Varela’s malaise

President Juan Carlos Varela meets with his Cabinet Council to plot retaliatory measures against countries that impose money laundering sanctions against Panama. But if a country is to wage a trade war, there are certain things to consider. Are there products or services that only we provide, for which there are no substitutes, and which are needed by other countries? Are we a vital market, the loss of which would cause terrible economic damage to key sectors in a foreign economy? At a glance, it looks and sounds like saber rattling with a toy rubber sword. Photo by the Presidencia.

Varela’s malaise

by Eric Jackson

After a month of internal bickering, the Panameñista Party caucus in the National Assembly decided to make deputy Jorge Ivan Arrocha head of the Budget Committee, the most sought-after post in a legislature that’s set up by the constitution as a political patronage sop to the political caste in a system dominated by a strong national executive. (Back when the constitution was written, that centralized executive power was held by the top military commander, but since the 1989 invasion it’s the president.) In a fragmented and realigned legislature wherein most of the deputies of the two largest party caucuses, the PRD and Cambio Democratico, have thumbed their noses at their respective party bosses, the ruling alliance among Panameñistas, PRD dissidents and CD dissidents assigned the chair of that committee to President Varela’s party, the Panameñistas. Up stepped Panameñista legislator Carlos Santana — almost a caricature of the grasping machine politician with a hyperdeveloped sense of entitlement — who cited a succession deal from last year’s version of the alliance, by which he would be the next chair of that committee. But the thing is, his fellow party members in the legislature despise the guy, and they voted to choose Miguel Salas instead.

With loud protests about betrayal, Santana vowed to take the decision to the assembly’s floor, where the Panameñistas’ decision might get overruled by deputies from both within and outside of the ruling alliance. (What better way to make some mischief if you’re loyal to PRD president Benicio Robinson or exiled CD owner Ricardo Martinelli and thus cut out of influence, than to disrupt the other faction’s control of the Budget Committee?)

Further secret meetings were held, the Panameñistas came up with Arrocha as a third choice and on August 8 National Assembly president Rubén De León swore in the new Budget Committee for a legislative session that began on July 1.

What a mess, you might observe? More than a week into August, and 10 of the legislature’s 15 committees are yet to be installed and functioning. That’s one-tenth of the middle year of Varela’s term with the National Assembly in self-paralysis.

Is this to be Panama’s moment to bask in the sun of worldwide acclaim for the opening of the larger new locks? The Panama Canal Authority’s hired PR hands and the sycophants of the rabiblanco press — whose bosses’ banks, construction companies, PR firms and so on, as well as the media businesses for which they work, have made a lot of money off of the expansion — have been dutifully pumping up that narrative. But there were at least three accidents in the first 55 transits by the bigger ships and notwithstanding efforts to define that problem away, the ACP narrative is ever less accepted by the world press.

Those looking on from afar, however, generally don’t catch the real mess in the ACP: as a business the Panama Canal is hurting. Thus it’s looking to develop new revenue streams, and that has economic interests both within and outside of the organization at war with one another.

Is the ACP going into the ports business? So they say, and steps along that way are well advanced. In the proposed Corozal and Diablo port plan’s earlier iterations, everything was set for a managed bidding process that would give the private concession for that to the Motta family. Resistance was raised in the legislature and elsewhere in Panamanian society, so as the process continued into prior qualifications to submit bids the Mottas were eliminated from consideration. Panama Ports, which has the adjacent Port of Balboa concession, still doesn’t like it. Nor does the Panama Maritime Authority, into whose bailiwick ports traditionally fall. Nor do the canal pilots, who think that a port in the planned place would pose a navigation hazard.

So can the ACP board just brush off those objections and proceed? Not quite. See, the plans for the new port include a sewage treatment facility to serve the ships that call there. It’s the environmentally responsible feature for a major seaport to have in this day and age. The thing is, one of Ricardo Martinelli’s appointees to the ACP board — the overall qualities of whom is another whole set of issues — is Lourdes Castillo. So what, other than being a Martinelli loyalist, was her qualification for the board? Her company does the garbage collection and sewage removal for Panama Ports. As in, she considers herself entitled, if not to get the sewage contract outright, for her company to be allowed to bid on it. As in, no sewage treatment as an integral part of the new port. With some help from colleagues she shut down the board meeting about the bid specifications over that issue.

The National Assembly and the Panama Canal Authority board don’t register on too many screens outside of Panama. But the Panama Papers did, and although the rush of headlines is over it still does. Yes, the Brits are rid of the Prime Minister whose family fortune was in part the product of his father’s tax evasion via a shell game set up by Mossack Fonseca, and the UK parliamentary commission that was set up to look into that and related questions in the wake of the data dump of the law firm’s files appears to be something of a dead letter. Yes, Vladimir Putin brushed aside embarrassments about people close to him — and is now going after lesser Russians who were named. Maltese and Pakistani leaders are still being questioned and calling for an end to the questions. HSBC may have warned that legal consequences from the revelations may yet affect its bottom line, but there were signs that the whole thing was about to blow over.

