PANAMA: DEVELOPMENTS AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82B00421R000100040026-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 24
• Document Creation Date: December 20, 2016
• Document Release Date: February 8, 2008
• Sequence Number: 26
• Publication Date: January 6, 1977
• Content Type: NIE

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Secret
es
NATIONAL
INTELLIGENCE
ESTIMATE
Panama: Developments and Prospects
Secret
NIE 84-1.77
6 January 1977
Copy N ? 418
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NIE 84-1-77
PANAMA: DEVELOPMENTS AND PROSPECTS
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THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL INTELLI-
GENCE,
THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS, EXCEPT
AS NOTED IN THE TEXT, AS FOLLOWS
The following intelligence organizations participated in the preparation of
the estimate:
The Central Intelligence Agency, the intelligence organizations of the Departments of
State, Defense, and Treasury, and the National Security Agency.
Concurring:
The Deputy to the Director of Central Intelligence for the Intelligence Community, Vice
Chairman
The Deputy Director of Central Intelligence representing the Central Intelligence
Agency
The Director of Intelligence and Research representing the Department of State
The Director, Defense Intelligence Agency
The Director, National Security Agency
The Special Assistant to the Secretary for National Security, Department of the
Treasury
The Assistant Director, Federal Bureau of Investigation
The Deputy Assistant Administrator for National Security, Energy Research and
Development
Abstaining:
Also Participating:
The Assistant Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
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CONTENTS
Page
I'liE(;IS . ..
DISCUSSION ...................................................... 7
1. INTRODUCTION .......................... ........... 7
IL TIIE DOMI,S'I'I(: SCENT ............... .......... 7
I:comnnic Problems ........... ...........................
Political Trends ............ .............................
Private Sector Concern ..................................
Student Criticism ........................................
Labor Concern ............... .......... ............ .
(:otmnunlst Support .....................................
'I'orrijos and the National Guard .........................
Government Stabilih . ....................................
Ill. 'I'IIF. IMPA(,'I'OF I)OMES'I'IC FACTORS ON NEGOTIATIONS...
Panama's Negotiating Strategy and Tactics ....................
Domestic Actions ............................................
International Actions ........................................
Pressures of 'I'inu. ...........
Willingness to Compromise .................................. .
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Panama
Canal Zone boundary
Panama Canal
Railroad
Road
Canal Zone
'Escobal?
torrowr ra0' contour
around Baton late.
502696 1.76
Iv
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La dalmp
Canal Zone boundary
* National capital
Panama Canal
Railroad
-- -- Road
to Mdoe
to
k,bmoiors
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PANAMA: DEVELOPMENTS AND PROSPECTS
PRECIS
General Omar Torrijos, Panama's Chief of Government, retains a
strong grip on power, but his political support has declined significantly
and the country's economic slump has generated domestic concern and
unrest.
- Domestic problems will probably get worse, at least over the
short term, and could endanger Torrijos' political survival,
particularly if progress is not made in the canal treaty
negotiations.
- If Torrijos were to fall because of internal economic and political
problems, he would most likely be replaced by a more moderate
government, but such a government would probably find it
more difficult to win approval for a new canal treaty.
Domestic problems have given Panamanian leaders a new sense of
urgency to speed up with the treaty talks, and they have declared 1977
the "Year of the Treaty."
- They believe that prompt conclusion of a treaty acceptable to
Panama is essential to avoid further economic and political
deterioration.
- Government leaders probably expect a brief delay in the
negotiations while the new US officials become informed on the
canal issue, but they will press the US to adhere publicly to the
1974 Statement of Principles and resume talks before Panama's
politically active students return to class in April 1977.
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Panamanian officials will probably remain relatively calm during
the initial months of 1977 but they will urge the US with increasing
intensity to move ahead on the negotiations as the year advances.
We believe that domestic problems will make Torrijos amenable to
accept certain compromises on his treaty position to conclude the
negotiations quickly, as described in paragraph 52. The extent of
compromise will depend on Torrijos' perception that the total treaty
package is still acceptable.
Following is an assessment of probable Panamanian reaction to
various scenarios that could arise in connection with the treaty
negotiations:
SCENARIO A: Negotiations are prolonged into 1978 without significant
progress.
Torrijos has so committed himself to a treaty in 1977 that we
believe he would feel compelled to take dramatic action if major
agreement was not in sight by year's end.
A successor government, even if basically moderate, would have to
take a strong nationalist stand on the canal issue, but it might be more
amenable than the Torrijos government to compromise on some treaty
issues.
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SCENARIO B: A treaty is signed.
Torrijos will almost certainly be able to obtain ratification of a
treaty that he accepts.
- He would have assured himself that he had sufficient domestic
control and support before agreeing to the treaty.
- Ratification would probably come within several months and
before the US Senate acted, In part to place the onus of possible
rejection on the US.
'T'here Is little chance that a treaty signed and ratified by Panama
would be denounced by a future Panamanian government, although
some effrnt at revision would most likely be made in future years.
SCENARIO C: A treaty is signed but the US Senate fails to act for an
extended period.
