Panama's Canal: National Icon and Key to Prosperity

Mention Panama, the Central American country, to virtually anyone and what springs immediately to mind? Its canal, the 48-mile man-made waterway linking the Atlantic and Pacific Oceans across the Isthmus of Panama. Built and administered by the United States, it was finally handed over to the Panamanians in 2000 and is the cornerstone of an economic boom based primarily on a well-developed services sector that accounts for more than three-quarters of the GDP.

In the past two years, growth has recently dipped from its annual average of 8 percent to a still enviable 6 percent. Panama’s ambassador to the United States, Emanuel Gonzalez-Revilla, said in an interview with Diplomatic Connections that this would be sustained, if not bettered, upon mid-2016 completion of a project to double the canal’s width to accommodate the floating behemoths that define today’s maritime industry. Panama’s economic success was doubtless what has prompted neighboring Nicaragua to consider building its own canal along the San Juan River with the backing of a private Chinese financier.

Political maturity has been slower in coming to Panama. In 1989, the CIA’s relationship with its long-time agent Manuel Noriega, Panama’s de facto ruler, soured to the point where the United States mounted an invasion to remove him, an episode in Panama’s recent history Ambassador Gonzalez-Revilla recalls as “dark days for us.” Times have changed since Noriega’s so-called “narcokleptocracy” of drug trafficking and money laundering. In the 2014 elections President Juan Carlos Varela actually won in part on the promise to clean out corruption — a commitment which, the ambassador says, Varela is now putting into effect.

Diplomatic Connections: This is your first diplomatic post. What was your previous occupation?

Ambassador Gonzalez-Revilla: I was in business in the private sector, basically an investor with interests in financial services, energy, shipping and several other projects.

Diplomatic Connections: Until the president asked you to come to Washington as ambassador?

Ambassador Gonzalez-Revilla: Five years ago I almost went to New York as our ambassador to the U.N., but the timing wasn’t right. My children were too young and my wife and I decided not to go. When President Varela was running for office, he would always tell my wife and myself that if he won he would send me to Washington. This time we couldn’t say no. But I’m not the first in my family to hold the post. My father’s brother was Panama’s ambassador to Washington in the 1970s, when he was 27 years old.

Diplomatic Connections: If anybody around the world knows one thing about Panama, it’s that it has the canal that connects the two great oceans. But how do the Panamanians regard the canal?

Ambassador Gonzalez-Revilla: It’s an icon of Panama. We’re very proud of it and of what we have been able to achieve since we took over administering the canal on January 1, 2000. It’s a very important part of the economy. However, Panama is more than just the canal. It’s the banking center, it’s the ports, it’s an incredible air hub. We have the second largest free trade zone in the world, and, of course, beaches. We have two oceans less than 50 miles from each other and they couldn’t be more different. We have tremendous resources to exploit when it comes to tourism, but we have a long way to go still on that front. But mostly I think the people in Panama are great. It’s a land of immigrants, so we have people from all over the world.

Diplomatic Connections: What percentage of the national economy is the revenue from the canal?

Ambassador Gonzalez-Revilla: The canal is probably a little bit under 5 percent — $2.6 billion in revenue. But indirectly it’s a lot more than that.

Diplomatic Connections: And the plan is now to widen it. Is this the first time that it has been altered in any significant way since it was built?

Ambassador Gonzalez-Revilla: Actually no. The French came first and tried to build it and that didn’t go anywhere, and the United States took over in the early 1900s and ended up building it. In the 1930s there was a plan to expand it by adding another lane, and it was actually started, but was stopped because of World War II and never resumed.

Diplomatic Connections: So the United States was the original owner?

Ambassador Gonzalez-Revilla: I wouldn’t say it was owned by the Americans. There was a treaty that basically gave the Americans the right to administer the Canal Zone, and it was under the U.S. Department of Defense. The last U.S. chairman of the board of the Panama Canal was the under-secretary of the Army. A treaty was signed in 1970 which basically spelled out the mechanism by which the Canal Zone was turned over to Panama, and that included several military bases.

Diplomatic Connections: Is there still an American military presence?

Ambassador Gonzalez-Revilla: No. It was a staggered process. The Americans returned bases and the railroad. The last thing to be turned over was the operation of the canal itself. Basically what the country has done is undertaken a re-development of all that very valuable real estate. So, for example, where some bases were before you now have ports. The railroad was also redeveloped.

Diplomatic Connections: Is the current project to double the width of the canal?

