS reform law (known as law #17) and damp down
    the opposition.  Torrijos's biggest problem may be finding
    someone to talk to.  The loudest critics of CSS reform, the
    union-based "National Front to Defend Social Security"
    (FRENADESSO), have refused to participate unless the GOP
    suspends the new CSS reform law, which Torrijos has ruled
    out.  On June 21 Archbishop Dimas asked Torrijos to suspend
    Law 17, supposedly to encourage dialogue with FRENADESSO,
    according to news reports.  (Note: The recent CSS reforms
    increase employee and employer contributions, raise the
    retirement age, and stiffen eligibility requirements and are
    the first big changes in Panama's Social Security (CSS)
    system since the Endara government raised the retirement age
    in June 1991.  Without them, the government claims, CSS would
    have gone bust within several years.  The GOP claims the
    reforms will make CSS viable for 30-40 years.  See Reftel.
    End Note.)

    Strikes Enter Fourth Week
    -------------------------

    ¶3.  (SBU) As an "indefinite" strike by 25,000 teachers,
    20,000 SUNTRACS construction workers, and 5,000 physicians
    and technicians entered its fourth week, the GOP hopefully
    announced the re-opening of elementary schools on June 20,
    but schools remain closed.  Oddly, the GOP has been paying
    striking teachers and doctors all month, apparently in an
    attempt to maintain "goodwill" with respected professional
    groups, thinking the strikes would end soon.  If that was the
    GOP's intent, it has backfired.  With school children on
    forced vacation, and facing 25,000 canceled medical
    appointments (including 1,500 surgeries), ordinary
    Panamanians are beginning to clamor for an end for pay
    without work.  The GOP intends to stop paying teachers as of
    the next pay period, (June 30).

    GOP Miscalculates
    -----------------

    ¶4.  (C) Comptroller General Dani Kuzniecky freely
    acknowledged June 16 to POL Counselor that the GOP had
    misjudged the length of the crisis that would surround the
    June 1 bill's passage and had failed to plan accordingly.  He
    quickly added, "No other government would have fixed our
    fiscal deficit and CSS the way we did."  Kuzniecky noted that
    simmering discontent among well-heeled Panamanians over the
    February 2 fiscal reform, which (among other things)
    increased taxes for businesses and white-collar workers,
    contributed to anti-government feeling and encouraged the
    government's political opponents to unite.  He expressed
    annoyance at the Panamanian Chamber of Commerce's reluctance
    to aid the GOP by taking a moderate stance and oppose the
    SUNTRACS radicals, apparently because it hopes the
    government's disarray will help it rescind part or all of the
    February 2005 tax increases.  The private sector is happy at
    the government's discomfort, Kuzniecky said.

    Strong Talk at the Camara de Comercio
    -------------------------------------

    ¶5.  (C) At a June 15 meeting, Panamanian Chamber of Commerce
    members were vehement in their denunciations of the GOP's
    February 2005 fiscal reform.  The Ambassador pointed out that
    people who could pay taxes should pay and that the government
    needs money to operate.  She urged them not to lose sight of
    the social dimension, as so many Panamanians live below the
    poverty line and suggested that perhaps it was time to move
    beyond the assumption that money paid to the government would
    be stolen.  Although some agreed with that analysis, the
    group implied that they have every intention of trying to use
    the GOP's present difficulties to roll back as much of the
    fiscal reform law as possible.

    Middle Class Backlash?
    ----------------------

    ¶6.  (SBU) Panama is one of the least taxed countries in Latin
    America.  (In 2004 tax collections equaled only 9% of GDP.)
    Even so, Panama's middle class (white collar workers and
    independent professionals earning $1,000-3,500 per month) are
    having a hard time adjusting to the one-two punch of fiscal
    and CSS reforms.  Until February 2005, most Panamanian
    professionals paid no taxes at all on 30-50% of their income
    classed (for tax purposes) as "representational."  Under the
    effects of February's fiscal reform and June's CSS reform,
    white-collar workers will lose 12-20% percent of their gross
    income to taxes.  Making matters worse, Panama's
    consumer-oriented, status-conscious middle class has no
    culture of saving, typically drive late-model cars, and send
    their children to pricy private schools.  The new taxes are a
    bitter pill, one that brings unwelcome belt-tightening and
    forces lifestyle changes.

    "Rejection Front" Bids for Political Power
    ------------------------------------------

    ¶7.  (C) Aside from the GOP's credibility, also at play amid
    the maneuvering are the future prospects of SUNTRACS leaders
    Genaro Lopez and Saul Mendez, and former CSS boss Juan
    Jovane.  The three "Rejection Front" leaders hope to leverage
    a national political role out of the disorder but they could
    well emerge with less influence rather than more.  SUNTRACS
    recently began canvassing donations after it said its $2
    million strike fund was exhausted, following $50-per-week
    payments to its striking members.  Comptroller General
    Kuzniecky told POL Counselor June 16 that Juan Jovane is
    "fully dedicated" to the idea of building a party.  Behind
    the "masquerade" of FRENADESSO, Kuzniecky claimed, are people
    who are trying to destabilize the government.  President
    Torrijos echoed this assessment in his June 21 meeting with
    DEA Administrator Karen Tandy, asserting that the movement
    would be a political party vying for the presidency in 2014.

    Comment
    -------

    ¶8.  (C) The political inexperience of technocrats in senior
    positions is beginning to show.  In its handling of CSS
    reform (and in its earlier handling of fiscal reform), the
    Torrijos administration was guilty of pursuing good public
    policy but bad politics.  In both instances the GOP showed
    commendable political will to tackle festering problems,
    knowing in advance that they would prove unpopular.  But in
    neither case did President Torrijos stump the country looking
    for support, carry out a real public relations campaign, or
    present any intelligible, over-arching strategy of his
    economic vision.  Public reaction was worse and more enduring
    than the government expected, and the government took more
    than its share of political lumps.

    ¶9.  (C) Some observers fear the GOP has spent so much
    political capital that it may lose the referendum on Canal
    expansion planned for 2006.  Others claim that average
    Panamanians will see that the Canal widening project is
    Panama's best chance for prosperity and job creation and will
    approve the referendum by a wide margin.  The reality is that
    the overwhelming majority of Panamanians, many of whom are
    not covered by social security, and who struggle just to find
    money to ride the bus to work each day, don't care about the
    macroeconomic debates on tax increases, free trade
    agreements, and Canal expansion.  Fully one million
    Panamanians (out of 2.9 million) are not covered by social
    security.  To win those people over, the GOP will have to
    find ways to benefit them directly.  Its plans for public
    transportation reform would help.  The GOP's success in
    creating jobs will be its litmus test.

    WATT

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