'I'orrijos would probably remain relatively calm for about six
months after ratifying the treaty, but then would increase pressure on
the US to ratify.
- As long as he believed that the door remained open for
ratification, Torrijos would most likely control the level of
Panamanian reaction.
SCENARIO D: A treaty is signed but the US Senate falls to ratify it
Nationalist sentiment would be ignited and violence against US
personnel and installations would occur. The intensity of reaction
would depend on whether Torrijos felt betrayed by the US executive
branch and whether he believed that minor modifications in the treaty
would result in US ratification.
After the initial disorders ran their course, Panamanian officials
would undertake more calculated actions to make operation of the
canal difficult.
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- Torrijos would probably break diplomatic relations with the US
and denounce the 1903 treaty. International support for Panama
would be strong, particularly in Latin America and the Third
World.
Torrijos would probably survive the negative economic repercus-
sions of such a scenario, but his government would be more militantly
anti-US. Should he not survive, a successor government would probably
be at least as difficult to deal with on the canal issue as Torrijos.
Without a treaty, each successor government would probably have to
be as militant as its predecessor on the canal issue,
SCENARIO E: The negotiations break down because an acceptable treaty
cannot be agreed upon.
If Torrijos believed that talks might resume on his terms, lie would
limit his reaction to prodding the US to return to the negotiations.
Panama would find international sympathy if treaty talks break
down but its support would be much more limited if Panama could be
shown to have turned down an essentially equitable treaty.
The domestic repercussions of this scenario could lead to the
replacement of Torrijos, but a successor government, even if more
moderate and friendlier to the US, would probably not be able to be
much more reasonable than Torrijos on the canal issue.
SCENARIO F: Treaty negotiations break down as a result of serious
Panamanian government-sponsored anti-US violence.
In the unlikely event of such a development, a crisis in
Panamanian-US relations would almost certainly ensue, particularly if
Panamanian government denial caused the US to reveal evidence of
official sponsorship of the violence.
- If the evidence was not airtight, Torrijos would most likely
continue to deny official involvement, but he would probably
avoid further provocation in an effort to resolve the crisis.
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Whichever course 'rorrijos followed, he would be likely to turn to
confrontation tactics if he became convinced that the US did not
intend to resume negotiations with his government or that US
ratification of a treaty was unlikely.
'Corrijos would most likely not he able to survive politically in this
scenario for long if the US (lid not show a willingness to resume
negotiations with his government.
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DISCUSSION
1. INTRODUCTION
1. Panama and the United States have been
intermittently engaged for almost 12 years in tilt
attempt to negotiate it new Punuma Canal treaty. The
original 19(13 accord, which granted the United States
in perpetuity all the rights, power, and authority in
the Canal Zone as if it were sovereign, has long
rankled I'anumail laits, 'T'reaty revisions in 1936 and
1955 ciid not affect these rights. Simmering national-
ism over the canal issue culminated in the 1964 anti-
US riots in which 20 Panamanians and four US
citizens lost their lives. Panama broke relations with
Washington and accused the US of "aggression."
Negotiations to change the nature of our relationship
began the following year. Treaty drafts prepared in
1967 were not signed by either gmemment, and
negotiations resumed in 1971 with the government of
General Omar 'T'orrijos, who had assumed power in
1968.
2. After a slow start, the negotiations picked tip
momentum in late 1973 with the assignment of
;ltnbassadtn Filsworth Bunker to head the US
negotiating teats. The two countries signed an eight-
point Statement of Principles in 1974, which called for
a Fixed-terra treaty. prompt cession to Panama of
jurisdiction over the Canal Zone. continued US
control over the administration and defense of the
canal with increasing Panamanian participation, an
arrangement for expansion of the canal, and receipt
by Panama of an "equitable" share in the canal's
benefits. "These principles have guided subsequent
treaty talks.
3. Since then, more specific agreement has been
reached on transferring jurisdiction over the Canal
Zone to Panama, on phasing in Panamanian partici-
pation in the operation of the canal, and on a status of
forces agreement. Significant progress has also been
made in determining the extent of lands and waters to
be retained by the US for the operation and defense of
the card. No agreement has yet been reached,
however, on such basic issues as treaty duration,
provision for the canal's neutrality and defense,
possible expansion of transit facilities, and the amount
and nature of compensation to be provided Panama.
4. The pace of negotiations slowed markedly during
the recent US presidential election campaign, and the
change in the US administration created uncertainty
lit Panama concerning the intention of the incoming
Carter administration. Political and economic prob-
lems confronting -Torrijos in Panama have also
affected the negotiating environment. This Estimate
examines recent developments in Panama as they
affect the Panamanian government's position in the
canal treaty negotiations and assesses Panama's likely
strategy and tactics, particularly with regard to certain
scenarios that could arise in connection with the
negotiating process.
CANAL ZONE:
23,(1(X) ? Military personnel and civilian ernployces
of the Anned Forces, and dependents.
I2,(X) Ernpioyees of civilian agencies and
dependents,
Haa'in1t,IC OF PANAMA:
7,100 American citizens, Including US Govern-
ment officials.
