PANAMA CANAL NEGOTIATIONS: TORRIJOS VS. THE US

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 02892406
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 19
• Document Creation Date: March 8, 2023
• Document Release Date: July 25, 2019
• Case Number: F-2019-00363

DDI MEMORANDUM
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PANAMA CANAL NEGOTIATIONS: TORRIJOS VS. THE US
Summary
The Panamanian government is putting final touches on its
negotiating position and will likely be ready to begin canal treaty
talks in the near future. The Panamanians will stress questions
of sovereignty and territorial jurisdiction while remaining flexible
on the issue of control and defense of the canal. The government
will concentrate also on winning greatly increased economic benefits.
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Torrijos is staking virtually all of his prestige on canal
talks and he can almost taste the triumph of a successful conclusion
of negotiations. He seems not to expect the talks to be drawn
out and his sense of urgency is likely to increase by summer as
his budget problems increase.
In order to put pressure on
the US Torrijos may develop an interest in new contacts with the
Communist world or raise the spectre of anti-US demonstrations
and in the end paint himself into a corner from which he can
extracate himself only with great difficulty or loss of face.
� The Setting
1. After a twenty-seven month apprenticeship as the de-facto
ruler of the country, General Torrijos has ventured to tackle the
most exaulted, the most sacred, and the most heroic task of a
Panamanian leader--renegotiation of the hated 1903 canal treaty.
This step is not taken lightly or without some degree of trepidation,
for an inept performance could carry a high political cost.
Nevertheless, Torrijos appears convinced that for political,
economic and even historical reasons the time is ripe for a
fundamental restructuring of the US-Panamanian treaty relationship.
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2. Having weathered political challenges from within the
National Guard and from the political opposition, having cowed
the oligarchy and coopted the Communists and the students, Torrijos
political position is currently secure. His constant barnstorming
around the country--reportedly four days of every week--in an
attempt to build a new constituency and demonstrate his concern
for the plight of the poor has won him a measure of popular support
that has not been rivaled since the administration of Colonel
Jose Ramon (1952-55). With political stability seemingly assured,
at least in the short run, Torrijos is now able to turn the major
focus of his attention from mere political survival to social
engineering.
3. Since taking over in October 1968, Torrijost self-styled
revolutionary government has expressed a commitment to reverse the
thrust of over sixty years of oligarchical rule and to promote
far-reaching social and economic reform. Torrijos has found it
expedient to move cautiously, however. He has discovered, as have
many other Latin American military-politicians, that giving orders
to a government bureaucracy does not produce the same-immediate
and tangible results as giving orders to a military organization.
He has found that even dictators operate under political and
economic constraints and that the problems of economic development
and income redistribution cannot be solved by button-puching or
sloganeering. He has apparently become persuaded that building a
"New Panama" will be a task of many years.
4. Having presented himself as a new phenomenon in Panamanian
politics, having established his revolutionary credentials, and
having promoted such reforms as could be done quickly and
propagandized widely, Torrijos may have relatively little more
to offer in the immediate future. In such a situation there is
no better way to reatin the interest and enthusiasm of a fickle
populace than by ringing up the curtain on the time-tested and
ever-popular Panamanian political drama--canal negotiations. The
mere commencement of formal US-Panamanian talks will bring Torrijos
a new measure of political legitimacy and international prestige.
The negotiating period, which Torrijos does not expect to be
excessively long, will provide the opportunity for him to sustain
his political momentum and to mobilize popular support to an as
yet unprecedented level. Finally, the successful conclusion of
negotiations would represent a triumph of monumental proportions
assuring Torrijos a lasting place in Panamanian history.
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5. From an economic standpoint a new treaty is equally
compelling. Since the 1968 coup the level of domestic private
investment has been insufficient to sustain the Panamanian growth
rate at the 7 1/2 to 8 percent level which has come to be seen as
normal. Concerned that any drop in the growth rate would have a
serious impact on unemployment and would raise the level of
political discontentment, the Torrijos government has resorted to
a compensatory fiscal policy. The regime has floated short-term,
high-interest loans on foreign capital markets in order to finance
its pump-priming public works programs. Panamanian economic
advisors had hoped that this would only be a temporary expedient
and that the post-coup confidence gap between government and
business could be quickly bridged. However, a combination of
oligarchy dejection over loss of political power, business community
suspicion about the policy direction of the Torrijos government,
and a perceived lack of high-profit, low-risk investment opportuni-
ties have operated to restrain the level of domestic private invest-
ment and force the government to continue to pour funds into the
economy. Budget deficits have continued to grow, government debt
has continued to mount, and regular and periodic injections of
foreign loans have become necessary in order to stave off a serious
fiscal crisis.
