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Darell Scott Grad School Thesis
 

Darell Scott Grad School Thesis

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Graduate school thesis on the economic impact that the United States has had on Panama.

Graduate school thesis on the economic impact that the United States has had on Panama.

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    Darell Scott Grad School Thesis Darell Scott Grad School Thesis Document Transcript

    • STRAYER UNIVERSITY A STUDY OF THE ECONOMIC IMPACT OF THE UNITED STATES’ RELATIONSHIP WITH THE REPUBLIC OF PANAMA A DIRECTED RESEARCH PROJECT SUBMITTED TO THE FACULTY OF THE GRADUATE SCHOOL OF BUSINESS, STRAYER UNIVERSITY IN CANDIDACY FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION To Dr. Joel O. Nwagbaraocha By Darell R. Scott August 2004
    • ACKNOWLEDGEMENTS I’d like to thank the Lord, my mother, and father for the gift of life and the privilege to come from such a cultured, prideful background and families. To my grandparents for always being there for me and instilling in me life’s values. My brothers and sister, my cousins, aunts, and uncles. To my daughter Imani, you are the center of my life and I hope that these writings will give you some perspective of your heritage. To my girlfriend for just being there through the trials and tribulation of this endeavor. To my friends that was always supportive. To my professors from Howard University to Strayer University and all the friends and associates I’ve met along the way. 2
    • ABSTRACT For over 100 years, the United States and The Republic of Panama has had a working relationship. Over the years, treaties have been signed, agreements made, and battles fought, on the behalf of Panama. The United States has continuously played a significant role in the Panamanian economy and politics. Moving into the 21st century, Panama now has acquired the Panama Canal and is positioned to be a more prominent country in Latin America. With the United States transference of the Panama Canal to Panama and a significantly less U.S. presence, Panama must now find a way to do without the direct influences of the United States. My main research question focuses on the economic impact of the United State’s relationship with the Republic of Panama. Also discussed are sub-questions to better understand the economic and political significance of the relationship between the United States and Panama. Questions such as the influences the United States still have on the Panamanian economy and what influences do other nations have on the Panamanian economy, the economic effect that the transference of control of the Panama Canal has had on the United States and what is the economic effect on Panama with the loss of revenue generated by Americans stationed in the country. The future economic relationship between the United States and Panama is also another question that is addressed. Primary and secondary sources have been utilized for this study. Primary sources will include interviews with Panamanian nationals and employees of the Embassy of Panama (Washington D.C.). Amongst the interviewees are scholars in the relationship of the Untied States and Panama. Secondary sources include articles from professional academic journals, weekly publications such as CNN, Reuters, The Washington Times, and various newspaper publications, Internet articles, as well as books on the specific and broad subjects-areas. Professional academic journals allow for the various viewpoints and discussions on the historical and current state of the relationship between the United States and Panama to be compared and contrasted. Many interesting revelations were revealed to me in writing this directed research project. The ―creation‖ of Panama comes off as more of a political opportunity for the United States, than the ―spreading of democracy for the good of people‖. Panama existed before the settlement of Jamestown in 1607 and centuries before the United States intervened in November 1903 to help Panama gain independence from Colombia. Panamanian nationalists had sought independence from Colombia in the nineteenth century and unsuccessfully fought for Panamanian freedom in the Colombian civil war of 1899-1903. A French company began building a canal in 1882 to connect the Atlantic and the Pacific Oceans across Central America. Many men building the canal died of diseases such as yellow fever, so the project stopped. In 1890 the Americans tried to cut a canal through Nicaragua and failed. President Roosevelt talked with Colombia in 1901 about building the canal. A treaty was signed. The United States requested to buy a six-mile wide and 10 mile long strip of land with 3
    • connected the Atlantic and Pacific for a down payment of $10 millions and $250,000 each year. In 1903 the Colombian senate turned down the offer. Some people from the French company and some Americans meet with some Panamanian nationalist to break away from Colombia. A revolution took place. The U. S. warship Nashville backed up the revolution with its big guns. Three days after the revolution began; the United States officially recognized the new nation. Less than two weeks later a treaty for building the canal was signed. Many years later the U. S. paid Colombia $25 million for their losses. To many Panamanian nationalists at the time, the U.S. intervention in 1903 complicated the formation of a Panamanian national state. Thus, to Panamanians, the United States, at best, was a midwife and never the parent of Panamanian nationality. The economic impact that the U.S. has dad on Panama for much of the last century was and still is significant. For canal rights in perpetuity, the U.S. paid Panama $10 million and agreed to pay $250,000 each year, which was increased to $430,000 in 1933. It was increased again in 1955. In exchange, the U.S. got the Canal Zone and considerable influence in Panama's affairs. The unit of currency used in Panama is the Balboa (PAB), which is pegged at parity to the dollar. There is no Panamanian paper currency and the US dollar is the de facto official currency for all but minor transactions. The United States military forces in Panama numbered slightly under 10,000 troops, at full strength in Panama. The United States military also employed approximately 8,000 civilians, 70 percent of whom were Panamanian nationals. The U.S. withdrawal has significantly affected the Panamanian economy through the loss of civilian jobs and the significant lack of US dollars from military and civilian personnel (upwards of $250 million every year), but the Panamanian government has made significant strides in improving the economy. Through social reforms, aid from foreign countries, and the United State’s on going interest in the Panama Canal, the country is trying to lay the foundation for a prosperous economic future. But still, almost half the population lives in poverty and unemployment is at 13 percent. Economically, the current state of Panama is stable and the most advanced in all of Central and South America, but continue to struggle with poverty, and the lack of employment. The United States will always have a significant interest in the Panama, specifically for the Panama Canal. Since the earliest days of Panama, the United States has placed its ―hand print‖ on the shaping of the country. The Untied States’ presence in the country provided a substantial ―cash cow‖ for the country, until the transference of the Canal to Panama in December 1999. Panama is now in the process of creating new and innovative ways to market itself. Not only is the government upgrading the Canal and entering into affiliations with countries once thought unlikely (China), but the government of Panama is pushing the tourism aspect of Panama throughout the world. Although a lot of Panama’s notoriety revolves around the Panama Canal, and is infamous for such headline grabbers as Manuel Noriega and Operation Just Cause, the country is still one of the most economically sound Latin American countries. 4
    • A STUDY OF THE ECONOMIC IMPACT OF THE UNITED STATES’ RELATIONSHIP WITH THE REPUBLIC OF PANAMA TABLE OF CONTENTS Acknowledgements Abstract Chapter 1: INTRODUCTION 7 Context of the Problem 7 Statement of the Problem 10 Specific Research Questions and Sub-Research Questions 12 Specific Research Question 13 Research Sub-Questions 13 Significance of the Study 13 Research Design and Methodology 15 Organization of the Study 16 Chapter 2: REVIEW OF LITERATURE 20 Chapter 3: HISTORICAL PERSPECTIVE - EXPLORING THE RELATIONSHIP BETWEEN THE UNITED STATES AND PANAMA 44 The Role of Treaties 54 Chapter 4: THE INFLUENCES THAT THE UNITED STATES STILL HAVE ON THE PANAMANIAN ECONOMY AND WHAT INFLUENCES OTHER NATIONS HAVE ON THE PANAMANIAN ECONOMY 61 The Other Countries 66 Chapter 5: THE ECONOMIC EFFECTS THE TRANSFERENCE OF CONTROL OF THE PANAMA CANAL HAS HAD ON THE UNITED STATES AND PANAMA AND WHAT THE EFFECT ON PANAMA IS AND WILL BE TO THE COUNTRY 73 Military Presence 78 Commercial Use 79 Traveling the Canal 80 5
    • TABLE OF CONTENTS Chapter 6: THE FUTURE ECONOMIC RELATIONSHIP BETWEEN THE UNITED STATES AND PANAMA 85 Capitalism Reigns 85 The Panamanian Economy 89 The U.S. Presence – Is the U.S. Really Gone? 94 Chapter 7: SUMMARY, CONCLUSION, AND RECOMMENDATIONS 98 BIBLIOGRAPHY 102 6
    • CHAPTER ONE INTRODUCTION Context of the Problem The United States has had a direct influence on Panama since before the turn of the century. Even the Panamanian Balboa has been fixed to the U.S. dollar since 1903. Generations of Panamanians have become intertwined with the United States. Whether it is through the military or the Panama Canal, United States foreign policy has not only affected Panama politically, but also economically. The Western Hemisphere is the United States sphere of influence, as established by the Monroe Doctrine, a warning to European nations to keep their influence away from territory not directly under sovereignty. After the Latin American nations declared their independence from Spain, they looked to other countries to help them develop economically and politically. The United States aided these countries economically, as well s politically, by helping certain factions gain power in the respective countries, but only if the leaders helped look out for the United States’ best interest.1 Panama is a classic case of Untied States influence. Despite its small population and area (3.06 million and 30,193 square miles respectively), Panama is an important center for international trade in the Western Hemisphere, as both a major shipping thoroughfare and a regional economic power. Since 1992, an average of 185 million long tons of cargo has passed annually through the Panama Canal. Panama is also a financial and communications hub that sits at the crossroads of five international fiber-optic networks and hosts 110 international banks. 1 Calderon, Rodolfo Vera ―The United States Invasion of Panama: A Tri-dimensional Analysis‖ Georgetown University · School of Foreign Service 7
    • Although the country has consistently maintained one of Central America's highest per capita gross domestic products, approximately 37.3% of its population lives in poverty, including nearly 18.8% in extreme conditions, according to government statistics. 2 In the 1960s, Panama experienced buoyant growth in virtually all areas of the economy as a result of the boom in canal-related activities and the growth in private investment. GDP expanded at an average of 8 percent per year. Employment grew at 3.5 percent per year, well above the population growth of about 3 percent a year. Most of the new jobs were generated by the private sector. In the 1970s, Panama's average annual growth rate of GDP fell to 3.4 percent. Many factors contributed to the decline. In the international arena, reduced canal use (especially after the Vietnam War), rising oil prices, international inflation, and recession in the major industrial countries had a negative impact on Panama's economy. Domestically, investment fell in response to government policies of agrarian reform, expropriation of private power companies, creation of state industries, protection of labor, controls on housing, subsidies, and high support prices. In addition, the prolonged negotiations between the United States and Panama over the canal adversely affected investor confidence. The government sought to regain private investment by investing in large infrastructure projects and by expanding or acquiring productive enterprises. Two- thirds of the new jobs created in the 1970s were in the public sector. The public-sector deficit expanded, and the government was forced to borrow money from abroad. By 1980 the external debt had reached 80 percent of GDP. 2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief 8
    • In 1982 Panama, like most of Latin America, felt the impact of the world recession. Once again, the government sought to remedy the declining private-sector investment through increased public expenditures. In the same year, the public-sector deficit reached 11 percent of GDP. In 1983 and 1984, the government imposed a severe austerity program, which had the imprimatur of the IMF. Public investment was reduced by 20 percent in 1983 and by a further 8 percent in 1984. The public deficit was also cut, to about 6 percent of GDP in both years. In addition, the government undertook structural adjustment measures in the areas of industry and agriculture and instituted changes to streamline the public sector. The simultaneous recession and reduction in public expenditures caused GDP to fall in 1984, the first decline in more than twenty years. In the following years, however, Panama, avoiding the economic slump that plagued most Latin American countries, experienced moderate growth.3 Panama has had a steady higher standard of living than most of its neighbors, due primarily to the Canal and the American presence. Its annual per capita income in 1995 ($2400) was among the highest in the developing world. By all major social indicators -- income, literacy, education, live births, life expectancy, birth rate, etc. -- Panama was closer to upper-class Latin American nations such as Argentina and Uruguay, than to its immediate neighbors. This is not to deny social and economic inequities and the obvious differences between Americans who lived in the Canal Zone and the general Panamanian population. But for many years the United States has been pumping and annual $300 million into the local economy. 3 Referenced April 2004: http://reference.allrefer.com/country-guide-study/panama/panama58.html 9
    • "Integrity is the best national defense" is a social abstraction, devoid of serious content and satisfying only the soul. Panama has been used to American dollars for most of this century. Now they are not going to get them, and this simple fact alone may spell great trouble for the years ahead. For well over a century, the United States has had direct ties to Panama. From the building of the Panama Canal to various treaties to the military presence, the United States has significantly played a role in the Panamanian economy and history, whether good or bad. Major objectives of this study will focus on the impact that the United States military withdrawal from Panama has had on the economy. Also, to be analyzed is the effects that the transference of control of the Panama Canal will have on not only the Panamanian economy, but also on the country’s relationship with the United States. Panama and the United States have had a history of mutual dependency. Statement of the Problem This study seeks to examine the economic impact that the United States has had on Panama. The economic state of Panama has been affected on two levels by the United States. The first being the impact of the withdrawal of the United States military. The United States military forces in Panama numbered slightly under 10,000 troops. The United States military also employed approximately 8,000 civilians, 70 percent of whom were Panamanian nationals. The U.S. withdrawal has significantly affected the Panamanian economy through the loss of civilian jobs and the significant lack of US dollars from military and civilian personnel (upwards of $250 million every year). 10
    • The United State’s transference of the canal to the Panamanian people has also had a profound economic effect on Panama. The immediate cost to Panamanians through the loss of U.S. dollars and the wide potential costs of managing and maintaining the Panama Canal under Panamanian rather than U.S. control are substantial. Panama has a substantial number of key problems being faced. As previously stated, one being the economic impact that the withdrawal of U.S. troops will have on the economy. This can be measured in some hundreds of millions of dollars lost annually and includes both annual U.S. government payments to Panama and business for Panamanians generated by Americans stationed there. That is a significant amount because Panama's national earnings are only about $2.5 billion annually. The land and assorted facilities the U.S. handed over, and the training the U.S. provided for those who will now manage the canal, were a substantial bonus.5 Another key problem is the control of the Panama Canal. The question is whether Panamanians on their own can govern themselves and/or manage the canal according to their own needs and international expectations. Of course they are capable of running the canal, the question is whether the national culture will allow trained professionals, now and in the future, to work honestly and independently to keep the canal functioning as it has in the past. So far there are positive indicators, including the will of many Panamanians to prove they can do it, and negative indicators, mainly the record of Panamanian history. If Panama fails, the people of Panama and the world will pay a heavy price, directly and indirectly. Gen. Wilhelm warns that the most likely threats to the canal are not external but "internal and non-lethal," ranging from corruption to 5 Online NewsHour, ―Controlling the Canal‖, William Ratliff and John J. Tierney 11
    • watershed mismanagement.5 Since the completion of the Canal in 1914, the United States has operated and defended the Canal, investing somewhere in the neighborhood of $32 billion in the process. The strategic value of this waterway far exceeds the monetary investment that the United States has made in it.6 But as long as the U.S. has a navy and international interest, the canal will be militarily useful and sometimes important, though if military forces are kept at optimum levels it will not be critical. Panama also faces many economic challenges, outside of its relationship with the United States. Although the country has consistently maintained one of Central America's highest per capita gross domestic products, approximately 37.3% of its population lives in poverty, including nearly 18.8% in extreme conditions, according to government statistics.2 Half the population of Panama is centered around the Canal and cities such as Colon and Panama City. The Canal is a premiere source of revenue for the country. A major challenge facing the current government is turning to productive use the 70,000 acres of former U.S. military land and the more than 5,000 buildings that reverted to Panama at the end of 1999. The Panamanian government has to find new ways to attract other countries to Panama. Panama has been far too dependent on the U.S. dollar. Specific Research Questions and Sub-Research Questions In answering the following research question, an attempt will be made to conduct an in-depth analysis of the economic influence the United States has traditionally had on the Republic of Panama. 6 Bradley, Scott ―The Panama Canal Give-away‖, Utah Eagle Forum 2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief 12