? Includes approximately 9.000 US military personnel.
II. THE DOMESTiC SCENE
5. General Torrijos retains a strong grip on power
with the continued support of the National Guard,
but his position has eroded, particularly in the past
year. The populist image of his eight-year old
"revolution" has dulled and the country's economic
problems have generated domestic concern and
unrest. Government policies have conic under attack
from various elements of Panamanian society, particu-
larly businessmen and radical students, and Torrijos'
popularity and general support for his government
have declined to the lowest point since he came to
power. Crowing awareness of corrupt practices by
Torrijos and other high-level government officials has
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Farber damaged the General's popular mange. 'I'orrl-
ios' reluctance to move quickly and firmly last
Septentbl r to put down student antigovernment
disorders dress' criticism front both senior and Junior
officers of Panama's only armed force, the National
Guard, which remains his primary source of power
and the only force tiltInuttely capable of removing
him front office.
(i. Despite l orrijos' present strength, the cumulative
effect of political and ecuuontic problems could.
jeopardize his tenure. The relative seriousness of
'1'orrijos' domestic situation, In turn, will directly
influence the nature and direction of Panamanian
policy and action with regard to the United States and
the canal treaty negotiations.
Economic Problems
7. Economic difficulties have been it major cause of
Torrijos' problems. Panama has suffered it general and
serious economic recession in the past three years (see
chart). The slump has come as it shock to Panama-
nians. `tort had become uccustotne(I to the bullish
economy of the previous decade, which stemmed
largely from substantial private investment, both
foreign and domestic. An important cause of Pana-
ma's economic malaise has been it sharp decline in
private investment, which in good years accounted for
two thirds or more of total investment and about 20
percent of GNP. This decline reflects at continuing
erosion of investor confidence as world inflation and
recession have impacted on Piilnartia, Other Important
factors are the collapse of it housing construction
boot u, caused by overbuilding of luxury housing and
rent controls on low-cost housing, and the shortage of
new profitable investment opportunities.
S. The 1976 decline was concentrated in construe-
tion, manufacturing, tourism, and the sale of services
to the Canal Zone. Private construction was down 60
percent in the January-June period front the already
depressed level of a year earlier, and manufacturing
output was down about 20 percent, partly because
rising unemployment has reduced consumer demand.
UnetnploStnetnt has probably reached 13 percent
overall and in urban areas mar be as much as 30
percent.
y. Last summer's drought sharply cut production of
rice, corn, and beans. although other crops, including
the important hanan.. and sugar export crops. did well
enough to prevent a decline in overall agricultural
output. The drought also cotttrihute(I to it rise In
prices of basic foodstuffs and of living costs In general,
Actual Inflation is undoubtedly higher than the 3.4
percent that official cost-of-living statist k's suggest.
10. In the balance of payments. the current account
deficit increased by 20-25 percent in 1976. Imports
rose as government purchases for 'nvestinent projects
more than offset reduced private demand. Exports,
nu'anwhile, declined. Shipments of petroleum prod-
ucts-the largest export category in recent years-
dropped sharply as it two-month maintenance shut-
down of the all refinery cut supplies and a drop in
traffic through the canal reduced the demand for
hunker fuels. Proceeds from sugar exports fell below
expechitiois because of low world prices. Receipts
front tourism and from sales of services to the Canal
Zone were down 10-12 percent in the first three
quarters of the year. Service payments on the foreign
debt rose to about $65 million from about $40 million
in 1975.
It. In a vain effort to stimulate the economy, the
government doubled capital expenditures In 1975-to
$330 million-and raised them again in 1976--possi-
bly to $4tH) million. These stepped-up expenditures,
intended to provide jobs and boost demand by
speeding up work already underway on Infrastructure
projects, were finance(] principally by an increase In
government borrowing from foreign commercial
banks. (:urreut revenues normally yield u surplus of
$20 million or more above current expenditures for use
in public investment, but the sluggish economy failed
to produce projected revenues in 1976, and receipts
did not even cover current expenses, To cover the
current deficit, nmet foreign payments, and fund its
special development projects, the government bor-
rowed over $200 million abroad during the year.
12. In the first five months of 1976, the foreign debt
grew by nearly its much as in all of 1974, the year of
heaviest borrowing to date by the Torrijos regime, By
June. the government debt stood at $816 million,
equal to about 43 percent of 1975 GNP.' Of this. $312
million was owed domestically and $504 million
abroad, 40 percent of it to private international batiks.
A large share of the debt is in short-term and medium-
tern commercial bank loans, and foreign debt service
?Pun;lma ik $86 million in arrears on debt owed to the US
(;ovenunenl a% 4 30 June 1976. Of this. 84.2 million is owed to the
(:anal Zone Government an(1 $3 Iniliion ill the t'nnama Canal
Company lot wrill i5 sirs Ives
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Panama's Economic Growth Rate
Percent
1968 1967 1968 1969 1970 1971 1972 1973 1974 1975
1976 Est.
1.9
10 7.0
6.3
Gross Domestic Product (iii 1960 Prices)
Million US $
1159
1140 orris 1140
1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 Est.
