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Controlling the Panama Canal

Date: December 1999

Does handing over the Panama Canal pose national security dangers to the United States? William Ratliff of the Hoover Institution at Stanford University and John J. Tierney of The Institute of World Politics in Washington, D.C., respond to your questions.

Donald O. Cassidy of Premium, KY, asks:

The U.S. is obligated to keep its treaty with Panama. Integrity is the best national defense and the U.S will gain more by honoring its word. Prestige and reputation are at stake. Turn over the canal. I spent 18 months there with the U.S. Army — and saw how the territory in the Panamanian Canal Zone contrasted with impoverishment in the country. Please respond the to economic impact within Panama.

William Ratliff responds:

I would say that a powerful and well-trained military with capable political and military leadership is the best national defense. Integrity and predictability are important also for cooperation with allies and respect from adversaries.

The economic impact of the withdrawal is of two sorts: the immediate cost to Panamanians of the loss of U.S. dollars and the wide potential costs of having the facility under Panamanian rather than U.S. control. The former is measured in some hundreds of millions of dollars annually and includes both annual U.S. government payments to Panama and business for Panamanians generated by Americans stationed there. That is a significant amount because Panama’s national earnings are only about $2.5 billion annually. The land and assorted facilities the U.S. handed over, and the training the U.S. provided for those who will now manage the canal, were a substantial bonus.

The second question is whether Panamanians on their own can govern themselves and/or manage the canal according to their own needs and international expectations. Of course they are capable of running the canal, the question is whether the national culture will allow trained professionals, now and in the future, to work honestly and independently to keep the canal functioning as it has in the past. So far there are positive indicators, including the will of many Panamanians to prove they can do it, and negative indicators, mainly the record of Panamanian history. If Panama fails, the people of Panama and the world will pay a heavy price, directly and indirectly. Gen. Wilhelm warns that the most likely threats to the canal are not external but “internal and non-lethal,” ranging from corruption to watershed mismanagement. As General Woerner notes, if mismanagement of the canal becomes excessive, the U.S. could interpret that as a threat to the permanent neutrality and operation of the canal and intervene.

John J. Tierney responds:

Twenty-nine opinion polls over this decade have revealed a steady 70 to 75 percent of Panamanians in favor of a continued U.S. presence, with most of this due to the economic benefits.

You mentioned “impoverishment” in Panama. By what standards and measurements? Certainly not regional. Panama has had a steady higher standard of living than most of its neighbors, due primarily to the Canal and the American presence. Its annual per capita income in 1995 ($2400) was among the highest in the developing world. By all major social indicators — income, literacy, education, live births, life expectancy, birth rate, etc. — Panama was closer to upper-class Latin American nations such as Argentina and Uruguay, than to its immediate neighbors.

This is not to deny social and economic inequities and the obvious differences between Americans who lived in the Canal Zone and the general Panamanian population. But for many years the United States has been pumping and annual $300 million into the local economy.

“Integrity is the best national defense” is a social abstraction, devoid of serious content and satisfying only the soul. Panama has been used to American dollars for most of this century. Now they are not going to get them, and this simple fact alone may spell great trouble for the years ahead.

David Klausa of Lake Geneva, WI, asks:

How will the canal be run differently under the control of Panama?

William Ratliff responds:

The canal will be run by the Panama Canal Authority consisting of eleven directors, ten of whom are chosen by the Panamanian president, nine requiring ratification by the legislature. The legislation itself provides some safeguards against abuse. The PCA will have exclusive charge of everything to do with the canal, though it can delegate some projects and services to third parties. In the notice of the PCA’s formation, Article 5 says its “fundamental objective” is to maintain a canal that will “always remain open to the peaceful and uninterrupted transit of vessels from all nations of the world, without discrimination. . . .” But whereas the U.S. ran the canal as a public utility for the global community, pumping profits and sometime much more into maintaining the facility, Panama intends to run it as a business for profit. Panama’s intention could be dangerous if it expects to make much from the canal itself since doing so would require either a significant hike in tolls or cutting corners in maintenance, or both. The former would drive users to seek more cost-effective alternatives while the danger of the latter, even in the medium term, is self-evident. Canal administrator Alberto Aleman Zubleta has acknowledged that canal profits come mainly from businesses made possible by the efficient operation of the waterway itself. For example, the canal is the reason Panama has become a center of international banking and shipping with a vast service sector that support much of the Panamanian population. If the waterway is not operated well, Panama could easily get less money from it than during the decades of U.S. control. Pride of ownership — “Future Generations Will Be Proud of Us” says a billboard on the road to the Miraflores Locks — may come at a cost Panamanians did not consider carefully in advance.

John J. Tierney responds:

The immediate answer is that the Canal should NOT be “run differently.” It should be run as well as the United States ran it since 1914, with efficiency, discipline, economic power and due regard for strategic considerations. Can we expect the same from Panama in the years ahead? The challenge is daunting.

