THE CANAL ZONE: PANAMA'S QUEST FOR CONTROL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001100100158-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 21, 2016
• Document Release Date: November 6, 2008
• Sequence Number: 158
• Publication Date: December 29, 1971
• Content Type: IM

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I I
Secret
DIRECTORATE 01,
,
INTELLIGENCE
intelligence Memorandum
The Canal Zone: Panama's Quest for Control
State Dept. review
completed
Secret
29 December 1971
NO. 2424/71
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
29 December 1971
The Canal Zone: Panama's Quest for Control
Summary
The current round of UJ-Panamanian canal nego-
tiations, which have been tinder way since 29 June
1971, will enter a particularly critical phase when
the talks resume in January after a Christmas recess.
The US has already agreed to negotiate a fixed ter-
mination date for a new treaty and has offered to
return the canal to Panama in 50 years, o7:- in 85
years if a third set of locks is built. A new sea-
level canal, if constructed, would extend the com-
bined period of US control of the present and new
canal to a total of 90 years. The US has also agreed
to increase the compensation paid to Panama, to re-
turn about 25 percent of the land and water areas
making up the present Canal Zone as soon as the
treaty is concluded, and to give Panama sign.ficant
jurisdiction over areas retained by the US. The US
would continue to control and operate the canal for
the duration of the new treaty and be responsible
for its defense. It would also be given the right
to increase the canal's capacity either by installing
a third set of locks or by digging a new sea-level
canal.
The US has already conceded much of what it
ran afford, and, indeed, much of what Panama wants.
The ball is therefore squarely in the Panamanian
court. The US has apprised General Torrijos of
its reluctance to allow the treaty issue to be en-
twined with the 1972 :American election campaign,
and has stressed that a draft agreement must be
ready for signature in -early 1972 if Panama wants
a new treaty before 1973.
Note: This memorandum was prepared by the Office of
Current Intelligence and coordinated within CIA.
sEURE-i
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Even under the best of conditions, this time-
table would be difficult to meet. Thus far only
the jurisdiction issue has been discussed in depth.
The Panamanians have not yet stated their position
on a defense agreement, and they still have not come
up with a firm figure on the amount of compensation
they require. Even if Torrijo: agrees with the broad
outline of the US position and sends his negotiators
back to Washington with enough flexibility to con-
clude an agreement, the process of ironing out de-
tails and drafting the appropriate treaty language
could easily take several months. It now appears
unlikely that completion of drafting and ratifica-
tion prior to the height of the campaign will be
possible.
Torrijos' time constraints, moreover, are not
immediate, and the Panamanian leader may not be
prepared to accept at face value or with good grace
a US schedule. Although some Panamanian officials
still think that an agreement can be reached early
in 1972, there are no real pressures on Torrijos
to conclude an agreement before late summer or early
fall. Legislative elections in August, designed to
lay the basis for Torrijos' election as president,
and the fourth anniversary of his regime in early
October are occasions when Torrijos will want to
present some dramatic evidence of success in the
treaty negotiations.
General Torrijos and Foreign Minister Tack have
both been devotees of a tough bargaining stance and
may well credit this approach with inducing the con-
cessions they have already won. Their question may
be whether Panama has in fact pushed the US to its
ultimate fa).l-back position, not whether a suitable
treaty is on the table. Further probing of the US
position could eat heavily into available negotia-
ting time. Moreover, if Torrijos at some point comes
to feel that he is not getting desired results, he
might decide to risk a major confrontation with the
US in the hope of extracting additional concessions.
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RICA
IJ e9? 1 ~iucns del turn
le, B.b
PANAMA
-??- International boundary
(+) National Capital
Railroad
Road
NI ulalulru
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The Panamanian Perspective
1. Since 1303 there has only been one significant
issue in Panamanian foreign policy--the revision of the
1903 treaty which gave the US, in perpetuity, rights it
would have if it were sovereign over a five-mile strip
of land on either side of the canal. Panama disputed
what prerogatives it had granted to the US, maintaining
that the US right to act as if sovereign within the
Canal Zone extended only to the construction, mainte-
nance, operation, sanitation, and defense of the canal
system. It denied that the US could set up a complete
governmental structure in the Zone with its own customs,
tariffs, and postal service, and objected to US commer-
cial enterprises in the Zone. It was even less happy
at the influence the US wielded in the republic itself.