994
911
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lmvrttent' are prujecletl tit nearly:( percent of current
tax rt'scnues tit 14)7(1 and almost .10 percent in 1977. In
addition, iiotunoint-ris guvenunent agencies owe some
$330 million,
13 The government frees serious financial con-
straints in 1977 and is unllkely to be able to curry out
its budgeted program. Operating outlays are budgeted
ut X3.10 million, stone $30 million more than In 1976,
The capital budget will probably he at least its large as
in I07(i, Spending for a recently uruioanced modest
emergency program to spur economic recovery will
probably replace 1976 spending for investment In the
sugar industry and for financing the new Agricultural
Marketing Institute. Since Panama rises the US dollar
as its currency, it cannot expand the money supply to
cover rising governnuvnt expenditures but must cle-
penl on tax rexv'nues and borrowing abroad. A new
tax package wits unnoiinced in inid-December 1976.
As projected, the new taxis will raise revenues by $20-
$30 trillion. Although I'anatna will he able to
continue to draw on existing loans and credits front
international agencies such as the World Batik and the
Inter-Anwriean I)rvelopntent Bank. commercial hank
loans will he increasingly hard to obtain. The banks
will prohahly cover the government's minimum needs,
though reluctantly, for fear of Jeopardizing their
already large investment Ito I'antana, The loans will
most likely fall short of amounts needed for the
goweramcut's budgeted program, however, and will
have strings attached regarding use of the funds,
1.1. Punama was granted $22 million by the
International Monetary P'und in December 1976 to
compensate for declines in export earnings and has
applied for a new I MV1 F standby agreement to replace
one that expired in November, If granted, the standby
will help Panama's credit rating somewhat, Panama
has been seeking a long-term $300 million loan from
Libya to help meet its financing needs. Libya is
reported to he attaching unacceptable political
conditions. however. and its lending record makes a
loan of this size improbable.
15. The outlook for an economic upturn in Panama
in 1977 is poor. Any improvement would, at it
ininimurn, require renewed investor confidence. The
g;overntnent has been trying to regenerate business
confidence through va.rioos means, including plans to
modify some prolahor features of the present labor
code that bosiuess finds especially onerous; Business-
inen, however. remain cautious. Imposition of new
taxes and other austerity nuvasures could further
reduce business willingness to invest. Progress toward
it treaty would provide a psychulogicul boost toward
restoring confidence. Investor decisions will, however,
rest largely on basic economic factors such its world
and domestic market conditions, "Toward the end of
1976 there were some indications that the downturn
might 1w leveling off, but renewed strong growth is
not vet foreseeni another round of world recession
would particularly hart Panama.
Political Trends
16. The economic problems have contributed to it
spreading sense of alienation among various sectors of
society, some of which are already critical of the
government an other grounds. The cumulative Impact
is presenting 'I'orrijos with the most serious domestic
problems of his eight years in power.
Private Sector Concern
17. 'I'he traditional luridholding-mercltiuit elite,
which lost its political power to Torrijos In 1968, is
concerned over the government's economic policies,
Its members distrust '1'orrijos' leftist "revolutionary"
rhetoric and his populist programs. They have
particularly resented his prolahor policies, which they
see as endangering their source of livelihood. l'orrijos'
confrontation with the private sector in January 1976
severely damaged his relations with businessmen. In
an ,overreaction to public criticism from business
elements, he accused some business leaders of plotting
against the government. Thirteen prominent business
and professional leaders were exiled, and more than
0) were arrested. 'T'he private sector was outraged by
the action, and the damage caused by these events has
yet to be repaired.
18. 'I'lie government, recognizing the need for
financial support from the business community if
Panama is to recover from its economic slump, has
since tried to mend its relations with businessmen.
Cabinet shifts later in the year toward more moderate
policies and a public statement by Torrijos on
December 16 that the labor code would be revised
were further attempts to placate private enterprise.
Nevertheless, while some progress has been made, the
business cormmtnity's relations with the government
remain strained and the sense of deep-seated resent-
inent and distrust felt by businessmen poses it
potentially serious lung-term political problem for
'I'orrijos.
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Student Criticism
IS) Students are another growing prohlena for the
government. Torrijos well recognizes the political
potency of students. Ile singled theist out from the
11111se1 as one of his twain "revolutionary" conslituen-
cies and its 1971 gained control over the Pu~iunuuuun
Student Vederalion The more radical student
groups have grown in power, however, and are
Torrijos' most outspoken opponents.
20, Student violence last September protesting
increases in the price of basic foodstuffs produced the
most serious street tiernc-nstrutions since Torrijos took
power. Torrijos, not wanting to create martyrs or
encourage other antigovernment elements, initially
restrained the National Guard, but after several days
of violence, arson, and looting finally allowed the
Guard to use force to bring the students back under
control. Although progovernntent students accused
the radicals of being manipulated by the ousted
oligarchy and "I'S provocateurs, even the F'I?P felt
compelled to issue it communique criticizing the price
increases and calling for other ways to correct the
country's economic problems.
