National Trade Data Bank ITEM ID : ST BNOTES PANAMA DATE : Oct 28, 1994 AGENCY : U.S. DEPARTMENT OF STATE PROGRAM : BACKGROUND NOTES TITLE : Background Notes - PANAMA Source key : ST Program key : ST BNOTES Update sched. : Occasionally Data type : TEXT End year : 1992 Date of record : 19941018 Keywords 3 : Keywords 3 : | PANAMA US DEPARTMENT OF STATE BACKGROUND NOTES SERIES, PANAMA, MARCH 1992 PUBLISHED BY THE BUREAU OF PUBLIC AFFAIRS Official Name: Republic of Panama PROFILE Geography Area: 77,381 sq. km. (29,762 sq. mi.); about the size of South Carolina. Cities: Capital--Panama City and San Miguelito (pop. 821,000 preliminary estimate). Other cities--Colon (141,000), David (103,000). Terrain: Mountainous (highest elevation Cerro Volcan, 3,475 m.--11,468 ft.); coastline 2,857 km. (1,786 mi.). Climate: Tropical, with average daily rainfall 28 mm. (1 in.) in winter. People Nationality: Noun and adjective--Panamanian(s). Population (1991): 2.4 million. Annual growth rate (1991): 2.5%. Ethnic groups: Mestizo 70%, West Indian 14%, white 10%, Indian 6%. Religions: Roman Catholic 93%, Protestant (Evangelical) 6%. Languages: Spanish (official); 14% speak English as their native tongue; various Indian languages. Education: Years compulsory--6. Attendance--95% primary school-age children; 96% secondary. Literacy--87% overall: urban 94%, rural 62%. Health (1989): Infant mortality rate--22/1,000. Life expectancy--72 yrs. Work force (1990, 820,000): Government and community services--27%. Agriculture--25%. Commerce, restaurants, and hotels--15%. Manufacturing and mining--10%. Transportation and communication--6%. Construction--4%. Finance, insurance, and real estate--4%. Canal area--2%. Electricity, gas, and water--1%. Other --5%. Government Type: Constitutional democracy. Independence: November 3, 1903. Constitution: October 11, 1972; amended 1978 and 1983 (new amendments pending). Branches: Executive--president (chief of state), two vice presidents. Legislative-- Legislative Assembly (unicameral, 67 members). Judicial-- Supreme Court. Subdivisions: Nine provinces and one (Indian) territory. Political parties: Government coalition includes the Arnulfista Party, led by President Guillermo Endara, and the National Liberal Republican Movement (MOLIRENA) of Second Vice President Billy Ford. The Christian Democratic Party (PDC), led by First Vice President Ricardo Arias Calderon, was removed from the coalition in April 1991 and is the main opposition party, holding a plurality of seats in the Legislative Assembly. The oppositionist Democratic Revolutionary Party (PRD) was founded by Gen. Omar Torrijos and constituted the civilian arm of the regime of Gen. Manuel Noriega. The Civic Crusade spearheaded the struggle against Noriega and favors more far-reaching institutional reforms than the governing coalition, although it is not a political party. Smaller parties along the political spectrum include: Agrarian Labor Party (PALA), Liberal Party (PL), and the Doctrinaire Panamanista Party. Suffrage: Universal at 18. Flag: Four rectangles--lower left, blue; upper right, red; upper left, white with blue star in center; lower right, white with red star in center. Economy GDP (1991): $5.2 billion. Annual growth rate (1991): 9.3%. Per capita GDP (1991): $2,150. Avg. inflation rate (1991): 1%. Unemployment (1991): 16% (down from 35% in December 1989). Natural resources: Timber, seafood, copper, ore. Sectors: Service (79% of GDP, 1991): Finance, insurance, canal-related services. Agriculture (11% of GDP, 1991): Products--bananas and other fruit, corn, sugar, rice, coffee, shrimp, timber, vegetables, cattle. Land--agricultural 24%, exploitable forest 20%, other 56%. Industry (10% of GDP): Types--food and drink processing, metalworking, petroleum products, chemicals, paper and paper products, printing, mining, refined sugar, clothing, furniture, construction. Trade (excluding Colon Free Zone): Exports (1991 est.)--$385 million: bananas 25%, shrimp 13% (other seafood 4%), sugar 8%, clothing 5%, coffee 4%, other 41%. Major markets--US, Europe. Imports (1991 est.)--$1.5 billion: consumer and intermediate goods 65%, capital goods 18%, food 9%, crude oil 7%. Major suppliers--US, Japan, Europe, Mexico. Exchange Rate: The exchange rate is fixed at unity with the US$. US economic assistance: FY 1990-91, $451 million; FY 1992, $10 million. Fiscal year: Same as calendar year. PEOPLE The culture, customs, and language of the Panamanians are predominantly Caribbean Spanish. Ethnically, the majority of the population is mestizo (mixed Spanish and Indian) or mixed Spanish, Indian, Chinese, and West Indian. Separate minority races, including West Indian and indigenous Indian (Cuna, Guaymi, and Embera or Choco), complete a colorful ethnic tapestry. Spanish is the official and dominant language; English is a common second language spoken by the West Indians and by many Panamanian professionals and businessmen. More than half the population