2. Some of the accumulated Panamanian complaints
were settled by the 1936 treaty. Panama won a number
of concessions, such as exclusion of private US com-
mercial operations unconnected with the operation of
the canal. Most important from Panama's point of view,
however, were an increase in its annuity from $250,000
to $430,000 and the renunciation of the US right to in-
tervene in Panamanian affairs.
3. After World War II, Panama sought another
basic revision. Pointing to the disproportion between
its $430,000 annuity and the $37 million brought in by
Canal tolls, Panama demanded a greater share of the
revenue. Panamanian merchants continued to be unhappy
with the competition from the nonprofit commissaries
in the Zone, and Panamanian workingmen were angry about
the discriminatory wage difference in the Zone favoring
US citizens over Panamanians.
4. In 1955 a new treaty was signed. Panama
received another increase in its annuity, this time
to $1,930,000; the principle of one basic wage was
established for all Zone employees; and commissary
privileges for non-US citizen employees of Zone
agencies not residing in the Zone were withdrawn. On
the other hand, Panama was not given increased juris-
diction in the Zone and the perpetuity clause was re-
tained.
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5. The 1955 treaty was even less successful
than the 1936 treaty in quieting Panamanian dissatis-
faction, primarily because of the rising tide of na-
tionalism. Demands that the Panamanian flag be flown
in the Zone as evidence of Panamanian sovereignty led
to riots in 1959 and again in 1964. Panamanians of
all political persuasions agitated for drastic revi-
sion of the economic and political arrangements in
the Zone. They renewed their call for a still
higher annuity and clamored for better jobs and:
higher pay for Panamanians employed by the Canal
Company. They pressed for control of commercial
enterprises in the Zone. They sought an end to the
perpetuity clause and demanded control of courts,
schools, and hospitals in the Zone.
6. Panamanian hopes rose in December 1964 when
President Johnson announced that the US was willing
to negotiate an entirely new treaty to replace the
1903 document. For two and a half years the nego-
tiators labored. Finally, in June 1967, three sep-
arate treaties dealing with the present lock canal,
a possible sea-level canal, and defense arrangements
were signed and ready for ratification.
7. The 1967 drafts were no minor patch job.
The 1903, 1936, and 1955 agreements were abrogated.
The perpetuity c'.ause was voided. Panama was to
receive the canal by the year 2000 and the proposed
sea-level canal. by 2067. Some of the land and water
areas no longer used for defense or canal operation
were to be returned to Panama. The fixed annuity
was done away with, and Panama awarded a percentage
of the tolls--which at present toll levels would
have yielded approximately $24 million in fiscal
1971.
8. The key to the problem of jurisdiction and
sovereignty was the creation of a Joint Administra-
tion of the Canal to replace the Canal Company and
Canal Zone Government. Instead of the US having
all the right, power, and authority of a sovereign,
Panama, for the first time, was to be permitted a
voice. The Joint Administration would establish
employment policies, and would operate the postal
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system using Panamanian rates of postage. The Admin-
istration would operate the hospitals, jails, and
schools and establish its own police force. After
a five-year transition period, most commercial es-
tablishments would be sold to firms authorized to
do business in Panama. The US court system that had
had exclusive jurisdiction over all crimes committed
in the Zone would be abolished. A new court, staffed
by an equal number of US and Panamanian judges, would
handle crimes related to the security of the canal
system, and jurisdiction over other crimes and over
civil actions would be vested in the Panamanian
courts.
9. Even these major concessions failed to meet
Panamanian expectations and the treaty package was
never ratified. In 1970 the junta Government of
General Torrijos repudiated the drafts. A major com-
plaint was that the Joint Administration headed by
a board of five Americans and four Panamanians and
operating by majority vote did not go far enough
toward ending US jurisdiction.
