US embassy cable - 05PANAMA1377

C O N F I D E N T I A L SECTION 01 OF 03 PANAMA 001377 
 
SIPDIS 
 
DEPARTMENT FOR WHA/CEN 
SOUTHCOM ALSO FOR POLAD 
VANCOUVER FOR CG ARREAGA 
 
E.O. 12958: DECL: 06/23/2015 
TAGS: PREL, PGOV, ECON, PM, VE, POLITICS & FOREIGN POLICY 
SUBJECT: PANAMA PRESIDENT TORRIJOS BOWS TO LABOR PRESSURE 
BUT NOT LOW ENOUGH TO SUIT HIS OPPONENTS 
 
REF: PANAMA 1352 
 
Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.4 (B) AND (D). 
 
SUMMARY 
-------- 
1. (C) In a surprise move on the evening of June 21, as 
anti-CSS (social security) strikes that no one thought would 
last more than a few days were set to enter their fifth week, 
President Torrijos announced that he would "suspend" writing 
regulations for the June 1 CSS reform law (Law 17), pending a 
90-day National Dialogue.  His principal antagonist, the 
FRENADESSO ad-hoc umbrella strike committee, again called for 
the suspension of the law itself, rejected Torrijos's 
gesture, which was to placate striking workers, teachers, and 
medical professionals, and refused to attend the Dialogue. 
Although the Dialogue will go ahead, Torrijos appears weak 
for bowing to demands at all, the more so because strikes and 
demonstrations continue despite his concessions.  His break 
in stride is an admission that his administration erred by 
rapidly pushing the reform package through the National 
Assembly almost without compromise.  At the root of his 
problem is widespread lack of confidence in the GOP's good 
intentions, bred by years of government corruption and public 
cynicism.  Tellingly, Hugo Chavez went out of his way at 
MERCOSUR last weekend in Asuncion to assure GOP officials 
that he was not stirring up trouble in Panama.  End Summary 
and Comment. 
 
Troublesome Priests 
------------------- 
2. (SBU) On June 20 Panama City Archbishop Jose Dimas Cedeno 
pulled the rug out from under President Torrijos and his 
apparent intention to resist making concessions to anti-CSS 
strikers when told the press he had "humbly begged" Torrijos 
to suspend the law to facilitate dialogue.  That statement 
permitted FRENADESSO (National Front to Defend Social 
Security) to portray Torrijos as standing in the way of a 
settlement.  Meanwhile, the regulations that Torrijos 
"suspended" on June 21 actually do not change the active 
status of Law 17.  Following a June 21 meeting with Catholic 
bishops, Torrijos told a news conference that collection of 
newly increased CSS employer and employee taxes would proceed 
as planned on the graduated time frame set to begin January 
2006, although some deductions from previously exempt 
"representation expenses" already are taking place.  Torrijos 
said he would consider "improvements" to the law (known as 
Law 17) that the National Dialogue proposes.  Torrijos also 
agreed that any amendments made to Law 17 will be retroactive. 
 
Labor Refuses to Come to the Table 
---------------------------------- 
3. (SBU) Striking FRENADESSO supporters, especially 20,000 
SUNTRACS construction workers and 25,000 teachers, have 
refused to come to the table unless Torrijos suspends the law 
itself.  Confirmed participants in the National Dialogue, set 
to begin June 28, include the National Council of Private 
Business (CoNEP), the umbrella labor union CONATO, and 
leaders of Panama's academic and religious leaders. (Note: 
CONATO has ties with Torrijos's Democratic Revolutionary 
Party (PRD) and has not actively supported the strikes.  End 
Note.)  FRENADESSO leader Andres Rodriguez on June 23 
reaffirmed the group's decision not to participate in the 
dialogue and not to end the strikes or demonstrations. 
FRENADESSO has made little headway in courting transportation 
groups. 
 
