The Washington Times
January 12, 1999

U.S. Departure will be windfall for Panama

                                 By Tom Carter
                                 THE WASHINGTON TIMES

                                                                                              PANAMA CITY
                                     he world's largest moving sale is under way in Panama.
                                     The United States is pulling out and turning over more
                                 than $4 billion in prime real estate to the Panamanian
                                 government. It will all be in Panama's hands as of noon on Dec.
                                 31 under the terms of a treaty signed in 1977.
                                      Panama, in turn, is selling thousands of acres of land,
                                 thousands of office buildings, barracks and warehouses, port
                                 facilities, airports, and residential housing to the highest bidder.
                                      The government is working hard to promote the potential of
                                 these "reverted" properties, hoping to find investors with deep
                                 pockets to turn Panama into the regional banking, shipping and
                                 ecological tourism hub of the Americas.
                                      "Panama is open for business," said Nicolas Ardito Barletta,
                                 general administrator for the Interoceanic Region Authority
                                 (ARI), the government agency responsible for selling the
                                 reverted properties. "There is no reason why Panama cannot
                                 become a Singapore of the Americas. Panama is positioned
                                 where Singapore was in the 1960s."
                                      Mr. Barletta, the president of Panama from 1984 to 1985,
                                 said the country is particularly interested in maritime, banking
                                 and tourism investment.
                                      Mr. Barletta is particularly proud of the City of Knowledge
                                 project to be located at what is now Fort Clayton, just outside
                                 Panama City. It will offer degree programs from universities
                                 from around the world, led by the Smithsonian Tropical
                                 Research Institute and Texas A&M University.
                                      "We may be at the right time, at the right place with the right
                                 idea," he said, with obvious enthusiasm for the projects.
                                      Some critics dismiss Mr. Barletta as a "dreamer" and
                                 accuse him of running up Panama's external debt of $7.5 billion
                                 during his stint as a World Bank vice president from 1978
                                 through 1984. Mr. Barletta rejects the charges.
                                      Still, some $1.5 billion worth of property already has
                                 reverted to Panama, and much of that has been sold to foreign
                                 and Panamanian investors who have signed contracts
                                 committing more than $1 billion in investment. Construction is
                                 under way everywhere in Panama City.
                                      "As the infrastructure is laid and people begin seeing where
                                 the money is being spent, it opens the doors to more
                                 possibilities," said Michelle Douglas, an ARI spokeswoman.
                                 "We expect much more investment as we gain momentum."
                                      A $300 million cruise-ship port is being built in Amador at
                                 the Pacific end of the canal by a South Korean firm. It will
                                 serve some of the 300 cruise ships and 200,000 tourists that
                                 now pass through the canal each year without stopping. With
                                 the help of the Smithsonian Tropical Research Institute, a local
                                 hotel magnate is building a $10 million luxury ecology resort in
                                 the heart of the rain forest.
                                      The Spanish hotel company Sol-Melia is building a hotel in
                                 the Colon Free Trade Zone. There are golf courses and
                                 shopping centers on the drawing board. Chinese and
                                 Taiwanese firms are building transshipment port facilities and
                                 industrial parks.
                                      And the Kansas City Southern Railway has purchased the
                                 47-mile rail line that runs alongside the canal, which it plans to
                                 operate as the Panama Canal Railway Co.
                                      "The reason we are in Panama is because we saw the
                                 possibility of building a ... land bridge" for moving shipping
                                 containers, said Dario Benedetti, general manager of the
                                 railway, in his office in Balboa. "We saw the container ports
                                 had more success than anybody had originally anticipated, far
                                 exceeding container volume projections."
                                      Mr. Benedetti said his company is investing $60 million in
                                 the first phase of rebuilding and renovating the railroad.
                                      Panama has all the ingredients necessary to become a major
                                 transportation hub for this hemisphere, he said.
                                      Mr. Benedetti pointed out that Panama uses the U.S. dollar
                                 as its currency, making its money the most stable in the region.
                                 It has extremely liberal banking laws, a mature insurance
                                 industry and the largest foreign registry of ships in the world.
                                      ARI officials also point to the benefits of Panama's
                                 flourishing free-trade zone in Colon and note that most
                                 Panamanian businessmen speak English.
                                      "You have all these ingredients to help catapult Panama into
                                 a regional hub," Mr. Benedetti said.
                                      He said his company has found the business environment
                                 affable, even during a recent dispute that could have gotten out
                                 of hand.
                                      At one point his company, another company that is taking
                                 over an airstrip in the reverted Albrook Air Force Base in
                                 Panama City and a Hong Kong-owned shipping company
                                 discovered they all had been granted concessions to the same
                                 piece of land. But Mr. Benedetti said the problem was
                                 resolved to everyone's satisfaction.
                                      "It was difficult and complicated, but there was a dedication
                                 at the highest levels to getting the problem resolved so the
                                 projects could go forward. It was sorted out and we are all still
                                 here working," he said.