10. Panamanian aspirations have so escalated
that no treaty that adequately covers US interests
is likely to be completely satisfactory to Panama.
Panama's concern after World War I was to end its
"protectorate" status and secure its effective in-
dependence as a ration; the focus of Panama's ef-
forts after World War II was to increase the eco-
nomic benefits it received from the canal; today
the thrust of Panamanian diplomacy is to gain
jurisdiction over the Zone and ultimately control
over the canal itself.
11, Panamanian attitudes toward the US, it
should be noted, have often paralleled those of
other Latin American countries. Panamanian concern
with the US right of intervention. peaked, for
example, at about the time the rest of Latin
America was urging a policy of nonintervention
in hemispheric affairs. Panamanian attitudes
toward the Canal Zone have been consonant with
the general. Latin American attitude toward foreign
corporations. Panama has objected to US-run com-
mercial enterprises and social services in the
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Zone, just as other Latin American countries have
objected to company towns. Finally, Panama views
the canal much as other nations view their own
natural resources. Today as economic nationalism
sweeps through Latin America, it is not surprising
that Panama seeks greater control over its only
significant asset--the canal and the Canal Zone.
There is a major difference, of course. When
other countries become concerned about foreign
ownership and exploitation of their natural re-
sources--primarily extractive industries and
export agriculture--they initially deal with the
corporations involved. Panama, however, must
deal with the US Government and its efforts to
assert control over natural resources develop
more sharply as a state-to-state problem.
The 1971 Negotiations
12. From th-, Panamanian point of view the
current round of r::~gotiations is a continuation and
extension of the 1964-1967 effort. The same six
basic issues remain at center stage: jurisdiction,
treaty duration, canal expansion, defense, compensa-
tion, land areas and usage. The Panamanians regard
the concessions won in 1967 as vested rights and
have bitterly resisted any attempt to erode them.
Indeed, their entire negotiating efforts have been
to expand upon them. The Panamanians understand
the vital US national interest in continued con-
trol of the operation of the canal and full respon-
s::.bility for its defense. Although seeking to
limit the duration of these rights and to define
them as narrowly as possible, there has been no
direct challenge to them. Instead, Panama has con-
centrated on whittling down other US prerogatives,
conceding in return only the right to expand canal
capacity.
jurisdiction
13. None of the issues is uncomplicated or
unimportant, but the one which thus far has pre-
occupied the Panamanians is jurisdiction. In a
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recent speech, for example, General Tcrrijos noted
that past Panamanian governments were very determined
to obtain e better tre-~.ty. But as he graphically put
it, "I do i.ot know whether they sent. for a dollar's
worth of treaty or a nickel's worth of treaty, be-
cause the treaty always came back strong in economic
benefits and weak in jurisdiction." Torrijos' nego-
tiators have almost reversed the priorities.
14. The Panamanians want not only explicit
recognition of their sovereignty over the Zone but
also the right to exercise territorial jurisdiction.
They demand the dismantling of the "government within
a government," as they derisively refer to the Canal
Zone Government, and the assumption by Panarta of all
normal governmental functions. Although recognizing
that a transitional period might be necessary, they
would reduce the ten or fifteen years proposed by
the US to five years or less.
15. As was the case under the 1967 drafts,
Panama wants its courts to have jurisdiction over
civil cases as well as ordinary crimes, misdemeanors
and traffic violations committed within the Zone.
During the transition period it agrees that US
courts might have jurisdiction over all US per-
sonnel who commit crimes in the Zone. After this
period and for the duration of the treaty US courts
would have jurisdiction only over US personnel who
commit crimes against canal security or shipping.
Panama has strenuously insisted that its courts
assume jurisdiction over Panamanians at the outset
of a new treaty. They have argued that it would
be politically unacceptable for Panamanian citizens
to continue to be tried in US courts and under US
law.