    • Specific Research Question What is the economic impact of the United State’s relationship with the Republic of Panama? Research Sub-Questions Also discussed are the following sub-questions to better understand the economic and political significance of the relationship between the United States and Panama.  What is the historical perspective of the United State’s relation with the Republic of Panama?  What influences does the United States still have on the Panamanian economy and what influences do other nations have on the Panamanian economy?  What economic effects does the transference of control of the Panama Canal have on the United States and what is the economic effect on Panama with the loss of revenue generated by Americans stationed in the country?  What is the future economic relationship between the United States and Panama? Significance of the Study As a natural born Panamanian-American, this author feels that it is necessary for future generations of Panamanian-Americans be made aware of the importance of the United State’s influence on our mother country, politically, through the military, and most important economically. Although Panama has consistently maintained one of 13
    • Central America’s highest per capita gross domestic products, approximately 37.3% of its population lives in poverty, including nearly 18.8% in extreme conditions, according to government statistics. 4 Panama has historically been a major strategic location for U.S. With the transition of the Panama Canal from U.S. control to Panamanian control, the U.S. may have ―lost‖ a strategic ―foot hold‖ on Central America. The United States has let go of the 14 military bases that lined the canal’s bank. The United State’s civilian presence, mostly through the military, has also been significantly impacted, thus leading to a loss of significant revenue into the country. This study will assist in revealing the in-depth relationship that the United States has had with the Republic of Panama and the profound economic effects of the relationship on not only Panama, but the United States, as well. Panama's economy is based primarily on a well-developed services sector that accounts for nearly 80% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, medical and health, and other business. A major challenge facing the current government under President Mireya Moscoso is turning to productive use the 70,000 acres of former U.S. military land and the more than 5,000 buildings that reverted to Panama at the end of 1999. Administratively, this job falls to the Panamanian Inter-Oceanic Regional Authority. GDP growth for 2002 was about 0.8% compared to 0.3% in 2001. Though Panama has the highest GDP per capita in Central America, about 40% of its population 2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief 14
    • lives in poverty. The unemployment rate surpassed 14% in 2002. The United States cooperates with the Panamanian Government in promoting economic, political, security, and social development through U.S. and international agencies. Cultural ties between the two countries are strong, and many Panamanians come to the United States for higher education and advanced training. About 19,000 American citizens reside in Panama, many retirees from the Panama Canal Commission and individuals who hold dual nationality. There also is a rapidly growing enclave of American retirees in Chiriqui Province in western Panama.5 This study will assist future generations of Panamanian /Americans, Panamanian citizens, and Americans in understanding the effects that the United States has had on the Republic of Panama and how changes can be implemented to improve the economic stature of Panama and the on-going relationship between the United States and Panama. Research Design and Methodology Primary and secondary sources have been utilized for this study. Primary sources will include interviews with Panamanian nationals and employees of the Embassy of Panama (Washington D.C.). Amongst the interviewees are scholars in the relationship of the Untied States and Panama. Secondary sources include articles from professional academic journals, weekly publications such as CNN, Reuters, The Washington Times, and various newspaper publications, Internet articles, as well as books on the specific and broad subjects-areas. 5 U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003, Background Note: Panama 15
    • Professional academic journals allow for the various viewpoints and discussions on the historical and current state of the relationship between the United States and Panama to be compared and contrasted. Organization of the Study The first chapter of this study has been devoted to describing the context of the problem, statement of the problem as well as the significance, objectives, and methodology of the study. Chapter 2, Review of Literature, is devoted to an extensive literature review of economic reports, political reports, business reports, government reports, media perspectives, editorials, and interviews. The Internet served as a major secondary source to access most of the aforementioned literature. Interviews were conducted as a primary source of first hand accounts and opinions of the past, current, and future environment of Panama. Chapter 3, Historical Perspective – Exploring the Relationship between the United States and Panama, looks at the history between the United States and the Republic of Panama. The United States cooperates with the Panamanian Government in promoting economic, political, security, and social development through U.S. and international agencies. Cultural ties between the two countries are strong, and many Panamanians come to the United States for higher education and advanced training.4 The United States has cast a long shadow over Panamanian life since the country's birth, occasionally intervening in its internal affairs -- as in 1989, when U.S. troops deposed 4 U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003, Background Note: Panama 16
    • Panamanian strongman Manuel Noriega. American control of the economic -- and literal -- heart of Panama was a source nearly constant and sometimes violent resentment by Panamanians. 8 Chapter 4 focuses on the Influences that the United States still have on the Panamanian Economy and what Influences other Nations have on the Panamanian Economy. About 19,000 American citizens reside in Panama, many retirees from the Panama Canal Commission and individuals who hold dual nationality. There also is a rapidly growing enclave of American retirees in Chiriqui Province in western Panama. Twenty-nine opinion polls over this decade have revealed a steady 70 to 75 percent of Panamanians in favor of a continued U.S. presence, with most of this due to the economic benefits.5 With virtually no serious debate, Congress committed $6 billion to pay for U.S. intervention in Bosnia, where no perceptible U.S. vital interest is at risk. Closer to home, Congress had proven unwilling to spend a fraction of that amount (less than $100 million per year) to maintain an essential U.S. military presence at the isthmus at Panama and to block eventual control of the isthmus by interests allied with Communist China. Key port facilities on the Atlantic and Pacific sides of the Canal (Cristobal and Balboa) have been leased by Hutchison Whampoa, 10% of which is owned by China Resources Enterprises (100% of which is controlled by the Red Chinese government). Red Chinese influence in Panama is growing in many ways. Recently, the Bank of China extended a 15-year $120 million loan to Panama at 3% interest to finance the government's 8 Referenced May 2004, CNN.com: http://www.cnn.com/1999/US/12/14/panama.canal.01/ 5 Online News Hour, ―Controlling the Canal‖, William Ratliff and John J. Tierney 17
    • investment program and to purchase and sell assets. Taiwan has considerable investments in the Republic of Panama.20 Chapter 5 analyzes The Economic Effects the Transference of Control of the Panama Canal has had on the United States and Panama and what the effect on Panama is and will be to the Country. For many years the United States has been pumping and annual $300 million into the local economy. Panama has had a steady higher standard of living than most of its neighbors, due primarily to the Canal and the American presence. Its annual per capita income in 1995 ($2400) was among the highest in the developing world. By all major social indicators -- income, literacy, education, live births, life expectancy, birth rate, etc. -- Panama was closer to upper-class Latin American nations such as Argentina and Uruguay, than to its immediate neighbors. The U.S. ran the canal as a public utility for the global community, pumping profits and sometime much more into maintaining the facility, Panama intends to run it as a business for profit. Panama's intention could be dangerous if it expects to make much from the canal itself since doing so would require either a significant hike in tolls or cutting corners in maintenance, or both. The former would drive users to seek more cost-effective alternatives while the danger of the latter, even in the medium term, is self-evident. Canal administrator Alberto Aleman Zubleta has acknowledged that canal profits come mainly from businesses made possible by the efficient operation of the waterway itself. Chapter 6 discusses the Future Economic Relationship between the United States and Panama. Despite its small population and area (3.06 million and 30,193 square miles respectively), Panama is an important center for international trade in the Western 20 Lt. Gen. Gordon Sumner, Jr. (USA-Ret) Howard Phillips “Who Will Control the Path Between the Seas?‖ The Washington Times Commentary Section Monday August 18, 1997 18
    • Hemisphere, as both a major shipping thoroughfare and a regional economic power. The Untied States understand the strategic importance of Panama. Panama is vital to the U.S. shipping industry and was an opportune military location to train not only U.S. troops, but also Latin American forces. The unit of currency used in Panama is the Balboa (PAB), which is pegged at parity to the dollar. There is no Panamanian paper currency and the US dollar is the de facto official currency for all but minor transactions. Not only is the Panama Canal important to Panama for income and jobs, but it is also considered to be vitally important to the United States economy. Many U.S. exports and imports travel through the Canal daily (over 10% of all U.S. shipping goes through the Canal). Exports represent jobs for U.S. citizens because U.S. workers made the products. Imports enable U.S. consumers to receive needed products. Since the United States is the only superpower in the world, the United States is interested in keeping the global economy running smoothly. If world trade is disrupted, it can lead to worldwide economic problems. Therefore, any disruption in the flow of goods through the Panama Canal could directly hurt the U.S. and global economies. The final section, Chapter 7, concludes with a Summary, Conclusions, and Recommendations for the further development of the Panamanian economic system. Panama faces many challenges. Some of these challenges are made more difficult with the loss of a significant U.S. presence. With proper economic development initiatives, the ―weeding out‖ of government corruption and the business opportunities that are available to such a unique country, Panama can prosper in the new millennia. 19
    • CHAPTER TWO REVIEW OF LITERATURE * Calderon, Rodolfo Vera ―The United States Invasion of Panama: A Tri-dimensional Analysis‖ Georgetown University · School of Foreign Service The author speaks on the various reasons of the United States’ intervention in Panama. The reasoning was to protect the United State’s interests, both economically and politically. The author notes how the United States has a tradition of funding rebel forces in Latin America. The author notes the U.S. policies towards governments that fall out of favor and how Panama (especially during the Noriega regime) was affected by U.S. policies, thus leading to Operation Just Cause. The author also questions the integrity of that U.S. operation. From the texts, the real reason behind the United States intervention in Panama was to protect United States’ interests, both politically and economically. The United States has a tradition to fund rebel forces in Latin America when the present government falls out of favor, such as the Bay of Pigs Invasion in Cuba and the Contras in Nicaragua. However, while the governments of Latin America are in agreement with the United States goals, then any type of illegal activity is neglected, as was the case with Noriega. When Noriega started becoming more independent of United States influence, his connections with insurgent groups across the world, but more specifically in Latin America, were no longer ignored. These ties to groups under United States scrutiny then became public attention and were used to justify the intervention of the United States in the South. Considering how Latin American countries are dependent on the North for their economic relationships, it could also be argued that the United States wants to 20
    • maintain this dependency of the South on the North. This was also seen through the United States economic sanction on Panama before the invasion, which then promised financial aid once Noriega was taken out of power. Taking the three levels of analysis into account, the systemic level best proves why the United States intervened in Panama. If it were not for the global issue of drug trafficking and the United States’ War on Drugs, the U.S. would not have had a legitimate reason for their intervention and military presence in Latin America. The United States desire to keep the Latin American governments in check also resulted in the invasion of Panama, mainly because Panama was becoming increasingly rebellious and the United States could not allow for that type of rebelliousness to spread to other Latin American countries, especially with the fight against Communism, which indeed was coming down in the other side of the world with the fall of the Berlin Wall. In addition, the criticism received by the United States was at the international level, with Latin American countries demanding the decrease of American troops and influence in Latin America. Followed closely is the individual level of analysis because if it were not for Noriega’s personal agenda and his decision to play both sides of the card, he would not have fallen out of favor with the United States. 21
    • * Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief, Author Unknown Panama is important to world energy markets because the Panama Canal is a major transit center for oil shipments and a potential choke point. Panama is also key to plans to connect the electricity grids of North and South America. The author gives a strong background on the Republic of Panama. Despite its small population and area (3.06 million and 30,193 square miles respectively), Panama is an important center for international trade in the Western Hemisphere, as both a major shipping thoroughfare and a regional economic power. Since 1992, an average of 185 million long tons of cargo has passed annually through the Panama Canal. Panama is also a financial and communications hub that sits at the crossroads of five international fiber- optic networks and hosts 110 international banks. The Panamanian economy is one of Latin America's most stable, with the Panamanian Balboa being fixed to the dollar since 1903. Panama's Colon Free Trade Zone (CFZ), established in 1953, is the largest in the Western Hemisphere and contributes substantially to the country’s economy. The CFZ allows all goods, except firearms and petroleum products, to be imported, stored, modified, repacked, and re-exported without being subject to any customs regulations. The strategic importance of the Panama Canal, shipping and port services not only makes Panama's economy highly dependent on world trade trends, but also vulnerable to fluctuations in the global economy. On May 2, 1999, Mrs. Mireya Moscoso was elected to a five-year term as president. Since entering office, the Moscoso administration has been trying to reduce the country’s public debt while alleviating poverty by funding social projects. However, fiscal restraints, namely the Fiscal 22
    • Responsibility Law that stipulates that the public-sector debt cannot exceed 2% of GDP in a given year, may make it difficult for the government to implement these programs in their entirety. The author covers such areas as Energy in Panama, Treaties, The Panama Canal, Canal Traffic, Trans-Panama Pipeline, and Canal Expansion and Modernization. The Information contained in this report is the best available as of October 2003 and can change. * The Library of Congress - Country Studies - Panama This particular site gives the readers an expanded background on Panama. This site, with the information courtesy of The Library of Congress, focuses on the Panamanian economy, foreign economic relations, agriculture, and industry, amongst other subjects. Although a dated site, a good perspective of Panama under the Torrijos era is give. Information is given up until December1987. This site focuses more on the state of the Panamanian economy and how it is affected by various factors through the mid 1980’s. The Torrijos era (1968-81) stands as a dividing point in Panama's economic history. Under Torrijos, the state took a more active role in the economy and initiated ambitious social projects. The public sector expanded to an unprecedented degree, as did the fiscal deficit and the external debt. In the 1980s, Panama was forced to address some of the excesses of the 1970s, and to adjust its policies, often under the aegis of the International Monetary Fund and the World Bank. 23
    • * U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003, Background Note: Panama The U.S. Department of State offered general information and history on Panama. A basic country profile is provided including information on Panama’s geography, history, people, government, and economy. Also provided is contact information for both the Panamanian and United States Embassies in Panama and the U.S. The United States cooperates with the Panamanian Government in promoting economic, political, security, and social development through U.S. and international agencies. Cultural ties between the two countries are strong, and many Panamanians come to the United States for higher education and advanced training. About 19,000 American citizens reside in Panama, many retirees from the Panama Canal Commission and individuals who hold dual nationality. There also is a rapidly growing enclave of American retirees in Chiriqui Province in western Panama. Panama continues to fight against the illegal narcotics and arms trade. The country's proximity to major cocaine-producing nations and its role as a commercial and financial crossroads make it a country of special importance in this regard. Although money laundering remains a problem, Panama passed significant reforms in 2000 intended to strengthen its cooperation against international financial crimes, and the conclusion of the Speed Joyeros case in April 2002 marked the dismantling of a major money-laundering network with scores of arrests in several countries. 24
    • Panama's history has been shaped by the evolution of the world economy and the ambitions of great powers. Rodrigo de Bastidas, sailing westward from Venezuela in 1501 in search of gold, was the first European to explore the Isthmus of Panama. A year later, Christopher Columbus visited the isthmus and established a short-lived settlement in the Darien. Vasco Nunez de Balboa's tortuous trek from the Atlantic to the Pacific in 1513 demonstrated that the isthmus was, indeed, the path between the seas, and Panama quickly became the crossroads and marketplace of Spain's empire in the New World. Gold and silver were brought by ship from South America, hauled across the isthmus, and loaded aboard ships for Spain. The route became known as the Camino Real, or Royal Road, although was more commonly known as Camino de Cruces (Road of the Crosses) because of the frequency of gravesites along the way. Panama was part of the Spanish empire for 300 years (1538-1821). From the outset, Panamanian identity was based on a sense of "geographic destiny," and Panamanian fortunes fluctuated with the geopolitical importance of the isthmus. The colonial experience also spawned Panamanian nationalism as well as a racially complex and highly stratified society, the source of internal conflicts that ran counter to the unifying force of nationalism. * Online NewsHour – ―Changing of the Guard” Does handing over the Panama Canal pose national security dangers to the United States? William Ratliff of the Hoover Institution at Stanford University and John J. Tierney of The Institute of World Politics in Washington, D.C., respond to your 25