lives in the Panama City-Colon metropolitan corridor. The rural areas are not heavily populated, and most of the rural population lives west of the canal. Panama is rich in folklore and popular traditions. Brightly colored national dress is worn during local festivals and the pre-Lenten carnival season, especially for traditional folk dances like the tanborito. Lively salsa--a mixture of Latin American popular music, rhythm and blues, jazz, and rock-- is a Panamanian specialty. Indian influences dominate handicrafts such as the famous Cuna textile molas which generally depict native wildlife and themes. Artist Roberto Lewis' Presidential Palace murals and his restoration work and ceiling in the National Theater are well known and admired. Education The University of Panama and its extensions throughout the country have a total enrollment of about 40,000 students, the majority of whom attend evening classes. Some 9,500 students, primarily in engineering and allied fields, attend the Technical University. About 4,500 students are enrolled in the University of Santa Maria la Antigua, a private Roman Catholic institution. A large number of the well-to-do study abroad. Primary education is compulsory, and there are 350,000 students currently enrolled in grades one through six. Enrollment in secondary grades is 200,000. Literacy in Panama is measured at 87%. Media Panama has six daily newspapers and tabloids: La Prensa, Panama America, El Siglo, Critica Libre, El Diario Independiente, and La Estrella de Panama. Three commercial Spanish-language television stations broadcast daily, and US television programs are available by satellite or subscription in Panama City. The Voice of America international news is carried daily on most of the major radio stations. The US Southern Command, headquartered in Panama, operates an AM/FM radio transmitter and a television station for the benefit of the US military and their dependents. These broadcasts also have significant audiences among Panamanians in Panama City and Colon. HISTORY Panama's history has been shaped by the evolution of the world economy and the ambitions of great powers. Rodrigo de Bastidas, sailing westward from Venezuela in 1501 in search of gold, was the first European to explore the isthmus of Panama. A year later, Christopher Columbus visited the isthmus and established a short-lived settlement in the Darien. Vasco Nunez de Balboa's tortuous trek from the Atlantic to the Pacific in 1513 demonstrated that the isthmus was indeed the path between the seas, and Panama quickly became the crossroads and marketplace of Spain's empire in the New World. Gold and silver were brought by ship from South America, hauled across the isthmus, and loaded aboard ships for Spain. The route became known as the Camino Real, or Royal Road. Panama was part of the Spanish empire for 300 years (1538-1821), and the principal themes of Panamanian history are rooted in that experience. From the outset, Panamanian identity was based on a sense of "geographic destiny," and Panamanian fortunes fluctuated with the geopolitical importance of the isthmus. The colonial experience also marked Panamanian nationalism with its strongly anti-imperialist flavor. In addition, one of the principal legacies of Spanish colonialism was a racially complex and highly stratified society, the source of internal conflicts that ran counter to the unifying force of Panamanian nationalism. A trans-isthmian canal had been a dream since the beginning of Spanish colonization. From 1880 to 1900, a French company under Ferdinand de Lesseps attempted unsuccessfully to construct a sea-level canal on the site of the present Panama Canal. In November 1903, after Colombia rejected a treaty permitting the United States to build a canal, Panama proclaimed its independence from Colombia and concluded the Hay/Bunau-Varilla Treaty with the United States. The treaty authorized the United States to build a canal through a zone 10 miles wide and to administer, fortify, and defend it "in perpetuity." In 1914, the United States completed the existing 83-kilometer (52-mile) lock canal. The early 1960s saw the beginning of sustained pressure in Panama for the renegotiation of this treaty. (See discussion of United States-Panama relations and the 1977 Panama Canal Treaties below.) From 1903 until 1968, Panama was a constitutional democracy dominated by a commercially oriented oligarchy. During the 1950s, the Panamanian military began to challenge the oligarchy's political hegemony. In October 1968, Dr. Arnulfo Arias Madrid, twice elected President and twice ousted by the Panamanian military, was again ousted as President by the National Guard after only 10 days in office. A military junta governed, and the Commander of the National Guard, Brig. Gen. Omar Torrijos, emerged as the principal power in Panamanian political life. Torrijos was a charismatic leader whose populist domestic programs and nationalist foreign policy