PANAMA: THE IMPACT OF GROWING IMPORT SHORTAGES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00990R000100580001-7
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 11
• Document Creation Date: December 27, 2016
• Document Release Date: January 2, 2013
• Sequence Number: 1
• Publication Date: May 12, 1988
• Content Type: REPORT

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PANAMA: THE IMPACT OF
GROWING IMPORT SHORTAGES
12 May 1988
Copy f of
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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
12 May 1988
PANAMA: THE IMPACT OF GROWING IMPORT SHORTAGES
Summary
Depleted cash reserves have forced the regime to slash
imports of consumer goods, raw materials, and machinery and
equipment by more than half. Import cuts, in turn, are resulting
in food and medicine shortages and could seriously damage
productive capacity within the next few months. Industries most
at risk are manufacturers, offshore assembly and wholesale
operators, and public utility companies. Without relief, this
year's bean, rice, and corn crops could be devastated by lack of
imported seeds, fertilizers, insecticides, and agricultural
equipment. If the crisis drags on, virtually all sectors of the
economy could suffer serious and longlasting damage.
The regime is coping temporarily by rationing supplies to
its supporters and exploring ways to circumvent US sanctions
similar to those used by Cuba and Nicaragua.. Some shortages of
critical consumer supplies probably will be relieved by
assistance from regime allies including Cuba and Libya. As
financial problems put Panama's economy and its citizens in
desperate straits, a growing number of merchants, bankers, and
businessmen probably will turn to contraband, drug dealing, and
other illicit activities to survive.
Despite the problems that the import crunch is causing, we
believe Noriega's effective use of intimidation to cow the
opposition limits the chance that economic deterioration will
translate into political actions that could topple the regime.
Noriega and his closest advisers have paid little attention to
the long-run implications of Panama's current financial and
economic problems, To ,a
This typescript was prepared by Middle America-
Caribbean Division, Office of African and Latin American Analysis
with a contribution from analysts of-the Economics Division of
the Office of Global Issues. Comments and queries are welcome
and may be directed to the Chief, Middle America-Caribbean
Division, ALA,
ALA M 88-20038C
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certain extent, business failures may be welcomed because of
Noriega"s disdain for many of the economic elite.
Cash Crunch Slashes Imports
Imports fell more than 50 percent in March and remain
severely de ressed
In late April for example, 25X1
deliveries of US products to Panama by an international shipping
company with regular service to the area had dropped to less than
10 percent of pre-March levels,.) 25X1
Foreign suppliers have virtually stopped 25X1
deliveries to the public sector because of non-payment and
because the regime's default on debt obligations is sharply
limiting access to trade credits.. Imports by the private sector
also have plummeted because. of financing problems 25X1
Imports are being further disrupted by US sanctions and by
regime efforts to funnel available funds to priority local
requirements. We estimate that regime access to short-term
import financing has fallen by at least $20 million because the 8
April International Emergency Economic Powers Act (IEEPA)
sanctions prohibit US banks and US companies from providing trade
and supplier credits to-the regime or its agencies. While the
regime ordered local banks to provide trade financing to
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businesses beginning the last week in April, 25X1
= banks are in no position to do so, in part because Panama 25X1
City has ordered the banks to provide the regime preferential
credits to meet its own priority payrolls and purchases. 25X1
Growing Food Shortages
The US Embassy reported in late April that bread, flour, and
cooking oil were being rationed because of import constraints and
that many other imported staples were becoming hard to find.
According to the Embassy, processed foods inventories are low and
cannot be restocked because of financial constraints.
While some Panamanians are replenishing depleted supplies by
buying food staples in Costa Rica, increased border controls are
likely to greatly restrict future food deliveries from across the
border.
The surge in smuggling has alarmed
Costa Rican inessmen and consumers who see their food stocks
jeopardized. By the end of April, Costa Rican economic officials
demanded that security officials stop contraband shipments of
flour, rice, wheat, and other basic grains to Panama, according
to the US Embassy in San Jose.