    • questions. These excerpts from a forum on the ―Changing of the Guard‖, speaks to the transference of power of the Panama Canal from the United States to Panama. Other issues such as the maintenance of the Canal, the economic impact that the transference has on Panama, and the relationship between the U.S. and Panama run prominent through the forum. The construction of the Panama Canal came with tremendous human and financial cost. Nearly 20,000 people died during its creation as the U.S., following French attempts, struggled to carve the 51-mile passage. In addition, the final bill rose to more than $387 million -- following a $40 million investment for the land and 10 years of digging. But when the canal opened in 1914, it was immediately heralded one of the world's great engineering achievements. More importantly, it formally opened a transit way to the western United States and the Pacific Ocean. The average traffic until World War I was about 2,000 ships per year. Through the decades, however, many experts in the United States began arguing that the canal, also expensive to maintain, had become a much less important waterway in America's strategic interests. Others, in contrast, maintained the canal was an American possession and vital to national security. Plus, they added, the two countries originally negotiated a "perpetual" sovereignty agreement after the United States bought the holdings in 1902. But in 1977, under mounting pressure by the Panamanians, President Jimmy Carter negotiated a formal hand-over of the canal to Panama's government under an agreement called the Carter-Torrijos Treaties. The treaties established a twenty-two year framework to systematically grant full control of the canal to Panama, set to end at noon on December 31, 1999. The agreement was ratified in the Senate by a single vote 26
    • and was approved by Panamanian voters in a nationwide plebiscite. Therefore, after noon December 31, the U.S. gave control to Panama, which had already negotiated a contract with Panama Ports, a subsidiary of Hong Kong Corporation Hutchinson Whampoa, to manage the canal. In times of military need, United States warships, according to Carter-Torrijos, have right-of-way on the canal. But opponents to the treaties are afraid the canal could still become a choke-point, instead of a passage, when the United States needs it most. The forum is very informative and offers interesting perspectives on the relationships between the U.S. and Panama from two prominent spokesmen. One very interesting interview focuses on the United State’s continued interests in the Canal. The article talks about the ―threat‖ posed by China and other countries in controlling the Canal. * Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum The author gives an unabashed view on the Panama Canal. Although they are general, the author does provide incite on a broad range of subject. These include ―The Treaties‖, ―U.S. Dependence Upon the Canal‖, and the ―China Connection‖. The author’s review offers valuable information on the U.S. – Panama relationship such as ―The Senate ratified a treaty which differs from the treaty agreement the Panamanians ratified and, in addition, the U.S. House of Representatives has not given their consent to dispose of this territory or property which belongs to the United States. The United States Constitution does not give the power to the Senate, through the treaty ratification process, to dispose of U.S. property without the approval of the House.‖ 27
    • ―In 1903, during the administration of President Theodore Roosevelt, the United States concluded the Hay-Bunau-Varilla Treaty with the new Republic of Panama, conveying to the United States "in perpetuity" a ten-mile-wide strip across the isthmus for construction of a canal. The United States paid Panama $10,000,000.00 in gold. In 1914 the United States completed the tremendous engineering feat of constructing the 51 mile long canal, overcoming the disease infested jungles and the seemingly insurmountable physical challenges. Since then the United States has continued to operate and defend the Canal, investing somewhere in the neighborhood of $32 billion in the process. The strategic value of this waterway far exceeds the monetary investment this Nation has made in it. Since 1903 the Canal territory has been considered United States territory in every sense of the word. It was always understood that this was not "occupied territory" which was held by an imperialistic United States. This is truly part of the United States. During the Truman administration, men like Alger Hiss, and other fomenters of international intrigue and discontent, started a movement to build the belief that the United States was imperialistic if it did not return the Canal to its "rightful owners," the people of Panama. This perspective was fostered through successive Presidential Administrations, and those who held this position were ultimately in a position to carry out this lie.‖ The author focuses on many issues that where not fully discussed in the general public, before the transference of the Canal. One issue being the perception of a heightened military threat by ―unfriendly‖ countries – particularly China. 28
    • * Mabry, Donald J. ―Panama's Policy Toward the U.S.: Living With Big Brother‖ The Historical Text Archive Author Donald J. Mabry gives an in-depth historical perspective on Panama and the Panama Canal. The author focuses on the United States ―being a liberator, the United States treated Panama as a conquered province. Washington established a military dictatorship in the Canal Zone; the Canal Zone Commissioner was always an active-duty U.S. military officer and Zonians, regardless of nationality, had no political power. They did what the Commissioner wanted or were expelled. The Zone was a military socialist society; the U.S. government owned virtually all but Zonians' personal possessions. Outside the Zone, the United States controlled most of the public services in Panama City and Colón.‖ Also, looked at is the racism that was prevalent in the United States – Panama relationship. ―Americans viewed Panamanians, even those of the elite class, as lesser people. Moreover, these Spanish-speakers resented the importation of English-speaking black workers from the Caribbean because of their language and their ethnicity, a complaint compounded by the subsequent U.S. refusal to repatriate them once the Canal was completed.‖ This author gives a very realistic view on the United States NOT being a so-called ―savior‖ to the country of Panama, but more of a ―bully‖. From the way the U.S. initially took control of the Canal, to the treaties signed to Operation Just Cause, a not so positive light is reflected on the relationship between the two countries. 29
    • * CNN.com ―U.S. Prepares to Hand Over Panama Canal After 85 years‖ This dated article focused on the United States ―ceremonially hand over the Panama Canal to Panama‖ and the politics surrounding the transference. President Clinton was in office during the time of this article. The article speaks to his absence at the ceremony (but President Carter was in attendance). The article covers the engineering feet needed to build the Canal and the U.S.’s concern over the Chinese influence on the Canal. The canal was a symbol of the American emergence as a world power at the turn of the century. The United States backed the revolt that separated Panama from Colombia in 1903; built the canal, which was completed in 1914; and assumed control of the strip of land surrounding it from the Caribbean to the Pacific. The United States has cast a long shadow over Panamanian life since the country's birth, occasionally intervening in its internal affairs -- as in 1989, when U.S. troops deposed Panamanian strongman Manuel Noriega. American control of the economic -- and literal -- heart of Panama was a source nearly constant and sometimes violent resentment by Panamanians. The 1977 treaties ceded the 50-mile long canal and the surrounding Canal Zone to Panama. Leaving closed U.S. military bases, which cost Panamanians 18,000 jobs. When opened, the passage cut the sailing time from New York to San Francisco in half. About 14,000 ships pass through the canal every year, steered by Panamanian or U.S. pilots. Shipping companies pay $540 million in tolls annually -- and that concerns 30
    • some observers, who fear Panamanian leaders may not be able to resist the temptation to turn the waterway into a cash cow and a source of patronage. * Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November 1996, Fellowship of Reconciliation. This is a very well written article, providing a resourceful background on the relationship between the U.S. and Panama. A history of mutual dependence underlies U.S.-Panama foreign policy and accounts for the patterns of dominance and dependence in bilateral relations. The two nations have convergent interests in safe, efficient commerce across the isthmus. For the U.S., this resulted from its status as the main user of the Panama Canal; for Panama, it is because half its population lived on the canal’s banks, and the canal generates economic benefits. The U.S. also depended on Panama as a base for hemispheric military operations. Although the canal was the initial reason for the special U.S. attention to Panama, the selection in 1941 of the Canal Zone as headquarters for the U.S. Southern Command (SouthCom, previously the Caribbean Command) sharpened U.S. interest in Panamanian affairs. The U.S. has since moved SouthCom. Due to the power differential between the U.S. military and economic empire and the small nation of Panama, colonialist attitudes have often characterized policy discussions and obstructed rational decision-making. The enduring impact of the 1989 U.S. invasion of Panama should not be underestimated in considering future U.S.- Panama policy. The invasion was the twentieth U.S. military intervention in this nation of 2.5 million people and easily the most violent event in Panama’s history. 31
    • Despite the increasing importance of air transport and the rise of other major trading nations, the U.S. remains the canal’s primary user. One-eighth of all U.S. seaborne traffic passes through the locks. Its economic utility for the U.S. is in making inter-oceanic trade cheaper for U.S. shippers and traders—in effect subsidizing the U.S. shipping industry and its exports. Although the canal is not owned or operated by the U.S. military, the Pentagon has always had a role in canal policy. The U.S. army supervised the construction of the seaway from 1904 to 1914, and the Panama Canal Commission’s Board of Directors is, by law, chaired by the Assistant Secretary of the U.S. Army, who retains the right to dictate the votes of the board’s U.S. majority. Except for an interlude during the Carter administration, when the White House and the State Department assumed a more prominent role, the Pentagon has been the main powerbroker in U.S.-Panama policy. The military’s willingness to close the Panamanian bases has been reinforced by the closure of military bases at home, increasing the reluctance of the Pentagon to pay for a post-1999 military presence in Panama—at an estimated cost of $200 million a year. * Infoplease.com - Panama This web site offers general information on Panama. Information at this site focuses on giving a general synopsis on the history of Panama. Information of note focuses on ―between 1850 and 1900 Panama had 40 administrations, 50 riots, 5 attempted secessions, and 13 U.S. interventions. After a U.S. proposal for canal rights over the narrow isthmus was rejected by Colombia, Panama proclaimed its independence with U.S. backing in 1903.‖ 32
    • The southernmost of the Central American nations, Panama is south of Costa Rica and north of Colombia. The Panama Canal bisects the isthmus at its narrowest and lowest point, allowing passage from the Caribbean Sea to the Pacific Ocean. Panama is slightly smaller than South Carolina. It is marked by a chain of mountains in the west, moderate hills in the interior, and a low range on the east coast. There are extensive forests in the fertile Caribbean area. For canal rights in perpetuity, the U.S. paid Panama $10 million and agreed to pay $250,000 each year, which was increased to $430,000 in 1933. It was increased again in 1955. In exchange, the U.S. got the Canal Zone—a 10-mile-wide strip across the isthmus—and considerable influence in Panama's affairs. On Sept. 7, 1977, Gen. Omar Torrijos Herrera and President Jimmy Carter signed treaties giving Panama gradual control of the canal, phasing out U.S. military bases, and guaranteeing the canal's neutrality. * The Columbia Electronic Encyclopedia, 6th ed. 2003, Columbia University Press - Panama The Columbia Electronic Encyclopedia offers background on the United States interest in Panama. This reference material gives valuable perspective on the United States’ active negotiations that led, in 1846, to a treaty by which the republic of New Granada (consisting of present-day Panama and Colombia) granted the United States transit rights across the Isthmus of Panama in return for a guarantee of the neutrality and sovereignty of New Granada. 33
    • Building an inter-oceanic canal was suggested early in Spanish colonial times. The United States, interested since the late 18th century in trading voyages to the coast of the Pacific Northwest, became greatly concerned with plans for a canal after settlers had begun to pour into Oregon and California. Active negotiations led in 1846 to a treaty, by which the republic of New Granada (consisting of present-day Panama and Colombia) granted the United States transit rights across the Isthmus of Panama in return for a guarantee of the neutrality and sovereignty of New Granada. The isthmus gained more importance after the United States acquired (1848) California and the gold rush began, and the trans-Panama RR was built (1848–55) with U.S. capital. At the same time, interest in an alternate route, the Nicaragua Canal, was strong in both Great Britain and the United States. Rivalry between the two countries was ended by the Clayton-Bulwer Treaty (1850), which guaranteed that neither power should have exclusive rights or threaten the neutrality of an inter-oceanic route. In the 1870s and 80s the United States tried unsuccessfully to induce Great Britain to abrogate or amend the Clayton-Bulwer Treaty. After the United States acquired territory in the Caribbean and in the Pacific as a result of the Spanish-American War (1899), U.S. control over an isthmian canal seemed imperative. Following protracted negotiations, a U.S.-British agreement (see Hay- Pauncefote Treaties) was made in 1901, giving the United States the right to build, and by implication fortify, an isthmian canal. It was then necessary for Congress to choose between Nicaragua and Panama as the route for the canal. 34
    • * Stieber, Halley, ―The Future of the Panama Canal‖ Illumin, Volume 5: Issue 2 March 1st, 2002 This article explores the future of the Panama Canal as part of the global transportation system. Beginning with a brief overview of how vessels pass through the canal this article outlines the canal's importance to the global economy. It identifies three problems the canal is faced with regarding efficient traffic flow: the transfer of authority, the increasing shipping industry and the environmental impact. The article concludes with an explanation of the canal's renovations. Current and future renovations will be able to accommodate for traffic flow well into the future. On December 31, 1999, the United States handed the Republic of Panama control of the Panama Canal. While much controversy surrounded Panama's ability to provide efficient service, business on the canal has been flowing smoothly. However, the switch in power was only the first of many hurdles the canal has faced and will be facing in years to come. The amount of traffic through the canal is increasing by 5% to 8% every year (Murphy 1996); traffic increase is occurring in volume as well as in size. How long can this almost century-old engineering marvel serve the needs of the shipping world? With physical and technological improvements, the Panama Canal can expand to provide for the shipping community in the future. 35
    • * Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, and C. Richard Nelson ―The United States and Panama: End of the “Special Relationship‖ The final implementation of the Panama Canal Treaty brought to an end the ―special relationship‖ between the United States and Panama because the elements that characterized that ―special relationship‖ for almost a century are gone. The canal is no longer the strategic ―chokepoint‖ that it was; U.S. Southern Command Headquarters moved to Miami; U.S. forces have been redeployed; and the canal is now entirely under Panamanian control. As a result, the United States has downgraded Panama as a national security and foreign policy priority. Meanwhile, Panama faces difficult economic and political problems, which will require closer cooperation among the political elite. The authors focus on the true relationship between the two countries. The authors tempered their positive preliminary assessment of the transition and prospects for the short term with several concerns that challenge both sides. Although Panama occupies a lower priority in U.S. foreign policy, the relationship nevertheless remains important and bears close monitoring. It is still not the time to raise the issue of stationing U.S. troops in Panama. The needs of both countries are better served by a visiting forces agreement to handle routine visits and transits. The authors conclude that the canal is in the hands of competent managers and faces no serious threats, at least in the short term. Over the longer term, however, Panama’s economic problems could spill over and adversely impact the canal. 36
    • * Referenced May 2004: Lowtax.net – Panama The Lowtax.net site provides valuable incite into the Panamanian Geography, Culture, Government, Economy, Business Environment, Import of Foreign Capital, and Colon Free Zone. This site speaks to Panama’s territorial taxation. There are no 'offshore' regimes as such other than the Colon Free Zone and the export processing zones. There are more than 120,000 companies in Panama, most of which trade or hold assets externally. It is reasonably easy to form corporations, and privacy is assured. There are no tax treaties. Banking and shipping are Panama's two main 'offshore' industries. There are 140 or more banks, specializing obviously in South and Central American business, and Panama is the world's largest shipping registry. Once, it would have been fair to say that drug running and money-laundering were well-rooted in Panama, but with lots of US pushing and shoving, the country seems to have moved in a better direction lately. There is a small but growing stock exchange, and there is 'captives' legislation, which is little used. * Referenced May 2004: BusinessPanama.com Launched in 1997 by the Council for Investment & Development of Panama, www.BusinessPanama.com became Panama’s leading Business, Trade & Investment website. At the end of 2001, the Council for Investment & Development of Panama ceased operations and the BusinessPanama Group acquired all of its rights and assets including www.BusinessPanama.com 37