Ambassador Gonzalez-Revilla: Think of it as another lane that will be able to handle longer and bigger ships. Right now, the largest container ship that can go through the canal can carry close to 4,000 containers, but the ships going through the expanded canal will have a capacity of 13,000 containers. So, it will triple the container capacity per ship that can go through the canal.

Diplomatic Connections: Is there a time frame for this project?

Ambassador Gonzalez-Revilla: The first locks were flooded in June, on the Atlantic side. Then they have to finish the Pacific side. The intention is to have the expanded canal operational by the beginning of the second quarter of 2016, likely around March or April of next year.

Diplomatic Connections: Then you will have tripled the canal’s capacity.

Ambassador Gonzalez-Revilla: In terms of container ships, yes. Of course, you have water limitations and other things, thus we say we’re going to double the capacity of the canal.

Diplomatic Connections: If the so-called Torrijos-Carter Treaty was signed in 1970, why did the canal handover take so long?

Ambassador Gonzalez-Revilla: In the treaty it was agreed that there would be a transition of a number of years.

Diplomatic Connections: What is your take on Nicaragua’s plans to build a second canal?

Ambassador Gonzalez-Revilla: From what we understand, it’s a private venture and you have to ask the Nicaraguans how they’re going to build it and the reason behind it. What we can do in Panama is continue to run the canal as efficiently as we can. With expansion almost ready we’re going to be able to accommodate 90 percent of the ships that sail the seas in the world. Panama is more than the canal, and the canal itself is more than the canal, by which I mean that the canal is more than just the ditch, it’s everything around it. We have the air hub, the banking center, a significant amount of legal services, an ecosystem of ports. That takes a lot of time to create, so we’re confident that we’re going to continue to be competitive. If the Nicaraguans want to build one, then we’ll compete with them. At the end of the day, competition makes you better.

Diplomatic Connections: Until recently, and along with other Latin American countries, Panama has had a boom economy…

Ambassador Gonzalez-Revilla: Last year economic growth was around 6 percent of the GDP, but the average over the last 10 years was 8.5 percent. The peak was a little bit over 12.5 percent. We’re forecasting 6 percent for the next five years. On the other hand, inflation has also gone down — from 6 percent to 2 percent.

Diplomatic Connections: What are the main elements of this growth?

Ambassador Gonzalez-Revilla: I think our plans for the canal, which have had an effect on the economy. Also, government infrastructure and private sector investment. We encourage foreign investment. We have incentives for multi-nationals setting up shop in Panama — regional headquarters, from the tax perspective, and also more flexible labor requirements. We have about 100 regional headquarters in Panama, whereas a decade ago we had not even half of that. We have U.S. corporations like Dell, Procter & Gamble, Caterpillar and many others. And then the incredible air connection that we have.

Diplomatic Connections: And yet your period of growth was not based on commodities as it was for most of the hemisphere. You don’t have raw materials, and as a consequence you are not as dependent on China as a major importer of commodities.

Ambassador Gonzalez-Revilla: No, we’re essentially a service economy. We don’t export commodities. About 80 percent of our GDP is service based. At the end of the day our forte is intrinsically a logistical center because of our location, because of the canal. We’re a hub. That’s our strength and we need to leverage that going forward.

Diplomatic Connections: The other thing people are apt to remember about Panama is the U.S. invasion to remove, and eventually arrest, Noriega.

Ambassador Gonzalez-Revilla: Dark days for us. It was a historical moment in our history, but we’ve come a long way since that day in late December 1989. I was not living in Panama at the time. I was in college in the United States, and I didn’t go back until 1992 because of the political crisis.

Diplomatic Connections: Despite the economic growth, Panamanians, in presidential elections in May 2014 rejected the ruling party’s choice for president — and President Ricardo Martinelli’s wife for vice-president — and elected the opposition candidate, Mr. Varela. How do you account for that rebuff?

Ambassador Gonzalez-Revilla: It’s partly a Panamanian idiosyncrasy. Since 1989 not one single party has retained power in an election. The Panamanian people don’t like to see the same face and no party has been able to repeat its initial success. Every time there is talk of re-election people get upset, and if you ask why you get a thousand answers. It’s part of who we are, I think. Martinelli did try to own the country’s economic growth, but people don’t necessarily attribute the growth to the government, but to the system as a whole.

Diplomatic Connections: Didn’t Mr. Varela campaign on the promise of ending corruption?