16. The Panamanians have argued for a five-
year transition period during which Panamanian and
Canal Zone police would have concurrent respon-
sibilities within the Zone. At the end of the
period the Canal Zone police would be disbanded,
leaving Panamanian police with full authority.
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The Panamanians would agree that the US retain se-
curity guards to protect canal installations, but
they stipulate that these guards should have lim-
ited powers.
17. Panama wants also to take over responsi-
bility for the operation of certain public services
in the Zone, such as the fire department, hospitals,
postal service, and schools. After a transition
period-Panama wants Spanish to be the official lan-
guage in the Zone. Panama wants the right to tax
private businesses, leery an individual income tax,
and control customs and immigration into the Zone.
Finally, Panama wants its flag alone to fly in the
Canal Area, but is willing to negotiate for a joint
commi:tee to consider if and where the US flag might
fly.
duration
18. Having refused to consider an earlier US
suggestion that a new treaty contain no fixed ter-
mination date, the Panamanians have settled in for
some serious bargaining. As of mid-December the
Panamanians did not seem to have a firm date in mind,
but it appeared certain that they were attempting
to improve substantially on the 1967 drafts. Under
the 1967 arrangement the canal would have been given
to Panama within 30 years and a proposed sea-level
canal turned over within 60 years after its opening
or at the latest within 100 years after the treaty
was signed.
19. The Panamanians, in what is apparently an
opening position, have called for return of the pres-
ent canal within 20 years if the US does not build a
sea-level canal or within 25 years if it does. The
US could control the sea-level canal for a maximum
of 50 years and the entire treaty, therefore, would
lapse within 75 years. There is probably some give
in these demands, but Panama's negotiators have thus
tar been unwilling to accept the US offer of a treaty
lasting 85-90 years.
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expansions
20, Panama appears ready to concede to the US
the right to expand the capacity of the canal, al-
though the issue has not yet been discussed in de-
tail. Expansion can be r;ither by constructing a
third set of locks, providing another 'lane for traf-
fic through the canal, or by constructing a conven-
tionally excavated sea-level canal approximately
ten miles to the west of the present canal. A sea-
level canal would be twice as expensive as a third
set of locks; but it would also be far less vulner-
able to sabotage.
21. Panama has mixed feelings about the alter-
natives. A sea-level canal would provide larger
economic benefits during construction but might
cause greater economic dislocations afterward. A
sea-level canal would require fewer employees to
operate it, and its location might divert popula-
tion and economic growth away from Panama City and
Colon. There are, moreover, ecological considera-
tions that have not been fully explored. On the
other hand, if a third set of locks were built the
US would retain portions of the Canal Zone for a
longer period of time than would be the case if a
sea-level canal were constructed.
22. At issue, however, is not which option is
better but rather the length of time the US would
have to decide on its expansion plans. Panama does
not want to hold open for an extended period a
right-of-way for a sea-level canal nor unnecessarily
limit land development plans in areas that might be
required for a third set of locks. Panama has pro-
posed to give the US a 15-year option and, for ad-
ditional consideration, provide two five-year exten-
sions. This does not differ radically from the US
request for a flat 25-year option period and appears
merely to be an attempt by Panama to obtain addi-
tional benefits at little cost. It could also serve
as a bargaining counter to secure from the US addi-
tional concessions in other areas.
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de Tense
23. The Panama Canal. is the United States'
most important defense asset in Latin America but
it is also highly vulnerable to a wide variety of
threats, ranging from sabotage to nuclear attack.
The Panamanians have no objection to US defense of
the canal and no illusions about their capacity to
do the job. They maintain, however, that any real
danger to the canal would originate and have to be
dealt with far from Panamanian shores. US forces
in the Canal Zone are, therefore, merely protecting
the canal against a threat from Panama. This, they
argue, is absurd. Panama could not want to see its
primary natural resource destroyed; Panamanians have
never attempted to sabotage the canal, and such riots
as have occurred have been directed at the US and not
at the canal. Moreover, the negotiators state, Pan-
ama has no interest in shutting down the canal and
putting many thousands of its citizens out of work.