    • Since Panama was well on its way to becoming a destination of choice for Tourism, www.BusinessPanama.com expanded its content to Tourism in Panama as well as other additional areas of business, trade and investment. The Business Panama Group (―BusinessPanama‖) is a well-established group of companies, professionals and alliance partners promoting and facilitating business, foreign investments, trade and tourism in Panama by providing information, business development and support services to individual and corporate investors. This site gives an up-to date financial assessment of Panama and current and future business opportunities that are available in the country. * Moreno, Elida Reuters “U.S., Panama Open Free-Trade Talks Amid Protests‖ April 26, 2004 In this particular article, the author focuses on the U.S.-Central American Free Trade Agreement, dubbed CAFTA. Panamanian labor unionists and farm workers oppose a free-trade treaty between the U.S. and Panama. They feared it would hurt Panama's economy. Farmers want the agricultural sector to be excluded from any agreement on the grounds it will not be able to compete against the subsidized U.S. farm sector. President Mireya Moscoso agreed Panama "cannot compete against subsidized countries," but said the imbalances would be taken into account in the negotiations. Trade between Panama's service-led economy and the United States totaled about $2 billion last year. 38
    • * Referenced May 2004: Global Perspectives – Central America – Panama Canal 1999-2002 by Wheeling Jesuit University/Center for Educational Technologies This article focuses on the economic importance of Panama to the United States. Not only is the Panama Canal important to Panama for income and jobs, but it is also considered to be vitally important to the United States economy. Many U.S. exports and imports travel through the Canal daily (over 10% of all U.S. shipping goes through the Canal). Exports represent jobs for U.S. citizens because U.S. workers made the products. Imports enable U.S. consumers to receive needed products. Since the United States is the only superpower in the world, the United States is interested in keeping the global economy running smoothly. If world trade is disrupted, it can lead to worldwide economic problems. Therefore, any disruption in the flow of goods through the Panama Canal could directly hurt the U.S. and global economies. * Referenced May 2004: External Relation: EU’s Relations with Panama The article focuses on the relationship between Panama and the European community. Political relations between the EU and Panama have been shaped by the San José Dialogue, which was launched at an EU-Central America Ministerial Meeting in Costa Rica in 1984. Panama is also a signatory to the EU-Central America Framework Cooperation Agreement signed in February 1993 in San Salvador, which came into effect in March 1999 following its ratification by all parties. A new political dialogue and co- operation agreement has been signed in December 2003. All parties have not yet ratified this agreement. The United States is Panama’s main trading partner, accounting for 46% of its exports and 33.5% of its imports in 2002. The EU ranks second, accounting for 39
    • some 21% of Panamanian exports and 8.5%of its imports. The principal country's exports to the UE (excluding the Colón Free Zone) are, in decreasing order, fruits (especially bananas), ships and floating vessels, fish and crustaceans, skin and leather. Like the other Central American countries, Panama is covered by the EU’s Generalized System of Preferences adopted on 7 December 1998 and recently extended until the end of 2005 without graduation system for small countries, which provides for special treatment for its agricultural and industrial products. * Gedrich, Fred ―Panama Canal: U.S. Must Keep Watch‖, Freedom Alliance January 6, 2003 The author, Fred Gedrich is a senior policy analyst at Freedom Alliance. He focuses on the Panamanian government’s control of the Panama Canal and of the ―threat‖ that foreign insurgence presents to the U.S. with gaining control of the Canal. He states, ―…the Panama Canal is vitally important to U.S. economic and national security interests. Americans should not lose sight of these interests and happenings in Panama and our hemisphere. Our adversaries have shown the proclivity to exploit any situation that helps their cause, and we should not be caught with our guard down. Diplomatic relations between Panama and the United States are excellent and there is a strong bond between our citizens. ― With eyes of the world focused on the Middle East and Korean peninsula, the United States must not ignore signs of trouble emanating from its strategically important and friendly neighbor in Central America: Panama. This country houses the famous 40
    • Panama Canal that, for nearly a century, has served as a prime U.S. economic and national security interest. The 50-mile American-made waterway is a spectacular engineering feat. It separates North and South America and provides merchant ships and military vessels an 8,000-mile shortcut to U.S. ports on the Atlantic and Pacific coasts. In today's dollars, it cost about $7 billion to construct. The United States uses the Canal more than all the other nations in the world combined. The U.S. withdrawal created opportunities for opportunists in the region. A Columbian-based foreign terrorist organization, FARC, hides in Panama’s southern jungles because Panamanian security guards are unable to patrol the porous border with Columbia. In addition, South American drug cartels are flourishing in Panama. U.S. intelligence reports Panama still serves as a major cocaine transshipment point and a major drug money-laundering center. There are other worrisome and potentially explosive conditions in Panama. For instance, 37 percent of the 2.9 million Panamanians live in poverty, as much as 30 percent of the Panamanian workforce may be unemployed, and tens of thousands of Panamanians live in squalor in the slums of the Chorillo and San Filepe districts of Panama City in the shadow of thousands of empty housing units formerly owned by the U.S. military. 41
    • * Lt. Gen. Gordon Sumner, Jr. (USA-Ret) Howard Phillips ―Who Will Control the Path Between the Seas?” The Washington Times Commentary Section Monday August 18, 1997 This dated article by Lt. Gen. Gordon Sumner, Jr. (USA-Ret) (Former Chairman, Inter-American Defense Board) and Howard Phillips, Chairman of The Conservative Caucus, Inc., focuses on the transference of the Panama Canal to Panama and the supposed threat from foreign countries to U.S. security. The Panama Canal Neutrality Treaty reads as follows: "Nothing in the Treaty shall preclude the Republic of Panama and the United States of America from making...agreements or arrangements for the stationing of any United States military forces or the maintenance of defense sites after that date in the Republic of Panama that the Republic of Panama and the United States of America may deem necessary or appropriate." A U.S.-Panama accord to carry forward the American presence is not "pie in the sky". Surveys conducted in Panama over a period of years have indicated repeatedly that the overwhelming majority of Panama's citizens want America to stay. The margin of support swells to 80% and beyond if the U.S. agrees to pay a leasing fee to maintain its presence. * Referenced July 2004: Panamainfo.com Panamainfo.com is Panama's premier tourism web portal with more than 1000 pages of information in both English and Spanish and 120 links to Panamanian tourism and international business related websites. 42
    • Founded in May 1999, Panamainfo is the most visited web portal about Panama. On a Google search on "Panama" in English Panamainfo always comes up on the first page as one of the first three listings. As interest in the attractions of Panama grows, so does traffic to Panamainfo. Panamainfo current receives an average of 3400 unique visitors per day who visit at an average of 15, 000 pages per day. Panama is a sophisticated dollar-based service economy, a financial sector with 106 banks, the second largest free trade zone in the world and incomparable geographical location, make Panama one of Latin America’s leading business centers. Modern Maturity, the American Association for Retired Persons magazine, rated one region as one of the top four places in the world for Americans to live abroad. International Living, rates Panama as the number one country outside the United States for a second home- based its outstanding safety, infrastructure, climate and beauty. Panama is even blessed by nature- it has none of the disastrous hurricanes and earthquakes that plague its Central American neighbors. 43
    • CHAPTER 3 HISTORICAL PERSPECTIVE - EXPLORING THE RELATIONSHIP BETWEEN THE UNITED STATES AND PANAMA To say that the United States and The Republic of Panama has had a relationship over the last century would be a major misinterpretation of the word ―relationship‖. The United States assisted Panama in gaining independence from Colombia. Ever since the United States’ assistance, the relationship between the U.S. and Panama has been filled with everything from political manipulation to economic imprisonment to racism. In 1903, during the administration of President Theodore Roosevelt, the United States concluded the Hay-Bunau-Varilla Treaty with the new Republic of Panama, conveying to the United States "in perpetuity" a ten-mile-wide strip across the isthmus for construction of a canal. The United States paid Panama $10,000,000.00 in gold. In 1914 the United States completed the tremendous engineering feat of constructing the 51 mile long canal, overcoming the disease infested jungles and the seemingly insurmountable physical challenges. Since then the United States has continued to operate and defend the Canal, investing somewhere in the neighborhood of $32 billion in the process. The strategic value of this waterway far exceeds the monetary investment this Nation has made in it.6 6 Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum 44
    • Republic of Panama18 National name: República de Panamá President: Mireya Moscoso (1999) Area: 30,193 sq mi (78,200 sq km) Population (2004 est.): 3,000,463 (growth rate: 1.3%); birth rate: 20.4/1000; infant mortality rate: 21.0/1000; life expectancy: 72.1; density per sq mi: 99 Capital and largest city (2003 est.): Panama City, 1,053,500 (metro.area), 437,200 (city proper) Other large cities: San Miguelito, 309,500; Colón, 44,400 Monetary unit: Balboa; U.S. dollar Exchange Rate: US$1.00 = B/.1.00 (fixed exchange since1904) Languages: Spanish (official); many bilingual in English Ethnicity/race: mestizo (mixed Indian and European ancestry) 70%, West Indian 14%, white 10%, Indian 6% Religions: Roman Catholic 85%, Protestant 15% Literacy rate: 93% (2003 est.) 18 Referenced May 2004: Business Panama http://www.businesspanama.com/latestnews/article.php?nid=108 45
    • Economic summary: GDP/PPP (2002 est.): $18.06 billion; per capita $6,200. Real growth rate: 0.7%. Inflation: 1.1% (2001 est.). Unemployment: 16%. Arable land: 7%. Agriculture: bananas, rice, corn, coffee, sugarcane, vegetables; livestock; shrimp. Labor force: 1.1 million (2000 est.); note: shortage of skilled labor, but an oversupply of unskilled labor; agriculture 20.8%, industry 18%, services 61.2% (1995 est.). Industries: construction, petroleum refining, brewing, cement and other construction materials, sugar milling. Natural resources: copper, mahogany forests, shrimp, hydropower. Exports: $5.8 billion (f.o.b., 2002 est.): bananas, shrimp, sugar, coffee, clothing. Imports: $6.7 billion (f.o.b., 2002 est.): capital goods, crude oil, foodstuffs, consumer goods, chemicals. Major trading partners: U.S., Sweden, Costa Rica, Honduras, Colombia, Japan, Venezuela. Communications: Telephones: main lines in use: 396,000 (1997); mobile cellular: 17,000 (1997). Radio broadcast stations: AM 80, FM 44, shortwave 0 (1998). Radios: 815,000 (1997). Television broadcast stations: 38 (including repeaters) (1998). Televisions: 510,000 (1997). Internet Service Providers (ISPs): 6 (2000). Internet users: 45,000 (2000). Transportation: Railways: total: 355 km (2002). Highways: total: 11,400 km; paved: 3,944 km (including 30 km of expressways); unpaved: 7,456 km (1999). Waterways: 882 km navigable by shallow draft vessels; 82 km Panama Canal. Ports and harbors: Balboa, Cristobal, Coco Solo, Manzanillo (part of Colon area), Vacamonte. Airports: 103 (2002). International disputes: none. 46
    • Country Flag10 Map As previously stated, for canal rights in perpetuity, the U.S. paid Panama $10 million and agreed to pay $250,000 each year, which was increased to $430,000 in 1933. It was increased again in 1955. In exchange, the U.S. got the Canal Zone—a 10-mile- 10 Referenced May 2004: Infoplease.com http://www.infoplease.com/ipa/A0107870.html 47
    • wide strip across the isthmus—and considerable influence in Panama's affairs. On Sept. 7, 1977, Gen. Omar Torrijos Herrera and President Jimmy Carter signed treaties giving Panama gradual control of the canal, phasing out U.S. military bases, and guaranteeing the canal's neutrality10, until December 1999. Politics and economics reared there ugly horns well before the Hay-Bunau-Varilla Treaty. Panamanian nationalists eagerly point out that Panama existed before the settlement of Jamestown in 1607 and centuries before the United States intervened in November 1903 to help Panama gain independence from Colombia. Panamanian nationalists had sought independence from Colombia in the nineteenth century and unsuccessfully fought for Panamanian freedom in the Colombian civil war of 1899-1903. To them, the U.S. intervention in 1903 complicated the formation of a Panamanian national state. Thus, to Panamanians, the United States, at best, was a midwife and never the parent of Panamanian nationality. The temporary Panamanian representative to the U.S., Phillipe Bunau-Varilla, a Frenchman, violated his instructions from the new Panamanian government to await the arrival of officials from Panama before negotiating a treaty. Instead, he wrote a treaty so generous in giving away Panamanian authority that John Hay, U.S. Secretary of State, quickly signed it before the Panamanian delegation could force changes. The new Panamanian government reluctantly accepted it, fearing either Colombian or United States military intervention if it didn't. Instead of being a liberator, the United States treated Panama as a conquered province. Washington established a military dictatorship in the Canal Zone; the Canal 10 Referenced May 2004: Infoplease.com http://www.infoplease.com/ipa/A0107870.html 48
    • Zone Commissioner was always an active-duty U.S. military officer and Zonians, regardless of nationality, had no political power. They did what the Commissioner wanted or were expelled. The Zone was a military socialist society; the U.S. government owned virtually all but Zonians' personal possessions. Outside the Zone, the United States controlled most of the public services in Panama City and Colón. Americans viewed Panamanians, even those of the elite class, as lesser people. Moreover, these Spanish-speakers resented the importation of English-speaking black workers from the Caribbean because of their language and their ethnicity, a complaint compounded by the subsequent U.S. refusal to repatriate them once the Canal was completed. The U.S. actively discouraged Panamanian self-determination, for Washington saw its interest as the maintenance of a compliant Panamanian government. Foreign soldiers and foreign laws controlled the Zone; Panamanians could be arrested by foreign personnel, tried in foreign courts, and punished by foreigners all on Panamanian soil. The bifurcation of the nation by this foreign enclave prohibited the integral development of the nation, and, instead, skewed national development towards the cities of Panama and Colón, each a terminus of the Canal. As these two cities grew, Panamanians wanted unused Zonian land converted into Panamanian-owned farms to produce food to feed the urban populations along the canal. Panamanians also criticized the 1903 treaty for treating Panama unfairly in economic terms. Panama had no right to tax in the Zone or fix the toll rates on the canal. The rent on the Zone was fixed by treaty, thus making it extraordinarily difficult to change, and inflation reduced the value of the rent paid. The United States imported 49
    • goods directly into the Zone, both escaping Panamanian taxes bypassing Panamanian merchants. Panamanians or black West Indians were paid at the "silver rate" whereas U.S. citizens were paid at the higher "gold rate." Panamanian sovereignty has always been the source of friction between the two nations. Soon after the Hay-Bunau-Varilla treaty was signed in November, 1903, Panamanians argued that the treaty's phrase "as if it were sovereign" only gave the United States "jurisdictional sovereignty" over the Canal Zone and that the Zone was Panamanian. Washington officials understood the distinction, although they usually ignored it, but the average U.S. citizen erroneously believed that the Zone was U.S. territory and that Panama had yielded all rights in the Zone in perpetuity. Washington regularly intervened in Panamanian politics, usually through diplomats but too often through soldiers, to support favored local elites, those who supported U.S. policies because they benefited most directly from them. Throughout the history of Panamanian-U.S. relations, the United States could always rely on those Panamanians who prospered from the American presence.7 A history of mutual dependence underlies U.S.-Panama foreign policy and accounts for the patterns of dominance and dependence in bilateral relations. The two nations have convergent interests in safe, efficient commerce across the isthmus. For the U.S., this results from its status as the main user of the Panama Canal; for Panama, it is because half its population lives on the canal’s banks, and the canal generates economic benefits. The U.S. has also depended on Panama as a base for hemispheric military 7 Mabry, Donald J. ―Panama's Policy Toward the U.S.: Living With Big Brother‖ The Historical Text Archive 50
    • operations. Although the canal was the initial reason for the special U.S. attention to Panama, the selection in 1941 of the Canal Zone as headquarters for the U.S. Southern Command (SouthCom, previously the Caribbean Command) sharpened U.S. interest in Panamanian affairs. Due to the power differential between the U.S. military and economic empire and the small nation of Panama, colonialist attitudes have often characterized policy discussions and obstructed rational decision-making. The enduring impact of the 1989 U.S. invasion of Panama should not be underestimated in considering future U.S.- Panama policy. The invasion was the twentieth U.S. military intervention in this nation of 2.5 million people and easily the most violent event in Panama’s history. The Panama Canal was usually at the center of conflicts. Despite the increasing importance of air transport and the rise of other major trading nations, the U.S. remains the canal’s primary user. One-eighth of all U.S. seaborne traffic passes through the locks. Its economic utility for the U.S. is in making interoceanic trade cheaper for U.S. shippers and traders—in effect subsidizing the U.S. shipping industry and its exports.9 As previously noted, the United States and Panama have butted heads many times politically. Arguably, the most famous political upheaval between the two countries has been ―Operation Just Cause‖. Manuel Noriega, a ruthless dictator that at first was held in good standing with the United States government had continuously overstepped his boundaries. He was a known purveyor of the Central American drug trade through Panama and had dismisses democracy, amongst other human rights violations. 9 Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November 1996, Fellowship of Reconciliation. 51
