Download - Darell Scott Grad School Thesis
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
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.
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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
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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.
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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
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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
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
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
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
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).
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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
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
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
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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
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
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
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
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
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.
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
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.
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
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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.
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.
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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
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
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.‖
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.
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.
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
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.
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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.‖
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.
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.
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.
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.
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
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.
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
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
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.
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.
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.
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
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
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.
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
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
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
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
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.
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
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
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
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
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
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
58
operated the Canal during the 20-year transition period that began with the Treaty. The
Panama Canal Commission has now been replaced by a new Panamanian entity, the
Panama Canal Authority. The treaty guarantees permanent neutrality of the Canal.
Control over U.S. military facilities in the former Panama Canal Zone has reverted to
Panamanian authority. The U.S. Southern Command and U.S. Army South troops moved
out of Panama at the end of 1999. The Panama Ports Company, a subsidiary of Hong
Kong-based Hutchison-Whampoa, now operates the ports at both entrances, Cristobal
(Atlantic) and Balboa (Pacific) on to the Canal. This has been a cause for security
concerns among some lawmakers in the United States, although the United States was
legally entitled to intervene to maintain the neutrality of the Canal.2
The significance of an inevitable end to the special relationship deserves more
attention in both countries. Friendship and close ties will persist, of course. The United
States, preoccupied with other foreign and domestic matters, including elections, is not
likely to address the issue soon. Panama, however, has had a new administration since
September 1999 and it has not addressed the issue adequately either. The failure to come
to grips with a new set of circumstances in the relationship risks creating difficulties as
the two friendly nations face several important, unsettled issues.
Because this change will have a great impact on Panama, it is very important that
Panama face this challenge immediately. The idea persists in Panama that the U.S. still
sees the canal as a strategic asset, and that this will preserve old ties. In the past, these
close ties have tempted Panamanian officials not to take full responsibility for their
2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief
59
problems. To the extent that such perceptions continue, Panama will probably continue to
underachieve.
While the United States has downgraded the canal as a national security and
foreign policy priority, Panama remains important as a unique regional transportation
hub. Most of the commerce transiting the canal originates in or is destined for the United
States. Japan, Taiwan, China, and Europe also are prominent users of the canal. The canal
is even more important to countries in the region, especially the Pacific coast states,
Ecuador, Peru, Chile, Nicaragua, and El Salvador. Trade patterns are shifting and North-
South trade within the Western Hemisphere is growing quickly.
Thus the United States shares the interests of many nations in a non-political, efficient
canal that provides safe passage and good service at a reasonable cost.
U.S. Navy and Coast Guard vessels still use the canal about 90 times per year and
make another 160 port calls in Panama for re-supply and refueling. In addition, about 120
U.S. military aircraft continue to over fly or transit Panama each year, using commercial
facilities when they land. These visits are handled through close, interpersonal
cooperation, but they should be institutionalized through a visiting forces agreement so
that they are more transparent and predictable over the longer term.
Another issue that has received undue attention recently is competition between
Beijing and Taipei for Panamanian recognition. Panama recognizes Taiwan, but China
wants it to shift official relations. The United States should not be drawn into this by
wholly unfounded allegations about a security threat to the canal represented by the
commercial activities of a Hong Kong-based company. This is a widely respected
company with a good reputation for managing container port operations around the
60
world. It has a solid record of cooperating with officials on law enforcement and security
issues. Its operation and presence in Panama do not constitute a threat to the canal, much
less to the United States.13
Cultural ties between the two countries are strong, and many Panamanians come
to the United States for higher education and advanced training. The United States has
cast a long shadow over Panamanian life since the country's birth, occasionally
intervening in its internal affairs. Once a major strategic point, Panama – especially the
Panama Canal, still holds major United States interest. Years of distrust and corruption at
both the political and economic levels have soured generations of Panamanians on U.S.
intentions. Although significant in providing Panama with military ―protection‖ and
being a major pipeline for economic stability to Panama, the U.S. has done a good job in
alienating the general Panamanian population.
13
Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson
The United States and Panama: End of the ―Special Relationship‖
61
CHAPTER FOUR
THE INFLUENCES THAT THE UNITED STATES STILL HAVE ON THE
PANAMANIAN ECONOMY AND WHAT INFLUENCES OTHER NATIONS
HAVE ON THE PANAMANIAN ECONOMY
A history of mutual dependence underlies U.S.-Panama foreign policy and
accounts for the patterns of dominance and dependence in bilateral relations. The two
nations have convergent interests in safe, efficient commerce across the isthmus. For the
U.S., this results from its status as the main user of the Panama Canal; for Panama, it is
because half its population lives on the canal’s banks, and the canal generates economic
benefits. The U.S. has also depended on Panama as a base for hemispheric military
operations. Although the canal was the initial reason for the special U.S. attention to
Panama, the selection in 1941 of the Canal Zone as headquarters for the U.S. Southern
Command (SouthCom, previously the Caribbean Command) sharpened U.S. interest in
Panamanian affairs.
Due to the power differential between the U.S. military and economic empire and
the small nation of Panama, colonialist attitudes have often characterized policy
discussions and obstructed rational decision-making. The enduring impact of the 1989
U.S. invasion of Panama should not be underestimated in considering future U.S.-
Panama policy. The invasion was the twentieth U.S. military intervention in this nation of
2.5 million people and easily the most violent event in Panama’s history.4
4 Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November
1996, Fellowship of Reconciliation.
62
Panamanians, especially those that now live in the United States, have varying opinions
on the United States’ influence on Panama and the Panamanian economy. GYSGT
Rafael W. Scott (Retired, USMC), believes that the United States still has a significant
influence on Panama and the Panamanian economy, ―the American dollar is what
circulates through out Panama and not the Panamanian Balboa‖. This is very significant
in that U.S. currency is the prevalent currency in a foreign country. Ms. Angela
Velasquez, Commercial Attaché - Embassy of Panama, also believes the U.S influence is
significant, but more so in the ―United States’ investments in Panama‖. Ms. Ida Myers,
Office of Alumni Relations and Academic Events at NYU School of Medicine, feels that
―the overall economic and political relationship between the United States and Panama is
one of mutual opportunity. Panama enjoys an open economy and is integrated with the
United States. With the establishment of the Free Trade Agreement, Panama and the
United States will create opportunities for the U.S. and Panamanian business, consumers
and workers. Politically, Panama and the U.S. will benefit when both governments see
eye to eye on political issues concerning Panama‖.
One of the first tests of the new U.S.-Panama relationship is the problem of
unexploded ordnance (UXO) in the military training ranges that were turned over to
Panama. The U.S. government believes it complied with the treaty in turning over these
and other properties to Panama. Senior Panamanian officials, however, argue that the
United States is obligated to rid these areas completely of any UXO.
It seems to us that the United States did clean up the ranges to the extent
―practicable‖ as called for in the treaty. The treaty drafters never contemplated that
unexploded ordnance would be entirely removed from the ranges because the ranges
63
were to be turned over for similar use by Panamanian forces. However, Panama no longer
has military forces, and environmental awareness has increased in the twenty years since
the treaty was signed.
Given these changed circumstances, which could not have been foreseen in 1979,
the two governments should consider examining the issue in a cooperative dialogue,
without depending solely on treaty language for a solution. U.S. officials have indicated a
willingness to work with Panama on the problem, provided treaty compliance is not
called into question. If the government of Panama persists in a legalistic approach
focused on treaty compliance, a productive dialogue is less likely. Also, trying to gain
additional financial concessions from the United States risks poisoning the new
relationship and may cost Panama more in the long run. For the United States, it will be
difficult to treat the UXO problem in isolation because of the worldwide implications.