24. These arguments are addressed primarily
to the issue of land required for canal defense.
Panama claims that the US is interested in maintain-
ing a buffer zone between Panama and the canal and
that US retention of significant portions of Zone
territory for military installations, maneuver, and
training areas interferes with Panamanian land-use
plans. Panama, moreover, seeks early definition of
areas that would be required for defense of a sea-
level canal.
25. Panama nevertheless recognizes that the
defense issue is one on which it must show some
flexibility. It wants less- to interfere with US
activities than to extract substantial payment for
them. Th.3 Panamanians have agreed to work out a
status-of-forces agreement that would leave primary
responsibility for canal defense to US forces but
would provide some limited defense role for Panama.
The Panamanians have made a clear distinction, how-
ever, between canal defense and regional security.
Thus far in the negotiations they have not seriously
objected to the continued presence of the US South-
ern Command or to US retention of the Jungle Oper-
ations Center, the School for the Americas, or the
Tropical Test Center located in the Zone. Nor have
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they called for an end to hemispheric operations.
They have, however, indicated that the continuation
of these activities must be specifically negotiated,
and they probably will insist that the US make ad-
ditional payments for facilities and activities not
directly related to canal defense.
26. It is of great importance to the US that
the canal remain open under all circumstances and
particularly that there be no interference w'th the
free transit of US warships, transports, and, mili-
tary cargo vessels in the event of war. A possibly
troublesome problem, therefore, may be negotiation
of the status of the canal after the expiration of
a new treaty. The Panamanians oppose any provision
that would allow US forces to remain after the ter-
mination of a new treaty. The Panamanians have thus
far countered proposals that the US retain the right
to use the canal for its warships and to deny passage
to ships of belligerents at war with it by suggesting
a multilateral guarantee of canal neutrality, pos-
sibly through the UN.
compensation
27. Although the Panamanians are placing heavy
emphasis on jurisdictional and sovereignty issues,
this is not because they lack interest in increased
economic benefits. Rather it is that they are more
confident that economic concessions will come easily.
Still, the Panamanians have developed rather inflated
notions of what is acceptable, and some very tough
bargaining may be in prospect.
28. The Panamanians maintain that the canal
is not being operated as a business but as a non-
profit undertaking. They note, for example, that
tolls have not been increased since the canal opened
in 1914. As a result, they estimate that US ship-
ping interests, and indirectly the US consumer, have
received a cumulative subsidy of one billion dollars.
The Panamanians leave it to the US to decide whether
tolls should be raised sufficiently so that the
canal can be operated on a normal commercial basis
or whether operations should continue to be subsi-
dized. They insist that in F+.ither event the present
$1.93 million annuity is ridiculous and that henceforth
Panama must receive a fair share of the revenues.,
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29. Whereas the US believes L-ha
ought to start at approximately the le
in the 1967 drafts (about $25 million)
compensation
vels proposed
Panama is
i:alking about compensation on the order
million per year. The magnitude of thi
of $50-100
ated when
money in Panamanian terms can be appreci
it is noted that the total expenditures
tral government were about $170 million
land area and usage
30. Panama and the US agree that some
present Canal Zone should be returned to Pan
There is agreement also on establishment of
ama.
ge.
Land and Water Ccinmission to pass on land usa
The commission would, allow agricultural, comm
and urban development of land and water areas
Zone as long as this usage does not interfere
rcial,
i th
the operation, maintenance, and defi:nse of the
Area by the US. US-run commercial activities in
Zone would be discontinued., and new business ent
prises would have to be approved by the Joint Co
the
mission before becoming elz.gible for a US license
primarily a narrow strip along the canal for opera-
tion and maintenance. The Panamanians note that
only 15 square miles of the Zone are utilized for
canal operations and only 40 square miles for mili-
tary installations. The rest of the 372 square
miles of land area and 275 square miles of water
area ought to he available for any Panamanian uses
that do not interfere with operation and defense
of the canal.
the land areas which shot_1l be retained by the US--
31. Panama takes a rather restricted view of
32. Panama also wants to integrate the economy
of the Canal Area with that of the rest of the coun-
try. It takes a rather broad view of what uses are
compatible with canal operation and stresses that
Panamanian development needs should be given priority.