    • Panamanian public opinion definitively turned against Noriega and in favor of U.S. military intervention when Noriega stole the May, 1989 elections and ordered his minions to beat the opposition presidential and vice presidential candidates when they led a massive protest of the electoral fraud. Noriega's newly-constituted Dignity Battalions had overstepped the bounds of acceptable Panamanian political practice, and done so in front of the international media. The Panamanian Roman Catholic Church denounced the regime for the fraud and violence, calling for Panamanians to withdraw their support of the dictator. The United States recognized the victory of opposition leader Guillermo Endara. Panamanians openly began suggesting that either a military coup or U.S. military intervention might be the only way to oust the dictator. Elements of the Panamanian Defense Force failed to overthrow Noriega in October 1989. Noriega executed the ringleaders and reorganized the PDF to insure its loyalty. He also sought to neutralize other dissidents, some of whom fled to the Zone and U.S. protection. The thug dictator seemed invincible. Elections, Organization of American States diplomacy, and an attempted military coup had all failed. Noriega was tightening his grip on the nation, strangling it for his personal ends. In December, 1989, Noriega, growing bolder by his seeming ability to act with impunity, harassed U.S. personnel and had the national assembly assert that Panama was in a state of emergency because of U.S. aggression. For both the average Panamanian and for Washington, Noriega had gone too far. Confronted with this intolerable situation, Panamanians welcomed Operation Just Cause even though U.S. military intervention did not meet the strict guidelines of the 52
    • neutrality treaty. The only legal ground for U.S. intervention is to prevent closure of the Canal; the U.S. had specifically signed away all other rights to intervene. Noriega had not threatened to close the Canal. By closing the Canal during the invasion (the only time it has ever been closed), the United States gave the Panamanian government the right, under both Panamanian and U.S. law, to resist by military means. Regardless of the legality or illegality of Operation Just Cause, Panamanians initially, at least, supported the invasion and the capture of Noriega, and the installation of Guillermo Endara as the new president of the republic. By December 20, 1989, Panamanians had so despaired of ridding themselves of the tyrannical dictator that even usurpation of their nation's sovereignty seemed preferable to his continuance in power. Such a euphoric response was unlikely to endure, however, and more thoughtful Panamanians realized that not much had changed in U.S.-Panamanian relations since 1903. The relationship between the two nations remained as unequal as it had been in 1903. Washington could and did manipulate the Panamanian economy at will even though doing so caused suffering for innocent Panamanians. Endara was as much a part of the U.S. colonial system as former presidents had been. In the disputed election of May 1989, he had benefited from the expenditure of millions of dollars in American funds. He and his vice president had been sworn into office on an American military base shortly before the invasion and then had to be protected by the U.S. military for several days. While the Panamanian business and professional classes, from which Endara and his vice presidents come, clearly supported the new government, Endara's government had few ties to the majority of Panamanians--farmers, laborers, and the urban middle sectors. U.S. military forces were still the key to power in Panama, treaties 53
    • notwithstanding. Panamanians realized that the longevity of the Endara government depended upon the U.S. military and U.S. economic aid. In short, Panama was a client state.7 The Role of Treaties Treaties have played a significant role in the relationship between the United States and Panama. From almost the beginning of the U.S. / Panama relationship there has been some form of animosity over various treaties between the two nations. Two provisions of the 1903 treaty immediately became a source of conflict between the two countries: the division of the economic benefits and the sovereignty question. Of the two, the economic issue has been the easier to solve. In 1909, the United States agreed to end private trading in the Canal Zone while allowing only the Canal Commission to sell imported goods to employees of the canal company without paying Panamanian taxes; thus Panamanian merchants received some of the protection they wanted although not as much as they had demanded. In the 1936-treaty revision, the annuity was adjusted upwards to $430,000 to offset the dollar devaluation but no other major economic concessions were made until the 1955 revision. In that year, the annuity was increased to $1,930,000 and the United States gave Panama the right to tax non-US Zone employees and some goods entering the Zone, altered some boundaries in favor of Panama, and returned some land as well, relinquished the exclusive right to construct trans-isthmian railroads and highway, and granted Panamanians a large share in supplying goods to the Zone market. In a separate agreement, the United States promised to end wage discrimination against the 7 Mabry, Donald J. ―Panama's Policy Toward the U.S.: Living With Big Brother‖ The Historical Text Archive 54
    • Panamanians working for the canal company. The United States acted slowly, however, and anti-US demonstrations marked the late 1950s. In 1960, President Eisenhower took executive action to implement some of the changes promised in an attempt to reduce tensions. The economic issue was linked to the more inflammatory sovereignty question, which was the more serious threat to US interests in Panama. Since 1904, Panama contended that it is sovereign over the Zone and that the United States has limited "jurisdictional sovereignty." US citizens, on the other band, have believed that the Zone is an integral part of the United States (in ignorance of the 1903 treaty and its subsequent revisions) or that Panama yielded all Zone rights in perpetuity. As long as Washington considered the Canal essential to its security, it refused to budge on the issue, for it did not trust Panama to protect US interests. Panamanian political instability further discouraged the United States from yielding. The 1936 treaty revision was ratified in 1939 only after Panama agreed to allow the United States to continue military intervention when the latter thought it necessary. Panama ceased to be a protectorate in name only. This fundamental disagreement meant that Panamanian demands met fierce resistance in the United States and the Zone while failure to budge prompted demonstrations and riots in Panama. Both Panamanian and U.S. politicians found the sovereignty issue replete with demagogic appeal. Nevertheless, the United States slowly yielded to Panama's demands albeit unwillingly. Defense sites acquired in 1942 were abandoned in 1947 after violent demonstrations encouraged the Panamanian congress to reject the extension agreement. The 1955 treaty was negotiated after a series of anti-Yankee protests; and was only fully 55
    • implemented after student demonstrations, attacks on the US embassy, and threatened mob invasions of the Zone. The US government decided that its interests were best served by conceding. In response to more nationalist demands, Eisenhower, in 1960, ordered the Panamanian flag flown in parts of the Zone and President John Kennedy, in 1963, ordered the Panamanian flag be flown jointly with the US flag over civilian installations and that foreign consuls accredited to Panama are allowed to operate in the Zone. Such actions temporarily improved relations but did not solve the sovereignty problem. Continued Panamanian nationalism, combined with a decline in the importance of the canal, resulted in the proposed 1967 treaty revision. In 1964, US high school students raised the US flag in violation of orders and instigated a riot in which 24 were killed and hundreds injured. Because US troops clashed with Panamanians in the Zone, President Chiari demanded an Organization of American States and a United Nations investigation of what he called US aggression and suspended diplomatic relations. Shortly thereafter, negotiations on a new treaty began. President Lyndon Baines Johnson, however, determined not to yield the canal, agreed to negotiate three treaties. One would change the military defense of the canal. The second would recognize Panamanian sovereignty over the Zone and give it more control over the canal. The third was for the possible construction of a new canal (since the Panama Canal was antiquated and incapable of handling the super ships being built) after the best possible site was determined. That the proposed new canal was not specified and discussions included possible construction in Nicaragua or Mexico, the United States had tremendous leverage over Panama, The treaties were not ratified, however, because they faced opposition within the United 56
    • States and the military government which replaced the 1967 government was not satisfied with the terms. By the mid-1970s, the United States was willing to concede to Panama's demands on the sovereignty issue if both nations could get the necessary ratifications. Since the development of a two-ocean navy, nuclear submarines and carriers, long-range bombers and missiles, the Canal's strategic importance and the necessity of the military bases there have declined. Some experts assert that the Canal has no strategic value. The development of excellent internal transportation in the United States as well as the use of super ships (which cannot go through the Canal) has reduced the commercial importance of the Canal to the United States. About 80% of the traffic through the canal by the 1960s was Latin American. By December, 1973, the two nations agreed in principle that the United States would return the Zone to Panama while gradually involving Panama in the Canal's operation and defense, that Panama would receive a more equitable share of the benefits, that the United States would retain only three of its fifteen military installations in the country, and that the new treaty would have a fixed life. A new treaty was finally ratified in April 1978 under the leadership of President Jimmy Carter and General Omar Torrijos. The negotiations were often bitter and the treaty faced strong opposition in the US Senate. The Canal Zone would be returned to Panama in 1999. The US would leave its military bases in Panama but would have the right to intervene militarily to protect the canal, a proviso Panamanians did not like. Operation of the canal became Panamanian. The Panama Canal Company, the Canal Zone, and its government were disenfranchised on October 1, 1979, and replaced by the Panama Canal Commission that 57
    • operated the Canal during the 20-year transition period that began with the Treaty. The Panama Canal Commission has now been replaced by a new Panamanian entity, the Panama Canal Authority. The treaty guarantees permanent neutrality of the Canal. Control over U.S. military facilities in the former Panama Canal Zone has reverted to Panamanian authority. The U.S. Southern Command and U.S. Army South troops moved out of Panama at the end of 1999. The Panama Ports Company, a subsidiary of Hong Kong-based Hutchison-Whampoa, now operates the ports at both entrances, Cristobal (Atlantic) and Balboa (Pacific) on to the Canal. This has been a cause for security concerns among some lawmakers in the United States, although the United States was legally entitled to intervene to maintain the neutrality of the Canal.2 The significance of an inevitable end to the special relationship deserves more attention in both countries. Friendship and close ties will persist, of course. The United States, preoccupied with other foreign and domestic matters, including elections, is not likely to address the issue soon. Panama, however, has had a new administration since September 1999 and it has not addressed the issue adequately either. The failure to come to grips with a new set of circumstances in the relationship risks creating difficulties as the two friendly nations face several important, unsettled issues. Because this change will have a great impact on Panama, it is very important that Panama face this challenge immediately. The idea persists in Panama that the U.S. still sees the canal as a strategic asset, and that this will preserve old ties. In the past, these close ties have tempted Panamanian officials not to take full responsibility for their 2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief 58
    • problems. To the extent that such perceptions continue, Panama will probably continue to underachieve. While the United States has downgraded the canal as a national security and foreign policy priority, Panama remains important as a unique regional transportation hub. Most of the commerce transiting the canal originates in or is destined for the United States. Japan, Taiwan, China, and Europe also are prominent users of the canal. The canal is even more important to countries in the region, especially the Pacific coast states, Ecuador, Peru, Chile, Nicaragua, and El Salvador. Trade patterns are shifting and North- South trade within the Western Hemisphere is growing quickly. Thus the United States shares the interests of many nations in a non-political, efficient canal that provides safe passage and good service at a reasonable cost. U.S. Navy and Coast Guard vessels still use the canal about 90 times per year and make another 160 port calls in Panama for re-supply and refueling. In addition, about 120 U.S. military aircraft continue to over fly or transit Panama each year, using commercial facilities when they land. These visits are handled through close, interpersonal cooperation, but they should be institutionalized through a visiting forces agreement so that they are more transparent and predictable over the longer term. Another issue that has received undue attention recently is competition between Beijing and Taipei for Panamanian recognition. Panama recognizes Taiwan, but China wants it to shift official relations. The United States should not be drawn into this by wholly unfounded allegations about a security threat to the canal represented by the commercial activities of a Hong Kong-based company. This is a widely respected company with a good reputation for managing container port operations around the 59
    • world. It has a solid record of cooperating with officials on law enforcement and security issues. Its operation and presence in Panama do not constitute a threat to the canal, much less to the United States.13 Cultural ties between the two countries are strong, and many Panamanians come to the United States for higher education and advanced training. The United States has cast a long shadow over Panamanian life since the country's birth, occasionally intervening in its internal affairs. Once a major strategic point, Panama – especially the Panama Canal, still holds major United States interest. Years of distrust and corruption at both the political and economic levels have soured generations of Panamanians on U.S. intentions. Although significant in providing Panama with military ―protection‖ and being a major pipeline for economic stability to Panama, the U.S. has done a good job in alienating the general Panamanian population. 13 Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson The United States and Panama: End of the ―Special Relationship‖ 60
    • CHAPTER FOUR THE INFLUENCES THAT THE UNITED STATES STILL HAVE ON THE PANAMANIAN ECONOMY AND WHAT INFLUENCES OTHER NATIONS HAVE ON THE PANAMANIAN ECONOMY A history of mutual dependence underlies U.S.-Panama foreign policy and accounts for the patterns of dominance and dependence in bilateral relations. The two nations have convergent interests in safe, efficient commerce across the isthmus. For the U.S., this results from its status as the main user of the Panama Canal; for Panama, it is because half its population lives on the canal’s banks, and the canal generates economic benefits. The U.S. has also depended on Panama as a base for hemispheric military operations. Although the canal was the initial reason for the special U.S. attention to Panama, the selection in 1941 of the Canal Zone as headquarters for the U.S. Southern Command (SouthCom, previously the Caribbean Command) sharpened U.S. interest in Panamanian affairs. Due to the power differential between the U.S. military and economic empire and the small nation of Panama, colonialist attitudes have often characterized policy discussions and obstructed rational decision-making. The enduring impact of the 1989 U.S. invasion of Panama should not be underestimated in considering future U.S.- Panama policy. The invasion was the twentieth U.S. military intervention in this nation of 2.5 million people and easily the most violent event in Panama’s history.4 4 Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November 1996, Fellowship of Reconciliation. 61
    • Panamanians, especially those that now live in the United States, have varying opinions on the United States’ influence on Panama and the Panamanian economy. GYSGT Rafael W. Scott (Retired, USMC), believes that the United States still has a significant influence on Panama and the Panamanian economy, ―the American dollar is what circulates through out Panama and not the Panamanian Balboa‖. This is very significant in that U.S. currency is the prevalent currency in a foreign country. Ms. Angela Velasquez, Commercial Attaché - Embassy of Panama, also believes the U.S influence is significant, but more so in the ―United States’ investments in Panama‖. Ms. Ida Myers, Office of Alumni Relations and Academic Events at NYU School of Medicine, feels that ―the overall economic and political relationship between the United States and Panama is one of mutual opportunity. Panama enjoys an open economy and is integrated with the United States. With the establishment of the Free Trade Agreement, Panama and the United States will create opportunities for the U.S. and Panamanian business, consumers and workers. Politically, Panama and the U.S. will benefit when both governments see eye to eye on political issues concerning Panama‖. One of the first tests of the new U.S.-Panama relationship is the problem of unexploded ordnance (UXO) in the military training ranges that were turned over to Panama. The U.S. government believes it complied with the treaty in turning over these and other properties to Panama. Senior Panamanian officials, however, argue that the United States is obligated to rid these areas completely of any UXO. It seems to us that the United States did clean up the ranges to the extent ―practicable‖ as called for in the treaty. The treaty drafters never contemplated that unexploded ordnance would be entirely removed from the ranges because the ranges 62
    • were to be turned over for similar use by Panamanian forces. However, Panama no longer has military forces, and environmental awareness has increased in the twenty years since the treaty was signed. Given these changed circumstances, which could not have been foreseen in 1979, the two governments should consider examining the issue in a cooperative dialogue, without depending solely on treaty language for a solution. U.S. officials have indicated a willingness to work with Panama on the problem, provided treaty compliance is not called into question. If the government of Panama persists in a legalistic approach focused on treaty compliance, a productive dialogue is less likely. Also, trying to gain additional financial concessions from the United States risks poisoning the new relationship and may cost Panama more in the long run. For the United States, it will be difficult to treat the UXO problem in isolation because of the worldwide implications. But this should not preclude cooperative efforts to deal with the problem. The main focus, therefore, should be on cooperation in managing safety and environmental concerns. A solution will surely provide a powerful impetus to establish the new relationship. Both sides have more important interests (e.g., counter-narcotics, canal security, and economic relations) that could be put at risk over an issue that can, with a cooperative attitude, be resolved.13 Panama is apparently weathering the economic impact of the withdrawal of U.S. forces reasonably well. The effects were cushioned by the fact that the transition was slow and expected. Also, the previous government increased spending on public works. 13 Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson The United States and Panama: End of the ―Special Relationship‖ 63