But this should not preclude cooperative efforts to deal with the problem.
The main focus, therefore, should be on cooperation in managing safety and
environmental concerns. A solution will surely provide a powerful impetus to establish
the new relationship. Both sides have more important interests (e.g., counter-narcotics,
canal security, and economic relations) that could be put at risk over an issue that can,
with a cooperative attitude, be resolved.13
Panama is apparently weathering the economic impact of the withdrawal of U.S.
forces reasonably well. The effects were cushioned by the fact that the transition was
slow and expected. Also, the previous government increased spending on public works.
13
Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson
The United States and Panama: End of the ―Special Relationship‖
64
According to Panamanian government reports, the almost 3,000 jobs that were lost over
the last year have been offset by the same number of jobs created through some 80
projects associated with the properties turned over to Panama. According to these same
reports, within about three years, property transfers may double the nearly 6,000 jobs lost
during the last five years and the $300 million in lost revenue generated from converting
the bases will also be made up. While these figures are surely too optimistic, previous
forecasts about the adverse impact of the U.S. military withdrawal seem exaggerated.
Some business leaders do not share the government’s favorable evaluation and
expectations. They are concerned about the government’s skill in managing and
disposing of reverted properties, in attracting direct foreign investments, and in
implementing fiscal and social reforms–all necessary for sustained economic growth.
Furthermore, the Panamanian public seems increasingly frustrated with the slow start of
the new government. There is a troubling sense of drift.
Despite ambitious public plans, Panama continues to be plagued by the inability
of the political elite to cooperate. In fact, they are aggressively uncooperative. As a result,
there is little continuity in effort. After nearly one year in office, the government has not
made the transition from a political campaign to running the country. The government at
times seems focused on revenge against political opponents rather than governing well.
The existence of a ―kitchen cabinet‖ of advisors around the President undermines the
ministerial cabinet and contributes to the confusion and diffusion of authority and
responsibility. It is difficult to determine who has specific responsibilities. As a result,
nobody seems to be held accountable and the public seems to sense this.
65
Panama faces major challenges. First and foremost is a combination of poverty,
unemployment, and lack of job training. Almost half the population lives in poverty and
unemployment is at 13 percent. President Moscoso calls current levels of unemployment
―alarming,‖ and points to the ―enormous gap between the rich and poor.‖ Indeed, income
inequality is among the highest in Latin America. Poor public health, crime, and
corruption exacerbate these persistent problems. Such conditions could put pressure on
canal managers to provide more jobs and funds at the expense of canal maintenance and
modernization. While the danger is not imminent and provisions exist to protect the
canal, this bears watching over time.
Adequate water supply is another serious problem. Water is critical for both the
operation of the canal and a fast-growing population. About 52 million gallons of fresh
water are used for each of the 13,000 ships that transit the canal each year. In addition,
the bulk of Panama’s nearly three million people live near the canal, and the population
is growing at nearly two percent every year. Abundant rainfall in the past led to wasteful
practices, and the decrease in rainfall in recent years has resulted in water shortages and
forced canal operators to restrict the maximum draft of ships, requiring many to reduce
cargoes. Water also was restricted for much of the population during this period. The
demand for water may increase substantially if Panama moves ahead with construction of
a third set of locks. Water concerns have caught the government’s attention and Panama
is looking into creating additional lakes to supply water for future needs. Plans to
modernize Panama’s inadequate water and sewage system are also being discussed, but
privatization apparently lacks sufficient broad-based political support and no decision has
yet been made on how to proceed.
66
Concerns about the Panama-Colombia border have also been a topic for
discussion. For the last thirty years, guerrilla forces from Colombia have moved freely
into and out of a poorly defined and uncontrolled border area for a re-supply base and
sanctuary. While this violates Panamanian sovereignty, it does not represent an
immediate threat to the government of Panama or the canal. Nevertheless, as the
government of Colombia puts increasing pressure on the guerrillas, more refugees may
flee into Panama, straining Panamanian resources and infrastructure.13
The Other Countries
Political relations between the EU and Panama have been shaped by the San José
Dialogue, which was launched at an EU-Central America Ministerial Meeting in Costa
Rica in 1984. Panama is also a signatory to the EU-Central America Framework
Cooperation Agreement signed in February 1993 in San Salvador, which came into effect
in March 1999 following its ratification by all parties. A new political dialogue and co-
operation agreement has been signed in December 2003. All parties have not yet ratified
this agreement.
Panama elects representatives to the PARLACEN regional parliament and is a
signatory to the 1991 Tegucigalpa Protocol, which creates the Central American System
of Integration (SICA).
13
Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson
The United States and Panama: End of the ―Special Relationship‖
67
The United States is Panama’s main trading partner, accounting for 46% of its
exports and 33.5% of its imports in 2002. The EU ranks second, accounting for some
21% of Panamanian exports and 8.5%of its imports. The principal country's exports to
the UE (excluding the Colón Free Zone) are, in decreasing order, fruits (especially
bananas), ships and floating vessels, fish and crustaceans, skin and leather.
Like the other Central American countries, Panama is covered by the EU’s
Generalized System of Preferences adopted on 7 December 1998 and recently extended
until the end of 2005 without graduation system for small countries, which provides for
special treatment for its agricultural and industrial products.
Due to its relatively high economic development indicators (GDP per capita of
some $4,000), Panama is not considered a priority country for cooperation by the EU and
its Member States. From 1990-2000, the Commission committed some $39 million for 37
projects in Panama, of which $33 million for financial and technical assistance projects,
$3 million for economic cooperation and a further $3 million for human rights projects. A
key area of support in terms of both impact and visibility has been a series of small
projects providing assistance to the Government of Panama in the context of the handing
over of the Panama Canal. Another area of valuable support has been the assistance in the
transition to democratic government provided in the first half of the 1990s.
In financial terms the main projects include:
Rehabilitation of the Santo Tomas Hospital
($4.8 million – completed in 1995)
68
Support to the Social Emergency Fund
($4.8 million – completed in 1998)
Support to small and medium agricultural producers from the Central
Region
($5 million – completed in 2001)
The promotion of equal opportunities for women
($9.8 million - ongoing);
Modernization of the Prison System
($3.8 million – implementation has started in 2002)
A Framework Agreement on the implementation of financial and technical
assistance and economic cooperation between the EC and Panama was signed on 15 June
1999.
A bilateral Memorandum of Understanding constituting the general framework
for cooperation programs for the period 2000-2006 was signed in March 2001. The
indicative amount allocated for the period is $24.3 million. The Memorandum of
Understanding sets out three focal areas for cooperation: economic development,
democratic institutionalization of the state, and social development. These areas have
been developed in the European Commission Panama Country Strategy Paper 2002-
2006.
Under the first focal area, two projects were approved in December 2001, The
Panama City Historic Centre Rehabilitation (Casco Viejo) support project ($0.95 million)
69
and the Panama International Techno park/City of Knowledge support project ($7.7
million). The first one is almost completed while the second is on going.
Under the second focal area, a project on Institutional strengthening and
Modernization of the Judiciary has been approved at the end of 2003 ($6.7 million). Its
implementation should start early 2004.
Under the third one, a project on « incorporation of new electrification technologies
for education and health in marginal areas » has been approved in 2003 ($8.5 million).18
China is an area of great concern to the U.S. This concern is put on even higher
alert when China attempts to have a significant presence in the Western Hemisphere.