appealed to the rural and urban constituencies largely ignored by the oligarchy. Torrijos' death in a 1981 plane crash altered the tone but not the direction of Panama's political evolution. Despite 1983 constitutional amendments which appeared to proscribe a political role for the military, the Panama Defense Forces (PDF), continued to dominate Panamanian political life behind a facade of civilian government. The presidential election of 1984 resulted in the election of the pro-military coalition candidate, amid widespread voting irregularities and charges of fraud. Pro-government parties also won a majority of Legislative Assembly seats in races tainted by charges of corruption. By this time, Gen. Manuel Noriega was firmly in control of both the PDF and the civilian government. The rivalry between civilian elites and the Panamanian military, which had been a recurring theme in Panamanian political life since the 1950s, now developed into the gravest crisis in Panama's history. Traditional elites joined middle-class elements in organized opposition to the PDF's economic and political power. Prompted by government restrictions on media and civil liberties and the 1985 murder of prominent opposition leader Dr. Hugo Spadafora, more than 100 business, civic, and religious groups formed a loose coalition that organized widespread anti-government demonstrations in the summer of 1987. Panama's developing domestic crisis was paralleled by rising tensions between the Panamanian Government and the United States, which were caused in part by the regime's crackdown on civil liberties and its harassment of US citizens. The United States froze economic and military assistance to Panama in the summer of 1987 in response to the political crisis and an attack on the US Embassy. The Government of Panama countered by ousting the US Agency for International Development in December 1987. On December 23, the US Congress cut off all assistance to Panama. The indictment of General Noriega in US courts in February 1988 on drug-trafficking charges sharpened the political crisis in Panama and tensions between Panama and the United States. In early March, President Eric Arturo Delvalle's attempt to remove Noriega as PDF commander led to a government takeover by the PDF and domination of the Legislative Assembly by Noriega forces. In April 1988, President Reagan invoked the International Economic Powers Act, freezing Panamanian Government assets in US banks and prohibiting a variety of payments by American agencies, firms, and individuals to the Noriega regime. Efforts to negotiate a resolution of the crisis failed in May 1988, when Noriega refused to abide by the terms of an agreement negotiated with his representatives for him to relinquish his authority. Despite the increasingly repressive character of the regime, the anti-Noriega opposition prepared for presidential and legislative elections in May 1989. The May 1989 election was widely understood by Panamanians to be a referendum on Noriega versus democracy. Panamanian voters turned out in overwhelming numbers and voted by a margin of more than three-to-one for the anti-Noriega candidates. The size of the opposition victory and the presence of international observers thwarted regime efforts to control the outcome of the vote. The regime annulled the election and embarked on a new round of repression. By the fall of 1989, the Noriega regime was clinging to power through fear and force. An unsuccessful PDF coup attempt in October produced bloody reprisals. Deserted by all but a small number of cronies, distrustful of a shaken and demoralized PDF, Noriega began increasingly to rely on irregular, paramilitary units called Dignity Battalions. The climax of the crisis came in December 1989, with a regime declaration of war against the United States and attacks on US military personnel. On December 20, President Bush ordered the US military into Panama to protect US lives and property, to fulfill US treaty responsibilities to operate and defend the canal, to assist the Panamanian people in restoring democracy, and to bring Noriega to justice. The US troops involved in Operation Just Cause achieved their primary objectives quickly, and the withdrawal of troops sent into Panama on December 20 began on December 27. Noriega initially sought refuge in the Papal Nunciature, but he eventually surrendered voluntarily to US authorities. Panamanians moved quickly to begin rebuilding a civilian, constitutional government. On December 27, Panama's Electoral Tribunal--whose members were appointed by Noriega--invalidated the Noriega regime's annulment of the May 1989 election and confirmed the victory of opposition candidates Guillermo Endara (President), Ricardo Arias Calderon (First Vice President), and Guillermo Ford (Second Vice President). As its priority objectives, the Endara Government identified economic recovery and the transformation of the Panamanian military into an apolitical