Ambassador Gonzalez-Revilla: There were allegations of corruption within the government, and Varela ran a campaign for a government that was transparent and fiscally responsible. He also ran on the theme that the government should be for the people. He said many times that the presidency’s main purpose was to serve the people, not to do business.

Diplomatic Connections: But has President Varela followed through in his campaign promise to clean up corruption?

Ambassador Gonzalez-Revilla: President Varela is sending a clear message that corruption will not be accepted with impunity. Some irregularities were found in some government departments — some misappropriations of government funds. The cases were turned over to the judicial system for investigation, and the cases are following the normal course of the process. It’s not a political witch hunt. It is something that needs to be done.

Diplomatic Connections: Panama has just been the venue of The Latin American Summit, which Cuba attended for the first time at the insistence of some of the other participants. What role, if any, did Panama play in calling for Cuban participation?

Ambassador Gonzalez-Revilla: That goes back to the summit in Cartagena when it was agreed by the majority of the states that Cuba needed to be invited to the next summit in Panama. But Panama has traditionally played a role of building bridges between countries. We’ve spoken to all sides always, and President Varela wanted to play that traditional role. In October, Panama announced that Cuba had been invited; I think it was a savvy decision, and we have all seen the results. In December, President Obama decided to normalize relations with Cuba. The whole Western Hemisphere was a winner at that summit because when the U.S. offered an olive branch to Cuba, it also toned down the tensions with other countries and should help improve America’s relationship with other nations in the region.

Diplomatic Connections: Venezuela, for example?

Ambassador Gonzalez-Revilla: Yes. We’re neighbors, so we need to make sure that we have a relationship. You don’t always agree with your family members, but you try to find middle ground. The world is so complicated today, with all the problems in the Middle East, the Ukraine. The political problems we have in Latin America are actually quite small in comparison, and there’s a light at the end of the tunnel in some issues. Colombia’s peace agreement with the FARC, for example, that’s huge. We have free elections [in the hemisphere]. We have mostly democratic countries in the region.

Diplomatic Connections: Would you agree though that the end of the commodity boom is altering politics as well as economics in the hemisphere? Growth in the hemisphere is now what — 1 percent? — and left-wing governments are beginning to feel pressure?

Ambassador Gonzalez-Revilla: The tremendous economic growth in the region has reduced poverty; I remember hearing that there are 200 million less poor people in the region. That also creates an effect. We need to have stable institutions. I think what creates more threats to stability than anything else is all the corruption scandals that are coming out in the different countries. We have corruption in Panama. You have the allegations of corruption in Brazil, there’s Guatemala and so forth. If you have strong institutions and efficient governments, the region can continue to grow and improve the lives of its people. In Panama we were growing at 8 percent, but now it’s lower; in the last government, foreign debt increased by $10 billion, which is significant when compared to previous years, but we’re being a lot more fiscally responsible now. You have to basically make changes according to the economic reality of the moment. I think it all boils down to transparent government and state institutions. If you have that you can take care of the rest.

Diplomatic Connections: How are Panama’s bilateral relations with the United States?

Ambassador Gonzalez-Revilla: Great. We’ve been friends and allies for over a hundred years. It’s a very close relationship and we cooperate tremendously in security issues.

Diplomatic Connections: How much joint activity is there in the U.S. offensive against narcotics?

Ambassador Gonzalez-Revilla: We are active participants with the U.S. in curtailing drug traffic. But also illegal immigration, money laundering, human trafficking, illegal arms trade. As President Varela says, there are people who live by the rule of law, and there are people who live outside the rule of law, and you can call those outside the rule of law drug traffickers or terrorists, but in the end they use the same methods and the same channels whether they are moving drugs or arms. Our fight includes strengthening our supervision not only of the banking system. We recently passed a sweeping law that targets 30 industries for supervision, requiring reporting to prevent money laundering. There are probably more industries regulated in Panama than in the U.S. — or Europe for that matter. We want to make sure we protect our banking position.

Diplomatic Connections: And you have to protect the canal…

Ambassador Gonzalez-Revilla: And we do. It’s not only in Panama’s interest to keep the canal safe. If something happens to the canal world trade is affected — 160 countries make use of it. So, every year we do a security exercise with the participation of 15 or 20 countries. But it’s beyond that. We have to keep our border safe, and make sure our coast is not used by drug traffickers, or the financial system, or the free zone.

Diplomatic Connections: How large is the Panamanian diaspora in this country?

Ambassador Gonzalez-Revilla: Not large. Panamanians are not emigrants by nature. We have the largest middle class in Latin America, and we receive more immigrants than people leaving.