The Chinese penetration of Panama has been effected primarily through an entity known
as the Panama Ports Company, a front corporation for Hutchison-Whampoa Limited, a
Communist Chinese-controlled company owned by Hong Kong billionaire Dr. Li Ka-
shing. Dr. Li's business empire has long been intertwined with enterprises that front for
the Communist military and intelligence arms of the People's Republic of China (PRC).
Ten percent of his Panama Ports Company is owned by China Resources, the commercial
arm of China's Ministry of Trade and Economic Cooperation.
On July 16, 1997, Senator Fred Thompson (R-TN) was quoted in the South China
Morning Post as stating that China Resources was "an agent of espionage – economic,
military, and political – for China." Shen Jueren, the Communist official who heads
China Resources and Li Ka-shing are both partners in the family’s Hong Kong Chinese
18
Referenced May 2004 : External Relation : EU’s Relations with Panama
http://europa.eu.int/comm/external_relations/panama/intro/
70
Bank. Dr. Li is also a principal in the PRC’s huge China Telecom, and the China
International Trust and Investment Corporation (CITIC), a ministry-level conglomerate
with global assets of $21 billion run by Chinese "princeling" Wang Jun. As chairman of
Poly Group, Wang Jun also serves as the PRC’s main arms dealer to Communist regimes,
terrorists, and rogue states. Nevertheless, Shen Jueren and Wang Jun, like many other
notorious Red Chinese agents bearing campaign gifts, were welcome guests at the
Clinton-Gore White House.
Dr. Lie Hutchison-Whampoa is a partner with the China Ocean Shipping
Company (COSCO), the merchant marine arm of the People’s Liberation Army (PLA).
Hutchison-Whampoa also controls countless ports around the world. Because of its
relationship to the PRC and the potential impact this implies for U.S. global interests, this
should be of major concern to the United States. But a specific concern is that Beijing,
operating through this company, has virtually achieved, without a single shot being fired,
a stronghold on the Panama Canal, something which took the United States so many
years and such tremendous effort to accomplish.6
China's interest in Panama is not limited to shipping ports. Panama's Maritime
Handbook for 2002/3 lists China as the third greatest user of the Canal and another
Chinese shipping firm, COSCO, as the largest single client on Panama's ship registry.
The Washington Times reported, "In recent years, Chinese companies have invested $200
million in Panama, with millions more pledged."
Over the years, watchdog groups like the Center for Security Policy, National
Security Center, Eagle Form and Freedom Alliance have warned about Chinese mischief
6 Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum
71
around the globe. In addition, former U.S. Senator Fred Thompson, past Chairman and
Ranking Member of the Government Affairs Committee and former Select Committee on
Intelligence member wrote, "China has sold nuclear components to Pakistan, missile
parts to Libya, cruise missiles to Iran, and shared a wide variety of sensitive technologies
with North Korea." Panamanian educator and journalist, Dr. Tomas Cabal, in testimony
before the U.S. Congress said, "COSCO is the merchant marine for the Chinese military
and has shipped weapons of mass destruction technology and delivery systems to other
countries." Little wonder why many worry about the contents of cargo on Chinese ships
transiting the Canal and being unloaded by the Chinese gatekeepers.
If this isn't chilling enough, the U.S. withdrawal also created opportunities for
other opportunists in the region. A Columbian-based foreign terrorist organization,
FARC, hides in Panama’s southern jungles because Panamanian security guards are
unable to patrol the porous border with Columbia. In addition, South American drug
cartels are flourishing in Panama. U.S. intelligence reports Panama still serves as a major
cocaine transshipment point and a major drug money-laundering center.
Hutchison's Hong Kong-based Managing Director, John Meredith said, "…
amusement is my reaction to the criticism we've received … Hutchison has 80,000
employees in 35 countries and we've been in business for more than 150 years … we're
putting another $200 million in developing the Panama Port infrastructure further … not
one of the 1,400 workers at the two Panamanian ports are ethnic Chinese …U.S.
warships berth at these ports … the U.S. should be pretty happy we are there – about a
month ago we had a big drug bust and the DEA is very enthusiastic with our work ….‖
72
When asked if Chinese firms pose a security risk to the Canal, Deputy Assistant
Secretary of State for Western Hemisphere Affairs, John Keane said "there is no evidence
whatsoever of any objective other than money … if necessary, the Neutrality Treaty gives
the United States the right to defend the Canal." His boss, Assistant Secretary Otto Reich
along with Charge d'affaires at U.S. Embassy Panama, Chris McMullen echoed his
comments. 19
19
Gedrich, Fred “Panama Canal: U.S. Must Keep Watch‖, Freedom Alliance January 6, 2003
73
CHAPTER FIVE
THE ECONOMIC EFFECTS THE TRANSFERENCE OF CONTROL OF THE
PANAMA CANAL HAS HAD ON THE UNITED STATES AND PANAMA AND
WHAT THE EFFECT ON PANAMA IS AND WILL BE TO THE COUNTRY
Among the great peaceful endeavors of mankind that have contributed
significantly to progress in the world, the construction of the Canal stands as an awe-
inspiring achievement.
The unparalleled engineering triumph was made possible by an international work
force under the leadership of American visionaries that made the centuries-old dream of
uniting the two great oceans a reality.
In 1534, Charles I of Spain ordered the first survey of a proposed canal route
through the Isthmus of Panama. More than three centuries passed before the first
construction was started. The French labored 20 years, beginning in 1880, but disease and
financial problems defeated them.
The United States, interested since the late 18th century in trading voyages to the
coast of the Pacific Northwest, became greatly concerned with plans for a canal after
settlers had begun to pour into Oregon and California. Active negotiations led in 1846 to
a treaty, by which the republic of New Granada (consisting of present-day Panama and
Colombia) granted the United States transit rights across the Isthmus of Panama in return
for a guarantee of the neutrality and sovereignty of New Granada.
74
The isthmus gained more importance after the United States acquired (1848)
California and the gold rush began, and the trans-Panama RR was built (1848–55) with
U.S. capital. At the same time, interest in an alternate route, the Nicaragua Canal, was
strong in both Great Britain and the United States. Rivalry between the two countries
was ended by the Clayton-Bulwer Treaty (1850), which guaranteed that neither power
should have exclusive rights or threaten the neutrality of an interoceanic route. In the
1870s and 80s the United States tried unsuccessfully to induce Great Britain to abrogate
or amend the Clayton-Bulwer Treaty.11
A French company began building a canal in 1882 to connect the Atlantic and the
Pacific Oceans across Central America. Many men building the canal died of diseases
such as yellow fever, so the project stopped.
In 1890 the Americans tried to cut a canal through Nicaragua and failed. President
Roosevelt talked with Colombia in 1901 about building the canal. A treaty was signed.
The United States requested to buy a six-mile wide and 10 mile long strip of land with
connected the Atlantic and Pacific for a down payment of $10 millions and $250,000
each year. In 1903 the Colombian senate turned down the offer.
Some people from the French company and some Americans meet with some
people in Panama to break away from Colombia. A revolution took place. The U. S.
warship Nashville backed up the revolution with its big guns. Three days after the
revolution began; the United States officially recognized the new nation. Less than two
11
The Columbia Electronic Encyclopedia, 6th ed. 2003, Columbia University Press.
75
weeks later a treaty for building the canal was signed. Many years later the U. S. paid
Colombia $25 million for their losses.
