The Washington Diplomat / November 2003
By Larry Luxner
Exactly 100 years ago this month, Panama — with a little help from the United States — declared independence from Colombia and signed an agreement giving the U.S. government the right to build and own what would soon become the world's busiest canal.
These days, more than 14,000 ships a year transit the 51-mile waterway, which is now under Panamanian sovereignty, and Panama finds its once-stormy relationship with Washington so cozy that the two countries are considering a bilateral free-trade agreement.
Roberto Alfaro Estripeaut, Panama's ambassador to the United States, says Secretary of State Colin Powell will represent the Bush administration at Panama's official festivities Nov. 3 to mark the Central American nation's first century of independence.
"Our story is very unusual, because although we got independence from Spain at the same time as everyone else, Panama was very small, so we voluntarily decided to join Colombia," Alfaro explained in a recent interview. "But the experience wasn't so good, and by the late 1800s a movement for independence had started."
Panama's moment came when the Colombian government rejected the terms of Washington's original canal proposal.
"The United States started looking for other options like Nicaragua. At the same time, Panamanian dissidents started contacting the U.S. government to see if they would help Panama gain independence," said the ambassador, whose office walls are decorated with reproductions of antique maps of the Caribbean.
"Of course, we couldn't fight the Colombian army, but our patriots took the headquarters of the army by force. When Colombia sent in reinforcements to fight the insurrection, the U.S. stationed a battleship in the bay of Colon and stopped the Colombians from landing new troops, guaranteeing our independence. From then on, a great alliance with the United States has begun, and a treaty was signed 15 days later to build the canal with the new Panamanian government."
In 1914, the Panama Canal officially opened to traffic. It remained under U.S. sovereignty until Dec. 31, 1999, when the Stars and Stripes came down and the Panamanian flag — also red, white and blue — rose over the former U.S. Canal Zone for the first time.
The 1977 decision by President Jimmy Carter and Panama's leader at the time, Gen. Omar Torrijos, to return the canal to Panama was crucial to the two countries' generally friendly relations.
"I think that today, we have the best relations ever with the United States," he said. "We are very happy with the transfer of the canal, which has been a success story for the U.S. also. It was very hard for Congress to pass the Panama Canal Treaties, but they did, and Washington's relationship with Latin America improved from that moment on."
Alfaro, 59, is married to Rossana Luigia Ameglio Alfaro and has five children. He comes from a long line of distinguished public servants; one of his grandfathers served as ambassador to the United States and later president of Panama.
An insurance executive by profession, Alfaro studied at both the Canal Zone College and George Washington University before beginning his career. During the dictatorship of Manuel Noriega, when political parties were outlawed, Alfaro became active in the National Council of Private Industry — one of the few associations allowed to flourish at the time.
In 1989, after U.S. Marines helped overthrow Noriega, Panama's new president, Guillermo Endara, called Alfaro and invited him to join the new government. He did, becoming the country's vice-minister of commerce. Six months later, he was promoted to minister of commerce — a position that lasted until 1994, when the opposition party headed by Ernesto "Toro" Pérez Balladares was voted into office.
During his tenure as minister, Alfaro served as president of the Panamanian Stock Exchange Commission. He also helped write Panama's memorandum of adhesion to the General Agreement on Tariffs and Trade (now the World Trade Organization).
When Mireya Moscoso won the presidential elections in 1999, Alfaro returned to public life and was nominated ambassador to Italy, a post he occupied for three years before relocating to Washington eight months ago.
"My two main objectives here are to start negotiations for a free-trade agreement, and to try to get Panama designated as a distant foreign port," said Alfaro, who speaks Italian, English and Spanish fluently.
"We are not interested in joining CAFTA,"he said, referring to a proposed Central American Free Trade Agreement now being negotiated between the United States and five countries: Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
"We want to do a bilateral free-trade agreement with the U.S.," he explained. "We are a service economy, whereas the rest of Central America is agriculture and textiles. We have very few labor and environmental problems, and no immigration issues."