police force under civilian control. The Electoral Tribunal also certified winners in 58 of the 67 Legislative Assembly races held in May 1989, and the Legislative Assembly convened for its first session on March 1, 1990. In January 1991, free and fair elections were held for the nine legislative seats whose winners could not be certified by the Electoral Tribunal. GOVERNMENT AND POLITICAL CONDITIONS Panama's constitution separates the government into executive, legislative, and judicial branches. The president is elected to a 5-year, non-renewable term in a direct popular election. The legislative branch consists of a 67-member Legislative Assembly. The judicial branch is organized under a nine-member Supreme Court and includes all tribunals and municipal courts. An autonomous Electoral Tribunal supervises voter registration and political party and election law activities. Everyone over the age of 18 is required to vote, although those who fail to do so are not penalized. The Legislative Assembly is considering a number of proposed constitutional amendments. While most of the proposed amendments are of a relatively minor nature, there are a number which would establish a permanent legal basis for the demilitarization reforms carried out by the Endara Government in 1990 and 1991. They would prohibit the existence of an army, divide the public security forces into separate branches, and prohibit them from intervening in Panama's political life. Following approval by the Legislative Assembly, these constitutional changes will be submitted to popular ratification in a plebiscite. Panama has a rather fragmented multi-party system; 16 parties took part in the 1984 elections, and more than 12 participated in the 1989 elections. Each political party must have at least 30,000 members in order to acquire full legal status. The current government was elected under the aegis of the Civil Democratic Opposition Alliance (ADOC), which was a coalition of the Authentic Liberal Party (PLA), the Christian Democratic Party (PDC), and the National Liberal Republican Movement (MOLIRENA). President Endara ran as the candidate of the Authentic Liberal Party because his own political party--the Authentic Panamanista Party--had been taken away by the regime's Electoral Tribunal and awarded to a Noriega supporter. In 1990, Endara reorganized his followers as the Arnulfista Party which is now part of the governing coalition. In April 1991, after a series of disagreements over policy and patronage issues, President Endara removed Arias Calderon from his cabinet position as Minister of Government and Justice, prompting the other members of the PDC to resign from government. Arias Calderon retains his elected position as First Vice President. The PDC, which holds a plurality in the legislature, has stated that it will act as a responsible opposition party, working in cooperation with the Endara Government on issues to benefit the country. The Democratic Revolutionary Party (PRD) leads the COLINA coalition of labor, revolutionary, and communist parties, and is made up primarily of former Noriega supporters; COLINA holds the "swing vote" in the national legislature with 12 seats. The Tendencia faction of the PRD is a strong-arm battalion with ties to Cuba and Libya. Tendencia's influence is declining because of internal frictions and public opposition. Principal Government Officials President--Guillermo ENDARA First Vice President--Ricardo ARIAS Calderon Second Vice President and Minister of Planning and Finance--Guillermo "Billy" FORD Minister of Foreign Affairs--Julio LINARES Ambassador to the US--Jaime "Jimmy" FORD Ambassador to the UN--Dr. Carlos AROSEMENA Ambassador to the Organization of American States--Lawrence CHEWNING Fabrega Panama maintains an embassy in the United States at 2862 McGill Terrace NW, Washington, DC 20008 (tel. 202-483-1407). ECONOMY Perhaps the greatest challenge for Panama is economic recovery and expansion. Panama's economy was in shambles at the outset of 1990, after years of mismanagement, 2 years of US economic sanctions, and the lingering effects of increased debt servicing requirements. Total external debt stood at more than $4 billion and total external arrears reached $2.4 billion, including $540 million in arrears to international financial institutions. Panama also had high unemployment and a deteriorating national infrastructure. With the return of democratically elected civilian government, the United States lifted all sanctions and is providing more than $450 million in grant aid and more than $500 million in credits and guarantees in FY 1990-91 to assist in Panama's economic recovery. The key element for Panama's economic recovery, however, is the return of long-term investor confidence brought about by political stability and economic liberalization. The traditional basis of Panama's economy has been services in international shipping, commerce, and finance. Reflecting the canal's