The canal was build by the army. Colonel George Goethals was in charge.
William Gorgas was in charge of controlling diseases such as yellow fever and malaria.
Doctor Walter Reed learned about the diseases. He found mosquitoes carried them.
Gorgas followed Reed's rules.
Clear out places where mosquitoes could be found
Cover water supplies with nets
All tents and houses were covered with nets
New sewers were put in
In 1906 eight out of ten workers had malaria. By 1913 only 7 out of 100 had the
disease. The canal went through the jungle, across lakes, and over mountains. Explosives
were used to blast through the rock. In 1914 the canal was opened. Roosevelt died five
years later in 1919.
The Panama Canal extends approximately 50 miles from Panama City on the
Pacific Ocean to Colón on the Caribbean Sea. It is widely considered to be one of the
world's great engineering achievements. The United States is the largest user of the Canal
in terms of cargo tonnage, as either port of origin or destination, although Asian countries
are beginning to close the gap. Ships bound for Japan from the East Coast of the United
76
States save about 3,000 miles by going through the Canal; ships sailing from Ecuador to
Europe save about 5,000 miles.2
When former President Jimmy Carter shook hands with members of the Panama
Canal Authority on December 14, 1999, it marked the ceremonial end to a transition
that's been over 20 years in the making. Though the transfer of Canal power seems to
most a sign of hope, some Americans have voiced second thoughts.
The Canal gradually became a source of bad relations. Anti-U.S. riots in the
1960s sparked negotiations for a new treaty. On Sept. 1, 1977, after a one-vote victory in
the Senate, President Carter signed the Panama Canal Treaties. The legislation called for
the step-by-step transfer of the canal to the government of Panama beginning on Oct. 1,
1979, and officially ending on December 31, 1999.
96 percent of the canal's 9,500-person workforce is Panamanian, and an American
hasn't been in charge of the canal for almost nine years. Gilberto Guardia was installed as
the first Panamanian administrator of the canal in September 1990 and fellow
countryman Alberto Aleman Zubieta succeeded him in 1996.
Since 1979, a U.S. government agency called the Panama Canal Commission,
made up of five Americans and four Panamanians supervised the transition. It gave way
to the new Panama Canal Authority.
The strategic importance of the Panama Canal, shipping and port services not
only makes Panama's economy highly dependent on world trade trends, but also
2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief
77
vulnerable to fluctuations in the global economy. The recent global downturn brought the
growth rate of Panama's economy, which enjoyed an annual average real domestic
product growth (GDP) of 5.1% through the 1990s, essentially to a halt. In 2002, canal
transits and tonnage, for example, declined 2.3% and 2.8% respectively, over 2001.
Imports and re-exports activity at the Colon Free Trade Zone decreased, along with
export tonnage of some Panama's major export commodities, for example, bananas (-
5.2%) and shrimp (-16.5%). Overall, Panama's real GDP growth fell from 2.5% in 2000
to only 0.3% in 2001 and about 0.8% in 2002. Nonetheless, with the prospects of the
global economy improving, Panama’s economy will most likely recover. The economy is
expected to grow 2.3% in 2003.2 Lt. Colonel Bruce Russell (Retired, U.S. Army), states
―having grown up in the Canal Zone I was somewhat biased about the turning over of
control to Panama. However, I believe Panama to date has demonstrated that it can
sustain and maintain the operations of the Canal. I am skeptical about Panama defending
the Canal in time of crisis and still needs to maintain that relationship with the U.S. for
support whenever needed. Other furthered their skepticism, ―my feelings were one of
sadness and concern about the future of Panama and the Panamanian people. Concern
about the economic, social and political ramifications that would befall the country.‖
stated Ms. Myers. GYSGT Scott offered another perspective, ―My feelings was and still
remain the same, it should have never happened, if you could not keep the city clean how
do you expect to maintain the Canal without intervention of other countries such as
China, Japan, or India?‖
2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief
78
Military Presence
―(The United States’) military presence was huge. It not only maintained stability
in Panama but also throughout Central and South America.‖ - Lt. Colonel Bruce Russell.
Although the canal is not owned or operated by the U.S. military, the Pentagon
has always had a role in canal policy. The U.S. army supervised the construction of the
seaway from 1904 to 1914, and the Panama Canal Commission’s Board of Directors is,
by law, chaired by the Assistant Secretary of the U.S. Army, who retains the right to
dictate the votes of the board’s U.S. majority. Except for an interlude during the Carter
administration, when the White House and the State Department assumed a more
prominent role, the Pentagon has been the main powerbroker in U.S.-Panama policy.9
SouthCom, one of the Pentagon’s regional commands, used its 16 military bases
in Panama to coordinate all U.S. military relations with the countries of the Caribbean
Basin and South America. The Pentagon transferred SouthCom headquarters to Miami in
1997. ―The U.S. military’s presence in Panama was twofold. They were directly
involved in the defense of the canal, were responsible for all U.S. military activities in
Central and South America: activities such as The Jungle Operations Training Center, the
Inter-American Air Forces Academy, which provided training for Latin American air
forces.‖ stated Ms. Myers
Despite the treaties that clearly specify the removal of all U.S. troops and bases,
both U.S. and Panamanian policymakers were discussing the retention of some U.S.
9 Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November
1996, Fellowship of Reconciliation.
79
military presence in the Canal area. In the U.S. Senate, a resolution sponsored by
conservative Jesse Helms called for a new agreement that would permit the U.S. to retain
its military presence in Panama. The Pentagon, however, acknowledged that the bases
were not essential to either U.S. military or narcotics control strategy. The military’s
willingness to close the Panamanian bases was reinforced by the closure of military bases
at home, increasing the reluctance of the Pentagon to pay for a post-1999 military
presence in Panama—at an estimated cost of $200 million a year. The last U.S. military
base was closed on December 1, 1999.
―There was plenty of jobs on the military installations, the protection of the Canal
was much more secure than ever by land, air, or sea, no it’s not. They are at high risk of
other countries attempting to make a sort of possession of the Canal, an also using other
types of strategies, privatizing the work arena.‖ – GYSGT. Scott
Commercial Use
Over 13,000 commercial vessels transit the Panama Canal every year with some
190 million long tons of cargo. In the past year, U.S. Naval vessels used the Canal
countless times. This 51-mile waterway cuts 8,000 miles off the trip around the southern
tip of South America, saving as much as two weeks of transport time. In warfare, time
means lives, and that much time can mean the difference between defeat and victory. The
Panama Canal has played a crucial role in World Wars I and II, the Korean War,
Vietnam, Desert Storm, and many other conflicts. It is unfathomable that this tremendous
asset – which was bought at such a cost in gold, lives, sweat, and labor at the beginning
of this century, and that is still so necessary to our nation's safety -- could be surrendered
80
nonchalantly now at the close of this tumultuous century.
More than 15% of American imported and exported goods reach their destination
via the Canal, making the U. S. the number one user of the Canal. Forty percent of the
grain grown by American farmers is exported through the Canal, and each day, nearly
700,000 barrels of oil bound for U.S. ports pass through the Canal. Probably of greatest
importance, the Canal allows the U.S. Navy to transport its combat ships between the
Atlantic and the Pacific Oceans.6
Traveling the Canal
According to the U.S. Marin Transportation 1998 report, "Marine transportation is
an integral component of the U.S. transportation system and essential to the nation's
economy." The United States ships over 1 billion long tons of cargo through the Panama
Canal each year, making the Panama Canal an indispensable aspect of the nation's
economy. Servicing over 50 countries on all 7 continents, the Panama Canal is vital to the
transportation of natural resources and manufactured goods. This can be seen through the
following facts: · 141 trade routes converge at the Panama Canal. · It serviced an average
of 37.8 vessels a day in 2000. · The busiest of the trade routes, the East Coast of the
United States to Asia, is 3,000 miles shorter than the alternative all-water route around
the Southern tip of South America. · Nearly 195 million long tons of cargo were
transported in 2000. · Total revenues for 1999 were nearly $750 million.