                                      Asked whether he would recommend investing in Panama,
                                 Mr. Benedetti said the nation's stock market was up by more
                                 than 30 percent this year, and that crime "is not a big concern
                                 here, as in some other Latin American countries. You have to
                                 be careful, but no one has bodyguards."
                                      Control Risks Group Ltd., an Arlington, Va., consulting firm
                                 that identifies risks to companies and employees working
                                 overseas, gives Panama good grades.
                                      Except for the Panama-Colombia border area in Darien,
                                 which it rates as a "high" security and travel risk, Control Risks
                                 rates Panama as a low political risk, and medium-to-low
                                 security and travel risk.
                                      Still, several officials caution American investors to be
                                 careful, saying the judicial system is subject to corruption and
                                 outside political influence.
                                      Two incidents in particular typify the problems faced by
                                 foreign investors in Panama, according to U.S. observers.
                                      Pedro Miguel Gonzalez, the son of a prominent Panamanian
                                 politician, was accused in the 1992 murder of U.S. Army Sgt.
                                 Zak Hernandez. Despite overwhelming evidence, Mr.
                                 Gonzalez was acquitted in November, while the investigating
                                 police officer now finds himself under indictment.
                                      Second, the bidding processes employed until recently by
                                 ARI are considered corrupt, at least by U.S. standards. That is
                                 how Hutchinson Ports Holdings, a Hong Kong company with
                                 close ties to Chinese leaders, won out over an American
                                 company for the rights to coveted ports at either end of the
                                 Panama Canal.
                                      "We are forced to tell new American investors to be very
                                 cautious when dealing in Panama or with the government," said
                                 a Western diplomat based in Panama. "The courts are not a
                                      Judicial reform programs consume a sizable chunk of U.S.
                                 aid to Panama, being the second most important American
                                 concern after protecting Panama's environment.
                                      Nevertheless, some American companies have had success
                                 in buying reverted properties.
                                      The U.S.-based Stevedoring Services of America, in a joint
                                 venture with the Panamanian Motta and Heilbron families,
                                 opened the Manzanillo International Terminal (MIT) in 1995 in
                                 Colon, and its 700 employees now handle 50,000 shipping
                                 containers every month.
                                      MIT has invested $200 million in the past three years.
                                      "Everyone is so worried about what will happen Dec. 31,
                                 1999. But we at MIT can show that in Panama things can be
                                 done correctly," said Carlos Urriola, MIT vice president.
                                 "Everything is going excellent. We feel that MIT is a showcase
                                 for Panama and the world."
                                      There have been numerous accusations that members of
                                 Panama's ruling party, the Democratic Revolutionary Party
                                 (PRD), is corrupt and awarding contracts improperly as
                                 patronage payoffs.
                                      Last summer, the minister of housing, Francisco Sanchez
                                 Cardenas, and several other government luminaries won the
                                 right to rent some of the 462 houses that became available
                                 from the reversion of Albrook Air Force Base. As renters, they
                                 became eligible to buy the houses at about half the market
                                      ARI officials dismiss the charges of corruption, but doubts
                                      "When the river rumbles, rocks are coming down the
                                 stream," said numerous Panamanians, quoting a Spanish
                                 proverb meaning roughly, "Where there is smoke, there is fire."
                                      "The only people who can get reverted houses are the
                                 political power class and their friends," said Jorge Caballero,
                                 an unemployed office worker eating lunch at Mr. Pollo, a
                                 fast-food chicken place. "It is not just the PRD. The political
                                 class are all liars. They make promises to get into power and
                                 then do nothing."
                                      Critics also say Panama is not taking care of the property
                                 that has already reverted, raising questions whether it can deal
                                 with the remaining 60 percent of canal and military buildings to
                                 be returned to Panama this year.
                                      The School of the Americas, an army facility that was used
                                 to train Latin American military leaders, and the Panama
                                 Railway, both early reversions, were allowed to deteriorate in
                                 the tropical heat and humidity before being sold. But Mr.
                                 Barletta claims his critics are out of touch.
                                      "Those reversions took place before this agency existed.
                                 ARI is only three years old. We are bringing order to the
                                 process and we have good maintenance on the properties
                                 we've been given," he said. "Our critics are relying on totally
                                 unfounded information."
                                      The winners in the bidding system say things are going fine.
                                      John McTaggart, the head of a group of American retirees
                                 who just won a $6.7 million bid for 132 houses on Albrook,
                                 said his members are generally pleased with the reversions and
                                 ready to spend their twilight years in their Panamanian
                                      The government mandates medical, hotel and restaurant
                                 discounts for foreign retirees in Panama, and Mr. McTaggart
                                 and his cohorts see no reason to leave.
                                      "I could never understand why American retirees went back
                                 to Florida or Texas," said Mr. McTaggart, who is married to
                                 Panamanian woman and has spent most of the past 30 years
                                 here. "My friends are here. Why would I leave? It's a kind of