role as a global transit point, the canal corridor is significantly more developed than the rest of the country, and modern service and commercial centers have grown up around the terminus cities of Colon and Panama City. Rapid economic growth in the 1960s and early 1970s was due largely to an expansive fiscal policy fueled by extensive foreign borrowing. Annual real growth of almost 5% continued until 1983. This expansion ended, however, with the onset of higher energy prices (Panama imports virtually all of its oil), and the higher world interest rates which these energy price increases caused. Under pressure from its external creditors, Panama attempted to encourage exports, reduce the public sector's deficit and involvement in the economy, and reschedule official and commercial debt. These efforts were half-hearted and finally stalled in the mid-1980s on politically painful issues such as social security and labor code reforms. Moderate growth resumed from 1985 until the 1987 mid-year political crisis, when the economy contracted sharply. From this point through 1989, real GDP declined by more than 17%. The 1987-89 recession had its origins in Panama's deepening political crisis which led to reduced foreign lending and massive capital flight, resulting in a liquidity squeeze. Immediately prior to the 1987 political crisis, Panama again began to have problems with its international debt and rescheduled certain payments. Failure to service external arrears resulted in a cutoff of new credit and further economic contraction. From mid-1987 to December 1989, total banking center assets declined drastically, and many banks left Panama. Bank runs closed financial institutions on March 4 and 18, 1988, and the Banking Commission responded by placing restrictions on depositors' access to accounts (all restrictions were lifted in early 1990). Capital flight exacerbated other problems, such as unemployment. Lack of capital led to declining investment and a simultaneously decreasing demand for workers. The construction industry and the financial sector, which had been Panama's third-largest employer after the Panamanian and US Governments, were hit especially hard. The economic recovery of 1990-91 was broad-based. Capital returned to the banking system. Exports and construction rose. The government deficit and unemployment declined. GDP was estimated to have grown by at least 3.4% in real terms in 1990 and by 9.3% in 1991, and inflation remained very low. Government policies aimed at encouraging foreign private investment for export industries and at improving market efficiencies through the reduction or elimination of tariffs, price controls, and quotas were proposed. Although the initial recovery has been encouraging, sustained growth depends on Panama's ability to resolve some of its long-standing problems, which include high barriers to trade, external debt, persistently high unemployment, and dependence on US Government and canal revenues. Structural economic reforms are the key to lasting Panamanian growth and development. In early 1992, the Endara Government concluded negotiations with the international financial institutions to clear Panama's arrears with these institutions and to restore access to new financing. These negotiations included Panamanian agreement to implement various structural reforms, such as trade liberalization, tax and social security reforms, privatization, poverty reduction, and increased public investment. These reforms will also help to reduce unemployment. By December 1989, unemployment had reached over 35%. US economic assistance during 1990-91 helped to create jobs by funding short-term employment projects in the public sector and by encouraging private sector investment. By 1992, the unemployment rate had fallen to about 16%, close to the "normal" rate of the 1980s. The further expansion of employment opportunities will require new private investment, which will in turn require public sector investment in infrastructure and human resources and policies which promote trade liberalization, market efficiencies, and private sector confidence. To an extent, Panama depends on US Government expenditures and attendant economic activity. The draw-down of US military and civilian forces during the 1990s, the final decade of the canal treaty, will produce increasing economic pressures in Panama unless the country is able to create additional economic activity in the reverted properties. Although the canal produces millions of dollars annually for Panama, it would be inappropriate to use canal revenues to sustain government spending in other non-canal related areas at the end of the treaty period. Canal transits and revenues have increased since 1985, but expanded use of alternatives to the canal, such as cargo transport across North America and the trans-isthmian pipeline, requires that Panama keep the canal economically competitive if revenue is to be sustained or increased. This