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### Viewing cable 04PANAMA2105, SCENESETTER: THE SECRETARY'S VISIT TO PANAMA'S

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
04PANAMA2105 | 2004-08-18 22:37 | 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 04 PANAMA 002105

    SIPDIS

    TO THE SECRETARY FROM AMBASSADOR WATT
    DEPARTMENT PLEASE PASS TO USTR

    E.O. 12958: DECL: 08/18/2014
    TAGS: PREL PGOV ETRD OVIP PM POL CHIEF
    SUBJECT: SCENESETTER: THE SECRETARY'S VISIT TO PANAMA'S
    SEPTEMBER 1, 2004 PRESIDENTIAL INAUGURATION

    REF: 03 PANAMA 2773

    Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.5 (B) AND (D).

    ¶1.  (SBU) On behalf of Embassy Panama, I want to express our
    warmest welcome on your upcoming September 1, 2004 visit to
    Panama's Presidential Inauguration.  Following your November
    3, 2003 visit to Panama's Centennial celebrations (reftel),
    your presence here as the government of Martin Torrijos takes
    power strongly signals the great interest of the United
    States in expanding further our excellent relations with the
    Panamanians.  Our cooperation on a wide range of issues --
    including law enforcement and security policy -- promise to
    reach new levels under the new government.  Elected on a
    reform and anti-corruption platform by the largest post-1989
    plurality on record, Torrijos has made clear that his
    government's most important foreign policy priority will be
    relations with the United States and that he intends to
    deepen our mutual focus on counter-terrorism capabilities,
    combat international criminal networks, and expand trade and
    investment.  The new president and his Democratic
    Revolutionary Party (PRD) -- largely purged of its
    anti-democratic, anti-U.S. tendencies and which holds an
    absolute majority in the Legislative Assembly -- will face
    large challenges from the outset: a serious budget shortfall
    and tide of red ink left by the out-going government;
    urgently required action to right the nation's foundering
    retirement and medical system (the Social Security Fund);
    completing the Free Trade Agreement negotiations with the
    United States; launching a more activist and "coherent"
    foreign policy (closer relations with Western Europe and a
    review of Panama's relations with Taiwan and China); and a
    decision on how to proceed on Canal expansion, leading to a
    2005 national referendum.  The new government's principal
    domestic priorities will be sustainable economic development,
    attracting investment, and job creation.

    The Political Landscape: Torrijos and a New Generation
    --------------------------------------------- ---------

    ¶2.  (SBU) Martin Erasto Torrijos Espino won Panama's May 2,
    2004 general elections with 47% of the popular vote, a 16%
    margin over his nearest competitor.  Torrijos's Democratic
    Revolutionary Party (PRD) joined forces with its historical
    opponent, the Popular Party (PP) to propel him and its
    legislative candidates to victory.  Torrijos has surrounded
    himself with young, primarily US-educated professionals like
    himself and has changed the face of the PRD by marginalizing
    "old guard" supporters of former President Ernesto Perez
    Balladares (1994-99).  Torrijos and those closest to him have
    indicated that they intend to work closely with U.S.
    officials, especially on security, law enforcement, trade and
    investment.  Overall, his cabinet appointments have been
    inspired choices -- mostly young technocrats with a pro-U.S.
    outlook.  Most of Torrijos's cabinet appointments are
    respected professionals without excessive baggage from
    Panama's 21-year military dictatorship or the PRD's anti-U.S.
    faction, a promising sign.  Anticipated pressures from a
    well-entrenched oligarchy could frustrate the Torrijos
    administration's reform plans.

    Promoting Good Governance
    -------------------------

    ¶3.  (SBU) Torrijos campaigned on a "zero-corruption"
    platform, promises to run a clean government, and hopes to
    clean up Panama's politicized Supreme Court.  This Embassy
    launched a strong Good Governance initiative with Ambassador
    Watt's 2003 speech against corruption in government.  That
    speech resonated firmly with Panamanians from all walks of
    life and generated front-page headlines.  More recently, the
    Ambassador followed up with a speech about the dangers that
    poverty and skewed income distribution pose to democracy,
    factors that exacerbate social conflict and increase the
    appeal of unscrupulous populist demagogues.  The Embassy
    currently supports good governance activities directed toward
    judicial reform, civic education, business ethics, and
    strengthening anti-corruption prosecutors' institutional
    capacity.  Another key element of the Embassy's Good
    Governance initiative is its visa revocation program.  Based
    on Embassy recommendations, the State Department recently
    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.