21. Victory by the radicals over the FEP In the
Novemhwr university student elections reflected the
discrediting of the progovertunent student group. The
radical students now control most university and
secondary school organizations and are in a stronger
position to demonstrate against government policies in
the future-;ul will he more likely to win broad
student hacking for their actions.
labor Concern
22. I'auatna's relatively weak labor unions have
generally supported the government, especially since
the euactwent of the 1972 labor code, which
significantly increased workers' benefits. Torrijos has
used orgauize(l labor, and particularly the Conunu-
nist-controlled National Confederation of Ptaaatta-
nian Workers ((N'I'P)-the country's second largest
confederation-to demonstrate support for govern-
anent police.
23. Labor leaders have already begun to criticize
t;nvernmvnt plans to revise the strongly proworker
labor code. Labor activists will probably launch
strong protests when the specifics of the code revisions
are publicly announced. Covernmeut leaders are
working hard to prevent an angry outburst from the
unions. The government's decision to delay announc-
ing the changes In the labor code until after student
vacations began In mId-D(cemher was designed to
rt cittce the possibility that students would join in the
expected labor protests,
Communist Support
24. The communist People's Party (I'1)1'), initially
suppressed under Torrijos, Is now the only political
organization allowed reasonably free rein, provided
that the party supports government programs and
takes no unauthorized initiatives, Although still
officially illegal, the I'I)I', which numbers about 500
members and 3,000 sympathizers, has In fact actively
cooperated In mobilizing support for the government,
especially through the student group and labor unions
it Influences, The National Guard keeps close watch
on the party and its leaders, however, and has cracked
down on the communists each time they have stepped
out of line,
25. PDP leaders are concerned over recent economic
problems and trends toward more moderate govern-
tnent policies in the fields of education and labor,
particularly the removal of some leftists from govern-
ment positions. Nevertheless, the party remains in a
relatively advantageous position under Torrijos and,
barring it sharp deterioration in the economic situa-
tion, is likely to continue to support his government
and "revolutionary" program.
Torrijos and the National Guard
26. 'I'he National Guard, Panama's only military
force, has been Torrijos' source of power from the first.
He remains its Commandant in addition to being
Chief of Government, and he continues to enjoy the
loyalty of its members, Torrijos' handling of the
September shident violence produced the first sign of
a potentially significant disagreement within the
Guard. Guard officers were upset by what was seen as
Torrijos' vacillation and mismanagement of the
situation, especially the fact that lie remained at his
retreat away from the city and Isolated from the
events. Deputy Commandant Colonel Rodrigo Garcia
openly disagreed with Torrijos' initial order to act
with restraint in dealing with the students and at one
point countermanded the General's directive for the
withdrawal of troops from one location. Guard officers
also expressed anger over the General's order to release
students arrested during the violence. Torrijos' event-
ual agreement to use force to control the students
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helped restore National Guard morale, but his obvious
reluctancy to deal with the students forcefully was
seen as atnhivaleuct and raised some doubt as to haw
he might act in the event of disorders in the future.
Government Stability
28. Future government stability will depend in
large part on 'I'orrijos' ability to keep his various
opponents off balance. He has tended to do this by
appealing alternately to the left and right. His trip to
Cuba and move against rightist husinessme:t last
January, for example, raised his stature among leftists,
but shortly after his return, Torrijos undertook cabinet
shifts designed to give a more moderate tone to
domestic policies. The government is still considering
establishment of diplomatic relations with the USSR.
This would represent another move which would
placate the left.
29. The danger for Torrijos has been that such
fluctuations are always unpopular with certain groups
and never gain him lasting supporters among any. In
the likely event that the economic situation continues
to stagnate-and especially if the government were
faced with little progress in the treaty negotia-
tions-'i'orrijos could well find himself confronted by
opposition on all sides with only the loyalty of the
National Guard to keep him in office. The imposition
of politically unpopular austerity measures or the
impact of a financial crisis, for example, would most
likely lead to an upsurge In antigovernna'nt agitation,
In such a situation, especially In the event of
widespread and prolonged disorders, It is doubtful
that Guard officers would he willing to continue
defending 'I'trrijos, and there would he a good
possibility that certain members of the General Staff
would move to replace him as a means of protecting
their own Interests. In the absence of a recognized
leader, Colonel Garcia would most likely assume
charge of the government, at least tempnrnrily, as the
Guard sought to restore order and confidence ire the
government.
3O. It is not certain that Garcia could hold on to
power for long since he lacks the charisma and
leadership image that gave Torrijos much of his early
appeal. A power struggle might well develop within
the Guard, if so, longtime rivals Lt. Colonel Noriega,
the National Guard G-2, and Lt. Colonel Paredes,
who serves as C-1 and also Minister of Agricultural
Development, would be the most likely contenders.