Then came a preliminary report from an all-star international commission that Varela appointed with the scandal was in full scream, and it wasn’t what the president wanted to see and certainly not what the corporate lawyers and financial services people in his entourage wanted the Panamanian people and the world press to see. The president moved to suppress that preliminary word, and notified the committee that their eventual findings might or might not be published, according to political expediency. The commission’s American chair, Nobel economics laureate Joseph Stiglitz, resigned along with the seven-member panel’s Swiss expert, former OECD anti-bribery task force leader Mark Pieth. The resignations were accompanied by a statement about lack of transparency and the world press did take notice, even as pundits of the rabiblanco media muttered about foreigners manipulating Panama, or being disloyal to their generous boss, or displaying bad manners. Varela, his social class and their caste of mouthpieces appear not to understand that world-class experts with earned reputations need not check their ethics and opinions at the door as their domestic servants are expected to do.

It’s a gaffe that will accelerate international moves against banking and corporate secrecy, in Panama especially but elsewhere as well. Most inconveniently for Varela, that tangle disrupted the plan just as he was getting into trade war mode.

Trade war? Panama’s going to war with anybody, in any fashion, over any matter?

Panama has this trade dispute with Colombia over duties that the latter imposes on textiles and shoes coming through the Colon Free Zone. Mainly it’s about Colombia trying to develop its own apparel industries without competition from cheap Asian good that in this region typically pass through the duty-free import/export zone in Colon. Because of the economic weakness of its traditional customers — particularly the Venezuelans — the Free Zone is seriously hurting these days, and the extra hit of Colombian trade measures aggravates the situation. The dispute has been running for some years, with Bogota insisting that it’s about the money laundering that goes on via the Free Zone and represents a big loss to Colombian tax collectors. The World Trade Organization ruled in Panama’s favor earlier this year, but Colombia isn’t budging. Instead, the Colombians are putting off implementation of a previously agreed bilateral free trade deal and using their influence to keep Panama out of the regional Pacific Alliance trade pact.

The argument with Colombia is atop a growing pile of present or contemplated trade measures that discriminate against Panama, almost all of them said to be due to money laundering, tax evasion and other undesired phenomena arising from Panamanian banking and corporate secrecy laws. Much of the Panama Papers scandal was about a Panama-based law firm setting up financial shell games played in other jurisdictions. That may be conveniently ignored by the British, whose crown dependencies account for several of those “other” places, and by the politicians of other rich countries’ whose financial backers are the sorts of people who comprise the tax havens’ customer bases. The hypocrisy of it may be protested by Mossack Fonseca, which was caught working with some particularly ugly criminals as well as the more genteel international jet set tax cheats. The Varela administration ignored all that and talks about enforcement of previously existing international agreements, and not only in terms of special duties on goods coming from those places, costlier visas for people of those nationalities and bans on certain foreign companies seeking Panamanian government contracts. One of the threats is to bar the passage through Panama of cargoes or persons associated with a nation that imposes financial sanctions on Panama.

As in, we were hearing bluster about highly self-destructive things that Panama might do if other countries don’t leave folks like the Mossacks and the Fonsecas alone when the Stiglitz and Pieth resignations put Panama back into world headlines. You won’t read it that way in La Prensa or see Alvaro Alvarado put it that way on TV, so maybe the incongruity will fly over the Panamanian electorate’s head for now. It will be interesting to see whether it affects Varela’s short-term standing in opinion polls. But if the president is serious about picking any substantial trade war with anybody, that’s a strategy with a low probability of success and a high risk of public indignation in the event of a loss.

Ah, but all news is not negative for Varela. He went to Poland for the Catholic Church’s biennial World Youth Day, lobbying European governments about trade matters while he was on their continent. There is little published word about his talks with government leaders, but Varela did come back with a papal commitment to hold the 2019 World Youth Day here. But where in Panama? The church has yet to say, but if tales of one venue in Anton are accurate, that would be yet another rekindled international controversy.

Varela’s malaise is often portrayed by his critics as tortuguismo, a turtle-like pace at everything that he does. It’s probably more accurately perceived as extreme caution about stepping on long-established prerogatives and ways of doing things among Panama’s economic elites. It sometimes saps his popularity with the general public, and sometimes gets him stalled in squabbles among the lesser figures of the political caste. Most recently, however, it’s making Panama look ridiculous to the rest of the world. Is it a matter of the outside world misunderstanding about the ways that things have always been done here? More likely it’s a rather accurate understanding, coupled with a growing insistence that Panama can’t go on this way.


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