Expanding the Panama Canal: A Wider Canal or More Governmental Payola?

• Under the Torrijos government, the expanding Panama Canal will not likely serve the needs of the vast majority of Panamanians. Much of the benefits will be tied to the commercial interests of the country’s accountants, bankers and lawyers, as well as their U.S. counterparts, and world trade
• Final costs: $5 or $25 billion?
• The current government, not yet corruption-free, is not sufficiently professional to be trusted as the steward of such an enormous and lucrative financial venture
• Evidence of venality surrounds the Torrijos administration, as well as the canal’s management
• Other administration flaws raise questions about Panama City’s capacity to supervise such an enormous project

In early May of 2006, Panama’s President Martin Torrijos announced the publication of the official summary of the proposed canal expansion project and rallied the nation to support the single largest public works project in that country’s history, after the construction of the Panama Canal. The fate of this project will be determined in the referendum scheduled for October 22 of this year. The expansion, proposed by the Autoridad del Canal de Panamá (ACP), includes the construction of a third set of locks as well as the expansion of existing ones, allowing for a faster transit of ships as well as accommodating larger “post-Panamax” vessels.

According to the ACP, an increase in tolls and foreign loans will pay for the estimated $5.25 billion project. While the government boasts that the project will generate a vast number of jobs for its large numbers of unemployed citizens, many Panamanians are coming to the conclusion that canal expansion may not be in their best interest at this time.

The Torrijos administration, like previous Panamanian governments, is packed with officials of questionable public rectitude who lack even minimal accountability. Therefore, it could be questioned whether the president and the ACP, as it is now constituted, can be trusted with such an enormous project without the further elaboration of internal controls as well as additional external protections being built into the project.

But one thing is for certain: to launch a canal project under the Torrijos presidency — no matter how much the nation and world trade need it — is not just unlocking the hen house for the Torrijos fox to gain entrance, but would be akin to throwing its door wide open.

History
In 1904, the United States signed a treaty with the newly constituted nation of Panama to build the waterway and to insure Washington’s control over the new facility through the continuous bribery and intimidation of its newly elected officials. In 1914, the 77 kilometer S-shaped passageway was finally completed. It consisted of two artificial lakes, several improved channels and enhanced natural waterways, as well as two sets of mechanical locks, connecting the Atlantic Ocean via the Caribbean Sea to the Pacific Ocean by way of the Gulf of Panama. Under U.S. jurisdiction, plans were formulated to expand the canal, and digging began for a third set of locks. But the project was soon abandoned once funds were forcefully diverted because of WWII. Even though the U.S. at the time abandoned the expansion project, it maintained firm control over the canal’s operating agencies for decades more.

Over the years, however, Panama began to feel uneasy over the question of foreign ownership of the passageway, and in 1977, Panama and the United States signed the Torrijos-Carter Treaty after years of sometimes violent confrontations. This treaty negotiated the transfer of sovereignty and on December 31, 1999, Panama obtained full autonomy over the canal. Now, President Martin Torrijos, whose father signed the 1977 treaty, is proposing to complete the canal expansion plans first initiated by the United States nearly a century ago.

The Expansion: Continuing the U.S. Legacy
The proposed expansion project has been eagerly supported by Washington, the canal’s major beneficiary. Julio Yao, of the Panama daily Estrella Panama, concluded that Washington fully supported the expansion project, noting that President Bush stated that the canal is vital to U.S. security interests. But critics insist that Panama should not carry out the project simply to satisfy global commercial interests and the narrowly defined security concerns of the United States. Even though global trade and the shipping industry will undoubtedly benefit from canal renovation, critics claim that locals will not fare as well, as government officials will simply pocket a hefty chunk of the revenues, nor will they necessarily benefit from the greater trade access and enhanced security derived by the U.S. Their conclusion is that the project will only serve as another vehicle for the U.S. to project its authority in Latin America and to further heat up the country’s explosive mix of corruption, drugs, money laundering, contraband, and other illicit transactions.

Current Economic Benefits of the Canal
According to the ACP, revenues from the canal in the 2005 fiscal year were $489 million, which represents approximately sixty percent of the national investment budget. The canal revenues go directly to the National Treasury, making it difficult to determine what social projects can be attributed to the funds generated from the canal. In an effort to ensure that the revenues were in fact benefiting Panamanians, the government has proposed a $500 million budget, operational for the next ten years. The 610 districts of Panama will split the funds, using the money for the construction of social projects that directly benefit communities across the country.