The bulk of the Guard officer corps would be likely to
support the more moderate and respected Paredes over
the ruthless and opportunistic Noriega. A government
headed by either Garcia or Paredes would probably be
more moderate and acceptable to the business
community than the present one. Such a regime,
however, would he uncertain of its support both
within and without the National Guard, lack a strong
central figure, and require some time to consolidate its
control of the tools of power. Consequently. it would
probably find it more difficult than the Torrijos
government to win approval for a new treaty
Ill. THE IMPACT OF DOMESTIC FACTORS
ON NEGOTIATIONS
31. Panama's economic difficulties and the in-
creased pressures onTorrijos have given a new sense of
urgency to government leaders concerning the canal
treaty negotiations. Many officials, including Torrijos,
believe that prompt conclusion of a treaty acceptable
to Panama is essential to resolve the country's pressing
economic and political problems. They appear wor-
ried-with substantial justification-that an inability
to conclude a treaty in the next year or so would
further weaken investor confidence, cause continuing
economic deterioration, and provoke increased anti-
government agitation, This concern reinforces their
sense of urgency to accelerate the negotiations.
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0
Torrijos apparently also perceives a favorable treaty its
necessary to discredit his critics, refurbish his flagging
image as "niuxiniuin leader of the Panamanian and
ensure his political future. IIv scents convinced that
most i'atill manlans would acclaim it treaty that
satisfied Panama's long-sought goal of regaining
sovereign jurisdiction in the Canal 'Lone, had a
reasonably short duration, and provided sizable
financial and other economic her;'fits to Panama.
32. Despite tlonustic problems it,. 1 the impatience
of some elements, a broad base of support remnants In
Panama for -Torrijos' negotiating efforts. Although
many differences separate Panamanians, virtually all
ratite behind the nationalist goal of regaining sover-
eign jurisdiction in the Canal Zone. Broad nationalist
sentiment on this issue continues to run high-nour-
ished by years of resentment against US control of the
Zone, by the belief that the United States is depriving
Panama of the proper exploitation of its most
important "natural resource, and by envy of the
benefits enjoyed by US residents in the Zone. Most
Panamanians share the government's belief that a
new treaty will help solve Panama's problems. Despite
the long wait, they do not appear overly impatient in
awaiting treaty developments as long as there are
indications of definite progress and prospects for
ultimate success.
33. In contrast, some important and highly vocal
sectors of Panamanian society, particularly radical
students and other ultranationalists, have* accused
Torrijos of "selling out" to the United States. Torrijos
is sensitive to such criticism and has often felt it
necessary to speak out on the status of negotiations,
reiterating negotiating demands to show that he is
effectively defending Panamanian interests, Torrijos
has also insisted that the timing of a new treaty is not
as important to Panama as its substance and
acceptability. Domestic problems have shortened
Torrijos' perceived timetable, however, and he is
likely to continue to insist on completion of a draft
treaty before the end of 1977.
34. During his visit to Cuba in January 1976,
Torrijos received Castro's endorsement for his policy
of relatively peaceful and responsible negotiations. in
Castro's public statements-well publicized in the
Panamanian press-he cautioned Torrijos to exercise
prudence in dealing with the US and not "bite the
hook of imperialist provocateurs" by engaging in anti-
US violence. Such statements were useful to Torrijos
in eusing leftist criticism of his handling of the
negotiations.
35, Torrijos lilts an underlying distrust of the United
States and has accused Washington of it concerted
campaign to undermine support for Panama anumg
Latin American governments. At the same time,
Torrijos has not hesitated to use the US its a scapegoat
in an attempt to divert criticism from himself. During
the September student violence, for example, 'i'orrijos
accused the United States of involvement in the
disorders in an attempt to "destabilize" his govern.
sent. On his orders, Foreign Minister Boyd formally
protested activities by US and Panamanian residents
in the Canal Zone who they alleged were plotting
against the government. (Fes' Panwnaniuns believed
their government's accusation. The United States
rejected the protest.
Panama's Negotiating Strategy and Tactics
36. Over the years, Panamanian authorities have
pursued an essentially three-pronged strategy in their
dealings with the United States over the canal issue:
- a tough stance in the treaty negotiations,
insisting on the justice of Panama's demands;
- periodic warnings of growing domestic impa-
tience over the slow puce of negotiations and of
the danger of anti-US violence should Panama
full to receive its "just rights" through the
negotiating process; and
- a concerted and largely successful campaign to
gain international hacking for Its position in the
negotiations.
This strategy has contributed to steady, albeit slow,
progress toward achieving Panama's basic objectives.
Government authorities undoubtedly see themselves
closer than ever before to gaining their long-sought
goal of effective sovereignty In the Canal Zone.
37. Although domestic pressures have given Pana-
manian officials a sense of urgency to speed tip the
negotiations, there is no reason to expect Torrijos to
change the basic thrust of his strategy as the Carter
administration enters office-at least in the initial
phases of his dealings with the new US Government.