    • According to Panamanian government reports, the almost 3,000 jobs that were lost over the last year have been offset by the same number of jobs created through some 80 projects associated with the properties turned over to Panama. According to these same reports, within about three years, property transfers may double the nearly 6,000 jobs lost during the last five years and the $300 million in lost revenue generated from converting the bases will also be made up. While these figures are surely too optimistic, previous forecasts about the adverse impact of the U.S. military withdrawal seem exaggerated. Some business leaders do not share the government’s favorable evaluation and expectations. They are concerned about the government’s skill in managing and disposing of reverted properties, in attracting direct foreign investments, and in implementing fiscal and social reforms–all necessary for sustained economic growth. Furthermore, the Panamanian public seems increasingly frustrated with the slow start of the new government. There is a troubling sense of drift. Despite ambitious public plans, Panama continues to be plagued by the inability of the political elite to cooperate. In fact, they are aggressively uncooperative. As a result, there is little continuity in effort. After nearly one year in office, the government has not made the transition from a political campaign to running the country. The government at times seems focused on revenge against political opponents rather than governing well. The existence of a ―kitchen cabinet‖ of advisors around the President undermines the ministerial cabinet and contributes to the confusion and diffusion of authority and responsibility. It is difficult to determine who has specific responsibilities. As a result, nobody seems to be held accountable and the public seems to sense this. 64
    • Panama faces major challenges. First and foremost is a combination of poverty, unemployment, and lack of job training. Almost half the population lives in poverty and unemployment is at 13 percent. President Moscoso calls current levels of unemployment ―alarming,‖ and points to the ―enormous gap between the rich and poor.‖ Indeed, income inequality is among the highest in Latin America. Poor public health, crime, and corruption exacerbate these persistent problems. Such conditions could put pressure on canal managers to provide more jobs and funds at the expense of canal maintenance and modernization. While the danger is not imminent and provisions exist to protect the canal, this bears watching over time. Adequate water supply is another serious problem. Water is critical for both the operation of the canal and a fast-growing population. About 52 million gallons of fresh water are used for each of the 13,000 ships that transit the canal each year. In addition, the bulk of Panama’s nearly three million people live near the canal, and the population is growing at nearly two percent every year. Abundant rainfall in the past led to wasteful practices, and the decrease in rainfall in recent years has resulted in water shortages and forced canal operators to restrict the maximum draft of ships, requiring many to reduce cargoes. Water also was restricted for much of the population during this period. The demand for water may increase substantially if Panama moves ahead with construction of a third set of locks. Water concerns have caught the government’s attention and Panama is looking into creating additional lakes to supply water for future needs. Plans to modernize Panama’s inadequate water and sewage system are also being discussed, but privatization apparently lacks sufficient broad-based political support and no decision has yet been made on how to proceed. 65
    • Concerns about the Panama-Colombia border have also been a topic for discussion. For the last thirty years, guerrilla forces from Colombia have moved freely into and out of a poorly defined and uncontrolled border area for a re-supply base and sanctuary. While this violates Panamanian sovereignty, it does not represent an immediate threat to the government of Panama or the canal. Nevertheless, as the government of Colombia puts increasing pressure on the guerrillas, more refugees may flee into Panama, straining Panamanian resources and infrastructure.13 The Other Countries Political relations between the EU and Panama have been shaped by the San José Dialogue, which was launched at an EU-Central America Ministerial Meeting in Costa Rica in 1984. Panama is also a signatory to the EU-Central America Framework Cooperation Agreement signed in February 1993 in San Salvador, which came into effect in March 1999 following its ratification by all parties. A new political dialogue and co- operation agreement has been signed in December 2003. All parties have not yet ratified this agreement. Panama elects representatives to the PARLACEN regional parliament and is a signatory to the 1991 Tegucigalpa Protocol, which creates the Central American System of Integration (SICA). 13 Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson The United States and Panama: End of the ―Special Relationship‖ 66
    • The United States is Panama’s main trading partner, accounting for 46% of its exports and 33.5% of its imports in 2002. The EU ranks second, accounting for some 21% of Panamanian exports and 8.5%of its imports. The principal country's exports to the UE (excluding the Colón Free Zone) are, in decreasing order, fruits (especially bananas), ships and floating vessels, fish and crustaceans, skin and leather. Like the other Central American countries, Panama is covered by the EU’s Generalized System of Preferences adopted on 7 December 1998 and recently extended until the end of 2005 without graduation system for small countries, which provides for special treatment for its agricultural and industrial products. Due to its relatively high economic development indicators (GDP per capita of some $4,000), Panama is not considered a priority country for cooperation by the EU and its Member States. From 1990-2000, the Commission committed some $39 million for 37 projects in Panama, of which $33 million for financial and technical assistance projects, $3 million for economic cooperation and a further $3 million for human rights projects. A key area of support in terms of both impact and visibility has been a series of small projects providing assistance to the Government of Panama in the context of the handing over of the Panama Canal. Another area of valuable support has been the assistance in the transition to democratic government provided in the first half of the 1990s. In financial terms the main projects include:  Rehabilitation of the Santo Tomas Hospital ($4.8 million – completed in 1995) 67
    •  Support to the Social Emergency Fund ($4.8 million – completed in 1998)  Support to small and medium agricultural producers from the Central Region ($5 million – completed in 2001)  The promotion of equal opportunities for women ($9.8 million - ongoing);  Modernization of the Prison System ($3.8 million – implementation has started in 2002) A Framework Agreement on the implementation of financial and technical assistance and economic cooperation between the EC and Panama was signed on 15 June 1999. A bilateral Memorandum of Understanding constituting the general framework for cooperation programs for the period 2000-2006 was signed in March 2001. The indicative amount allocated for the period is $24.3 million. The Memorandum of Understanding sets out three focal areas for cooperation: economic development, democratic institutionalization of the state, and social development. These areas have been developed in the European Commission Panama Country Strategy Paper 2002- 2006. Under the first focal area, two projects were approved in December 2001, The Panama City Historic Centre Rehabilitation (Casco Viejo) support project ($0.95 million) 68
    • and the Panama International Techno park/City of Knowledge support project ($7.7 million). The first one is almost completed while the second is on going. Under the second focal area, a project on Institutional strengthening and Modernization of the Judiciary has been approved at the end of 2003 ($6.7 million). Its implementation should start early 2004. Under the third one, a project on « incorporation of new electrification technologies for education and health in marginal areas » has been approved in 2003 ($8.5 million).18 China is an area of great concern to the U.S. This concern is put on even higher alert when China attempts to have a significant presence in the Western Hemisphere. The Chinese penetration of Panama has been effected primarily through an entity known as the Panama Ports Company, a front corporation for Hutchison-Whampoa Limited, a Communist Chinese-controlled company owned by Hong Kong billionaire Dr. Li Ka- shing. Dr. Li's business empire has long been intertwined with enterprises that front for the Communist military and intelligence arms of the People's Republic of China (PRC). Ten percent of his Panama Ports Company is owned by China Resources, the commercial arm of China's Ministry of Trade and Economic Cooperation. On July 16, 1997, Senator Fred Thompson (R-TN) was quoted in the South China Morning Post as stating that China Resources was "an agent of espionage – economic, military, and political – for China." Shen Jueren, the Communist official who heads China Resources and Li Ka-shing are both partners in the family’s Hong Kong Chinese 18 Referenced May 2004 : External Relation : EU’s Relations with Panama http://europa.eu.int/comm/external_relations/panama/intro/ 69
    • Bank. Dr. Li is also a principal in the PRC’s huge China Telecom, and the China International Trust and Investment Corporation (CITIC), a ministry-level conglomerate with global assets of $21 billion run by Chinese "princeling" Wang Jun. As chairman of Poly Group, Wang Jun also serves as the PRC’s main arms dealer to Communist regimes, terrorists, and rogue states. Nevertheless, Shen Jueren and Wang Jun, like many other notorious Red Chinese agents bearing campaign gifts, were welcome guests at the Clinton-Gore White House. Dr. Lie Hutchison-Whampoa is a partner with the China Ocean Shipping Company (COSCO), the merchant marine arm of the People’s Liberation Army (PLA). Hutchison-Whampoa also controls countless ports around the world. Because of its relationship to the PRC and the potential impact this implies for U.S. global interests, this should be of major concern to the United States. But a specific concern is that Beijing, operating through this company, has virtually achieved, without a single shot being fired, a stronghold on the Panama Canal, something which took the United States so many years and such tremendous effort to accomplish.6 China's interest in Panama is not limited to shipping ports. Panama's Maritime Handbook for 2002/3 lists China as the third greatest user of the Canal and another Chinese shipping firm, COSCO, as the largest single client on Panama's ship registry. The Washington Times reported, "In recent years, Chinese companies have invested $200 million in Panama, with millions more pledged." Over the years, watchdog groups like the Center for Security Policy, National Security Center, Eagle Form and Freedom Alliance have warned about Chinese mischief 6 Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum 70
    • around the globe. In addition, former U.S. Senator Fred Thompson, past Chairman and Ranking Member of the Government Affairs Committee and former Select Committee on Intelligence member wrote, "China has sold nuclear components to Pakistan, missile parts to Libya, cruise missiles to Iran, and shared a wide variety of sensitive technologies with North Korea." Panamanian educator and journalist, Dr. Tomas Cabal, in testimony before the U.S. Congress said, "COSCO is the merchant marine for the Chinese military and has shipped weapons of mass destruction technology and delivery systems to other countries." Little wonder why many worry about the contents of cargo on Chinese ships transiting the Canal and being unloaded by the Chinese gatekeepers. If this isn't chilling enough, the U.S. withdrawal also created opportunities for other opportunists in the region. A Columbian-based foreign terrorist organization, FARC, hides in Panama’s southern jungles because Panamanian security guards are unable to patrol the porous border with Columbia. In addition, South American drug cartels are flourishing in Panama. U.S. intelligence reports Panama still serves as a major cocaine transshipment point and a major drug money-laundering center. Hutchison's Hong Kong-based Managing Director, John Meredith said, "… amusement is my reaction to the criticism we've received … Hutchison has 80,000 employees in 35 countries and we've been in business for more than 150 years … we're putting another $200 million in developing the Panama Port infrastructure further … not one of the 1,400 workers at the two Panamanian ports are ethnic Chinese …U.S. warships berth at these ports … the U.S. should be pretty happy we are there – about a month ago we had a big drug bust and the DEA is very enthusiastic with our work ….‖ 71
    • When asked if Chinese firms pose a security risk to the Canal, Deputy Assistant Secretary of State for Western Hemisphere Affairs, John Keane said "there is no evidence whatsoever of any objective other than money … if necessary, the Neutrality Treaty gives the United States the right to defend the Canal." His boss, Assistant Secretary Otto Reich along with Charge d'affaires at U.S. Embassy Panama, Chris McMullen echoed his comments. 19 19 Gedrich, Fred “Panama Canal: U.S. Must Keep Watch‖, Freedom Alliance January 6, 2003 72
    • CHAPTER FIVE THE ECONOMIC EFFECTS THE TRANSFERENCE OF CONTROL OF THE PANAMA CANAL HAS HAD ON THE UNITED STATES AND PANAMA AND WHAT THE EFFECT ON PANAMA IS AND WILL BE TO THE COUNTRY Among the great peaceful endeavors of mankind that have contributed significantly to progress in the world, the construction of the Canal stands as an awe- inspiring achievement. The unparalleled engineering triumph was made possible by an international work force under the leadership of American visionaries that made the centuries-old dream of uniting the two great oceans a reality. In 1534, Charles I of Spain ordered the first survey of a proposed canal route through the Isthmus of Panama. More than three centuries passed before the first construction was started. The French labored 20 years, beginning in 1880, but disease and financial problems defeated them. The United States, interested since the late 18th century in trading voyages to the coast of the Pacific Northwest, became greatly concerned with plans for a canal after settlers had begun to pour into Oregon and California. Active negotiations led in 1846 to a treaty, by which the republic of New Granada (consisting of present-day Panama and Colombia) granted the United States transit rights across the Isthmus of Panama in return for a guarantee of the neutrality and sovereignty of New Granada. 73
    • The isthmus gained more importance after the United States acquired (1848) California and the gold rush began, and the trans-Panama RR was built (1848–55) with U.S. capital. At the same time, interest in an alternate route, the Nicaragua Canal, was strong in both Great Britain and the United States. Rivalry between the two countries was ended by the Clayton-Bulwer Treaty (1850), which guaranteed that neither power should have exclusive rights or threaten the neutrality of an interoceanic route. In the 1870s and 80s the United States tried unsuccessfully to induce Great Britain to abrogate or amend the Clayton-Bulwer Treaty.11 A French company began building a canal in 1882 to connect the Atlantic and the Pacific Oceans across Central America. Many men building the canal died of diseases such as yellow fever, so the project stopped. In 1890 the Americans tried to cut a canal through Nicaragua and failed. President Roosevelt talked with Colombia in 1901 about building the canal. A treaty was signed. The United States requested to buy a six-mile wide and 10 mile long strip of land with connected the Atlantic and Pacific for a down payment of $10 millions and $250,000 each year. In 1903 the Colombian senate turned down the offer. Some people from the French company and some Americans meet with some people in Panama to break away from Colombia. A revolution took place. The U. S. warship Nashville backed up the revolution with its big guns. Three days after the revolution began; the United States officially recognized the new nation. Less than two 11 The Columbia Electronic Encyclopedia, 6th ed. 2003, Columbia University Press. 74
    • weeks later a treaty for building the canal was signed. Many years later the U. S. paid Colombia $25 million for their losses. The canal was build by the army. Colonel George Goethals was in charge. William Gorgas was in charge of controlling diseases such as yellow fever and malaria. Doctor Walter Reed learned about the diseases. He found mosquitoes carried them. Gorgas followed Reed's rules.  Clear out places where mosquitoes could be found  Cover water supplies with nets  All tents and houses were covered with nets  New sewers were put in In 1906 eight out of ten workers had malaria. By 1913 only 7 out of 100 had the disease. The canal went through the jungle, across lakes, and over mountains. Explosives were used to blast through the rock. In 1914 the canal was opened. Roosevelt died five years later in 1919. The Panama Canal extends approximately 50 miles from Panama City on the Pacific Ocean to Colón on the Caribbean Sea. It is widely considered to be one of the world's great engineering achievements. The United States is the largest user of the Canal in terms of cargo tonnage, as either port of origin or destination, although Asian countries are beginning to close the gap. Ships bound for Japan from the East Coast of the United 75
    • States save about 3,000 miles by going through the Canal; ships sailing from Ecuador to Europe save about 5,000 miles.2 When former President Jimmy Carter shook hands with members of the Panama Canal Authority on December 14, 1999, it marked the ceremonial end to a transition that's been over 20 years in the making. Though the transfer of Canal power seems to most a sign of hope, some Americans have voiced second thoughts. The Canal gradually became a source of bad relations. Anti-U.S. riots in the 1960s sparked negotiations for a new treaty. On Sept. 1, 1977, after a one-vote victory in the Senate, President Carter signed the Panama Canal Treaties. The legislation called for the step-by-step transfer of the canal to the government of Panama beginning on Oct. 1, 1979, and officially ending on December 31, 1999. 96 percent of the canal's 9,500-person workforce is Panamanian, and an American hasn't been in charge of the canal for almost nine years. Gilberto Guardia was installed as the first Panamanian administrator of the canal in September 1990 and fellow countryman Alberto Aleman Zubieta succeeded him in 1996. Since 1979, a U.S. government agency called the Panama Canal Commission, made up of five Americans and four Panamanians supervised the transition. It gave way to the new Panama Canal Authority. The strategic importance of the Panama Canal, shipping and port services not only makes Panama's economy highly dependent on world trade trends, but also 2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief 76
