US embassy cable - 05PANAMA1184

UNCLAS SECTION 01 OF 02 PANAMA 001184 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT FOR WHA/CEN 
SOUTHCOM ALSO FOR POLAD 
VANCOUVER FOR CG ARREAGA 
 
E.O. 12958: N/A 
TAGS: ECON, PGOV, PM, PREL, POLITICS & FOREIGN POLICY 
SUBJECT: PANAMA'S CSS REFORM PACKAGE PASSES WITH MINOR 
CHANGES 
 
 
SUMMARY 
-------- 
1. (SBU) On May 31, nine minutes before midnight, Panama's 
National Assembly passed President Martin Torrijos's Social 
Security (CSS) reform package with a vote of 43-30.  All 43 
Democratic Revolutionary Party (PRD) legislators voted in 
favor, while the opposition presented a united front against 
the reforms.  The National Assembly debated the 180 article 
package, first submitted to committee on May 18, in two 
marathon rounds over the last week, during which 142 minor 
modifications were adopted.  Multiple demonstrations 
continued today.  Labor groups today mounted a last-ditch 
effort to push Torrijos not to formally approve the package, 
which he did just before noon.  Business organizations 
continue to express concern that the reforms do not present a 
lasting solution to the sustainability of CSS, while labor 
groups argue that changes such as an increase in retirement 
age place too heavy a burden on workers.  The PRD, which has 
an absolute majority in the Assembly, came under fire from 
the opposition for pushing this package through the Assembly 
with only a brief consultation period.  (Note: The previous 
administration, under President Mireya Moscoso of the 
Panamenista Party, did nothing to address CSS reform.  End 
Note.)  With fiscal reforms and CSS reforms out of the way, 
the next major item on the Torrijos administration's agenda 
is the referendum on Canal expansion, set for late 2005 or 
early 2006.  End Summary. 
 
The Package 
----------- 
2. (U) The reform proposal has no big surprises for the 
Panamanian work force, but it also redistributes more funds 
to retirement, illness and maternity programs; modernizes the 
procurement system; makes contributions mandatory; and 
revises disability pension eligibility and the system for 
electing the board of directors.  The package includes an 
increase in retirement age from 57 to 60 for women and from 
62 to 65 for men; an increase in mandatory enrollment from 15 
to 20 years; greater state contributions in general and 
special funds for &workers at risk8 (construction, banana, 
and coffee workers); an increase in monthly payments for both 
employers and employees; mandatory enrollment of all workers; 
and improved asset management.  Privatization is not 
contemplated.  The reforms would be introduced gradually over 
the next ten years. 
 
3. (U) Although the actuarial studies have not been released, 
CSS Director Rene Luciani estimates the system is financially 
viable until 2035.  (Note: According to press reports, some 
private actuaries claim the system will face another 
financial crisis in 2015 and be bankrupt by 2028.  The 
current system would have gone bankrupt in seven years.  End 
Note.) 
 
4. (U) Torrijos was willing to make minor concessions for 
those close to retirement.  He accepted a "proportional" 
distribution of pensions to those who have already met the 
current 180 month quota, but for reasons of age, will retire 
after the new laws take effect but before they have met the 
240 month quota.  By 2015 the retirement quota will be set at 
300 months.  Torrijos also dropped the proposed retirement 
age for women from 62 to 60. 
 
The Critics 
----------- 
5. (SBU) To counter allegations by labor unions that the 
package is insupportable for the added burdens it places on 
laborers, the GOP has released item-by-item explanations of 
how elements in the package take into account the concerns of 
labor in major news papers.  Business organizations such as 
the Association of Business Executives (APEDE) and CSS board 
members have expressed concern over the lack of statistical 
projections presented by the GOP, that the reforms are 
nothing more than a temporary resolution, and that provisions 
such as the removal of a mandate to submit a yearly report to 
the CSS board would give too much autonomy to the CSS 
Director General.  National Council of Private Business 
(CoNEP) president Guillermo Villarreal announced that CoNEP, 
an umbrella business organization, would not support the 
reforms, and SUNTRACS, teachers, and CSS medical 
professionals have actively demonstrated against the package. 
 The Federation in Defense of Social Security united labor 
groups normally at odds with one another in their common 
rejection of the reforms. 
 
5. (SBU) COMMENT: Ultimately, the effect of the fast-action 
reform package has been to not only demonstrate the PRD's 
resolve and outward unity, but to briefly unify disparate 
opposition political parties, labor organizations, and the 
business community.  Union opposition to the reforms was 
inflexible, and would have been demonstrated regardless of 
the proposed reforms.  The two Popular Party legislators who 
were on board with the PRD reform package at the outset of 
the debates also voted against the package in the final 
round.  However, despite the Torrijos administration's 
somewhat heavy-handedness in pushing the reforms through the 
Assembly, Torrijos deserves major credit for tackling a 
politically unpopular task.  In addition, Panama's National 
Police, who invested huge amounts of time and effort into 
preparation for demonstrations, deserve praise for 
maintaining law and order.  End Comment. 
 
WATT