He can he expected, in fact, to pursue his time-proven
strategy with even greater vigor and intensity as he
tests the new administration's intentions. Torrijos Is,
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It VPVer, ,in unpredictable person whose personal
characteristics and idiosyncrasies have a major Impact
on the kind of tactics used,
38, While Pa-mntanian leaders are concerned over
the delay in their game plan caused by the change In
the US Governtnent, Foreign Minister Aquilino Boyd
and others have expressed cautious optimism, noting
that Democratic governments in the US have tended
to show greater understanding and sympathy toward
Latin American problems titan have Republican
ad inInistrations. Boyd has further cotnnmented that a
treaty approved by President Carter should receive
more resolute support for ratification from the
Democratic-controlled US Senate than would one
submitted by a Republican President. Panamanian
officials also expressed satisfaction over the nomina-
tion of Cyrus Vance as the new Secretary of State;
Vance served as a US presidential envoy to Panama in
the wake of the 1964 riots.
39. Panamarllatt officials are attempting to bring
the canal issue to the attention of President-elect
Carter even before he enters office. Foreign Minister
Boyd's announcement lit early November that
Panama Intended to raise the canal issue in the UN
General Assembly for "fail debate If it treaty is not
achieved in 1977 was undoubtedly timed to get
Panama's message to the new US administration,
Boyd also visited Washington in early December and
discussed the canal Lmue with US officials. Even
before the US elections, Panamanian officials had
increased their warnings of dire consequences to both
countries if negotiations failed. On several occasions,
OMAR TORRIJOS: A CHARACTER
SKETCH
General Omar Torrijos, Panama's
47-year-old Chief of Government and
Commandant of the National Guard, Is
an ardent nationalist and sees himself as
destined to achieve effective Panamanian
sovereignty over the Canal Zone. He has
a deep-seated resentment toward the US
over the canal issue-as do many Pann-
manians-and feels frustrated over the
slowness of the treaty negotiations. I-ic
distrusts US intentions and is hypersensi-
tive to perceived signs of US deception,
pressure, or "destabilization" efforts.
Torrijos is essentially authoritarian
by nature, and he keeps all major
decision-snaking powers in his own
hands. Ile does delegate clay-to-clay matters to subordinates, including the canal
treaty negotiators, but he does not hesitate to assert himself when he senses that
subordinates are stepping beyond their authority.
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'l orrijos and other I'anaumanian leaders publicly
reiterated the theme that anti-US violence will break
out if Panama is tunable to achieve Its "liberation
through ne? otiulions, During private meetings with
their US countetpnrts during the negotiating session in
(etcher, I'nncunaninn negotiators also warned of the
danger of eventual anti-US violence.
Domestic Actions
41, During the initial months of 1977, Panamanian
officials will probably remain relatively calm and
responsible in their dealings with the United States as
they attempt to obtain a favorable US response. In
their initial meetings with Carter administration
officials, Panamanian authorities will undoubtedly
continue to emphasize their basic stance on the
"injustice" of the existing situation and the need for
early resolution of the canal issue before Panama's
patience runs out and serious anti-US violence erupts.
They probably expect a brief delay to allow the new
US administration to become informed on the canal
issue, but Torrijos would want assurances that the US
policy review was not just procrastination, especially
during a period in which his domestic problems might
appear to be weakening his bargaining position.
Panamanian leaders would expect the US to adhere to
the 1974 Statement of Principles and to resume at
least technical talks before the students return to class
in April.
International Actions
43, Along with domestic efforts to encourage early
action by the Carter administration would be a
continuation of Panamanian efforts to orchestrate
international expressions of support, both on an
individual country basis and through such organiza-
tions as the UN, the OAS, and the nonaligned
movement. Panamanian officials appear convinced
that international pressure will eventually force the
US to accept a treaty favorable to Panama,
44. Panama went to some trouble to obtain one of
the Latin American seats in the UN Security Council
for the 1976-78 period and undoubtedly intends to
put its presence there to maximum use as a means of
influencing the United States. During Its previous
tenure on the Council in 1973, Panama was host to a
Security Council meeting in Panama City, where it
secured broad support for a resolution endorsing its
position. The United States vetoed the resolution on
the grounds that it (lid not take US needs into account
and that the UN was an inappropriate forum since
amicable bilateral negotiations were then in progress.
Panamanian officials are convinced that their use of
the UN Security Council seat in 1973 was effective in
forcing the US to take the canal negotiations seriously.
Foreign Minister Boyd, who was Panama's UN
representative at the time, will be sensitive to
opportunities for exploiting the Security Council scat
and will doubtless include it in his arsenal of
international tactics.
45. Panama will pay particular attention to other
Latin American countries as a major source of
support. Hardly a regional meeting occurs without
some reference being made to Panama's cause, and
Torrijos maintains that Panama's struggle has become
the "religion of Latin America." Latin American
support was particularly high in the early 1970s. In
the recent past, however, it has become more
qualified.
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?Ui, New governments fu Peru, Argentina, and
Chile, for example, are tonne conservative than their
predecessors and are more reserved In the hacking they
give Panama. 'I'orrijos' visit to Cuba last January and
his fairly close ties to Fidel Castro further disturbed
some of the more conservative governments.
The increased importance of the canal to Brazil
as a result of its growing trade with Japan is also likely
to qualify Brazil's support for Panama's position.