6 Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum
81
The new controlling agency, the Panama Canal Authority (ACP), has successfully
maintained the level of service previously provided by the United States. Up until
December 31, 1999, the United States had complete control of the Panama Canal.
However, the change in authority did not happen abruptly: The Panama Canal Treaty of
1977 outlined a gradual change over to ensure continued customer satisfaction. The
Panama Canal is crucial to global business, and the United States and other world powers
that rely on the canal were concerned that the canal would be more susceptible to a
hostile take-over without the protection of the U.S. military. The ACP was established as
a separate entity of the Panamanian government and has financial sovereignty to avoid
such a problem. It comprises maritime experts and heavyweights from around the world.
Being free from political influence, the ACP operates as a business whose main concern
is efficient service for its customers.
Shipping through the Panama Canal has also increased in the last two decades due
to the decreased service of rail systems in the United States. Before the 1980's, most
cargo from Asia to the Eastern United States did travel through the canal. Improvements
in rail shipping procedure at the time provided service six days faster at only a slightly
higher cost. Now, however, the rails are unable to keep up with the increase in cargo
tonnage. For instance, containers may remain stacked at ports in California weeks before
they make it to the rail lines. Many shipping companies from China have chosen to get
their cargo to the east coast of the Unites States through the Panama Canal to avoid
congested railways in California. The rail service in the United States is no longer the
consistently fastest option. Since the early 1990's, all water shipping routes, as opposed to
water and rail routes, have increased 65%.
82
Vessels are getting larger. While larger vessels are beneficial in that they reduce
the volume of vessels through the canal, they exhaust the canal's resources. The
Panamax, the largest vessel to fit in the canal, has a 106 ft beam and 965 ft length.
Panamax vessels comprised 32% of the some 13,000 vessels that used the canal in 2000.
12
The U.S. East Coast-Asia route is the dominant trade route for the Panama Canal,
and is boosted by increasing U.S.-China trade. Movement between U.S. East Coast and
West Coast South America and between Europe and Asia are also major trade routes.
Recently, North-South trade has been increasing, as Latin America evolves into an
increasingly important trading partner of North America. The Canal is designed to
accommodate about 50 ships per day (the maximum has been 65 transits per day). On
average, it takes one ship 24 hours to pass completely through the canal. Oceangoing
vessel transits totaled 11,862 in fiscal year 2002, or an average of 32 vessels per day, an
almost 3.0% decline from 2001’s total of 12,198 or 33 vessels per day. Overall, there
were 13,185 transits in 2002.
Petroleum is one of the largest commodities (by tonnage) shipped through the
Canal, accounting for about 14% of total canal shipments in 2002. Approximately
599,544 barrels per day of petroleum products and crude oil passed through the Canal in
2002. Around 63% of total oil shipments went from the Atlantic to the Pacific, with
petroleum products dominating (80%) this traffic. Petroleum products also accounted for
the majority of Pacific to Atlantic oil traffic. Overall, petroleum products far outweigh
crude oil, accounting for almost 71% of all petroleum shipments through the Canal. Some
12
Stieber, Halley, ―The Future of the Panama Canal‖ Illumin, Volume 5 : Issue 2 March 1st, 2002
83
coal is shipped through the canal as well, accounting for about 1.6% of total Canal traffic.
About 3.4 million short tons of coal passed through the canal in 2002, with approximately
70% going from the Pacific to the Atlantic.2
Another big challenge that Panama faces is absorbing and converting transferred
property, from the United States. In addition to the canal, the United States turned over
more than 5,000 buildings, facilities, and other infrastructure valued at more than $4
billion, not counting the canal and nearly 350,000 acres of land. The facilities include 13
military bases, 3 airports, nearly 4,000 houses, 35 hotels, 11 schools, and 2 hospitals.
While representing an enormous potential, these facilities must be maintained at
substantial cost until they are leased or sold.
Panama developed a plan for dealing with the transferred property and was
successful in disposing of Albrook Airbase and some other assets quickly. Subsequently,
however, the demand for many properties has been weak, and the change in
administrations has slowed the process while new personnel are involved in reviewing
contracts let under the previous administration. Progress on the development of the
former Howard Air Force Base and Fort Amador will be an indicator of Panama’s ability
to attract investors to Panama. Thus far, the results have been disappointing.13
Outside
of the 14 military bases there are some 5, 000 office and residential buildings left by the
United States.
2 Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief
13
Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson
The United States and Panama: End of the ―Special Relationship‖
84
The economic effects the transference of control of the Panama Canal has had on
the United States and Panama and the effects on Panama are very significant. The
United States, once looked upon like the countries protector, is now ―on the outside
looking in‖ in decisions made on the management of the Panama Canal. Deeper effects
of the transfer, such as the land now available to the Panamanian government (from U.S.
military bases) and the loss of U.S. personnel and their dollars are very significant.
Even though the number of Panamanians employed by the canal has grown to nearly all
the 8,000 employees needed to run the waterway, questions are still plentiful. The true
impact of the transference of the Panama Canal may not be known for some time.
85
CHAPTER SIX
THE FUTURE ECONOMIC RELATIONSHIP BETWEEN THE UNITED
STATES AND PANAMA
Despite its small population and area (3.06 million and 30,193 square miles
respectively), Panama is an important center for international trade in the Western
Hemisphere, as both a major shipping thoroughfare and a regional economic power.
Since 1992, an average of 185 million long tons of cargo has passed annually through the
Panama Canal. Panama is also a financial and communications hub that sits at the
crossroads of five international fiber-optic networks and hosts 110 international banks.
Although the country has consistently maintained one of Central America's highest per
capita gross domestic products, approximately 37.3% of its population lives in poverty,
including nearly 18.8% in extreme conditions, according to government statistics.1 ―The
new Panamanian government is for free trade, globalization, and democracy‖, stated Ms.
Velasquez. ―Privatization is important, as well as bringing in foreign investors‖.
Capitalism at It’s Finest
Capitalism - an economic system characterized by private or corporate ownership
of capital goods, by investments that are determined by private decision, and by prices,
production, and the distribution of goods that are determined mainly by competition in a
free market.22
Residents like to joke that this city of high-rise condos and ocean promenades is a
lot like Miami or Los Angeles except that more English is spoken here. Four years after
1 Calderon, Rodolfo Vera ―The United States Invasion of Panama: A tri-dimensional analysis‖
Georgetown University · School of Foreign Service 22
Referenced July 2004 : Webster Dictionary Online http://www.webster.com/cgi-bin/dictionary
86
the last U.S. troops pulled out and Panamanians gained control of the canal that is their
most important national asset, the Yankee footprint here remains deep and surprisingly
welcome.
Although anti-Americanism is on the rise in much of Latin America, Panamanians
heartily embrace their onetime occupiers' values and symbols, from language to music
and fashion — and the almighty dollar.
"The motto here today is 'Gringo come back,' " said Tomas Cabal, a TV
commentator and English professor. ‖Panamanians would like to see American troops
come back and build a base on the Colombian border."