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

    ¶4.  (C) President-elect Torrijos comes to office with clear
    focus on security matters, largely because his Democratic
    Revolutionary Party (PRD) is the most security-oriented of
    all Panamanian parties.  We expect to maintain or improve the
    already extraordinary level of access and cooperation we now
    enjoy with Panamanian officials on law enforcement and
    security.  Last May's signing in Washington of a
    counter-terrorism and weapons of mass destruction amendment
    to our basic shipriders agreement with Panama under the
    Proliferation Security Initiative (PSI) underscores our
    excellent cooperation, which the Torrijos transition team has
    assured us will continue or improve.  During August 11-13 the
    Embassy organized an offsite bilateral National Security
    Planning workshop, which Torrijos and virtually the entire
    new cabinet attended, along with high USG officials.  The
    conference gave us an excellent opportunity to get to know
    the incoming officials on a personal level and to begin
    concrete discussions on security matters.

    Darien, Atlantic Coast
    ----------------------

    ¶5.  (C) Torrijos plans to introduce strengthened security
    policies and a greater GOP presence in the Darien-Colombian
    border and Atlantic coastal regions.  The aim is to improve
    civilian-police relations in both areas, improve intelligence
    gathering, and boost security.  The transition team has told
    us of plans to rehabilitate WWII-era landing strips in the
    Darien and on the Atlantic Coast, along with a shift away
    from the use of helicopters toward a greater reliance on
    cheaper-to-operate single-engine fixed wing aircraft.  By
    improving the landing fields and communication with remote
    areas, Torrijos hopes to lure more teachers and medical
    personnel to serve in remote areas, which will create local
    goodwill and give the government more intelligence capability
    and control.  The Embassy has been working to convince the
    Torrijos team that more attention needs to be paid to the
    Atlantic coast city of Colon, where a vacuum of state
    authority has attracted organized violent crime, drug
    smugglers, and money launderers

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

    ¶6.  (SBU) Panama's "sovereignty sensitivities" are slowly
    receding.  Panama early on joined the Coalition of the
    Willing and signed and, on October 8, 2003, ratified a
    bilateral Article 98 Agreement.  On May 12, 2004 the U.S. and
    Panama signed a Proliferation Security Shipboarding
    Agreement.  Related to Canal and border security, Panamanians
    have become increasingly willing, even eager, to accept
    mil-to-mil security training, equipment and other assistance.
     The Canal's viability remains essential to our domestic
    security and economic interests.

    ¶7.  (SBU) Panama's ship registry blossomed from the third
    largest in the world in 1990 to the largest -- currently
    comprising around 5,525 large commercial vessels or
    one-quarter of the world's ocean-going vessels.  About 13% of
    US ocean-going cargo transits the Canal each year.  Panama's
    seafarer registry currently licenses over 264,000
    crewmembers.  Panama has privatized and developed some former
    U.S. military ports and other related facilities.  Port
    services grew dramatically from about 200,000 containers per
    year in the early 1990s to two million by 2003.  Panama now
    boasts the leading complex of port facilities in Latin
    America.  Although the present terrorist threat to the Canal
    is considered low, Panamanian planning, risk assessment,
    layered defenses and security resources are generally well
    regarded.  Continued U.S. training, equipment and other
    assistance are vital to preempt a terrorist attack.  To
    protect water resources, the Panama Canal Authority (ACP) has
    committed to match dollar-for-dollar AID's three-year US$2.5
    million integrated watershed management program.  Panama
    committed to a maritime security agenda, which has led to its
    timely adoption of the new International Maritime
    Organization (IMO) International Shipping and Port Security
    (ISPS) Code, which entered into force July 1, 2004.

    Foreign Policy
    --------------

    ¶8.  (C) Torrijos has made clear that his top foreign policy
    priority is the United States.  Foreign Minister-designate
    Samuel Lewis Navarro traveled to Washington in May to meet
    with the Deputy Secretary and other senior officials in the
    Department and the NSC.  Next on the priority list is
    Colombia, Panama's giant, troubled neighbor, and Torrijos
    twice has traveled to Bogota to meet president Uribe.  One
    negative item on the bilateral agenda is undocumented
    Colombia immigrants in Panama, conservatively estimated in
    excess of 100,000 people.  Torrijos transition team officials
    believe that ordinary Panamanians are growing resentful of
    illegal Colombians because of job displacement, and the new
    government has pledged to put an end to illegal immigration
    practices.  Torrijos and his team have already toured
    capitals in Western Europe and South America and promise a
    new, more activist, more "coherent" foreign policy that will
    support Panama's global interests.  Specifically, Panama
    would like to attract investment from France, possibly in
    Canal enlargement, and expects a visit from French President
    Jacques Chirac in the near future.

    Taiwan/China Rivalry over Panama
    --------------------------------

    ¶9.  (C) Panama is Taiwan's most important formal diplomatic
    relationship.  Rivalry between the PRC and Taiwan in Panama
    has been intense and seems likely to grow hotter after
    September 1.  In the past Panama has been quite skillful in
    leveraging its diplomatic relations with Taiwan to extract
    maximum resources from both sides, in particular from Taiwan.
     The incoming Torrijos government will have another
    opportunity to milk Taiwan during the upcoming September 1
    visit of Taiwan President Chen Shui-bian, who may discuss
    proposals for Taiwan's participation in Canal reconstruction
    financing.  Both Taiwan and China have made
    less-than-transparent contributions to Panamanian political
    campaigns.

