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LETTER FROM PANAMA
In conjunction with our newsletter, Offshore Pilot
Quarterly,
this regional roundup of economic developments appears regularly in SA Banker,
the official journal of the Institute of Bankers in South Africa,
under the title “Panama Passport”
Engineers and Expletives
The Republic of Panama will celebrate 100 years of independence in November after breaking away from Colombia in 1903. Panama’s history before and since independence has been interwined (as has much of Latin America’s) with the United States of America. In the 1880s, France failed in its attempt to repeat the success of the Suez canal by building in Panama a waterway connecting the Atlantic and Pacific oceans. The United States was eager to build such a canal themselves and in 1903 they bought the rights to build one from a newly-independent Panama with construction starting the next year. The immense strategic importance and value of such a waterway at that time, highlighted by the Spanish-American war in 1898, was not lost on the Americans who were also granted complete control of the canal sector in perpetuity (subsequently renounced). Clearly, Panama’s independence and not just its canal were engineered by the United States.
President James Monroe of the United States in 1823 had declared: “The American continents, by the free and independent condition which they have assumed and maintained, are henceforth not to be considered as subjects for colonisation by any European powers”. This declaration was part of a policy which became known as the Monroe Doctrine following the collapse of Portuguese and Spanish control throughout Latin America. The doctrine made clear that any Latin American country whose sovereignty was threatened by nations from outside the hemisphere would be helped by the United States and it was viewed by sceptics as a licence for the United States to interfere in, as well as unduly influence, the affairs of its southern neighbours.
During the 1920s and 1930s the United States took control of several small Caribbean countries where governments did not pay their debts which often meant that the Customs and Excise would be taken over until sufficient funds were accumulated to meet the debts. A more subtle approach was taken by president Franklin Delano Roosevelt who introduced the Good Neighbour Policy at a time when Latin America presented an opportunity for the United States which needed new markets for trade as it recovered from the ravages of the Great Depression. This policy promised more respect for Latin American countries and more consultation with its leaders. Even so, Roosevelt’s involvement in Nicaragua produced the dictatorial regime of Anastasio Somoza about whom the president is said to have commented: “He may be a bastard, but he’s our bastard”. In Guatemala, during Dwight D. Eisenhower’s presidency, a motley band of rebels, supported by America’s Central Intelligence Agency, were able in 1954 to force the leftist Guatemalan president, Jacobo Arbenz, into exile in Cuba. When Salvador Allende came to power in Chile in 1970 as the country’s first socialist president, the cold war was a reality of life and the presence of a Marxist government in its sphere of influence sat very uncomfortably with the United States. American officials, therefore, encouraged a coup and openly welcomed General Augusto Pinochet who went on to rule the country for 17 years.
General Problems
North Americans recently observed on 11th September the second anniversary of the terrorist atrocities in New York and Washington DC. But that date is not just poignant for the United States because on that day, 30 years ago, president Allende’s presidential palace was stormed and the Chilean president committed suicide. An equal number of people died during Pinochet’s subsequent rule as did on that fateful date in the United States. The irony is that since 1990, Chile has been governed by Allende’s socialist party, albeit in a moderate and reformist coalition.
Panama and Chile have this in common: they have each enjoyed 13 years of elected government following the departure of the respective generals once in power. Both generals were former allies of the Americans and they highlight a truism Roosevelt would have understood and which goes to the heart of international politics. It was first expressed by Lord Palmerston, a Victorian British prime minister, when he observed that countries have “no permanent alliances, only permanent interests”. Chile and Panama have gone on to better things. Chile’s economic progress has made it a role model for other Latin American countries to emulate and since the United States handed back Panama’s canal over 3 years ago, the waterway has functioned well, despite fears in some quarters that this would not be the case. This year, in fact, set a record for consecutive days without any canal accidents and in the 2002 financial year yet another record was set when $589 million in revenues was earned.
The Panama Canal Authority operates the waterway along commercial lines unlike the not-for-profit stance taken by the United States. The PCA has struck alliances with 5 US ports on the east coast and in the Gulf of Mexico in order to co-operate, inter alia, on marketing efforts to promote maritime trade between Asian ports (especially China) and the United States. Some 60 per cent of canal traffic already goes to or comes from a port on the United States east coast. In order to become more competitive, the PCA has introduced a new toll structure which differentiates between tankers, cruise ships and container vessels. There are plans to improve the canal, including a larger set of locks to accommodate bigger ships and the creation of huge water storage reservoirs for lock operations.
One day much larger ships might traverse Panama but one of them, I doubt, will be the one described by Donald Johnston, the Canadian general secretary of the Organisation for Economic Co-operation and Development, some of whose policies towards offshore financial services (Panama is the largest provider of these in Latin America) are at odds with Panama’s tax regime. Johnston compares the OECD’s present position with that of a big ship drifting at sea which must concentrate on a destination; wherever that destination might be, it is unlikely to include passage across the isthmus.
Letter from Panama is published by
Trust Services, S. A. which is a British- managed trust company licensed under the banking
laws of Panama. It is written by our Managing
Director who is a former member of the Latin America and Caribbean Banking Commission as
well as a former offshore banking and insurance regulator.
He has over 35 years private and public sector experience in the financial
services industry. Our website provides a
broad range of related essays.
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