Panama has had no army of its own for the past dozen years. The Panama Defense
Forces were disbanded three years after a 1989 U.S. invasion ousted the last military
strongman, Gen. Manuel Noriega, in an exercise of regime change for which
Panamanians, by and large, remain gushingly grateful.
"George Bush is a great leader! He got rid of the Pineapple (a Noriega nickname),
and now he's gotten rid of Saddam Hussein," cabdriver Manuel Garcia said, lumping
together the father-and-son presidencies as if they were one.
The U.S. military action in Iraq is a point of political tension between Washington
and many countries in Latin America, from staunch allies such as Mexico and Chile to
historically adversarial Cuba. Panamanians, however, keep their eyes on the bottom line
more than the front lines, Cabal said.
87
The country's best and brightest benefited from generous scholarship programs
that sent thousands of Panamanians to U.S. universities. Most of today's business and
political leaders, including President-elect Martin Torrijos and canal administrator
Alberto Aleman Zubieta, picked up American habits as well as degrees, forging lifelong
affinities for U.S. baseball teams, Fourth of July barbecues and fast food.
A love-hate relationship existed over the decades after the canal opened in 1914,
with Panamanians resentful of U.S. control of the waterway and the 12-mile-wide Canal
Zone that was fenced off from the rest of their country. On the other hand, the U.S.-built
waterway lifted the country from banana republic to global trade and maritime player.
When the canal reverted to Panama on December 31, 1999, the only real thorn in the
relationship fell away.
Much of the persistent good feeling is the result of the high levels of intermarriage
and dual citizenship during the long U.S. occupation of the Canal Zone. More than
10,000 U.S. troops and civilian contractors lived in the zone until the waterway was
handed over to Panama, and even children born to two U.S. citizens retained the right to
Panamanian citizenship after the troops' withdrawal. Hundreds of "Zonians" have stayed
here, strengthening the bonds between the two nations.
"I'm a Panamanian as much as an American. I was born here and spent my whole
life here," said Llori Gibson, a 47-year-old artist whose parents were U.S. canal workers.
Married to another Zonian, she keeps a foot in both countries, visiting family members in
the United States while working in Panama with indigenous groups to preserve their
culture and market their crafts.
88
Because of the untold thousands of dual citizens such as Gibson, official
statistics showing that about 10 percent of the population consists of foreigners probably
fail to fully reflect the proportion of Americans in this cosmopolitan country that is also
home to tens of thousands of people from Asia, Europe and other parts of Latin America.
Underpinning the U.S.-Panama bond is economics. The United States is the
largest user of the canal, Panama's most important trade partner and de facto central
banker and monetary-policy controller.
"Why is our currency the U.S. dollar? Because we were visionaries," said Romel
Adames, vice minister for commerce and industry. Using the greenback saves Panama
the expense of maintaining a national mint and, more important, shields the economy
from inflation and manipulation of the money supply, he noted. "There's no sovereignty
issue here," Adames insisted.
Tourism tracts boast of the strong new presence of U.S. retirees, who have been
drawn to Panama by its low taxes, affordable housing, tropical climate and contemporary,
bilingual entertainment.
"There's a lot of shared history here, a lot of cultural affinity. The long U.S.
presence here affects the way people do business, the way things are viewed," said David
Hunt, the retired Air Force colonel who closed up the U.S. canal shop four years ago,
then jumped at an offer to run the Panamanian-American Chamber of Commerce.
Although he detects among Panamanian movers and shakers a slight increase in
self-confidence and pride for having finally achieved full control over their national
89
affairs, Hunt said he has seen none of the resentment that U.S. citizens encounter almost
everywhere else south of the border. "It's all very subtle and very polite," he said.
"There's self-awareness in the post-U.S. age that I think is a good and natural evolution."
15
The Panamanian Economy
―The economical situation between both countries is merely of power interest in
whom can benefit from the other. Political relationship is not on a good basis, due to
conflict of interest.‖ states GYSGT Scott. But others have a different view, ―Overall I
would believe that the economic and political relationship between both countries is
good. I feel there is a mutual respect for each other.‖ – Lt. Colonel Bruce Russell.
The unit of currency used in Panama is the Balboa (PAB), which is pegged at
parity to the dollar. There is no Panamanian paper currency and the US dollar is the de
facto official currency for all but minor transactions. As a result, the Government cannot
print money, and inflation is low, probably only 1% in 1999.
―Economically, the current state of Panama is stable and the most advanced in all
of Central and South America, but continue to struggle with poverty, and the lack of
employment. Politically, they have had several problems and protests about the
corruption in the government and the management of social security funds.‖ interjects
Ms. Myers.
15
Referenced May 2004: Business Panama http://www.businesspanama.com/latestnews
90
The outgoing administration in 1999, that of Ernesto Balladares, had tried, with
some success, to reverse the fairly dire economic situation of the 1980s which
accompanied and may have been linked to national drug-dependence, culminating in the
US invasion in 1989.
Extremely high external debt, which had led to Panama's exclusion from world
capital markets, was addressed in 1996 with a Brady-bond restructuring. In parallel, the
Government pursued an aggressive policy of trade and economic liberalization, including
privatization of key assets, which has begun to have an effect.
Leaving aside the difficult subject of drugs, the economy in Panama is focused on
banking, mining, commerce and tourism, with the canal and the shipping business
generally playing an important role. The total value of the financial sector's assets (as at
the end of June 2003) was $32.5 billion. The Government has introduced many
investment incentives (see below). Copper mining began to have significance only quite
recently, but Panama is now emerging as one of the world's major producers, with gold
mining also making a contribution.
The Colon Free Trade Zone has enjoyed major success, and now accounts for
10% of GNP. Other free trade areas are being created. In the 1990s, growth had been
running at 4% with low inflation; however it fell from 2.5% in 2000 to only 0.3% in 2001
and about 0.8% in 2002. Nonetheless, with the prospects of the global economy
improving, Panama’s economy will most likely recover. The economy is expected to
grow 2.3% in 2003. GDP per head of $4,000 is only average for the region and
91
unemployment remains stubbornly high at 13%. As of June, 2003, Panama's GDP was
valued at $12.6 billion.
In October, 2003, it was reported that financial and trading services already
contribute 80% of Panama's GDP, and the government would like to establish the country
as Latin America's regional financial services hub.
Panama is a well-located, well-endowed and well-educated country which has
been held back by corrupt and ineffective leadership. If the Government manages to
continue with business-friendly and liberal policies, the country will be successful.14
Panama is a sophisticated dollar-based service economy, a financial sector with
106 banks, the second largest free trade zone in the world and incomparable geographical
location, make Panama one of Latin America’s leading business centers.21
Panama's economy is based primarily on a well-developed services sector that
accounts for nearly 80% of GDP. Services include the Panama Canal, banking, the Colon
Free Zone, insurance, container ports, flagship registry, medical and health, and other
business.
―I believe Panama is in a great position to grow economically and politically
without a big brother, the United States, dictating and influencing its every move.‖ states
Lt. Colonel Russell.
14
Referenced May 2004: Lowtax.net http://www.lowtax.net/lowtax/html/jpacfir.html 21
Referenced July 2004: Panama Information http://panamainfo.com
92
A major challenge facing the current government under President Mireya
Moscoso is turning to productive use the 70,000 acres of former U.S. military land and
the more than 5,000 buildings that reverted to Panama at the end of 1999.