    ¶10.  (C) During the election campaign, then-candidate Martin
    Torrijos said that he would not immediately change Panama's
    Taiwan-PRC diplomatic orientation but also implied that a
    review of relations was warranted.  Indeed, there are strong
    currents within the PRD that favor the PRC over Taiwan.  And
    Panama must determine how best to serve its own interests.
    As Torrijos mentioned on August 12 at the National Security
    workshop,  Panama wants to foster its growing commercial
    relationship with the PRC, as more and more China trade
    passes through the Canal, and as China is poised to become
    the Canal's number-two user nation.  Following PRC Vice
    Foreign Minister Zhou Wenzhong's June 18 meetings with Panama
    government (GOP) and PRD transition team officials, on June
    30 Foreign Minister-designate Samuel Lewis asked the
    Ambassador how the United States would view a switch of
    diplomatic recognition by Panama to the PRC.  The
    Ambassador's reply was that the United States is "strictly
    neutral" on such matters but would not fail to note any hint
    of direct PRC involvement in Canal matters.  Lewis recently
    told PolCouns that "no internal discussions" on the issue had
    yet taken place and assured us that Panama would consult
    closely with the Embassy when and if such discussions occur.

    International Trade and Investment
    ----------------------------------

    ¶11.  (C) Economic issues top Panama's agenda with the United
    States.  President Moscoso pushed to move forward quickly on
    a bilateral FTA.  Negotiations began in April 2004, and to
    date the U.S. and Panama have held four negotiating rounds
    (the last one in Tampa was cut short by Hurricane Charley).
    A fifth round is scheduled for October 18-22.  The incoming
    Torrijos administration has attended the talks and views a
    bilateral FTA as imperative for attracting investment and not
    being disadvantaged by the CAFTA countries.  While strong
    advances were made during the last round in the areas of
    industrial market access and banking services, areas
    important to both economies, substantial work remains.
    Politically sensitive issues remaining include Panama's
    requests for expanded access to the U.S. sugar market and
    designation as a "distant foreign port" and U.S. requests for
    improved agricultural access and specific inclusion of the
    Panama Canal Authority under the FTA.

    ¶12.  (C) The GOP has long lobbied the USG to re-designate
    Panama as a "distant foreign port (it is now a "near foreign
    port") under the U.S. Passenger Vessels Services Act (PVSA)
    -- most recently by raising it in the FTA negotiations.
    Panama believes that a redesignation will help it capture a
    larger share of the cruise ship trade.  The U.S. regulation,
    administered by U.S. Customs, prevents foreign flag vessels
    from carrying passengers (thus interfering with cruise
    operations) between two points in the United States via
    Panamanian ports, which are considered "nearby" for the
    purposes of the Act.  The GOP estimates that a change in
    designation could gain up to US$50 million annually for
    Panama's growing tourism industry.  While a 2004 Commerce
    Department study found that a change in designation would not
    negatively affect U.S. shipbuilding, important elements of
    the U.S. maritime industry are vehemently opposed and have
    vigorously expressed their opposition in letters to
    Administration principals and the Hill.  While the USG has
    not totally closed the door on this issue in the FTA context,
    it has noted that the Panamanians have not yet worked
    effectively to get the necessary support for the
    redesignation.

    ¶13.  (SBU) Over the past year, the Moscoso administration has
    shown marked improvement in settling investment disputes
    involving U.S. companies, to address bilateral trade issues,
    and to enhance cooperation/coordination in regional and
    multilateral trade fora.  We believe that the incoming
    Torrijos administration will show us the same level of
    cooperation or better, as well as greater transparency,
    predictability, and openness for U.S. investors.

    Canal Expansion
    ---------------

    ¶14.  (SBU) The Torrijos team plans to make Canal expansion a
    top priority.  It expects this $2-7 billion, nine-year
    project to contruct a third set of Canal locks to be a
    transforming event for Panama that will provide jobs and set
    the tone economically for years to come.  Given the driving
    forces of international shipping -- "containerization",
    construction of "post-Panamax" mega-ships currently unable to
    traverse the Canal, and growing trade between East Asia and
    the U.S. eastern seaboard, the expansion is central to
    maintaining the Canal's future viability.  The U.S. Army
    Corps of Engineers (USACE) has provided feasibility and
    engineering studies for one set of locks for the proposed
    expansion and looks forward to further involvement with the
    ACP (Panama Canal Authority).  A constitutionally-required
    national referendum on the issue is likely in 2005.  Actual
    groundbreaking, if the referendum passes, could be three
    years off.

    WATT

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