can only occur with continued maintenance and investment financed by canal revenues. The Panama Canal Commission, which operates the canal through 1999, has approved a $200-million project to widen the canal's Gaillard Cut over the next 20 years. Many other factors point toward economic expansion over the next few years. Panama has long been a major international financial center, fully exploiting its central location and good communication and transportation facilities. A Spanish-speaking environment combined with widespread English proficiency, a well-educated labor force, relative labor stability, and a sophisticated banking system make Panama attractive to outside investment. Additionally, one of Panama's greatest comparative advantages is that it is a dollar-based economy. The exchange rate is fixed at unity with the dollar; the balboa is issued only in coins, and the US dollar circulates freely as legal tender. Panama maintains no foreign exchange controls. The Colon Free Zone (CFZ) is the world's second-largest free trade zone after Hong Kong. In 1990, CFZ activity comprised over 5% of Panama's GDP. The free zone is set to help return Panama to the center of the Latin American economy. The most important action which the Government of Panama has taken to improve the economy, however, is to encourage political stability by re-establishing and strengthening democratic Panamanian institutions. Political stability is crucial in order to attract new private investment and will, along with comprehensive, structural economic reform, go farthest toward creating long-term economic growth for Panama. DEFENSE The Panamanian Government has converted the former Panama Defense Forces into a civilian police organization called the Public Forces, which is subordinate to civilian officials and is responsive to human rights concerns. Personnel strength has been cut from 16,000 to about 13,000. Virtually all former PDF senior officers were removed from the Public Forces, and personnel discovered to have been involved in corruption or other criminal activity are being removed. The old, centralized command structure has been broken up into four independent units: the Panamanian National Police, the National Maritime Service (coast guard), the National Air Service (official transportation), and the Institutional Protective Service(VIP security). The Public Forces are fully accountable to civilian authority under the Minister of Government and Justice. Investigative and other units that have been separated from the Public Forces, such as the Technical Judicial Police, are also directly subordinate to civilian authorities. The Public Forces budget--in contrast to that of the former PDF--is on public record and under control of the executive, decreasing from $97 million, plus at least $45 million in off-budget spending, under Noriega in 1989 to $76 million in 1990. The United States, with congressional approval, is providing appropriate assistance to establish a truly professional law enforcement institution, dedicated to delivering adequate protection to the citizens of Panama while fully respecting human rights, democracy, and the law. The United States is providing police skills training and technical assistance in civilian law enforcement development through a $13.2-million program managed by the US Department of Justice's International Criminal Investigative Training Assistance Program (ICITAP). In addition, $8 million is being spent to assist the Panamanian Government to improve the administration of justice. INTERNATIONAL RELATIONS The Government of Panama is nonaligned. Panama is a member of the UN General Assembly and most major UN agencies, and it has served three terms as an elected member of the UN Security Council. It maintains membership in several international financial institutions, including the World Bank, the Inter-American Development Bank, and the International Monetary Fund. Panama is a member of the Organization of American States and was a founding member of the now-defunct Contadora group, which during the mid-1980s sought peaceful settlement of Central American disputes. It is one of the founding members of the Union of Banana Exporting Countries and also belongs to the Inter-American Tropical Tuna Commission. Although not yet a member of the Central America Common Market, Panama is affiliated with several other Central American regional organi-zations and, under the Endara Government, has participated actively in Central American regional meetings. Panama has not participated in the Latin American Economic System, known informally both as the Group of Eight and the Rio Group, since it was suspended in early 1988 due to its internal political situation under Noriega. Panama is not a member of the General Agreement on Tariffs and Trade (GATT) but has established a commission to negotiate accession to the GATT. US-PANAMANIAN RELATIONS The United States has traditionally maintained