Proposed Project
As the forces of globalization concentrate on promoting heightened levels of trade around the world, the relative importance of an expansion of the canal has increasingly become a more widely debated issue. Both the ACP and the government of Panama are now focused on enlarging the facility, thus maintaining the country’s competitive position in international trade. As the Latin Business Chronicle has noted, the unprecedented increase in trade between the U.S. and China, in large part, has been responsible for the longer delays in waterway transit. Since trade between these two countries will likely grow exponentially in the near future, Panama, as well as international trade circles are worried about the canal’s ability to accommodate higher trade volumes. According to the Washington File, “Panama is concerned that without the [canal’s] expansion, a competing project might be built in Central America or Mexico, making the [Panama] canal into just a ‘regional’ waterway.” In this context, the modernization project would maintain the canal’s status as an important means of trade, because with relatively modest improvements, according to its proponents, it would be able to “handle almost twice the current volume of cargo and would speed the movement of ships that now must wait in long lines at the canal’s entrances.” Another reason for its expansion is the development and coming on of post-Panamax ships, which are too wide to fit through the existing locks. Panamax vessels are the most common among ocean fleets now in service, ranging from 91-105 feet wide, just small enough to fit through the 110 ft wide canal. The new generation of post-Panamax ships, however, are much larger and therefore too wide to fit through the canal, forcing shippers to use other sea routes. Such cargo ships are not an immediate problem, because only the U.S. navy is currently operating with a fleet of this size.

The Blinded Government
The expansion project has been very controversial from its outset due to, among other things, claims of high opportunity costs, including an 8-year renovation time-line. However, the Torrijos administration has been insistent over supporting the ACP-sponsored project and has expended considerable energy and funds on campaigning not only within Panama, but across the globe, in favor of canal expansion. The government has been presenting the project as a benefit to the entire world, and as a catalyst for economic change in Panama, as well as an eminently affordable and self-financing project. Samuel Lewis, vice-president and foreign minister of Panama, addressed the OAS in June and claimed that “Expanding the existing size of the Panama Canal would benefit Panama and the entire Western Hemisphere.” The ACP also feels that it possesses the numbers to prove conclusively that the project will facilitate world trade, which is not being debated.

In a recent exchange regarding the canal proposal, ACP architect Francisco Miguez claimed that expansion would encourage the growth of East Asian and U.S. East Coast trade, which at the present time already is “the most important part of the canal’s business.” Furthermore, according to Greg Miller of Fairplay weekly, and an eminent expert in such matters, the expansion project is not only necessary to support the Asia market, but is necessary for “the diversification strategies of the major US shippers.” Companies such as Wal-Mart were “convinced by the 2002 US West Coast port labor disaster and the 2004 congestion crisis in Los Angeles/Long Beach, that they could no longer afford to keep all their supply-chain eggs in the Los Angeles/Long Beach basket.” As a result of the crises, companies determined that “they must diversify import gateways more to the US East/Gulf Coasts via both the Panama Canal and increasingly, the Suez Canal.” Miller also noted that unless the canal is expanded, Panama will continue to lose business to the Suez Canal, which can handle much larger ships. Only by enlarging the waterway, will Panama continue to remain competitive in the global trade arena.

Final Costs $5.25 Billion?
The government and the ACP, however, may be employing somewhat specious, self-serving arguments that do not necessarily reflect the facts of the case. According to the ACP, the project will only cost a relatively low $5.25 billion, a figure that the group claims will include inflation and “all aspects” of the project. This figure, however, is almost certain to be widely optimistic as it fails to include many other factors such as typical indirect costs related to any major development project. As noted by Eric Jackson, the indefatigable editor of The Panama News, the figure neither includes the expenditures necessary to repair the roads that will be damaged from transporting heavy equipment, nor the costs of environmental damage. Lakes near the canal’s trajectory could become so salty that the urban water treatment plants would have to be upgraded, a project that the government is not in a position to readily fund. Even more astounding is the fact that the figures do not include “the costs of accommodating a large temporary construction work force [that will have] to be created and housed on the Atlantic side where housing and infrastructure for these prospective construction workers] does not [now] exist.” This calls into question the breadth and reliability of prior estimates.

