ID:228822
Date:2009-10-07 20:21:00 Origin:09PANAMA757 Source:Embassy Panama
Classification:CONFIDENTIAL Dunno:09PANAMA657 09PANAMA711 09PANAMA756
Destination:VZCZCXYZ0000
OO RUEHWEB
DE RUEHZP #0757/01
2802021
ZNY CCCCC ZZH
O 072021Z OCT 09
FM AMEMBASSY
PANAMA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3841
INFO RUEHZA/WHA
CENTRAL AMERICAN COLLECTIVE IMMEDIATE
RUEHBO/AMEMBASSY BOGOTA
IMMEDIATE 0006
RUEAIIA/CIA WASHDC IMMEDIATE
RHEHAAA/NSC WASHDC
IMMEDIATE
RHMFISS/CDR USSOUTHCOM MIAMI FL IMMEDIATE
C O N F
I D E N T I A L PANAMA 000757
SIPDIS
STATE PASS TO
COMMERCE/ITA/MAC GAISFORD, TREASURY/JOHN
HARRINGTON, AND
USTR/AMERICAS OLIVER
E.O. 12958: DECL: 10/04/2029
TAGS:
ECON, PREL, PGOV, PM
SUBJECT: MARTINELLI NOT MEETING PRO-BUSINESS
RHETORIC OR
EXPECTATIONS
REF: A. PANAMA 711
B.
PANAMA 657
C.
PANAMA 756
Classified
By: Ambassador Barbara J. Stephenson for reason 1.4 b and d
1.
(C) Summary: The distinguishing feature of the Martinelli
Administration's economic policy has been that there does not appear
to be a coherent or consistent policy. It has made one major positive
decision, which is to maintain sound macro economic policies. It has
made one major negative decision, which is to continue to resist U.S.
and OECD pressure to increase financial transparency. And it has
taken a series of apparently ad hoc actions against certain business
sectors which has threatened Panama's reputation as a good place to
invest. Finally, widely spread rumors that Martinelli plans to
appoint two cronies to the Supreme Court will further erode
investment confidence and judicial independence. Martinelli
campaigned on a pro-business platform and comes from the private
sector, but his performance to date calls into question expectations
that he will govern in a manner that provides business predictability
and certainty. However, we believe that the Martinelli Administration
can correct its course by embracing predictability and transparency.
End Summary.
The Good
--------
2. (SBU) The 2010 budget for $10,280 million, up 5.3 percent
from the 2009 budget, is dominated by social services, which accounts
for almost half of public spending. However, unlike many countries
which have had to cut social spending or face large deficits, Panama
will run only a small deficit, $511.7 million, or 1.9 percent of the
annual nominal GDP, resulting in a total public debt of 42 percent of
the GNP. The continued macro economic stewardship points to the
Martinelli government being able to achieve either its ambitious
spending goals (such as the expected $1 billion metro system for
Panama City) or investment grade bond rating. See reftel A for more
on the budget.
The
Bad
-------
3. (C) However, the Government of Panama appears to be
divided about whether and how to address demands by the OECD on tax
havens and the U.S. for an effective Tax Information Exchange
Agreement (TIEA). Vice President and Foreign Minister Varela told the
Ambassador on October 2 that he supports constructively engaging the
U.S. and OECD, but that Minister of Economy and Finance Vallarino is
not yet on board. In a separate meeting, Presidnt Martinelli told
Varela to "make it happen" (referring to getting off the
OECD black list), but then asked the Ambassador to weigh in with
Vallarino, illustrating the division.
4. (SBU) As a result,
and as former Vice President Al Gore put it to Minister Vallarino on
September 30, Panama is worsening its reputation in global financial
services by continuing to be called a tax haven. BNP Paribas
announced on September 27 that it is pulling out of Panama and all
other OECD black listed countries due to the increasing risk of doing
business in those countries. The stubbornness of the GOP also leaves
it open to abuses within the Colon Free Trade Zone, which harbors
significant legitimate business but also is the route for
illegitimate money and products.
5.
(SBU) Additionally, the government's actions against US firms AES and
MIT call into their commitment to maintaining a strong investment
climate. AES has been hard hit by the GOP threat to unilaterally
change the contracted price of water for hydroelectric generation
plants owned by AES. The result of this ongoing dispute, which still
has not been resolved, has been to reduce AES, bond rating in Panama
to below investment grade. See reftel B for more information on AES.
6.
(SBU) This is not the first time that the government took aim at a
sector without regard to existing contracts. The GOP introduced a
bill that would have eliminated contract concessions changes by
reverting contracts back to their original agreement if the company
harmed the people of Panama, thereby eliminating years of business
predictability to contract holders. This clause appears to have been
aimed at port concessions, including the US firm
Manzanillo
International Terminal (MIT) which operates in
Colon. The renegotiations between MIT and the GOP also have not
terminated, but MIT has expressed optimism that resolution will come
soon and be acceptable. The result of these two actions, plus other
actions which did not directly impact American firms, has been to
negatively affect business perspective on the investment climate. AES
told us that plans to construct a second hydro plant in Panama valued
at $600 million have been shelved, and MIT has told us that the US
owner no longer considers the Port of Colon a good place for future
investment. The major change in the investment climate is that now
investors are not certain that political calculations will not play a
role in how contracts will be enforced; every contract could now be
valid for only the five-year presidency term.
The
(Possibly) Ugly
--------------------
7. (C) The increase in political interference with
contractual matters is possible due to the historically weak
judiciary system. In October, Martinelli will appoint two supreme
court magistrates to take seats in January. The names floated do not
give us optimism: Gerardo Solis, who is widely considered to be
corrupt, and Jose Almengor, who is believed to be in line for a
position in order to keep him from talking about Martinelli secrets.
Several leading newspaper editors told the Ambassador and DCM that
President Martinelli's honeymoon with the local press would end if he
nominated these two to the Court. See reftel C for more information.
8. (C) Comment: Post will continue to monitor the
Administration's activities on investment climate, financial
transparency, and judicial independence. While it is clear from the
actions it has taken that the Martinelli Administration has not lived
up to its promises or its pedigree, post believes a nuanced message
to the GOP can end certain negative trends and prevent future erosion
of predictability from occurring. We are cautiously optimistic that
the worst - at least regard to ad hoc actions against businesses - is
over. End comment.
STEPHENSON