friendly relations with the people of Panama and, with the exception of the later Noriega years, has cooperated with the Panamanian Government in promoting economic, political, and social development through US and international agencies. Cultural ties between the two countries are strong, and many Panamanians come to the United States for higher education and advanced training. The presence of US armed forces in Panama has generated some friction, however, and Panama's relationship with the United States has been a recurring political issue throughout Panamanian history. Severe strains were placed on the relationship by the Noriega regime during the late 1980s, but the renewal of democracy and stability in Panama has shown that the bilateral relationship remains fundamentally strong. In addition, the Panama Canal Treaties have provided the foundation for a new partnership. The United States and Panama remain committed to the smooth implementation of these treaties, including the departure of US armed forces, the reversion of US military bases, and the turnover of the canal to Panamanian control at noon on December 31, 1999. Panama is also committed to the fight against illegal narcotics. The country's proximity to major cocaine producing nations and its role as a commercial and financial crossroads make it a country of special importance in this regard. Although Panamanian anti-narcotics institutions lack trained personnel and blueprints for action, concerted efforts against the drug problem are being made by the Endara Administration in cooperation with the United States. Several bilateral anti-narcotics agreements have been signed, the United States is providing needed resources and training, and Public Forces joint operations with the Drug Enforcement Agency and other US agencies have resulted in unprece-dented seizures of cocaine and other narcotics. The conversion of the PDF into the professional Public Forces has further demonstrated the government's resolve to strengthen democracy and to continue the fight against drug-trafficking and money-laundering in Panama. Principal US Officials US Embassy Ambassador--Deane R. Hinton Deputy Chief of Mission--David Beall Counselor for Political Affairs--Steven Wesche Counselor for Economic Affairs--Maureen Quinn Counselor for Public Affairs--Peter DeShazo Counselor for Administrative Affairs--William Francisco Consul General--Robert Raymer Panama Canal Commission Administrator--Gilberto Guardia Deputy Administrator--Raymond Laverty US Southern Command Commander in Chief--Gen. George Joulwan The US Embassy in Panama is located at Avenida Balboa y Calle 38, Panama City (tel. 27-1777). Personal and official mail for the Embassy and members of the mission may be sent to: US Embassy Panama, Box E, APO Miami, 34002. The Panama Canal Treaties The 1977 Panama Canal Treaties entered into force on October 1, 1979. They replaced the 1903 Hay/Bunau-Varilla Treaty between the United States and Panama and all other United States-Panama agreements concerning the Panama Canal which were in force on that date. The treaties comprise: -- A basic treaty governing the operation and defense of the canal from October 1, 1979, to December 31, 1999 (Panama Canal Treaty); and -- A treaty guaranteeing the permanent neutrality of the canal (Treaty on the Permanent Neutrality and Operation of the Panama Canal). The details of the arrangements for US operation and defense of the canal under the Panama Canal Treaty are spelled out in separate implementing agreements. Purpose of the Treaties In negotiating the Panama Canal Treaties, the United States acted to protect a fundamental national interest in long-term access to a secure and efficient canal. Panama's cooperation is fundamental to this objective. By meeting Panamanian aspirations for eventual control of the canal, the United States sought a new relationship with Panama based on friendship and mutual respect. The treaties make Panama a partner in the continued safe and efficient operation of the canal. In serving the best interests of both nations, the treaties serve the interests of all users of the canal. History of the Negotiations Our bilateral relationship with Panama has centered on the Panama Canal since the beginning of the century. Under the 1903 treaty, the United States acquired unilateral control of the canal and the Panama Canal Zone-- a 553-square-mile area in which the United States exercised the rights, power, and authority of a sovereign state. Panamanians deeply resented the 1903 treaty and the unequal relationship with the United States which it embodied. In January 1964, Panamanian dissatisfaction with this relationship boiled over into riots which resulted in the deaths of four US Marines and more than 20 Panamanians. A 3-month suspension of diplomatic relations followed. The growing bilateral tension in the 1960s gave weight to the views of those who believed that a new canal treaty was needed to replace