    • vulnerable to fluctuations in the global economy. The recent global downturn brought the growth rate of Panama's economy, which enjoyed an annual average real domestic product growth (GDP) of 5.1% through the 1990s, essentially to a halt. In 2002, canal transits and tonnage, for example, declined 2.3% and 2.8% respectively, over 2001. Imports and re-exports activity at the Colon Free Trade Zone decreased, along with export tonnage of some Panama's major export commodities, for example, bananas (- 5.2%) and shrimp (-16.5%). Overall, Panama's real GDP growth fell from 2.5% in 2000 to only 0.3% in 2001 and about 0.8% in 2002. Nonetheless, with the prospects of the global economy improving, Panama’s economy will most likely recover. The economy is expected to grow 2.3% in 2003.2 Lt. Colonel Bruce Russell (Retired, U.S. Army), states ―having grown up in the Canal Zone I was somewhat biased about the turning over of control to Panama. However, I believe Panama to date has demonstrated that it can sustain and maintain the operations of the Canal. I am skeptical about Panama defending the Canal in time of crisis and still needs to maintain that relationship with the U.S. for support whenever needed. Other furthered their skepticism, ―my feelings were one of sadness and concern about the future of Panama and the Panamanian people. Concern about the economic, social and political ramifications that would befall the country.‖ stated Ms. Myers. GYSGT Scott offered another perspective, ―My feelings was and still remain the same, it should have never happened, if you could not keep the city clean how do you expect to maintain the Canal without intervention of other countries such as China, Japan, or India?‖ 2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief 77
    • Military Presence ―(The United States’) military presence was huge. It not only maintained stability in Panama but also throughout Central and South America.‖ - Lt. Colonel Bruce Russell. Although the canal is not owned or operated by the U.S. military, the Pentagon has always had a role in canal policy. The U.S. army supervised the construction of the seaway from 1904 to 1914, and the Panama Canal Commission’s Board of Directors is, by law, chaired by the Assistant Secretary of the U.S. Army, who retains the right to dictate the votes of the board’s U.S. majority. Except for an interlude during the Carter administration, when the White House and the State Department assumed a more prominent role, the Pentagon has been the main powerbroker in U.S.-Panama policy.9 SouthCom, one of the Pentagon’s regional commands, used its 16 military bases in Panama to coordinate all U.S. military relations with the countries of the Caribbean Basin and South America. The Pentagon transferred SouthCom headquarters to Miami in 1997. ―The U.S. military’s presence in Panama was twofold. They were directly involved in the defense of the canal, were responsible for all U.S. military activities in Central and South America: activities such as The Jungle Operations Training Center, the Inter-American Air Forces Academy, which provided training for Latin American air forces.‖ stated Ms. Myers Despite the treaties that clearly specify the removal of all U.S. troops and bases, both U.S. and Panamanian policymakers were discussing the retention of some U.S. 9 Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November 1996, Fellowship of Reconciliation. 78
    • military presence in the Canal area. In the U.S. Senate, a resolution sponsored by conservative Jesse Helms called for a new agreement that would permit the U.S. to retain its military presence in Panama. The Pentagon, however, acknowledged that the bases were not essential to either U.S. military or narcotics control strategy. The military’s willingness to close the Panamanian bases was reinforced by the closure of military bases at home, increasing the reluctance of the Pentagon to pay for a post-1999 military presence in Panama—at an estimated cost of $200 million a year. The last U.S. military base was closed on December 1, 1999. ―There was plenty of jobs on the military installations, the protection of the Canal was much more secure than ever by land, air, or sea, no it’s not. They are at high risk of other countries attempting to make a sort of possession of the Canal, an also using other types of strategies, privatizing the work arena.‖ – GYSGT. Scott Commercial Use Over 13,000 commercial vessels transit the Panama Canal every year with some 190 million long tons of cargo. In the past year, U.S. Naval vessels used the Canal countless times. This 51-mile waterway cuts 8,000 miles off the trip around the southern tip of South America, saving as much as two weeks of transport time. In warfare, time means lives, and that much time can mean the difference between defeat and victory. The Panama Canal has played a crucial role in World Wars I and II, the Korean War, Vietnam, Desert Storm, and many other conflicts. It is unfathomable that this tremendous asset – which was bought at such a cost in gold, lives, sweat, and labor at the beginning of this century, and that is still so necessary to our nation's safety -- could be surrendered 79
    • nonchalantly now at the close of this tumultuous century. More than 15% of American imported and exported goods reach their destination via the Canal, making the U. S. the number one user of the Canal. Forty percent of the grain grown by American farmers is exported through the Canal, and each day, nearly 700,000 barrels of oil bound for U.S. ports pass through the Canal. Probably of greatest importance, the Canal allows the U.S. Navy to transport its combat ships between the Atlantic and the Pacific Oceans.6 Traveling the Canal According to the U.S. Marin Transportation 1998 report, "Marine transportation is an integral component of the U.S. transportation system and essential to the nation's economy." The United States ships over 1 billion long tons of cargo through the Panama Canal each year, making the Panama Canal an indispensable aspect of the nation's economy. Servicing over 50 countries on all 7 continents, the Panama Canal is vital to the transportation of natural resources and manufactured goods. This can be seen through the following facts: · 141 trade routes converge at the Panama Canal. · It serviced an average of 37.8 vessels a day in 2000. · The busiest of the trade routes, the East Coast of the United States to Asia, is 3,000 miles shorter than the alternative all-water route around the Southern tip of South America. · Nearly 195 million long tons of cargo were transported in 2000. · Total revenues for 1999 were nearly $750 million. 6 Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum 80
    • The new controlling agency, the Panama Canal Authority (ACP), has successfully maintained the level of service previously provided by the United States. Up until December 31, 1999, the United States had complete control of the Panama Canal. However, the change in authority did not happen abruptly: The Panama Canal Treaty of 1977 outlined a gradual change over to ensure continued customer satisfaction. The Panama Canal is crucial to global business, and the United States and other world powers that rely on the canal were concerned that the canal would be more susceptible to a hostile take-over without the protection of the U.S. military. The ACP was established as a separate entity of the Panamanian government and has financial sovereignty to avoid such a problem. It comprises maritime experts and heavyweights from around the world. Being free from political influence, the ACP operates as a business whose main concern is efficient service for its customers. Shipping through the Panama Canal has also increased in the last two decades due to the decreased service of rail systems in the United States. Before the 1980's, most cargo from Asia to the Eastern United States did travel through the canal. Improvements in rail shipping procedure at the time provided service six days faster at only a slightly higher cost. Now, however, the rails are unable to keep up with the increase in cargo tonnage. For instance, containers may remain stacked at ports in California weeks before they make it to the rail lines. Many shipping companies from China have chosen to get their cargo to the east coast of the Unites States through the Panama Canal to avoid congested railways in California. The rail service in the United States is no longer the consistently fastest option. Since the early 1990's, all water shipping routes, as opposed to water and rail routes, have increased 65%. 81
    • Vessels are getting larger. While larger vessels are beneficial in that they reduce the volume of vessels through the canal, they exhaust the canal's resources. The Panamax, the largest vessel to fit in the canal, has a 106 ft beam and 965 ft length. Panamax vessels comprised 32% of the some 13,000 vessels that used the canal in 2000. 12 The U.S. East Coast-Asia route is the dominant trade route for the Panama Canal, and is boosted by increasing U.S.-China trade. Movement between U.S. East Coast and West Coast South America and between Europe and Asia are also major trade routes. Recently, North-South trade has been increasing, as Latin America evolves into an increasingly important trading partner of North America. The Canal is designed to accommodate about 50 ships per day (the maximum has been 65 transits per day). On average, it takes one ship 24 hours to pass completely through the canal. Oceangoing vessel transits totaled 11,862 in fiscal year 2002, or an average of 32 vessels per day, an almost 3.0% decline from 2001’s total of 12,198 or 33 vessels per day. Overall, there were 13,185 transits in 2002. Petroleum is one of the largest commodities (by tonnage) shipped through the Canal, accounting for about 14% of total canal shipments in 2002. Approximately 599,544 barrels per day of petroleum products and crude oil passed through the Canal in 2002. Around 63% of total oil shipments went from the Atlantic to the Pacific, with petroleum products dominating (80%) this traffic. Petroleum products also accounted for the majority of Pacific to Atlantic oil traffic. Overall, petroleum products far outweigh crude oil, accounting for almost 71% of all petroleum shipments through the Canal. Some 12 Stieber, Halley, ―The Future of the Panama Canal‖ Illumin, Volume 5 : Issue 2 March 1st, 2002 82
    • coal is shipped through the canal as well, accounting for about 1.6% of total Canal traffic. About 3.4 million short tons of coal passed through the canal in 2002, with approximately 70% going from the Pacific to the Atlantic.2 Another big challenge that Panama faces is absorbing and converting transferred property, from the United States. In addition to the canal, the United States turned over more than 5,000 buildings, facilities, and other infrastructure valued at more than $4 billion, not counting the canal and nearly 350,000 acres of land. The facilities include 13 military bases, 3 airports, nearly 4,000 houses, 35 hotels, 11 schools, and 2 hospitals. While representing an enormous potential, these facilities must be maintained at substantial cost until they are leased or sold. Panama developed a plan for dealing with the transferred property and was successful in disposing of Albrook Airbase and some other assets quickly. Subsequently, however, the demand for many properties has been weak, and the change in administrations has slowed the process while new personnel are involved in reviewing contracts let under the previous administration. Progress on the development of the former Howard Air Force Base and Fort Amador will be an indicator of Panama’s ability to attract investors to Panama. Thus far, the results have been disappointing.13 Outside of the 14 military bases there are some 5, 000 office and residential buildings left by the United States. 2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief 13 Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson The United States and Panama: End of the ―Special Relationship‖ 83
    • The economic effects the transference of control of the Panama Canal has had on the United States and Panama and the effects on Panama are very significant. The United States, once looked upon like the countries protector, is now ―on the outside looking in‖ in decisions made on the management of the Panama Canal. Deeper effects of the transfer, such as the land now available to the Panamanian government (from U.S. military bases) and the loss of U.S. personnel and their dollars are very significant. Even though the number of Panamanians employed by the canal has grown to nearly all the 8,000 employees needed to run the waterway, questions are still plentiful. The true impact of the transference of the Panama Canal may not be known for some time. 84
    • CHAPTER SIX THE FUTURE ECONOMIC RELATIONSHIP BETWEEN THE UNITED STATES AND PANAMA Despite its small population and area (3.06 million and 30,193 square miles respectively), Panama is an important center for international trade in the Western Hemisphere, as both a major shipping thoroughfare and a regional economic power. Since 1992, an average of 185 million long tons of cargo has passed annually through the Panama Canal. Panama is also a financial and communications hub that sits at the crossroads of five international fiber-optic networks and hosts 110 international banks. Although the country has consistently maintained one of Central America's highest per capita gross domestic products, approximately 37.3% of its population lives in poverty, including nearly 18.8% in extreme conditions, according to government statistics.1 ―The new Panamanian government is for free trade, globalization, and democracy‖, stated Ms. Velasquez. ―Privatization is important, as well as bringing in foreign investors‖. Capitalism at It’s Finest Capitalism - an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.22 Residents like to joke that this city of high-rise condos and ocean promenades is a lot like Miami or Los Angeles except that more English is spoken here. Four years after 1 Calderon, Rodolfo Vera ―The United States Invasion of Panama: A tri-dimensional analysis‖ Georgetown University · School of Foreign Service 22 Referenced July 2004 : Webster Dictionary Online http://www.webster.com/cgi-bin/dictionary 85
    • the last U.S. troops pulled out and Panamanians gained control of the canal that is their most important national asset, the Yankee footprint here remains deep and surprisingly welcome. Although anti-Americanism is on the rise in much of Latin America, Panamanians heartily embrace their onetime occupiers' values and symbols, from language to music and fashion — and the almighty dollar. "The motto here today is 'Gringo come back,' " said Tomas Cabal, a TV commentator and English professor. ‖Panamanians would like to see American troops come back and build a base on the Colombian border." Panama has had no army of its own for the past dozen years. The Panama Defense Forces were disbanded three years after a 1989 U.S. invasion ousted the last military strongman, Gen. Manuel Noriega, in an exercise of regime change for which Panamanians, by and large, remain gushingly grateful. "George Bush is a great leader! He got rid of the Pineapple (a Noriega nickname), and now he's gotten rid of Saddam Hussein," cabdriver Manuel Garcia said, lumping together the father-and-son presidencies as if they were one. The U.S. military action in Iraq is a point of political tension between Washington and many countries in Latin America, from staunch allies such as Mexico and Chile to historically adversarial Cuba. Panamanians, however, keep their eyes on the bottom line more than the front lines, Cabal said. 86
    • The country's best and brightest benefited from generous scholarship programs that sent thousands of Panamanians to U.S. universities. Most of today's business and political leaders, including President-elect Martin Torrijos and canal administrator Alberto Aleman Zubieta, picked up American habits as well as degrees, forging lifelong affinities for U.S. baseball teams, Fourth of July barbecues and fast food. A love-hate relationship existed over the decades after the canal opened in 1914, with Panamanians resentful of U.S. control of the waterway and the 12-mile-wide Canal Zone that was fenced off from the rest of their country. On the other hand, the U.S.-built waterway lifted the country from banana republic to global trade and maritime player. When the canal reverted to Panama on December 31, 1999, the only real thorn in the relationship fell away. Much of the persistent good feeling is the result of the high levels of intermarriage and dual citizenship during the long U.S. occupation of the Canal Zone. More than 10,000 U.S. troops and civilian contractors lived in the zone until the waterway was handed over to Panama, and even children born to two U.S. citizens retained the right to Panamanian citizenship after the troops' withdrawal. Hundreds of "Zonians" have stayed here, strengthening the bonds between the two nations. "I'm a Panamanian as much as an American. I was born here and spent my whole life here," said Llori Gibson, a 47-year-old artist whose parents were U.S. canal workers. Married to another Zonian, she keeps a foot in both countries, visiting family members in the United States while working in Panama with indigenous groups to preserve their culture and market their crafts. 87
    • Because of the untold thousands of dual citizens such as Gibson, official statistics showing that about 10 percent of the population consists of foreigners probably fail to fully reflect the proportion of Americans in this cosmopolitan country that is also home to tens of thousands of people from Asia, Europe and other parts of Latin America. Underpinning the U.S.-Panama bond is economics. The United States is the largest user of the canal, Panama's most important trade partner and de facto central banker and monetary-policy controller. "Why is our currency the U.S. dollar? Because we were visionaries," said Romel Adames, vice minister for commerce and industry. Using the greenback saves Panama the expense of maintaining a national mint and, more important, shields the economy from inflation and manipulation of the money supply, he noted. "There's no sovereignty issue here," Adames insisted. Tourism tracts boast of the strong new presence of U.S. retirees, who have been drawn to Panama by its low taxes, affordable housing, tropical climate and contemporary, bilingual entertainment. "There's a lot of shared history here, a lot of cultural affinity. The long U.S. presence here affects the way people do business, the way things are viewed," said David Hunt, the retired Air Force colonel who closed up the U.S. canal shop four years ago, then jumped at an offer to run the Panamanian-American Chamber of Commerce. Although he detects among Panamanian movers and shakers a slight increase in self-confidence and pride for having finally achieved full control over their national 88
    • affairs, Hunt said he has seen none of the resentment that U.S. citizens encounter almost everywhere else south of the border. "It's all very subtle and very polite," he said. "There's self-awareness in the post-U.S. age that I think is a good and natural evolution." 15 The Panamanian Economy ―The economical situation between both countries is merely of power interest in whom can benefit from the other. Political relationship is not on a good basis, due to conflict of interest.‖ states GYSGT Scott. But others have a different view, ―Overall I would believe that the economic and political relationship between both countries is good. I feel there is a mutual respect for each other.‖ – Lt. Colonel Bruce Russell. The unit of currency used in Panama is the Balboa (PAB), which is pegged at parity to the dollar. There is no Panamanian paper currency and the US dollar is the de facto official currency for all but minor transactions. As a result, the Government cannot print money, and inflation is low, probably only 1% in 1999. ―Economically, the current state of Panama is stable and the most advanced in all of Central and South America, but continue to struggle with poverty, and the lack of employment. Politically, they have had several problems and protests about the corruption in the government and the management of social security funds.‖ interjects Ms. Myers. 15 Referenced May 2004: Business Panama http://www.businesspanama.com/latestnews 89