Since presenting the initial “official” estimate to Panamanians, even President Torrijos has begun to discuss other associated costs. The Panama News reported that in a speech before the National Assembly, the president proposed constructing a “bridge or tunnel across the canal to connect to Costa Abajo de Colon with the rest of the country.” This project would add at least a $300 million expense to the canal expansion project’s initial budget. Obviously, new side-projects will develop as time goes on, greatly increasing the total cost of the venture. Leading experts have come up with radically different estimates. Civil engineer Humberto Reynolds, a member of the Sociedad Panameña de Ingenieros y Arquitectos (SPIA), conducted a study in which he and his colleagues concluded that the project would likely cost what amounts to $7 billion, considerably more than the government’s $5.25 billion estimate. Reynolds conducted this study because prior research was commissioned by the ACP and had been carried out by its employees. This created a conflict of interests and lead to inaccurate conclusions.

In addition to expected distorted cost estimates, the government is falsely portraying the expansion as the perfect solution to Panama’s current deplorable economic conditions. In his OAS address, the Panamanian vice-president declared that the enlargement of the canal would help “overcome the extreme poverty and the most striking inequalities faced by too many Panamanians,” and further posited that the expansion could “help take us towards higher levels of development and well-being.”

President Torrijos has supported Lewis’ simple-minded view that the expansion will provide the country with heavenly manna, seeing it as Panama’s equivalent to Venezuela’s oil. However, such remarks are sure to prove the product of exaggerated expectations. The jobs generated by the canal project are supposed to be funded by toll increases as well as by loans, which will only increase the nation’s already substantial foreign debt. Furthermore, the project will likely go over budget, generating pressure on the revenue stream while placing long-term financial burdens on Panamanians.

According to Dr. Bent Flyvbjerg, author of Megaprojects and Risks, 9 out of 10 large ventures have underestimated costs and go over budget, with political and self-serving interests as one main cause of misinformation. With such a low budget for a major project, one must question whether or not the expansion, could turn out to be an enormous financial burden, along the line of Boston’s disastrous Big Dig. That project was completed in 2003 after years and a total expenditure of $14.6 billion, $10.6 billion more than the original estimate. The ACP and the Torrijos government should heed to the estimates presented by other engineers and economists, and not repeat Boston’s mistakes. What is needed is a much more sophisticated cost estimate of the project.

Critics insist that before Panamanians can entrust their officials with the implementation of this enormous project, the government must begin to get in the habit of divulging reliable figures to them. Even the $7 billion estimate, however, may be overly conservative. Jackson reminds us that Undersecretary of Defense for the Western Hemisphere Roger Pardo-Maurer, at a 2005 hearing of the US Senate Committee on Foreign relations, set the anticipated price range of the work at between $16 and $25 billion. In addition, according to the Panamanian Alternativadigital.net, Panama’s ambassador to Indonesia reported in a radio interview that the government was expecting the project to cost around $20 billion. The government of Panama could grievously harm the nation’s economy by undertaking an expansion project which will likely enlarge the nation’s debt by over 200 percent. It also should be noted that the Catholic Church of Panama is adamantly opposed to the expansion not only because of the increased debt, because it will prevent the government from focusing on other costly, yet pressing, social issues. Regardless of its multiple suspected inaccuracies, the government continues promoting the project as the perfect economic development plan for the nation.

Economic Benefits of the Expansion
Part of this “perfect” economic development plan is the creation of numerous jobs for now-unemployed Panamanians. According to Pastor Duran on Alternativadigital.net, the ACP and Torrijos government have estimated that the expansion project will generate 252,000 new positions; however, the real numbers could be much lower. The ACP predicts that even by 2010, the culminating point of the project, only 7,000 new jobs will be generated. As Duran notes, if so few positions are generated in the prime year of construction, Panama cannot expect to receive the quarter million jobs promised by Torrijos. Just as the government has not been totally forthcoming about the projected costs of the project, they could be exaggerating the possible scope of employment simply to broaden political support from the citizenry for the decisive upcoming referendum.