6. There are no particularly encouraging signs on the horizon.
Domestic private investment is not likely to stage a substantial
comeback in the near term and the government will have to continue
to scrounge for funds, keeping at best a few steps ahead of insol-
vency. Unwilling to beg the US for funds at a time when it is
trying to stand eyeball to eyeball with American negotiators in
defense of Panamanian sovereign dignity, and equally unwilling to
submit to the scrutiny and direction of international financial
institutions, the government will be forced to seek additional
loans from private foreign lenders and pay the relatively unfavor-
able rates.
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7. Almost as a reflex action when financial difficulties are
encountered, Panamanian governments have long persuaded themselves
that there would be no economic problems if the country were only
receiving its fair share of benefits from the canal. The Torrijos
government, strapped for funds as it is, is no exception. Despite
the sizable indirect benefits which it derives from the presence of
the canal and the Canal Zone, the Panamanian government is unimpressed
with the $1.93 million annuity it receives from the US and convinced
that a new treaty would both revive the economy and provide funds
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for government-sponsored government-sponsored social reform programs. Torrijos is well
aware that if the 1967 draft treaties had been accepted, his
government would now be receiving nearly $20 million rather than
nearly $2 million per year in direct revenue from the Canal and
these additional funds would have gone a long way to alleviating
the current budget squeeze. He further expects that a new treaty
would open vast opportunities within the present Canal Zone for
Panamanian businessmen and that this along would restore domestic
private investment to a satisfactory level. Thus, Torrijos
reasonably believes that his financial problems would be solved.
The government would be relieved of the necessity of propping up
the economy and could reduce expenditures while at the same time
falling heir to substantial new revenues.
8. Not only do the Panamanians perceive compelling political
and economic reasons for beginning canal negotiations at this time,
they apparently believe too that from a historical perspective the
time is ripe to undo the impairment of Panamanian soverignty which
resulted from the 1903 treaty. The Panamanians have long contended
that the presence of a US Zone in the midst of the country, with its
own flag, its own police, and its own government is anacronistic
and certainly since the 1950's Panamanian nationalists have demanded
in ever more strident tones fundamental changes in the treaty
relationship. The 1959 and 1964 riots were indicative of the
crystalization of popular Panamanian frustration with the status
quo the 1967 draft treaties, though unacceptable as a basis of a
solution, produced an underlying mood of expectancy within Panama.
No one knows when changes will occur, but that changes will occur
there is no doubt. No one knows how much Panama Will gain, but
Panamanian demands and aspirations have so escalated over the
years that whatever is achieved may seem anti-climatic.
9. The current Panamanian mood did not develop in complete
isolation. Developments in the rest of the hemisphere have contri-
buted significantly to the feeling that history is on the Panamanian
side. The nationalistic forces on the march in much of Latin
America have provided a feedback into the Panamanian political
system which has intensified the determination to win a new and
more favorable deal from the US. Thus, when the Peruvians and
Bolivians declare in effect that political independence is a sham
without economic independence, or when the Chileans and Venezuelans
speak of the need to more fully control their economic resources,
Panama is reminded of its own situation and the lack of control
over its primary resource.
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10. Looking beyond the immediate Latin American example,
Panama is aware that a sympathetic world propaganda forum is
available. Torrijos is apparently convinced that in a dispute
with the US on the canal issue, Panama could gain the commiseration
and perhaps the diplomatic support of much of the underdeveloped
world. In addition, Torrijos recognizes that the Communist states
would seize upon a ready-made opportunity to demonstrate solidarity
with a small Latin American state against the US.
The Parameters of a Settlement
11. The touchstone of any Panamanian negotiating position
begins with the three draft treaties--dealing with the present lock
canal, possible sea-level canal, and defense arrangements--which
had been the subject of US-Panamanian negotiations from April 1964
until June 1967. The 1967 drafts became a political football in
the 1968 Panamanian elections and were never ratified. Moreover,
the Torrijos government formally rejected the drafts in September
1970. Nevertheless, they remain significant in two respects: they
provide the Torrijos government with some indication of the kinds
of concessions which the US is prepared to grant and they represent
a yardstick against which Torrijos' own negotiating performance
can be measured. Torrijos, will no doubt feel pressure to surpass
the achievements of the oligarchy-dominated government's of
President's Chiari and Robles.
12. The 1967 draft treaties granted to Panama a number of
very significant concessions. First, Panama was to receive more
money. Instead of a fixed annuity of $1.93 million, it was to be
allotted a share of the canal revenues. Second, Panama was to gain
territory. Some of the land which is now part of the Canal Zone
was to revert back to Panama and from the remaining territory would
be created a Canal Area and a number of defense areas. Third,
Panama was to gain a voice in the administration of the Canal Area
and the operation of the Canal. Instead of the present Canal Zone
Government, the drafts proposed a bi-national administration
governed by a board of five Americans and four Panamanians. Instead
of US courts with exclusive jurisdiction over all crimes committed
within the Zone, a Canal Area court system was postulated with an
equal number of US and Panamanian judges. Fourth, the perpetuity
clause of the 1903 treaty was to be abolished. Panama was to receive
the present canal and related facilities around the year 2000; it
would receive the new canal by 2067.