Administratively, this job falls to the Panamanian Inter-Oceanic Regional Authority.
GDP growth for 2002 was about 0.8% compared to 0.3% in 2001. Though
Panama has the highest GDP per capita in Central America, about 40% of its population
lives in poverty. The unemployment rate surpassed 14% in 2002.
From March 2001 to February 2003, Panama served as host for the Free Trade
Area of the Americas negotiations. Panama’s first free trade agreement, with El Salvador,
entered into force in early 2003, and in August 2003 Panama concluded negotiations on
an FTA with Taiwan. Panama also is negotiating FTA’s with its Central American
neighbors. 4
If the trend continues, gross domestic product growth for 2004 should reach 6.7
percent, Finance Minister Norberto Delgado told reporters. Growth is also being
bolstered by construction activity and increased traffic through the government-
controlled Panama Canal as world trade picks up, Delgado said. Panama's recovery
started last year with economic growth of 4.1 percent, following two years of little
change, reflecting weak U.S. demand.15
The Bush Administration has announced it will
begin trade negotiations with Panama in the hopes of completing a bilateral "free trade
agreement" (FTA). The negotiations represent the latest attempt to expand NAFTA
4 U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003, Background Note:
Panama 15
Referenced May 2004: Business Panama http://www.businesspanama.com/latestnews
93
further into Latin America. A Panama FTA would complement the Central America Free
Trade Agreement (CAFTA) with Guatemala, El Salvador, Honduras, Nicaragua, Costa
Rica, and the Dominican Republic that the Administration finished negotiating last year.
"Like CAFTA, the Panama FTA is just a Trojan horse for the stalled FTAA" said Larry
Weiss, Executive Director of Citizens Trade Campaign. "Many Latin American countries
reject the NAFTA model and refuse to go along with the Bush Administration's plans to
extend that model throughout the hemisphere. The administration is employing a
backdoor FTAA strategy by twisting the arms of the small and weak governments in the
region."
"The Administration will likely offer a raw deal to Panama with any trade
agreement they negotiate," said Bill Klinefelter, Political and Legislative Director of the
United Steelworkers of America. "The U.S. Trade Representative showed that labor
rights are simply not a concern with the CAFTA negotiations. We have no reason to think
they will have any more regard for Panamanian workers."15
Trade between Panama's
service-led economy and the United States totaled about $2 billion last year.16
―The overall economic and political relationship between the United States and
Panama is one of mutual opportunity. Panama enjoys an open economy and is integrated
with the United States. With the establishment of the Free Trade Agreement, Panama
and the United States will create opportunities for the U.S. and Panamanian business,
consumers and workers. Politically, Panama and the U.S. will benefit when both
governments see eye to eye on political issues concerning Panama.‖ states Ms. Myers.
15
Referenced May 2004: Business Panamhttp://www.businesspanama.com/latestnews/article.php?nid=108 16
Moreno, Elida Reuters “U.S., Panama open free-trade talks amid protests‖ April 26, 2004
94
Also, a major problem that remains is how Panama can absorb into its economy
the 5,000 buildings and over 90,000 acres vacated by the U.S. forces. Most of these assets
are now open for private investment. Until investors arrive, however, Panama has
calculated the annual maintenance bill at over $40 million.
The U.S. Presence – Is the U.S. Really Gone?
U.S. economic aid programs in Panama, reduced drastically from their post-
invasion peak in 1991, are focused on protecting the canal watershed in order to prevent
deforestation from silting the canal and making it less efficient. U.S. concern about
protecting the canal watershed is laudable, but by leaving decision-making to
SouthCom’s discretion, Washington has essentially ignored the problem of toxic and
dangerous substances left by decades of military activity in Panama. For example,
unexploded ordnance left on firing ranges has exploded, injuring and even killing
Panamanian children and farmers. The Canal Treaties require the U.S. to make an effort
to remove hazards to human health and safety from its military sites. Relations between
the two countries will be recklessly undermined if future generations of Panamanians find
their health and safety compromised by the dangerous materials that the U.S. military left
behind.9
Twenty-nine opinion polls over the decade have revealed a steady 70 to 75
percent of Panamanians in favor of a continued U.S. presence, with most of this due to
the economic benefits.
9 Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November
1996, Fellowship of Reconciliation.
95
Panama has had a steady higher standard of living than most of its neighbors, due
primarily to the Canal and the American presence. Its annual per capita income in 1995
($2400) was among the highest in the developing world. By all major social indicators --
income, literacy, education, live births, life expectancy, birth rate, etc. -- Panama was
closer to upper-class Latin American nations such as Argentina and Uruguay, than to its
immediate neighbors.
This is not to deny social and economic inequities and the obvious differences
between Americans who lived in the Canal Zone and the general Panamanian population.
But for many years the United States has been pumping and annual $300 million into the
local economy.
"Integrity is the best national defense" is a social abstraction, devoid of serious
content and satisfying only the soul. Panama has been used to American dollars for most
of this century. Now they are not going to get them, and this simple fact alone may spell
great trouble for the years ahead.5
The Panama Canal is important to Panama for income and jobs, but it is also
considered to be vitally important to the United States economy. Many U.S. exports and
imports travel through the Canal daily (over 10% of all U.S. shipping goes through the
Canal). Exports represent jobs for U.S. citizens because the products were made by U.S.
workers. Imports enable U.S. consumers to receive needed products.
Since the United States is the only superpower in the world, the United States is
interested in keeping the global economy running smoothly. If world trade is disrupted, it
5 Online NewsHour, ―Controlling the Canal‖, William Ratliff and John J. Tierney
96
can lead to worldwide economic problems. Therefore, any disruption in the flow of goods
through the Panama Canal could directly hurt the U.S. and global economies. For
instance, if England were selling products to Peru, England's economy would suffer if the
Canal were not operating. Without access to the Canal, the cost of exports from England
to Peru would significantly increase because England would have to regain the added
expenses involved in sailing around South America. Because of increased prices, Peru
could not afford to purchase as many products from England, which in turn would
decrease England's revenues gained from exports. Decreased revenue means that England
would have less money available to purchase products from the United States and other
countries. A "domino effect" would be set in motion as the United States and other
countries experienced similar problems with their exports and imports. This example
illustrates the economic importance the Panama Canal has to the U.S. and global
economies.
If one considers the thousands of ships full of goods that pass through the Canal
every year and the impact that closing the Canal would have on the world economy, one
can understand the economic importance of the Canal. Therefore, keeping the Canal open
is directly and indirectly important to the United States and to the global economy.17
The future economic relationship between the United States and Panama can be
called unsteady, at best. Although efforts have been made on both sides to build a
stronger economic relationship, politics seem to be at the root of stalled negotiations. For
future generations of Panamanians too thrive, a stronger economy must be maintained,
17
Referenced May 2004: Global Perspectives
http://www.cet.edu/earthinfo/camerica/panama/PCtopic4.html
97
and even with the transference of the Panama Canal, and the absence of the U.S. military,
the United States seems primed to be a major force in shaping the Panamanian economy.
Much work remains to make Panama a first world nation. The judicial system is
badly in need of reform and de-politicization. The level of government corruption is still
way too high, a common problem in Latin America. Decentralization- giving more
authority and services to cities and provinces is vital. While private education is good,
public education needs continued improvement to prepare young Panamanians for the
many jobs that will be created in the sophisticated service sector. Panama recognizes this
and is now spends 20% of its public spending on education, the highest figure in the
Americas.