The ACP has also projected estimates that the expansion will greatly benefit the entire Panamanian economy. The businesses generated as a result of the expansion will increase the National Treasury contributions by eight times the current amount. Furthermore, the expansion will allow Panama’s GDP to increase by 2.5 times the current GDP twenty years from now.

Security
As it is, the widely fluctuating cost estimates are important warning signs against embarking on the expansion project without extreme caution. Moreover, security, in light of the country’s high potential risk as a terrorist target, must be stronger than it is now the case. Currently, the Torrijos government and the ACP have been the latest administration that has inadequately addressed the pressing security needs of the canal that became evident once the U.S. abandoned its military presence there. Retired Foreign Service Officer David Jones noted in a report for Americandiplomacy.org, that “other than a rather cursory inspection of the airport variety at one lock’s observation site,” no other security existed. If Torrijos expects other nations to help fund his proposal, he must first expand the security budget for the canal and ensure that the expansion project will not become a prime attraction for terrorist activity.

Shady Business
Even some who favor canal expansion believe that the project, despite its potential benefits to global trade, should not be funded under the aegis of an administration that has been repeatedly found to be woefully inept and, at times, distressingly corrupt. Despite government reassurances that it will use some of the earnings from the canal to help improve the living conditions of Panamanians, such promises could be unfounded. As sociologist Marcos Gandásegui points out, from 2000 to 2006, Panama received $2 billion in canal revenues, none of which has reached the people. This has led him to believe that “the whole canal expansion project is designed to benefit shipping companies and the financial sector, and has very little to do with creating jobs.” Any funds generated by the expansion could end up in the off-the-books funding of members of the Torrijos administration and others in high places.

Inept and Corrupt Leadership
It also has been claimed that the project has helped spawn a bureaucracy of wasteful and venal officials who have crowded out the professional talent from the bureaucratic ranks. President Martin Torrijos assumed office with promises of zero corruption. Tragically, this vow has not been honored. According to a study conducted by Aart C. Kraay , Daniel Kaufmann and Massimo Mastruzzi for the World Bank, the control of corruption in Panama in 2004 was at -0.06 (out of a -2.5 to 2.5 scale, with higher values corresponding to better government), representing little change in the high negative rating issued in 2002. In addition to the World Bank Report, Transparency International released a Corruptions Perception Index (CPI) Report in 2005, in which Panama did not fare well. It was ranked 65 out of the 158 countries surveyed, with a 3.5 CPI score, less than half of the U.S. score.

Freedom House, which itself has a mixed record when it comes to conforming to its “Cold War” agenda regarding left-leaning regimes, came up with its own evidence of the corruption existing within the Torrijos administration. In its 2005 Report, the organization noted that although the Panamanian president had established a National Anti-Corruption Commission and implemented a Transparency Law, he had since acted to limit the scope of the law, retrenching from both anti-corruption efforts. The Torrijos administration has “exempted cabinet meeting’s minutes from public divulgence under the law and the Solicitor General [has] advised against the disclosure of officials’ assets.” Such actions should frighten off many of those interested in entrusting the Panamanian government with the expansion project. Not having to disclose the ownership of assets or meeting’s minutes can deliberately allow government officials to do largely as they please with the funds generated for the project. The expansion project is an example of the government’s double-standard on transparency. The Panama News’ Jackson notes that the ACP has been open about the amount of funding ($1 million) directed towards a campaign in favor of the expansion; however, the average Panamanian has not been sufficiently informed of where exactly the money would come from, and how it was and will be spent. Also of interest would be how much of the funding will be coming from political parties such as the Partido Revolucionario Democrático (PRD).

Torrijos has specifically permitted a compromised office to operate around him; examples of the lack of transparency are bountiful. According to Okke Ornstein of Noriegaville.com, Torrijos has refused to reveal the sources of his campaign funds, even though he promised Panamanians that he would be thoroughly transparent. In his presidential campaign, he also promised to establish an independent authority capable of investigating and prosecuting corruption in all of its forms. Instead, he has only established a powerless anti-corruption office which can only provide advice to the administration. Torrijos has also abused the funds provided for his office: during his first 100 days in office, he spent $75,000 simply on furniture. Such a waste of funds is an abhorrence considering the vast poverty throughout his country.