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13. The 1967 drafts have been attacked in Panama for failing
to go far enough. At first glance, therefore, negotiating prospects
would seem quite gloomy. The Panamanians realize, however, that the
US is unwilling to relinzuish control of the operation and defense
of the Canal and there are no indications that they are prepared to
seriously challenge the US on these points. Instead, the Panamanians
are most concerned with the issues of territorial jurisdiction and
economic benefits. In the main, therefore, the key interests on
both sides are not really contradictory and there appears to be
room for compromise. Probably the most touchy question will be
that of perpetuity, yet even here there have been some indications
that Panama will agree to fudge the issue, accepting periodic review
of a new treaty rather than insisting on a definite termination date.
14. The Torrijos government will probably maintain as a
fundamental tenet of its negotiating position that the canal be
regarded simply as a joint Panamanian-US business venture--one that
is no less vital to Panama than it is to the US and hence one in
which Panama should be treated as a full and equal partner. The
government would concede that US technology and know-how are
currently necessary ingredients for the successful operation of
the canal, but it would insist that Panamanians be trained and
promoted rapidly to positions ta every level of responsibility.
The government would agree that the Canal should be run without
political interference and in the most efficient manner possible,
but it would also stipulate that Panama should share fully in the
benefits. Thus, if the US concern for profitability is moderated
by a desire to maintain moderate shipping rates, at least Panama
should be granted a minimum yearly income. Given this preoccupation
with equal partnership, any arrangement which provides for US control
of canal operations would have to be skillfully packaged. The
inequality of the 1967 draft which provided for a governing board
composed of five Americans and four Panamanians would probably meet
with considerable resistance and a more cosmetic formula might be
necessary.
15. The government will argue, however, that neither the
present ten-mile wide Canal Zone nor the present Canal Zone
Government is necessary in order to ensure the continued successful
operation of the Canal. Concerned about the expansion of Colon
and Panama City, the Torrijos government has been particularly
exercised by the fact that many areas within the Zone are either
underutilized or not used at all. Thus, the government will demand
that all Zone territory which is not directly related to canal
operations, defense and maintenance be immediately returned to
Panama.
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16. The Torrijos government has been upset by the availability
of the Zone as a sanctuary for political opponents of the regime,
and vexed that Panamanians in the Zone must obey US laws and
regulations. Thus, the government will undoubtedly insist that all
governmental functions now exercised by the Canal Zone Government
revert to Panama and that Panama be allowed to exercise full
political, fiscal, judicial and administrative jurisdiction in
what is now the Canal Zone. At minimum, the Panamanians will seek
to control all governmental functions not directly related to the
operation of the canal.
17. The Panamanians have also long decried the presence and
life style of a large, affluent, and separate US community adjacent
to Panama's slums and resent particularly the fact that this
community does not depend upon or utilize Panamanian goods and
services. Panama would argue that US citizens living within the
Zone should have no more privileges or benefits than they would
have if they resided elsewhere in Panama, and US businesses should
not enjoy advantages within the Zone which it would not ordinarily
receive if located elsewhere in the republic. The government is
apparently determined that commercial activities no longer remain
the province of the US government or the special preserve of US
business. Dedicated to the proposition that money can be made from
servicing the Zonians and that Panamanians should be making this
money, the government will insist that the Zone be more closely
integrated into the mainstream of the Panamanian economy and may
demand that all commercial activities be turned over to Panamanian
control.
18. In the light of historic Panamanian sensitivities and the
highly nationalistic posture of the present government, Panama will
be no less jealous of its sovereignty where defense of the canal is
concerned. The Torrijos government will probably take the position
that any US military presence be directly related to the tactical
defense of the canal and that other more strategic concerns such as
hemispheric defense or anti-insurgency training activities be
considered separately. The Panamanians have paid close attention
to US-Spanish base rights negotiations and will probably seek some
of the same advantages. Thus, demands for cash payments for bases,
increased military assistance, and US-Panamanian consultation on
the use of US military forces may be forthcoming.
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19. The government is concerned that the US would sign a
treaty with Panama until some semblence of legality for the present
government is achieved. Torrijos will likely take some steps,
wherefore, to regularize the provisional junta government and again
promise to hold elections. Torrijos would probably formalize
acceptance of a draft treaty by means of a plebiscite.