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Public Services Deteriorating
The import crunch is undermining the regime's ability to
meet basic services and protect the health and safety of
Panamanians. The regime's financial problems and its policy of
borrowing from the social security administration and other state
agencies and utilities to meet central government payrolls has
virtually ended even priority public sector imports. At the
nuisance level, in mid-April the regime suspended issuing
documents, including drivers licenses, work permits, and other
identification cards, because of depleted photographic supplies,
according to Embassy reporting. More significant for public
safety, local airport managers have told the Embassy that
shortages of imported parts have prevented repair of
malfunctioning runway lights and radio communications.
Of much greater concern to Panamanians is the impact the
suspension of imports of medical supplies--which had averaged $4
million a month prior to March--has had on public health. In
mid-April, an official of a government-subsidized hospital
reported acute shortages of antibiotics, amino acids, gauze, and
surgical gloves in a speech to the Panamanian Chamber of
Commerce. On 19 April, local press accounts indicated that
inventories of many medicines and medical supplies would be
exhausted in a few weeks. At the end of. April, a Panamanian
medical professional told a US military officer that Cuba had
reportedly supplied some badly-needed antibiotics. Even so, the
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same source said shortages of medicines were worsening and many
hospital patients were not receiving proper care.
Impact on Business
Lower imports have hit the industrial and commercial sectors
hard. Among the most affected so far have been manufacturers
dependent on imported raw materials and semi-finished goods. At
the end of April, a leading Panamanian economist with many
contacts in the business community estimated that manufacturers
were operating at only 40 percent capacity. At the same time,
Free Zone operations have fallen by more than 50 percent because
of import shortages. While an owner of one local manufacturing
firm reportedly rehired one third of his workforce during the
past couple of weeks, most industrial and trade officials agree
that business will remain depressed until the crisis is resolved.
To cope with financial stress, many firms
are getting involved in contraband and other illicit business
dealings. Moreover, a large number of Free Zone operators and
other businesses are relocating to the Caribbean because of the
political turmoil,
The plunge in economic activity has cost 75,000 to 80,000
workers their jobs,
The US Embassy figures indicate a e
unemployment rate, which was about 10 percent in recent years,
has now hit 25 percent.
Regime Reaction
The regime is responding to the import crunch by taking
steps to protect its supporters while increasing. anti-US rhetoric
to deflect its blame for mounting economic problems. In an
effort to offset consumer shortages, the regime is considering
setting up markets selling basic necessities and is providing
"dignity" food bags containing staple rations for regime
supporters. To provide supporters bread, the regime commandeered
600 tons of flour from Panama's two major flour mills at the end
of March. The regime also is pressing private businesses--
including US companies--to bring in much needed food and fuel.
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At the same time,
Noriega and his closest advisers have paid little attention to
the long-run implications of the current financial turmoil.
Noriega's willingness to negotiate directly with the United
States at this time, probably reflects more a desire to explore
his options than a concern that a deteriorating economic
situation may eventually force him to step down. In fact, we
believe business failures and economic deterioration may be
welcomed to a certain extent by Noriega because of his disdain
for private sector oligarchs. Moreover, we believe surviving two
months of tough sanctions probably has given Noriega an
unrealistic sense of economic control.
Prospects for the Economy
If the crisis drags on, virtually all sectors of the economy
could suffer serious and longlasting damage. Some shortages of
critical consumer supplies probably will be relieved by
assistance from regime allies including Cuba and Libya.
Nevertheless, we believe regime efforts to rebuild imports and
revive the economy will be frustrated so long as sanctions
remain. Most local experts are also pessimistic about the
economic outlook; both opposition economists and the regime-
associated College of Economists have issued statements in recent
weeks predicting that economic activity could
fall
50
percent and
half the workforce could be unemployed by the
end
of
this year.