Early Signs of Corruption Surround the Canal
The Panamanian populous has yet to approve the expansion project, yet the Torrijos administration is already cashing its blank checks, lining the pocket books of its close associates. As Panama News has noted, Torrijos and the Electoral Tribunal were determined that that public funds would not be used to promote the expansion; however, as mentioned earlier, the government is now funding propaganda favoring the project under an “educational” banner. Interestingly enough, Torrijos’ father-in-law is the owner of the advertising firm contracted to disperse the canal propaganda. The ACP has also been cashing its blank checks. Bobby Eisenmann, a prominent Panamanian who fought in the human rights battle against the Manuel Noriega dictatorship, purportedly wrote for the ACP’s propaganda journal El Faro, which is included weekly in La Prensa, a publication that Eisenmann partly owns. In exchange, Eisenmann allegedly has received a lucrative benefit from the insertion of the campaign brochure in the newspaper. By spreading around cash, Torrijos and the ACP are amassing plenary power, influencing the minds of Panamanians in order to win the vote in the referendum.

In addition to the use of close affiliates already benefiting from public funds designated for “expansion,” the Constructora Urbana SA, a construction firm, is scheduled to receive a contract from the Torrijos administration and the ACP. This family-owned business, out of which Alberto Aleman Zubieta emerged to head the Panama Canal administration, appears to be wired for the job. Also, the financial institution likely to carry out the project’s financial requirements will be Banco General, whose CEO is the brother of the ACP administrator. The best bidder will not likely be given the contract, but rather, this will inevitably go to close government and ACP affiliates who are likely to be the beneficiaries of the enormous influx of money and investments to be generated by the project.

Corrupt Defender
The extent of corruption has even infiltrated the position office of the Ombudsman (a public official that investigates citizens’ complaints against the government). The most recent incumbent of that office, Liborio García, the supposed defender of the citizenry, was actually appointed with the mission of neutralizing the Ombudsman’s office and to tone down the push for transparency and freedom of press issues. The Torrijos administration, in need of someone who would afford them the elbow room to do whatever necessary to promote its off-the-book interests, went ahead and selected the Ombudsman in an undemocratic manner, choosing García even though he had no particular background in human rights issues or history of upholding ethical standards. After his nomination, Torrijos had Congress cast its approving votes secretly, despite the constitution’s requirement for an open vote. During his nomination process, however, a scandal broke out which involved García in a domestic violence dispute. Embarrassed and pressured by women’s rights groups, congress entered charges against him and then voted to remove him from his post as defender of the people. Interestingly, a new Ombudsman will not be appointed until at earliest December, well after the October referendum, eliminating a vital factor in ensuring Panamanians of a fair vote.

Failed Judicial System
Panama’s Supreme Court was rightly criticized by a Freedom House finding. Even though the judicial system was “revamped” in 1990, “it remains overworked and its administration is inefficient, politicized, and prone to corruption.” The U.S. State Department, in its annual country reports on Human Rights, also concluded that Panama’s judicial system was engulfed by corruption, stating that judicial appointments were made not on merit, as required by law, but by political influence. Furthermore, other government branches greatly manipulate the judicial system, eliminating any hope of maintaining a fair and independent judiciary. The courts are packed with cases against former and current officials, especially those resulting from the period when Manuel Noriega exercised de facto rule. The resulting slow judicial process is not only an offense against those charged, but it is an offense to average Panamanians who deserve a supreme court that can effectively try criminal officials.

Even the “civic” police — the Panamanian Public Forces — are wrought with corruption and are “poorly disciplined,” habitually resorting to use of excessive force rather than fair, humane treatment of suspected individuals. Current cases suggest that the government cannot be trusted to charge anyone caught defalcating funds from the project, if those involved are properly connected. Besides installing shady officials in the decision-making process, the Torrijos administration has failed to address vigorously the accusations brought against former officials. For example, former President Mireya Moscoso was charged with stealing tens of millions of dollars of state funds; yet, the Supreme Court has simply dismissed the case without an investigation and she now has been invited by Torrijos to participate in the canal discussion programs taking place in public forums throughout the country, up until the referendum. Also, Moscoso has never been seriously questioned on her immensely suspicious last minute release of Luis Posada Carriles, a Cuban terrorist who was universally believed to be the mastermind behind the bombing of a Cuban airline in 1976, who was being detained by Panamaian authorities.