the 1903 treaty and to establish a new relationship with Panama. In June 1967, United States and Panamanian negotiators completed draft treaties dealing with the existing canal, a possible sea-level canal through Panama, and defense matters. Neither country ratified the treaties, however, and they were publicly rejected by the Torrijos Government in 1970. Treaty negotiations resumed in June 1971. On September 7, 1977, President Carter and General Torrijos signed the Panama Canal Treaties at the headquarters of the Organization of American States in Washington, DC. The Panamanian people approved the new treaties in a plebiscite held on October 23, 1977. The US Senate ratified the neutrality treaty on March 16, 1978, and the Panama Canal Treaty on April 18, 1978. The treaties entered into force on October 1, 1979. The protocol to the neutrality treaty is open to accession by all nations, and more than 35 have so far subscribed. Basic Provisions of the Treaties The United States has primary responsibility for the operation and defense of the canal until December 31, 1999. US rights to station military forces and maintain military bases also terminate with the canal treaty. After that date, the United States and Panama will maintain a regime of neutrality for the canal, including nondiscriminatory access and tolls for merchant and naval vessels of all nations. US warships will be entitled to expeditious passage of the canal at all times, however, and the United States will continue to have the right to ensure that the canal remains open and secure. The United States operates the canal through the Panama Canal Commission (PCC), which is a US Government agency supervised by a board of directors consisting of five American and four Panamanian members appointed by the President; the Panamanian members are initially nominated by their government. Until 1990, the canal administrator was an American and the deputy administrator was Panamanian; these nationalities reversed for the final decade of the treaty on September 20, 1990, when Gilberto Guardia was installed as the first Panamanian administrator. Pursuant to treaty obligations, the PCC is training Panamanians in all areas of canal operations prior to the transfer of the canal in 1999. Panamanian citizens currently comprise over 87% of the PCC workforce. During the life of the treaty, Panama receives the following payments from Canal revenues: -- A fixed annual payment of $10 million; -- An annual payment of $10 million, adjustable for inflation, for public services provided to canal operating areas by the Panamanian Government (the Canal Zone and its government ceased to exist when the treaties entered into force, and Panama assumed jurisdiction over canal zone territories and functions); -- An annual percentage of toll revenues assessed at $0.35 (since October 1, 1990) per Panama Canal net ton transiting the canal, worth $60.2 million in 1990; -- A payment of up to $10 million in the event that revenues exceed PCC expenditures in a given year. Under US implementing legislation (the Panama Canal Act), the PCC must be self-sustaining; its costs may not exceed its revenues, nor may US taxpayer funds be used for canal operations or payments to Panama. In a note separate from the treaties, the United States agreed to expedite economic and military assistance programs for Panama. From the time the treaties entered into force until the political crisis with the Noriega regime, the United States provided $200 million in development assistance, economic support funds, and food and military aid. Assistance was suspended in 1987 in response to political developments in Panama but was reinstated in 1990 with a 2-year package of more than $450 million in direct economic assistance and more than $500 million in credits and guarantees. Panama and the United States are committed by Article XII of the canal treaty to study jointly the feasibility of a sea-level canal in Panama and to negotiate terms for its construction if it is agreed that such a canal is desirable. In addition, the United States retains the right throughout the term of the treaty to build a third lane of locks to increase the capacity of the existing canal. In 1985, a tripartite international organization, the Canal Alternatives Study Commission, was established by the United States, Panama, and Japan to examine the feasibility of modifications and alternatives to the existing system. Completion of this study in 1993 will meet our treaty obligation under Article XII. Published by the United States Department of State Bureau of Public Affairs Office of Public Communication Washington, DC, March 1992 Editor: Anita Stockman. Department of State Publication 8022 Background Notes Series -- This material is in the public domain and may be reprinted without permission; citation of this source is appreciated. For sale by the Superintendent of Documents, US Government Printing Office, Washington, DC 20402.