The nascent prosperity is not reaching the whole populace: the wealth distribution
curve is one of the most skewed in the world. One third of the population lives in
poverty. Sustained determination and creative planning will continue to be needed to
create the conditions so that all Panamanians can participate in the country's growing
prosperity.21
21
Referenced July 2004: Panama Information http://panamainfo.com
98
CHAPTER SEVEN
SUMMARY, CONCLUSION, AND RECOMMENDATIONS
Summary
This Directed Research Project (DRP) has provided an opportunity to examine the
true relationship between the United States and Panama. This focus here has been to
examine the economic impact that the United States has had on Panama, on various
levels. The impact of the withdrawal of the United States military has had lasting
economic effects outside of protecting the canal. The United States military forces in
Panama numbered slightly under 10,000 troops, at full strength in Panama. The United
States military also employed approximately 8,000 civilians, 70 percent of whom were
Panamanian nationals. The U.S. withdrawal has significantly affected the Panamanian
economy through the loss of civilian jobs and the significant lack of US dollars from
military and civilian personnel (upwards of $250 million every year), but the Panamanian
government has made significant strides in improving the economy. Through social
reforms, aid from foreign countries, and the United State’s on going interest in the
Panama Canal, the country is trying to lay the foundation for a prosperous economic
future.
The United State’s transference of the canal to the Panamanian people has also
had a profound economic effect on Panama. The immediate cost to Panamanians through
the loss of U.S. dollars and the wide potential costs of managing and maintaining the
Panama Canal under Panamanian rather than U.S. control is substantial, but foreign
influences are starting to play a significant role in the future of the Panama Canal.
Various business ventures and upgrades to the Canal are providing the Panamanian
government with an on-going resource of revenue to the country. The United States still
remains the preeminent user of the Canal, though.
99
Conclusion
The United States will always have a significant interest in the Panama,
specifically for the Panama Canal. Since the earliest days of Panama, the United States
has placed its ―hand print‖ on the shaping of the country. The Untied States’ presence in
the country provided a substantial ―cash cow‖ for the country, until the transference of
the Canal to Panama in December 1999. Panama is now in the process of creating new
and innovative ways to market itself. Not only is the government upgrading the Canal
and entering into affiliations with countries once thought unlikely (China), but the
government of Panama is pushing the tourism aspect of Panama throughout the world.
Although a lot of Panama’s notoriety revolves around the Panama Canal, and is infamous
for such headline grabbers as Manuel Noriega and Operation Just Cause, the country is
still one of the most economically sound Latin American countries.
Economically, the current state of Panama is stable and the most advanced in all
of Central and South America, but continue to struggle with poverty, and the lack of
employment. Politically, they have had several problems and protests about the
corruption in the government and the management of social security funds.
The U.S. military’s presence in Panama was significant. They were directly
involved in the defense of the canal, were responsible for all U.S. military activities in
Central and South America: activities such as The Jungle Operations Training Center, the
Inter-American Air Forces Academy, which provided training for Latin American air
forces.
100
The overall economic and political relationship between the United States and
Panama is one of mutual opportunity. Panama enjoys an open economy and is integrated
with the United States. With the establishment of the Free Trade Agreement, Panama
and the United States will create opportunities for the U.S. and Panamanian business,
consumers and workers. Politically, Panama and the U.S. will benefit when both
governments see eye to eye on political issues concerning Panama.
This study of the United States’ economic impact on the Republic of Panama is
not intended to incite a feeling of resentment from Panamanians to the United States.
This study highlights key events in the relationship between the two nations, and how the
relationship has affected the Panama politically and economically. Working together, in
the generations to follow, an improved relationship between the two countries can be had
in learning from past obstacles.
Recommendations
Some recommendations for economic growth in Panama are as follows:
Maintain the U.S. dollar – this encourages foreign investment. A dollar based
economy simplifies the transaction process between Panama and the U.S. and
foreign investors.
Promote foreign investment into the country.
USA, Germany, and Costa Rica are Panama’s major trading partners. Find ways
to encourage more trading with these countries, and promote trading with other
major countries, in order to establish a footprint in the global economy.
101
Use the resources left by the United States (i.e. building, land, technology) to
further develop the country’s economic base.
Establish and maintain a strong relationship with the United States. Not only does
the Panamanian government have ties to the U.S., but many Panamanian citizens
have ties to the United States, especially through family.
Some marketing recommendations for economic growth in Panama are as follows:
Panamanians value products of high quality, excellent customer service, brand-
name recognition and attractive packaging.
Effective tools for trade promotion in Panama include trade shows and
exhibitions.
Most foreign consumer product manufacturers advertise via billboards, newspaper
advertising, and commercials. This is a very resourceful avenue for exposure of a
product in Panama.
Economic development opportunities in the interior should be expanded, but with
environmental considerations at the forefront of development.
Panama offers a diverse culture. The climate in Panama is ideal for outdoor
activities. Panama’s outdoor diversity should be further pushed to foreign
tourists. For those wishing to venture beyond traditional city limits, Panama
offers whitewater rafting in the mountainous region of Chiriqui Province,
snorkeling in Bocas del Toro on the Caribbean, and bird watching in the Canal
areas.
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BIBLIOGRAPHY
1. Calderon, Rodolfo Vera ―The United States Invasion of Panama: A Tri-dimensional
Analysis‖ Georgetown University · School of Foreign Service
2. Energy Information Administration, Country Analysis Briefs, Panama Country
Analysis Brief
3. The Library of Congress - Country Studies - Panama
4. U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003,
Background Note: Panama
http://www.state.gov/r/pa/ei/bgn/2030.htm
5. Editorial piece - Online NewsHour – Changing of the Guard
http://www.pbs.org/newshour/forum/december99/panama_canal4.html
6. Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum
7. Mabry, Donald J. ―Panama's Policy Toward the U.S.: Living With Big Brother‖ The
Historical Text Archive
8. CNN.com ―U.S. Prepares to Hand Over Panama Canal after 85 years‖
www.cnn.com/1999/US/12/14/panama.canal.01
9. Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1,
Number 14 November 1996, Fellowship of Reconciliation.
10. Referenced May 2004: Infoplease.com
http://www.infoplease.com/ipa/A0107870.html
11. The Columbia Electronic Encyclopedia, 6th ed. 2003, Columbia University Press.
Panama
http://www.infoplease.com/ce6/world/A0860214.html
12. Stieber, Halley, ―The Future of the Panama Canal‖ Illumin, Volume 5 : Issue 2 March 1st,
2002
13. Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, C. Richard Nelson
The United States and Panama: End of the ―Special Relationship‖
103
14. Referenced May 2004: Lowtax.net
http://www.lowtax.net/lowtax/html/jpacfir.html
15. Referenced May 2004: Business Panama
http://www.businesspanama.com/latestnews/article.php?nid=108
16. Moreno, Elida Reuters “U.S., Panama open free-trade talks amid protests‖
April 26, 2004
17. Referenced May 2004: Global Perspectives
http://www.cet.edu/earthinfo/camerica/panama/PCtopic4.html
18. Referenced May 2004 : External Relation : EU’s Relations with Panama
http://europa.eu.int/comm/external_relations/panama/intro/
19. Gedrich, Fred ―Panama Canal: U.S. Must Keep Watch‖, Freedom Alliance
January 6, 2003
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
21. Referenced July 2004: Panama Information
http://panamainfo.com
22. Referenced July 2004 : Webster Dictionary Online
http://www.webster.com/cgi-bin/dictionary