?Veil Colombian President Lopez, who Is on- of
I'ananma's principal backers, has expressed qualifica-
tion of his support. Ile stated publicly last June that it
would he "unreasonable" for Panama to become the
exclusive guarantor of transit through the canal and
that the US should he allowed to retain responsibility
for canal defense and to maintain a reasonable
number of bases.
17. Such indications of reservations by influential
Latin Americans have had an unsettling effect on
Panamanian leaders. They will probably not, how-
ever, have a marked impact at international forums or
significantly reduce public declarations of support
from Panama's neighbors as a symbol of regional
solidarity. Some countries, such as Cuba, Venezuela,
and Jamaica, will remain unqualified supporters of
Panama's demands. Even Torrijos' reluctant support-
ers will back demands for a new and more equitable
treat'.
48. Torrijos also looks to other Third World
countries for support. Panama joined the nonaligned
movement in 1975 partly to broaden Its support.
Nonaligned conferences in recent years have normally
included a strong endorsement of Panama's position.
Torrijos personally attended the August 1976 Non-
aligned Conference in Colombo but presented a
relatively moderate statement, apparently sensitive to
US representations that a hard-line formulation might
have damaging results during a US election year.
Haven among the nonaligned countries, backing for
Panama's position is not unreserved. Torrijos is
convinced, however, that his attendance at the
Nonaligned Conference set the groundwork for
Panama to receive the support of 85 nonaligned states
should It he necessary to take the canal Issue to the
UN General Assembly,
Pressures of Time
49. General Torrijos has labeled 1977 as the "Year
of the Treaty." In that year, he has said, "the US will
have run out of excuses and the I'antunanians out of
patience." If marked progress on the treaty Is not
achieved by midyear, warnings of Panamanian
impatience and of the increasing danger of anti-US
violence would multiply, and Torrijos would consider
anti-US incidents, including small-scale acts of vio-
lence against (',until Zone property, to assure that US
officials recognized the full Impact of the risks
involved. Torrijos would probably continue to prefer
to concentrate on diplomatic pressures on the US to
speed up the negotiations, but much would depend on
the level of political and economic pressure on Torrijos
at the time. If faced with further economic deteriora-
tion, Torrijos would be tempted to shift the blame to
the US, alleging that Panama's economic problems
are largely the fault of the US for fulling to agree to it
treaty. And even if domestic pressures had not notably
increased, he would still be tinder time constraints of
his own making as the "Year of the Treaty" moved
into its latter months.
The ninth
anniversary of Torrijos coming to power on October
11 would loom large in Torrijos' mind as a time either
to refer with satisfaction to an agreed upon treaty-or
one soon to be completed-or to lash out at the
United States for dragging its feet and risking the
"popular explosion" that he had warned of years
before. Even more critical for Torrijos politically
would be the period between October and the 14th
anniversary of the anti-US riots in January 1978.
Willingness to Compromise
51. We believe that domestic pressures to obtain
quick completion of the negotiations will prompt
Panamanian authorities to offer certain compromises
on their stated treaty position,
The
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tithing of offers to compromise would most likely
Caine as far along In the ncgotiatlolls its possible-
de-pending on donustle pressures-be incremental, and
he conditioned by reciprocal US action to wrap up the
negotiations.
52. The mature and extent of the compromises
would depend on Torrijos' perception that the total
treaty package would still he acceptable enough to
enable hits to build strong domestic support for it and
that he would have sufficient control over the
domestic situation to gain ratification without endan-
gering his own political position, We believe that
Panama would consider compromise on the following
major issues, listed in categories of increasing
difficulty:
- Guarantees concerning reasonable toll rates and
unimpeded access.
- Amount of lands and water to be retained by the
Lis.
- Timetable for phasing in Panamanian participa-
tion in administration and defense of the canal.
- Rights and privileges of civilian canal employ-
ees.
- Compensation, although economic pressures
might well Influence the importance of this issue
in Panama's perception.
- The number of defense sites to be retained by
the US. A loose definition of "defense site"
might provide for a small number of sites
without necessitating a drastic reduction in the
actual size of US forces.
Residual U5 defense rights. Panama would be
most reluctant to grant residual defense rights to
the US for an indefinite period if the language
could in any way he interpreted as "disguised
perpetuity." Torrijos would probably accept a
careful]-,, worded compromise, however, that
avoided that connotation, e.g., in terms of a
joint guarantorship of canal defense or neutral-
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Ity, or one for it specific, relatively short period of
time beyond the year 2000.
- Treaty duration, The Intelligence Community Is
lit general agreement that Torrijos is so publicly
committed to a treaty not going beyond the year
2000 that it will be most difficult for him to
compromise--and he would be vulnerable to
domestic criticism if he accepted a compromise
on this issue. Some analysts are convinced that
treaty duration Is essentially a nonnegotiable
issue for Panama, Others believe, however, that
Panama would be willing to accept a treaty
duration that goes beyond-but not far be-
yond-2000 If this were the only obstacle to an
otherwise favorable treaty,
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