Transparency without Freedom of Press?
Torrijos’ promise of transparency has been further clouded by the lack of press freedom, especially regarding the canal expansion project. The administration has clearly attempted to silence any opposition to the expansion. The Panama News reported that Maribel Cuervo de Paredes had been a columnist for La Prensa for 15 years when she was informed by the publisher that her column would be cancelled because her opinions were supposedly not “objective.” Interestingly enough, Maribel had been one of the main critics of the expansion project. In another La Prensa report covering the Catholic Church’s demand for a fair debate over the proposed project, the newspaper gave twice the space to expansion supporters than to the Bishops and granted no space to any opposing views. With the help of a largely compliant media and upbeat reports being published about the project, the Torrijos administration hopes to guarantee a win in the October referendum.

Trouble at the University
In addition to bringing tainted officials like Moscoso into the canal project, the Torrijos administration has closed its eyes on the scandal surrounding García de Paredes, who is not only the president of the University of Panama, but also was the president of the Interoceanic Regional Authority (ARI), “which manages, sells and leases assets in the former U.S. canal zone, and includes a lucrative network of real estate, military facilities and airports.” Miguel Antonio Bernal, a highly regarded professor of international affairs at the university, began to suspect that diplomas were being issued to alleged graduates of the institution who had neither paid tuition nor completed the work necessary for graduation, finally arriving at the conclusion that García de Paredes had simply been giving away diplomas to certain favored individuals. The Torrijos government immediately resorted to damage control procedures by backing the heavily controversial García de Paredes, even to the point of allowing him to run for re-election for his university post, which was both illegal and done over the adamant protests of students and teachers, including Bernal. For his efforts, Bernal – who serves as Panama’s conscience – has been threatened to be severed from the institution and to this day receives threats from García de Paredes as well as other Torrijos supporters. The Supreme Court has ruled that by law, the rector could not run for re-election; but Torrijos officials, quickly pressured the judges to reverse their ruling, and they promptly acquiesced. In the university-wide elections that followed, García de Paredes was re-elected. It is important to note that in such votes, the ballots are weighted in favor of full-time professors, and it was García de Paredes himself who had appointed many of those now holding full-time positions, who now were able to return the favor.

Spotlighting More Torrijos Administration Flaws
Aside from its corruption, the Torrijos government has failed to address human rights and drug trafficking issues in the country, despite the revenues available from the canal. According to the U.S. State Department’s Annual Country Report on Human Rights, domestic violence and trafficking of women remain a common problem. Also, children have not received protection from the judicial system. “Due to inadequate government resource allocations and training, family courts continued to render controversial decisions,” which has forced many children to return to abusive situations. Furthermore, according to the CIA Fact Book, Panama is a “major cocaine transshipment point and primary money-laundering center for narcotics revenue,” while “organized illegal narcotics operations in Colombia operate within the border region with Panama.”

Not the Time for Crime
Eventually, an expansion of the canal will be necessary in order for the waterway to accommodate the ever-increasing demands made by growing global trade. However, critics argue that now may not be the best of times to launch such an ambitious project. The expansion is not of immediate vital importance as post-Panamax ships are not in wide use. More crucial is that the public be made wary over whether the Torrijos administration in particular should be charged with implementing the expansion.

False advertising and deceptively low projected estimates touted by the government are part of an intentional campaign to lead Panamanians to believe that the expansion of the canal will cure all their economic ills if the proposal passes in the October referendum. Furthermore, with the cloud of corruption hanging over public figures, like García de Paredes, who are tied to the canal expansion project, confidence in the government’s integrity, are heavily undermined. Experts around the world cannot let this major global venture pass by without notice. Ecologists will likely be on guard when it comes to Panama and the expansion project, and electoral observers must be vigilant when it comes to ensuring a fair referendum in October in order to prevent the type crisis that is now being witnessed in Mexico.

A government with such outstanding abuses should not be granted stewardship over a project that will pass an enormous amount of discretionary funds to pass through its corrupt fingers. The lack of transparency and the country’s notoriously compromised judicial system should serve as a huge warning sign to investors around the world that this will most likely be a troubled project. The government of Panama is in such short supply of integrity and public rectitude that it cannot be trusted to administer such a project.