The Panamanians note that 76 percent of the Canal
Zone is unimproved land used only as defense areas.
They particularly point to the urgent need for land
for urban development. The city of Colon, an enclave
near the Atlantic side, cannot presently expand at
all. Panama City, on the Pacific side, instead of
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PANAMA CANAL ZONE
Area of possible Canal operations
concession to Panama
Canal defense training
Military im-tallation and maneuver area
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growing in a normal radial basis is forced, at con-
siderable cost, to expand roughly along a north-
south axis. On the west side of the canal, they
claim the town of Arrijan also needs land.
33. The US has already agreed to cede a number
of areas to Panama but Panama's immediate demands,
particularly in the Panama City area, have still not
been satisfied. Panama, moreover, seeks the return
of the entire east bank within 15 years, regardless
of whether or not a sea-level canal is constructed.
PANAMANIAN NEGOTIATING STRATEGY: OPPORTUNITIES AND
CONSTRAINTS
34. Although there are substantial areas of
agreement on treaty provisions, a number of impor-
tant issues have not been resolved. As a matter of
principle, the Panamanians are likely to insist on
jurisdictional rights, such as immediate jurisdic-
tion over criminal acts of Panamanian citizens. As
a matter of political expediency, the Torrijos gov-
ernment will also seek greater concessions on dura-
tion, compensation, and land returns than were won
by the oligarchy-dominated government in 1967.
Still, the concessions offered to Panama thus far
meet most of the Panamanian objectives and could be
presented to the public as a clear government vic-
tory. Without prejudging the possibility that agree-
ment can be reached in early 1972 it should be noted,
however, that neither General Torrijos nor Foreign
r"minister Tack has given any indication of regarding
she negotiations as having moved from a hard bargain-
ing phase to a compromise or conciliation phase.
35. There is, of course, the possibility that
the Panamanian negotiators will return to Washing-
ton with more specific instructions and more flex-
ible guidelines that could bring the talks to a
successful and rapid conclusion. But the evidence
suggests that Turrijos and Tack still are not con-
vinced that the US has reached the limit of what
it is prepared to give and are likely to continue
to press hard for additional concessions, such as
a rapid phasedown of US jurisdiction in the Zone.
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36. Certainly Panama wants a new treaty as
soon as possible and Torrijos ha.s advised the US
on occasion that he is under heavy pressure to con-
clude an agreement. But the fa- t remains that
whatever pressure exists is self-generated. Tor-
rijos' political survival does not depend on gain-
ing a treaty within the next few months, and there
are no organized groups in Panama clamoring for an
immediate agreement. Indeed, in the short run,
Torrijos may feel that it is the US which is under
pressure to conclude a treaty and--given his concern
over his place in Panamanian history--he may be more
interested in winning dramatic concessions than in
achieving dramatic speed.
37. Torrijos may feel that it would be to his
advantage to have a treaty by late summer or early
fall. He announced this past October, on the third
anniversary of his seizure of power, that if the US
failed to negotiate in good faith, he would person-
ally lead Panamanians into the Zone. He is not go-
ing to wane to repeat that refrain and have nothing
else to show on the fourth anniversary of the "revo-
lution" next October. He probably prefers to have
some good news even sooner, He has promised legis-
lative elections in August and during the closing
days of the campaign would doubtless like to make
some positive announcement. to generate popular en-
thusiasm. The legislature, under current plans,
would the : elect Torrijos president of the republic
and he would undoubtedly like to commemorate his
election by announcing a new treaty relationship.
Even then Torrijos would not need a ratified treaty.
A signed agreement. or possibly even announcement
of a dramatic breakthrough or concession would
serve as well.
