Darell Scott Grad School Thesis

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

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Darell Scott Grad School Thesis

  1. 1. 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
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. "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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. * 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
  23. 23. 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
  24. 24. * 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
  25. 25. 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
  26. 26. 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
  27. 27. 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
  28. 28. ―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
  29. 29. * 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
  30. 30. * 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
  31. 31. 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
  32. 32. 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
  33. 33. 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
  34. 34. 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
  35. 35. * 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
  36. 36. * 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
  37. 37. * 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
  38. 38. 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
  39. 39. * 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
  40. 40. 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
  41. 41. 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
  42. 42. * 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
  43. 43. 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
  44. 44. 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
  45. 45. 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
  46. 46. 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
  47. 47. 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
  48. 48. 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
  49. 49. 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
  50. 50. 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
  51. 51. 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
  52. 52. 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
  53. 53. 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
  54. 54. 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
  55. 55. 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
  56. 56. 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
  57. 57. 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

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