Panama must be able to replace the income from former U.S. military facilities with their thousands of well-paying jobs. It must sell billions of dollars worth of properties and find productive use for them, or otherwise pay millions each year for depleted property. Panama must maintain the Canal — an 86-year-old facility — through its own resources. It must reverse soil erosion around the Canal or face the possibility of serious water shortage and possible closure. Panama’s government must guard against political patronage which could lead to inefficiency and instability. Improvements in the Canal and surrounding area will require millions, perhaps billions, of dollars. A sound investment climate is critical. Finally, without any military force, and with a token police, Panama must find a way to secure the Canal (and itself) against all kinds of threats: strategic, accidental, deliberate or irrational.

There is no definitive answer to your question, but these are some of the dimensions of the problem.

Jason Kaufman of Cambridge, MA, asks:

How often in recent history have we moved strategic equipment through the canal?

Is it strictly a political rather than a military-tactical question?

And, I think we should cultivate this diplomatic opportunity by launching a NAFTA-like agreement that would strengthen US economic and cultural ties with Panama and the region. What are your responses?

William Ratliff responds:

The decision to hand the canal over to Panama was largely a political one, but based at least in part on several assumptions which are questioned by the treaty’s critics. Among the assumptions:

(1) the canal will be less militarily and perhaps even economically critical in the future than in the past, but (2) to the degree that it is militarily and economically important, the U.S. can defend its interests without a permanent presence in the country. Indeed some argue it can do so better because the U.S. will be on better terms with the Panamanian government and people.

As long as the U.S. has a navy and international interests, the canal will be militarily useful and sometimes important, though if military forces are kept at optimum levels it will not be critical. Several dozen U.S. Navy ships have gone through the canal this year, but the Pentagon told the Wall Street Journal that none did during the Kosovo war nor, so far as anyone could remember, during the Gulf war a decade ago. A supplement to the treaty guarantees U.S. ships priority in a time of emergency. If that guarantee is not honored, the U.S. would be free to intervene. But in the case of a crisis with a major adversary who knew the canal would be used, might that adversary not simply attack the waterway itself? That could be done from the air or sea and at this point U.S. forces on the ground could not prevent it. I f the U.S. tries to maintain an under-funded navy split up on two oceans, the need for quick passage through the canal would be enhanced, as would the chance that an enemy might attack the canal to prevent its use.

As Southcom’s Gen. Wilhelm says, the other potential security issues today include but are not limited to transnational crime — especially rampant drug-trafficking — and the serious instability in Colombia. Panama’s border with Colombia has long been open to penetration by the Revolutionary Armed Forces of Colombia (FARC), the largest guerrilla group in the country. Panama abolished its army in 1994 and its police forces are totally inadequate to dealing with the any serious military threat while the U.S. Has not maintained any military presence there, contrary to the wishes of most Panamanians as expressed in polls. The police couldn’t even keep the road to Miraflores Locks open on official handover day — though they were all over the place — when several hundred university students carrying banners with Che Guevara and hammers and sickles on them chose to close it down. Disillusionment with market reforms in some countries could lead to a reaction against the United States that would have repercussions in the canal and elsewhere.

Commercially, two-thirds of canal traffic begins or ends in the United States. The Panama Maritime Operations reports that fewer ships used the canal in 1998 (13,025) than any year since 1994, though with a 7.5 percent toll increase beginning in January 1998 the revenue was at an all-time high ($545 million). If the canal is maintained and efficiently run at reasonable prices, and free trade prospers, usage could increase substantially. As for a NAFTA type expansion in all of Latin America, President George Bush launched such a program and Clinton continued it, but with little real commitment, especially after many in Congress turned against it in the wake of the Mexican peso crisis of late 1994. It should be a high priority for the next administration.

John J. Tierney responds:

Your question as to “how often” the U.S. Has moved strategic equipment recently is classified. A general reply must suffice.

The immediate answer is this: whenever a strategic mission requires transit between the oceans, the United States navy will not traverse the 8000 miles and two extra weeks around South America when the mission requires location “tomorrow.” The Gulf War in 1991 and “Just Cause” in 1989 used the Canal in a “strategic” sense as did all other U.S. military operations of this century, from Vietnam back to World War I. In the future, the 1977 Neutrality Treaty guarantees the U.S. ability to “expeditiously” use the Canal in an emergency, generally regarded as going to the “front of the line.”

During the 1990s, the Canal and its facilities were regularly used for intelligence and counter-drug missions. Until it was closed last May, Howard AFB was used for about 2,000 anti-drug flight missions each year. Rodman Naval Station was employed in a variety of maritime operations, and Fort Sherman was a major jungle training compound. They are now all closed, as are all U.S. aerial and other intelligence-gathering facilities.

Your second thought is easier to answer: Yes, the question has always been political and has its origins in the nationalism of Panama’s ruling elite and its resentment against U.S. intrusions. Now, they are on the line, and we shall see. The United States, at their insistence, has left; the game is now in their court.

Your last point offers hope for a sound and mutually-beneficial path toward the future and I commend you for a positive contribution.