Agriculture. Without some relief soon, the agricultural
sector and this fall's food supplies could become the most costly
casualty of ongoing import shortages. In mid-April, Panama's
Agriculture Minister warned that this year's bean, rice, and corn
harvests could be lost if farmers did not plant before the rainy
season began in the next month. The regime is promising to
supply farmers with imported seeds, fertilizers, insecticides,
and spare parts and machinery; but we have no indication it has
been able to do-so. While many commercial farms producing for
export probably have stockpiled enough supplies to plant, we
expect most small farmers producing for domestic consumption lack
adectuate supplies. In these circumstances,
the regime's Agricultural Ministry is
now projecting a 40 to 60 percent decrease in agricultural output
this year. In any case, we expect agricultural problems to
greatly increase the requirements for imports of food staples
this fall.
Energy. Serious energy shortages are unlikely during the
next several months even though the regime has lost access to
crude oil shipments under the San Jose Accord. The oil refinery
now plans to import oil from Mexico on commercial terms and
reopen on 18 May, Refinery
officials expect to pay for the oil with money from domestic
sales.
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Public Services. Within the next few months, depressed
imports would severely hurt the regime's ability to operate
public utilities and maintain the social infrastructure. For
example, deferred imports of electrical and telephone equipment--
which prior to March averaged $3 million each month--will
undermine state-owned electric and telephone service soon.
Deferred maintenance of ports, roads, water, and sewage systems
will raise production costs for producers and health concerns for
everyone.
Other Vulnerable Sectors. Small to mid-sized, locally-owned
firms and all foreign businesses are particularly vulnerable to
longlasting and perhaps irreversible damage because of import
shortages. Many domestic firms have already exhausted their
limited financial resources and probably will not be able to
resume operations unless the crisis ends soon. While most
foreign-owned businesses--including assembly operators and
wholesale merchants--probably have the financial wherewithal to
remain, many would likely leave Panama if political turmoil
continues much longer. As the economy worsens and Panamanians
face more desperate straits, merchants, bankers, and businessmen
will increasingly rely on contraband, drug dealing, and other
illicit activities to survive.
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Panama: Composition and US Sourcing of Imports, 1987*
(Millions of US$)
World-Wide From United States
1,100
180
50
160
Grains
35
30
Meat, dairy
30
10
Fruits, vegetables
30
20
Vegetable oils
20
10
Other
45
20
Manufactured consumer goods
140
Apparel
40
15
Leisure
35
20
Electronic
35
10
Other.
30
10
Chemicals
Medicines
50
20
Industrial
30
15
Agricultural
30
15
Other
30
20
Machinery and Equipment
250
Raw materials, semi-finished
230
115
Textiles
60
30
Metals
80
35
Other
90
50
Estimates. Does not include US sales to the Colon Free Zone.
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Panama:
Short Term Trade Credits From OECD Sources
(Millions US $, end of period)
1986
1987*
Mar 1988* Apl 1988
*
561
490
430-450 360-42
0
Banks
480
425
380-400 320-38
0
Of Whi
US ban
ch
ks 132
164
125 10
0
Suppliers
57
50
35
Total Held by the
Nonfinancial Public
Sector
Estimates. Though most trade credit lines remained technically
open in March and April, bank disruptions and delays in servicing
credits greatly reduced Panama's access to these credits.