Cynical Businessmen 
------------------- 
4. (SBU) So far, Torrijos has failed to win the confidence of 
the population by arguing that his measures to put CSS on a 
firm footing, as reflected in Law 17, are the best choices 
for Panama.  Cynical attitudes toward government continue to 
color public perception of the Torrijos fiscal (tax) reforms 
of February and CSS reform.  In one example, the GOP was 
caught short last week by heated anti-GOP public remarks by 
Panama's Chamber of Commerce president August Simons, which 
seemed to play to the interests of the strikers.  Although 
the GOP might have imagined that business would be a natural 
ally against labor radicals, Simons blasted GOP actions and 
the GOP's alleged lack of credibility for causing the public 
mistrust that has produced daily disorders in the streets. 
5. (SBU) Simons also blamed the Torrijos administration's 
failure to resolve several "grave" corruption cases as 
contributing to public distrust.  In addition, Simons claimed 
that in designing the fiscal/CSS reform laws, the GOP had 
ignored the concerns and suggestions of Panama's business 
community, even though it contributes $600 million in annual 
tax revenues.  He also alleged that the strikes, up to last 
week, had caused $100 million in economic losses.  Simons 
further claimed that CSS and tax-law changes threatened to 
"strangle" the economic well being of Panama's citizens. 
(Comment: Simons has a point in complaining about the GOP's 
failure to deal with notorious corruption cases.  PECC, 
CEMIS, and several involving Mireya Moscoso all are worthy of 
immediate attention.  Many believe that Torrijos also has 
failed to deal adequately with Panama's widely discredited 
Supreme Court, whose most recent decisions granted former 
presidents Moscoso and Perez Balladares immunity from 
non-criminal investigation.  End Comment.) 
 
Privatization of 25% of CSS Funds 
--------------------------------- 
7. (SBU) Torrijos has repeatedly denied any intention of 
privatizing CSS.  But a little-noted amendment slipped into 
the text of the June 1 reform package by PRD legislator Pedro 
Miguel Gonzalez (accused of murdering U.S. serviceman Zak 
Hernandez in 1992) at the eleventh hour that arguably broke 
that pledge was signed into law along with the rest of the 
package without a vote.  The amendment allows two private 
investing firms, ProFuturo and Progreso, to invest 25% of CSS 
funds in private securities.  Several links exist between 
members of the current government and the financial 
institutions encompassed within the firms.  The continuing 
strikes momentarily have pulled the measure from the public 
eye but the National Dialogue is likely to comment on it. 
 
School's Out 
------------ 
8. (SBU) Labor Minister Rivera said that the public 
resistance to CSS reforms has been far worse than even he 
expected, even though several months ago Rivera had told 
PolOff that public reaction to the reforms would be more 
severe than the fight for national sovereignty.  The 
Association of Independent Teachers estimates that of 500,000 
public school students in Panama, 95% have been affected by 
the strike.  As a result, patience for the disorders among 
parents faced with homebound school children is wearing thin. 
 Also, the lost time in all probability will be tacked on to 
the end of the school year, thus interfering with holiday 
plans. 
 
Comment 
------- 
9. (C) By alienating business groups, labor, teachers, 
doctors, and salaried workers, Torrijos has managed to create 
a "perfect storm" of protest and opposition to clearly 
justified and overdue public policies.  Inexperience plays a 
part here but there is more to the story.   Many Panamanians 
nurse a festering grievance bred by the impunity with which 
many powerful Panamanians have looted the public purse.  That 
grievance impels many to reject the idea that average 
citizens should be compelled to share the pain of increased 
taxes and decreased benefits. 
 
10.  (C) Also, many Panamanians vividly recall the $110 
million pillaged from CSS by military-backed PRD governments 
of the mid-1980s in real estate and insurance fraud schemes. 
Although possibly Panama's biggest public scandal, no one 
ever has been tried or convicted, much less accused or 
arrested for those misdeeds. 
 
11.  (C) Tellingly, as GOP paranoia grows about whether 
SUNTRACS labor radicals are getting "outside" funding, 
Venezuela wants to avoid the blame.  Institutional Protection 
Service (SPI) Director Leonel Solis told Embassy staff that 
during the June 18-19, 2005 MERCOSUR summit in Asuncion, 
Venezuelan President Hugo Chavez approached Panamanian 
Foreign Minister Samuel Lewis Navarro and Minister of 
Government of Justice Hector Aleman with the following 
message: "Please tell Martin that I am not involved in what's 
going on in Panama."  Solis reported that Chavez added that 
he would check in his entourage to see whether anyone was 
"making revolution on his own" and would get back to them. 
 
12.  (C) Torrijos eventually will get through the present 
crisis -- the number of daily marchers is dwindling and 
SUNTRACS workers begging contributions for their depleted 
strike fund are increasingly forlorn -- but moving forward he 
must be mindful of the corrosive accumulation of public 
distrust on the legitimacy of the state.  Meanwhile, 
Torrijos's political opposition within the PRD (Perez 
Balladares and his associates) and outside (Guillermo Endara, 
Ricardo Martinelli, the disjointed Panamenistas et.al.) are 
enjoying the moment and seeking their own ways to take 
advantage of it. 
 
WATT