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Torrijos--The Man and His Tactics
20. If from a reading of domestic sentiment and an evaluation
of the international climate Torrijos is convinced that the asser-
tion of Panamanian sovereignty is an idea whose time has come, it
is curious indeed that the government has had such difficulty in
formulating a negotiating position and has shown so little initiative
in beginning talks. Torrijos had expressed interest in resuming
treaty negotiations in December 1969 and
in June 1970 that the US was ready to begin explara-
tory talks. No government position was ready in June, however, and
no position had been hammered out by the end of the year. Indeed,
despite lengthy strategy sessions at the highest levels of the
Panamanian government and despite indications by President Lakas
and Panamanian Ambassador to the US De La Ossa that the government
would be ready to begin talks by January 1971, to date the Panaman-
ians still have not put finishing touches on even an initial presen-
tation.
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it is clear that Torrijos would not delegate authority
on the canal issue and thus, so long as he was preoccupied with (W(1)
other matters little progress on a negotiating position could be (b)(3)
expected. Torrijos' foreign policy and treaty advisors have been
given little discretion and have exhibited even less initiative.
Instead of presenting Torrijos with a carefully scaled series of
options, they have concentrated on coaching Torrijos on the back-
ground and fundamentals of the problem. Instead of forcefully
arguing a policy position, they have been content to wait until
Torrijos made up his own mind and then simply to climb aboard the
band-wagon.
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22. The problem, of course, is not merely that where Canal
talks are concerned the wheels of government do not spin unless
Torrijos is directing them, and it is not just the fact that
Torrijos has been preoccupied with other tasks. Instead the key
factor seems to be that Torrijos is unsure about what to ask for
and even more uncertain about how much he can get from the US.
His primary concern seems to be to gain economic concessions,
but if he is to reserve for himself a heroic niche in Panamanian
history, he must avoid any suggestion that he is willing to sell
the national honor for money. He realizes, therefore, that he
must put together a package which can be sold to the Panamanian
people on the basis of its emotional appeal as well as on its
economic palatability.
23. Torrijos was only a lieutenant colonel when he found
himself in control of the overnment. Lackin the trainin
experience
he has had to feel his way and learn the
business of government from the ground up. To his credit he has
demonstrated a surprising degree of political savvy and has grown
in stature during his two years as defacto head of government.
24. Torrijos, of course wants to avoid so provoking the US
that negotiations will end in failure
Believing that the best defense is
a good offense, and that a tough line works with the US, Torrijos
is not likely to err on the side of caution in his effort to win
maximum possible concessions. Nevertheless, he would probably
prefer to know in advance how far he can push the US and thus be
in a position to put on a good show for public consumption, while
at the same time remain reasonably sure that he is not being
deceived. Torrijos would probably be relieved, therefore, if the
US were to take the initiative--if not to indicate what is
negotiable then at least to leave him with no illusions that he
could pressure the US into conceding what is in fact non-negotiable.
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25. Despite the difficulty in formualating a position and
the delay in beginning talks, the Panamanians do not conceive of
the actual negotiating process as a long drawn-out affair.
Economic Dressures calls for quick settlement
27. The Panamanian press is government controlled and
Torrijos has already demonstrated an inclination to crank up a
media campaign in support of foreign policy objectives. Thus when
the regime recently attempted to persuade the US to undertake
repairs of the trans-isthmanian Boyd-Roosevelt highway, it was
not content with conducting private diplomatic exchange but felt
compelled to inject the matter into the public arena. In the
future Torrijos can be counted upon to orchestrate pressure and
whip up public opinion in an effort to speed up negotiations and
win additional concessions.
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If he felt
that negotiations were becoming deadlocked he might make some
ostentatious diplomatic or commercial moves toward the Communist
states or threaten to unleash students and others in demonstrations
against the Zone or against US interests in Panama,
29. Torrijos is aware that what is perhaps effective as a
threat may be counterproduct' exendeiisasan actual
policy. Nevertheless, given the nature
of Panamanian politics, what starts out as controlled crisis (b)(1)
diplomacy can easily get out of hand and the government may fine (b)(3)
that it has painted itself into a corner.
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Playing for high stakes, however,
Torrijos may be willing to run some risks. He is apparently
confident of his ability to read and to modify the popular mood
and will undoubtedly attempt to structure the situation so that
the US rather than the Panamanian government would be blamed for
any breakdown in negotiations.
30. There is, of course, no inevitability that negotiations
will end in failure and, indeed, dealing with Torrijos is not
without advantages. Partisan political activity is at a virtual
standstill and unlike most previous Panamanian leaders Torrijos
does not have to worry about political pressures, at least in the
short run. There will not be a cacophony of politically motivated
editorials forcing him off-balance and political parties will not
be falling over one another in an effort to demonstrate their
nationalism or their anti-Americanism. Torrijos can control the
media, keep the negotiations private and build a concession in
favor of any agreement which is reached.
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