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Panama: Political and Economic Conditions and U.S Panama: Political and Economic Conditions and U.S. Relations Mark P. Sullivan Specialist in Latin American Affairs July 15, 2009 Congressional Research Service 7-5700 www.crs.gov RL30981 CRS Report for Congress Prepared for Members and Committees of Congress Panama: Political and Economic Conditions and U.S. Relations Summary With five successive elected civilian governments, the Central American nation of Panama has made notable political and economic progress since the 1989 U.S. military intervention that ousted the regime of General Manuel Noriega from power. The current President, Ricardo Martinelli of the centrist Democratic Change (CD) party was elected in May 2009, defeating the ruling Democratic Revolutionary Party (PRD) in a landslide. Martinelli was inaugurated to a five- year term on July 1, 2009. His Alliance for Change coalition also captured a majority of seats in Panama’s National Assembly that will increase the chances that the new President will be able to secure enough votes to enact his legislative agenda. One of the most significant challenges facing the Martinelli government is dealing with the economic fallout stemming from the global economic recession. Panama’s service-based economy had been booming in recent years, largely because of the Panama Canal expansion project, but the global financial crisis and the related decline in U.S. import demand stemming from the U.S. recession has begun to slow Panama’s economic growth. During the presidential campaign, Martinelli pledged to simplify the tax system by the introduction of a flat tax in order to discourage tax evasion. He also has called for a number of large public infrastructure projects, including a subway system for Panama City, a light rail system on the outskirts of Panama City, regional airports and roads, and a third bridge over the Canal. These and other expenditures could prove difficult as the country continues to feel the impact of the global economic recession. The United States has close relations with Panama, stemming in large part from the extensive linkages developed when the canal was under U.S. control and Panama hosted major U.S. military installations. The current relationship is characterized by extensive counternarcotics cooperation, assistance to help Panama assure the security of the Canal, and a proposed bilateral free trade agreement (FTA). U.S. bilateral assistance amounted to $3.7 million in FY2008, an estimated $6.5 million in FY2009, and a FY2010 request of $9.6 million. This does not include additional assistance that Panama will receive under the Mérida Initiative assisting Mexico and Central American countries in their efforts to combat drug trafficking, gangs, and organized crime. On March 13, 2009, Panama and the United States signed a letter of agreement for $2 million in FY2008 funding under the initiative. Panama will likely receive additional assistance under the initiative, including almost $9 million in FY2009 assistance. In June 2007, the United States and Panama signed a proposed bilateral FTA, which includes enforceable labor and environmental provisions that had been agreed upon in a bipartisan deal between U.S. congressional leaders and the Bush Administration in May 2007. Panama’s National Assembly overwhelmingly approved the agreement in July 2007. The U.S. Congress had been likely to consider implementing legislation in the fall of 2007, but the September 1, 2007 election of Pedro Miguel González to head Panama’s legislature for one year delayed consideration. González is wanted in the United States for his alleged role in the murder of a U.S. serviceman in Panama in 1992. His term expired September 1, 2008, and González did not stand for re-election. As a result, the 111th Congress may turn to consideration of implementing legislation for the FTA. Final issues being worked out relate to worker rights and to Panama’s bank secrecy laws. For more, see CRS Report RL32540, The Proposed U.S.-Panama Free Trade Agreement, by J. F. Hornbeck; and CRS Report R40622, Agriculture in Pending U.S. Free Trade Agreements with Colombia, Panama, and South Korea, by Remy Jurenas. Congressional Research Service Panama: Political and Economic Conditions and U.S. Relations Contents Most Recent Developments.........................................................................................................1 Political and Economic Conditions..............................................................................................2 From the Endara to the Torrijos Administration .....................................................................3 Endara Government (1989-1994) ....................................................................................3 Pérez Balladares Government (1994-1999) .....................................................................3 Moscoso Government (1999-2004) .................................................................................4 Torrijos Government (2004-2009)...................................................................................5 Martinelli Government (2009-2014)......................................................................................7 May 2009 Elections ........................................................................................................7 Challenges for the Martinelli Government.......................................................................7 Human Rights.......................................................................................................................8 U.S. Relations........................................................................................................................... 11 Background on the 1989 U.S. Military Intervention............................................................. 11 Status of Manuel Noriega.............................................................................................. 11 Overview of Current U.S.-Panamanian Relations ................................................................12 Drug Trafficking and Money Laundering ............................................................................14 Tax Haven Status ................................................................................................................16 U.S. Trade Relations and a Potential Free Trade Agreement.................................................17 Operation and Security of the Panama Canal.......................................................................19 Historical Background and the Panama Canal Treaties ..................................................19 Canal Transition and Current Status ..............................................................................20 Canal Expansion Project ...............................................................................................21 Contamination of Firing Ranges and San Jose Island...........................................................22 Figures Figure 1. Map of Panama ..........................................................................................................24 Contacts Author Contact Information ......................................................................................................25 Acknowledgments ....................................................................................................................25 Congressional Research Service Panama: Political and Economic Conditions and U.S. Relations Most Recent Developments On July 1, 2009, Ricardo Martinelli was inaugurated President. On May 3, 2009, Panama held presidential and legislative elections. In the presidential race, Ricardo Martinelli of the centrist Democratic Change (CD) party won in a landslide with 60% of the vote, defeating Balbina Herrera of the ruling the ruling Democratic Revolutionary Party (PRD). Martinelli’s Alliance for Change coalition also captured a majority of seats in Panama’s National Assembly that will increase the chances that the new President will be able to secure enough votes to enact his legislative agenda. On January 27, 2009, presidential candidate Ricardo Martinelli of the Democratic Change party struck a deal with the candidate of the Panameñista Party, Juan Carlos Varela, to become his running mate in an electoral coalition dubbed the Alliance for Change. On September 17, 2008, President Bush met with President Torrijos at the White House, where talks included the status of the bilateral free trade agreement. On September 7, 2008, former housing minister Balbina Herrera of the ruling Democratic Revolutionary Party won her party’s presidential primary for the May 6, 2009, presidential election. In the primary, Balbina narrowly defeated Juan Carlos Navarro, the mayor of Panama City. On September 1, 2008, Pedro Miguel González, wanted in the United States for his alleged role in the murder of a U.S. serviceman in Panama in 1992, ended his one-year term as president of Panama’s National Assembly, and a new Assembly president was elected. In August 2008, President Torrijos approved five decree laws reorganizing Panama’s law enforcement and security services. This included the creation of a National Border Service and a National Intelligence and Security Service. On July 6, 2008, businessman Juan Carlos Varela easily won the presidential primary election as a candidate for the opposition Panameñista Party. On May 19, 2008, lawyers for former Panamanian leader Manuel Noriega asked a U.S. appeals court to block his extradition to France on drug-money laundering
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