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I I
SUBJECT: PANAMA: The Impact of Growing Impact Shortages
6 May 1988
.Copy 1 - The Honorable Donald Gregg, Assistant to the President
for National Security Affairs, Rm. 298, OEOB
2 - Mr. Stephen I. Danzansky, Special Assistant to the
President for International Economic Affairs, NSC,
Rm. 365, OEOB
3 - Mr. Stephen Farrar, NSC, Rm. 365, OEOB
4 - Ambassador Jose Sorzano, NSC, Room 391, OEOB
5 - Mr. Kim Flowers, NSC, Room 391, OEOB
6 - The Honorable Michael H. Armacost, Under Secretary of
State for Political Affairs
7 - The Honorable Elliott Abrams, Assistant Secretary of
State for Inter-American Affairs, Room 6263, State
8 - The Honorable William G. Walker, Deputy Assistant
Secretary of State for Inter-American Affairs,
Room 4915, State
9 - Michael Kozak, Deputy Assistant Secretary for
Inter-American Affairs, Rm. 4915, State
10 - Mr. Richard Wyrough, Director of Panamanian Affairs,
Room 4915, State
11- Mr. Vince Mayer, Panama Desk Officer, Rm. 4915, State
12- Mr. Luigi Einaudi, Director,. Office of Policy Planning
and Coordination/ARA Room 6913A, State
13- Amb. Morton I. Abramowitz, Asst. Secretary of State for
Intelligence and Research, Room 6531, State
14- Mr. Robert Fouche, Director, Office of Analysis for
Inter-American Republics/INR, Room 7358, State
15- Mr. James Buchanan, Chief South America
Division/INR/IAA/SA, Room 7534, State
16- Mr. Charles Siegman, Federal Reserve Board, Rm. B1228
17- The Honorable Richard Armitage, Assistant Secretary of
Defense for International Security Affairs, DOD, Room
4E808, Pentagon
18- Mr. Robert Pastorino, Deputy Assistant Secretary for
Inter-American Affairs, DOD, Room 4C800, Pentagon
19- Brig Gen Charles D. Link, JCS/JS, Pentagon, Room 2E980
20- VADM John A. Baldwin, Jr., JCS, Room 2E996, Pentagon
21- BG T. H. Harvey, JCS, Room 2E976, Pentagon
22- LTG Leonard H. Perroots, USAF, D/DIA, Room 3E258,
Pentagon
23- Col. John Cash, DIO/DIA, Room 2A520, Pentagon
24- SOUTHCOM, J2, ATTN: Ramon daPena, HQ USSOUTHCOM
25- SOUTHCOM, J5
26- LTG William E. Odom, USA, D/NSA, Room 3A156, Fort Meade
27- Mr. Randall Fort, Special Assistant to the Secretary
(National Security), Rm. 2049, Main Treasury
28- Mr. Mark Sullivan, General Counsel, Treasury, Rm. 2049
29- Mr. David Mulford, Assistant Secretary of Treasury for
International Affairs, Room 2049, Treasury
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30- Mr. James Fall, Director, Developing Nations Finance,
Rm. 2049, Treasury
31- Mr. R. Richard Newcomb, Director, Office of Foreign
Assets Control, Rm. 2049, Treasury
32- Mr. James Ammerman, Director, International Banking,
Rm. 2049, Treasury
33-34 - DCI/DDCI Executive Staff, Room 7E12 (2)
35- DDI, Room 7E44
36- 0
/DDI,
I
Room 7E44
37- N
IO/LA, Room 7
E62
38- N
IO/Economics,
Rm. 7E
6
2
39- N
IC/AG, Room 7
E47
40- D
O/NCD -
R
m
. 7B15
41- C
/LA/DO 3
C2016
42- C
/LA DO
Rm
. 3C320
3
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43- C
/L
Rm.
3D30
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44- C
/L
Room 3D
30
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45- P
DB Staff, Roo
m 7F30
46- C
/PES, Room 2G
25
47- D
DI/CPAS/ILS,
Room 7G
50
48-52 - DDI/CPAS/IMC/CB, 7G07 (5 copies)
53- D/OGI, Rm. 3G00
54- C/OGI/ECD, Rm. 3G46
55- C/OGI/GD, Rm. 2G00
56- C/OGI/FSIC, Rm. 3G04
57- D/LDA, Rm. 1H19
58- C/LDA/PPD, Rm. 5G03
59- C/LDA/ELAAD, Rm. 1H39
60- D/ALA, Room 3F45
61- DD/ALA, Room 3F45
62- C/ALA/SAD, Rm. 3F24
63- C/ALA/MCD, Room 4F29
64- DC/ALA/MCD, Room 4F29
65- ALA/PS, Room 4F21 (1 clean copy)
66- ALA/PS, Room 4F21 (1 sourced copy
67- ALA Research Director, 3F44
68-72 - CPAS/IMC/CB, 7G07 (5)
73- MCD Division Files
74-78 - CA Branch Files (5)
DI/ALA/MCDI I(6 May 88)
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