38, Given. this kind of time frame and Tor-
rijos' doubt that all possible concessions have al-
ready been won, the general may be less than im-
pressed with a US argument that unless a treaty is
concluded early in 1972 none will be possible until
1973. Torrijos may see the :1972 US elections more
as an opportunity than as a constraint. He may, in--
deed, not be averse to launching a dramatic confronta-
tion with the US as a means of injecting the canal
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issue into the campaign in hopes of generating fur-
ther concessions. He probably does not believe that
the US administration in its seco'id term would be
less ready to conclude a treaty and he probably does
not think that a Democratic administration would be
less generous. Given Torrijos' imperfect understand-
ing of the US political system and--in the Panamanian
context--his contempt of the legislature, he is prob-
ably not overly concerned about US ratification dif-
ficulties either, seeing them as a US rather than a
Panamanian problem.
39. All this is not to suggest that Torrijos
would be averse to an agreement in early 1972 but
rather that a wholesale coi..pse of the Panamanian
bargaining position is somewhat unlikely and that
Panamanian pressure on the US for more concessions
will probably continue over the next month or two.
Torrijos apparently considers it useful to keep US-
Panamanian telations under some strain and he has
consistently done so. He also reportedly encourages
speculation that the Canal Zone might be invaded.
Such ri.inors were spread before the 11 October cele-
bration and during the celebration of Anti-Imperial-
ism Week from 6-14 December. The government has
periodically drummed up a propaganda campaign against
the Canal Zone Government or against the US. Re-
cently, for example, the foreign minister charged
that intimations that Panama was not doing enough
to stop the flow of narcotics through Panama to the
US were made in an effort to upset the negotiations.
Seizing the offensive rather. than doing anything to
improve the situation, Panama protested to the US
and took the unusual step of publicizing the note
in the Panamanian press. It also temporarily re-
quired air passengers arriving in Panama and des-
tined for the Canal Zone to go through Panamanian
customs--in violation of a 1949 agreement.
40. If Torrijos has sought to keep relations
with the US roiled, resorting to a policy of bluster
and threat, he, nevertheless, has been careful to
keep matters below the boiling point. Although he
concluded a working arrangement with the Communist
Party last year, he has allowed his leftist rhetoric
to outpace his actions.
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41. Under certain conditions, however, rela-
tions with the US could rapidly deteriorate. Tor-
rijos, for example, is likely to react with violence
if the US caused the negotiations to be broken off.
On the other hand, if a deadloc': occurs in the nego-
tiations, Torrijos would considfr bringing his nego-
tiators home and mounting a prol-ganda campaign that
could include demonstrations against the Zone.
42. The Panamanians borrowed over $27 million
in new money in 1971 and are making final arrange-
ments to borrow an add-,:ional $37 million for 1972.
Chances of obtaining these funds look good and, in-
deed most of this money is expected to be received
in early January. After then, Panama may feel less
constrained about being on good behavior to impress
the international financial community.
43. Although continued pressure on the US, a
hard bargaining stance, and continued diplomatic
efforts to win international support can be ex-
pected, Torrijos probably recognizes-that-.he can-
not orchestrate public opinion on the canal issue
as careful1y as he would like. This was probably
demonstrated to him earlier this month during the
Communist-sponsored and government-supported com-
memoration of the 1947 anti-US student riots. Anti-
Imperialism Week was designed to demonstrate to the
US that students were pressing for a new treaty.
Instead, the lack of student interest forced cancel-
lation of a number of scheduled events. Even an
appearance by Torrijos and the injection of the
treaty issue failed to generate much enthusiasm.
If anything, the students showed that they resented
the rather blatant efforts by Torrijos to manipulate
them for his own ends.
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44. Nevertheless, the government could stimu-
late the students--and the general public as well--
into demonstrations against the US. Torrijos does
not appear to regard violence as counter-productive
and seems to believe that if other steps fail a
confrontation with the US could yield additional
concessions. Anti-US demonstrations might lead to
a breakdown in public order which could work to the
advantage of opponents of his regime. Torrijos is
playing for high stakes, however, and may Le willing
to run the risk.