    • The outgoing administration in 1999, that of Ernesto Balladares, had tried, with some success, to reverse the fairly dire economic situation of the 1980s which accompanied and may have been linked to national drug-dependence, culminating in the US invasion in 1989. Extremely high external debt, which had led to Panama's exclusion from world capital markets, was addressed in 1996 with a Brady-bond restructuring. In parallel, the Government pursued an aggressive policy of trade and economic liberalization, including privatization of key assets, which has begun to have an effect. Leaving aside the difficult subject of drugs, the economy in Panama is focused on banking, mining, commerce and tourism, with the canal and the shipping business generally playing an important role. The total value of the financial sector's assets (as at the end of June 2003) was $32.5 billion. The Government has introduced many investment incentives (see below). Copper mining began to have significance only quite recently, but Panama is now emerging as one of the world's major producers, with gold mining also making a contribution. The Colon Free Trade Zone has enjoyed major success, and now accounts for 10% of GNP. Other free trade areas are being created. In the 1990s, growth had been running at 4% with low inflation; however it fell from 2.5% in 2000 to only 0.3% in 2001 and about 0.8% in 2002. Nonetheless, with the prospects of the global economy improving, Panama’s economy will most likely recover. The economy is expected to grow 2.3% in 2003. GDP per head of $4,000 is only average for the region and 90
    • unemployment remains stubbornly high at 13%. As of June, 2003, Panama's GDP was valued at $12.6 billion. In October, 2003, it was reported that financial and trading services already contribute 80% of Panama's GDP, and the government would like to establish the country as Latin America's regional financial services hub. Panama is a well-located, well-endowed and well-educated country which has been held back by corrupt and ineffective leadership. If the Government manages to continue with business-friendly and liberal policies, the country will be successful.14 Panama is a sophisticated dollar-based service economy, a financial sector with 106 banks, the second largest free trade zone in the world and incomparable geographical location, make Panama one of Latin America’s leading business centers.21 Panama's economy is based primarily on a well-developed services sector that accounts for nearly 80% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, medical and health, and other business. ―I believe Panama is in a great position to grow economically and politically without a big brother, the United States, dictating and influencing its every move.‖ states Lt. Colonel Russell. 14 Referenced May 2004: Lowtax.net http://www.lowtax.net/lowtax/html/jpacfir.html 21 Referenced July 2004: Panama Information http://panamainfo.com 91
    • A major challenge facing the current government under President Mireya Moscoso is turning to productive use the 70,000 acres of former U.S. military land and the more than 5,000 buildings that reverted to Panama at the end of 1999. Administratively, this job falls to the Panamanian Inter-Oceanic Regional Authority. GDP growth for 2002 was about 0.8% compared to 0.3% in 2001. Though Panama has the highest GDP per capita in Central America, about 40% of its population lives in poverty. The unemployment rate surpassed 14% in 2002. From March 2001 to February 2003, Panama served as host for the Free Trade Area of the Americas negotiations. Panama’s first free trade agreement, with El Salvador, entered into force in early 2003, and in August 2003 Panama concluded negotiations on an FTA with Taiwan. Panama also is negotiating FTA’s with its Central American neighbors. 4 If the trend continues, gross domestic product growth for 2004 should reach 6.7 percent, Finance Minister Norberto Delgado told reporters. Growth is also being bolstered by construction activity and increased traffic through the government- controlled Panama Canal as world trade picks up, Delgado said. Panama's recovery started last year with economic growth of 4.1 percent, following two years of little change, reflecting weak U.S. demand.15 The Bush Administration has announced it will begin trade negotiations with Panama in the hopes of completing a bilateral "free trade agreement" (FTA). The negotiations represent the latest attempt to expand NAFTA 4 U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003, Background Note: Panama 15 Referenced May 2004: Business Panama http://www.businesspanama.com/latestnews 92
    • further into Latin America. A Panama FTA would complement the Central America Free Trade Agreement (CAFTA) with Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and the Dominican Republic that the Administration finished negotiating last year. "Like CAFTA, the Panama FTA is just a Trojan horse for the stalled FTAA" said Larry Weiss, Executive Director of Citizens Trade Campaign. "Many Latin American countries reject the NAFTA model and refuse to go along with the Bush Administration's plans to extend that model throughout the hemisphere. The administration is employing a backdoor FTAA strategy by twisting the arms of the small and weak governments in the region." "The Administration will likely offer a raw deal to Panama with any trade agreement they negotiate," said Bill Klinefelter, Political and Legislative Director of the United Steelworkers of America. "The U.S. Trade Representative showed that labor rights are simply not a concern with the CAFTA negotiations. We have no reason to think they will have any more regard for Panamanian workers."15 Trade between Panama's service-led economy and the United States totaled about $2 billion last year.16 ―The overall economic and political relationship between the United States and Panama is one of mutual opportunity. Panama enjoys an open economy and is integrated with the United States. With the establishment of the Free Trade Agreement, Panama and the United States will create opportunities for the U.S. and Panamanian business, consumers and workers. Politically, Panama and the U.S. will benefit when both governments see eye to eye on political issues concerning Panama.‖ states Ms. Myers. 15 Referenced May 2004: Business Panamhttp://www.businesspanama.com/latestnews/article.php?nid=108 16 Moreno, Elida Reuters “U.S., Panama open free-trade talks amid protests‖ April 26, 2004 93
    • Also, a major problem that remains is how Panama can absorb into its economy the 5,000 buildings and over 90,000 acres vacated by the U.S. forces. Most of these assets are now open for private investment. Until investors arrive, however, Panama has calculated the annual maintenance bill at over $40 million. The U.S. Presence – Is the U.S. Really Gone? U.S. economic aid programs in Panama, reduced drastically from their post- invasion peak in 1991, are focused on protecting the canal watershed in order to prevent deforestation from silting the canal and making it less efficient. U.S. concern about protecting the canal watershed is laudable, but by leaving decision-making to SouthCom’s discretion, Washington has essentially ignored the problem of toxic and dangerous substances left by decades of military activity in Panama. For example, unexploded ordnance left on firing ranges has exploded, injuring and even killing Panamanian children and farmers. The Canal Treaties require the U.S. to make an effort to remove hazards to human health and safety from its military sites. Relations between the two countries will be recklessly undermined if future generations of Panamanians find their health and safety compromised by the dangerous materials that the U.S. military left behind.9 Twenty-nine opinion polls over the decade have revealed a steady 70 to 75 percent of Panamanians in favor of a continued U.S. presence, with most of this due to the economic benefits. 9 Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November 1996, Fellowship of Reconciliation. 94
    • Panama has had a steady higher standard of living than most of its neighbors, due primarily to the Canal and the American presence. Its annual per capita income in 1995 ($2400) was among the highest in the developing world. By all major social indicators -- income, literacy, education, live births, life expectancy, birth rate, etc. -- Panama was closer to upper-class Latin American nations such as Argentina and Uruguay, than to its immediate neighbors. This is not to deny social and economic inequities and the obvious differences between Americans who lived in the Canal Zone and the general Panamanian population. But for many years the United States has been pumping and annual $300 million into the local economy. "Integrity is the best national defense" is a social abstraction, devoid of serious content and satisfying only the soul. Panama has been used to American dollars for most of this century. Now they are not going to get them, and this simple fact alone may spell great trouble for the years ahead.5 The Panama Canal is important to Panama for income and jobs, but it is also considered to be vitally important to the United States economy. Many U.S. exports and imports travel through the Canal daily (over 10% of all U.S. shipping goes through the Canal). Exports represent jobs for U.S. citizens because the products were made by U.S. workers. Imports enable U.S. consumers to receive needed products. Since the United States is the only superpower in the world, the United States is interested in keeping the global economy running smoothly. If world trade is disrupted, it 5 Online NewsHour, ―Controlling the Canal‖, William Ratliff and John J. Tierney 95
    • can lead to worldwide economic problems. Therefore, any disruption in the flow of goods through the Panama Canal could directly hurt the U.S. and global economies. For instance, if England were selling products to Peru, England's economy would suffer if the Canal were not operating. Without access to the Canal, the cost of exports from England to Peru would significantly increase because England would have to regain the added expenses involved in sailing around South America. Because of increased prices, Peru could not afford to purchase as many products from England, which in turn would decrease England's revenues gained from exports. Decreased revenue means that England would have less money available to purchase products from the United States and other countries. A "domino effect" would be set in motion as the United States and other countries experienced similar problems with their exports and imports. This example illustrates the economic importance the Panama Canal has to the U.S. and global economies. If one considers the thousands of ships full of goods that pass through the Canal every year and the impact that closing the Canal would have on the world economy, one can understand the economic importance of the Canal. Therefore, keeping the Canal open is directly and indirectly important to the United States and to the global economy.17 The future economic relationship between the United States and Panama can be called unsteady, at best. Although efforts have been made on both sides to build a stronger economic relationship, politics seem to be at the root of stalled negotiations. For future generations of Panamanians too thrive, a stronger economy must be maintained, 17 Referenced May 2004: Global Perspectives http://www.cet.edu/earthinfo/camerica/panama/PCtopic4.html 96
    • and even with the transference of the Panama Canal, and the absence of the U.S. military, the United States seems primed to be a major force in shaping the Panamanian economy. Much work remains to make Panama a first world nation. The judicial system is badly in need of reform and de-politicization. The level of government corruption is still way too high, a common problem in Latin America. Decentralization- giving more authority and services to cities and provinces is vital. While private education is good, public education needs continued improvement to prepare young Panamanians for the many jobs that will be created in the sophisticated service sector. Panama recognizes this and is now spends 20% of its public spending on education, the highest figure in the Americas. The nascent prosperity is not reaching the whole populace: the wealth distribution curve is one of the most skewed in the world. One third of the population lives in poverty. Sustained determination and creative planning will continue to be needed to create the conditions so that all Panamanians can participate in the country's growing prosperity.21 21 Referenced July 2004: Panama Information http://panamainfo.com 97
    • CHAPTER SEVEN SUMMARY, CONCLUSION, AND RECOMMENDATIONS Summary This Directed Research Project (DRP) has provided an opportunity to examine the true relationship between the United States and Panama. This focus here has been to examine the economic impact that the United States has had on Panama, on various levels. The impact of the withdrawal of the United States military has had lasting economic effects outside of protecting the canal. The United States military forces in Panama numbered slightly under 10,000 troops, at full strength in Panama. The United States military also employed approximately 8,000 civilians, 70 percent of whom were Panamanian nationals. The U.S. withdrawal has significantly affected the Panamanian economy through the loss of civilian jobs and the significant lack of US dollars from military and civilian personnel (upwards of $250 million every year), but the Panamanian government has made significant strides in improving the economy. Through social reforms, aid from foreign countries, and the United State’s on going interest in the Panama Canal, the country is trying to lay the foundation for a prosperous economic future. The United State’s transference of the canal to the Panamanian people has also had a profound economic effect on Panama. The immediate cost to Panamanians through the loss of U.S. dollars and the wide potential costs of managing and maintaining the Panama Canal under Panamanian rather than U.S. control is substantial, but foreign influences are starting to play a significant role in the future of the Panama Canal. Various business ventures and upgrades to the Canal are providing the Panamanian government with an on-going resource of revenue to the country. The United States still remains the preeminent user of the Canal, though. 98
    • Conclusion The United States will always have a significant interest in the Panama, specifically for the Panama Canal. Since the earliest days of Panama, the United States has placed its ―hand print‖ on the shaping of the country. The Untied States’ presence in the country provided a substantial ―cash cow‖ for the country, until the transference of the Canal to Panama in December 1999. Panama is now in the process of creating new and innovative ways to market itself. Not only is the government upgrading the Canal and entering into affiliations with countries once thought unlikely (China), but the government of Panama is pushing the tourism aspect of Panama throughout the world. Although a lot of Panama’s notoriety revolves around the Panama Canal, and is infamous for such headline grabbers as Manuel Noriega and Operation Just Cause, the country is still one of the most economically sound Latin American countries. Economically, the current state of Panama is stable and the most advanced in all of Central and South America, but continue to struggle with poverty, and the lack of employment. Politically, they have had several problems and protests about the corruption in the government and the management of social security funds. The U.S. military’s presence in Panama was significant. They were directly involved in the defense of the canal, were responsible for all U.S. military activities in Central and South America: activities such as The Jungle Operations Training Center, the Inter-American Air Forces Academy, which provided training for Latin American air forces. 99
    • The overall economic and political relationship between the United States and Panama is one of mutual opportunity. Panama enjoys an open economy and is integrated with the United States. With the establishment of the Free Trade Agreement, Panama and the United States will create opportunities for the U.S. and Panamanian business, consumers and workers. Politically, Panama and the U.S. will benefit when both governments see eye to eye on political issues concerning Panama. This study of the United States’ economic impact on the Republic of Panama is not intended to incite a feeling of resentment from Panamanians to the United States. This study highlights key events in the relationship between the two nations, and how the relationship has affected the Panama politically and economically. Working together, in the generations to follow, an improved relationship between the two countries can be had in learning from past obstacles. Recommendations Some recommendations for economic growth in Panama are as follows:  Maintain the U.S. dollar – this encourages foreign investment. A dollar based economy simplifies the transaction process between Panama and the U.S. and foreign investors.  Promote foreign investment into the country.  USA, Germany, and Costa Rica are Panama’s major trading partners. Find ways to encourage more trading with these countries, and promote trading with other major countries, in order to establish a footprint in the global economy. 100
    •  Use the resources left by the United States (i.e. building, land, technology) to further develop the country’s economic base.  Establish and maintain a strong relationship with the United States. Not only does the Panamanian government have ties to the U.S., but many Panamanian citizens have ties to the United States, especially through family.  Some marketing recommendations for economic growth in Panama are as follows:  Panamanians value products of high quality, excellent customer service, brand- name recognition and attractive packaging.  Effective tools for trade promotion in Panama include trade shows and exhibitions.  Most foreign consumer product manufacturers advertise via billboards, newspaper advertising, and commercials. This is a very resourceful avenue for exposure of a product in Panama.  Economic development opportunities in the interior should be expanded, but with environmental considerations at the forefront of development.  Panama offers a diverse culture. The climate in Panama is ideal for outdoor activities. Panama’s outdoor diversity should be further pushed to foreign tourists. For those wishing to venture beyond traditional city limits, Panama offers whitewater rafting in the mountainous region of Chiriqui Province, snorkeling in Bocas del Toro on the Caribbean, and bird watching in the Canal areas. 101
    • BIBLIOGRAPHY 1. Calderon, Rodolfo Vera ―The United States Invasion of Panama: A Tri-dimensional Analysis‖ Georgetown University · School of Foreign Service 2. Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief 3. The Library of Congress - Country Studies - Panama 4. U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003, Background Note: Panama http://www.state.gov/r/pa/ei/bgn/2030.htm 5. Editorial piece - Online NewsHour – Changing of the Guard http://www.pbs.org/newshour/forum/december99/panama_canal4.html 6. Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum 7. Mabry, Donald J. ―Panama's Policy Toward the U.S.: Living With Big Brother‖ The Historical Text Archive 8. CNN.com ―U.S. Prepares to Hand Over Panama Canal after 85 years‖ www.cnn.com/1999/US/12/14/panama.canal.01 9. Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November 1996, Fellowship of Reconciliation. 10. Referenced May 2004: Infoplease.com http://www.infoplease.com/ipa/A0107870.html 11. The Columbia Electronic Encyclopedia, 6th ed. 2003, Columbia University Press. Panama http://www.infoplease.com/ce6/world/A0860214.html 12. Stieber, Halley, ―The Future of the Panama Canal‖ Illumin, Volume 5 : Issue 2 March 1st, 2002 13. Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson The United States and Panama: End of the ―Special Relationship‖ 102
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