Panama, with 2.6 million people, has a relatively high per-capita income but suffers from extremes of wealth and poverty. The 55-story skyscrapers of Paitilla, a wealthy suburb along the Pacific shore — are among the tallest in Latin America, while the slums of Colón — a predominantly black city on the Atlantic coast — are comparable to the worst favelas of Rio.
On the other hand, things generally work in Panama, from the telephone system to the canal itself. And the country has been using the U.S. dollar as its official currency ever since independence, which has helped it become a booming offshore financial center.
Asked about money laundering — a perennial problem that always crops up when discussing Panama and its proximity to the Colombian drug trade — Alfaro said that with the adoption of recent banking and tax reforms, it's harder to open a bank account in Panama today than in the United States.
For all these reasons, he said, "an FTA with Panama would be very simple, because we don't have anything that would compete with U.S. industry. And there wouldn't be much opposition in Panama to an FTA, since all four candidates in Panama's May 2004 presidential elections support the concept."
So do a number of U.S. lawmakers. A Sept. 25 letter signed by 30 members of Congress including Tom DeLay (R-TX), Lincoln Díaz-Balart (R-FL) and Don Young (R-AK) urged U.S. Trade Representative Robert Zoellick to push hard for an FTA with Panama.
"During 2002, Panama generated a favorable balance of trade of $1.1 billion with the United States," says the letter. "U.S. private investments in this country are greater than the other five Central American nations combined. Further, the Panama Canal, the container ports transshipment center and the Colón Free Zone make this small country one of our most important allies, particularly regarding commercial and security matters."
Alfaro said his second priority, getting Panama designated a distant foreign port, is very important because would encourage cruise-ship lines to add Panama to their Caribbean itineraries.
Specifically, Panama is seeking a waiver of the Passenger Vessel Services Act, which currently requires vessels to stop in a "distant foreign port" as part of a voyage between East and West Coast ports.
Alfaro said the law dates back to 1886, and was originally enacted to protect U.S. labor unions from cheap foreign competition.
"Right now, we are only getting passengers to stop over," he explained. "They can take a trip through the Panama Canal, but a ship that calls on U.S. ports cannot leave passengers in nearby foreign ports."
Ironically, Cartagena — a popular cruise-ship destination on Colombia's Caribbean coast — enjoys the "distant foreign port" designation, even though Cartagena is closer to Miami than is Panama City. The issue has been taken up by the U.S. cruise-ship industry, which is always on the lookout for new and interesting destinations.
Micky Arison, chairman and CEO of Carnival Corp., complained in a July 24 letter to Bush that "this requirement discourages passenger vessels from stopping and disembarking passengers for extended tours or overnight stays in Panama, a desirable destination for cruise passengers."
Modifying the law, Arison wrote, "will generate additional tourism revenues for Panama, thereby enhancing canal expansion projects and furthering the interests of the entire shipping community."
Alfaro speculates that if Panama is branded a "distant foreign port," it could attract at least 300,000 more tourists per year, "injecting about $50 million more into our economy." That's why the country's hotel, travel and duty-free industries are all pushing for the designation.
For the last three years, tourism revenues have increased by an average 10% annually, with Alfaro hinting that 2003 tourist arrivals may break the one-million mark for the first time ever.
Since getting back the Panama Canal, said Alfaro, the Panamanian government has invested more than $1 billion in canal improvements, including the widening of the Culebra cut. That allows two ships to pass through simultaneously, whereas before only one vessel could transit at a time.
In addition, a new lighting system allows container vessels and cruise ships to traverse the Panama Canal at night, allowing 24-hour-a-day operation for the first time.
These improvements have boosted the canal's annual revenues, which have helped offset losses at the Colon Free Zone triggered by economic difficulties in Argentina, Venezuela, Ecuador and Colombia. Last year, the canal recorded a record 14,000 transits — including 350 cruise ships — with the number expected to be even higher this year.
But the biggest expansion project is yet to come: a $5 billion, 10-year expansion project that will substantially widen the Panama Canal itself to accommodate supertankers, container vessels and enormous cruise ships.
"We have to expand the canal because almost 45% of the ships being built today are too wide to go through the canal," Alfaro said. "In the future, all the ships built will be post-Panamax. So if we don't enlarge the canal, we will begin to lose business."