Giving Up the Ship?

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Panama has always been a place where strange truth gives fiction a run for its money. In John le Carré's 1996 novel The Tailor of Panama, a Cockney living in Panama City tricks money out of British intelligence by stitching up a plot involving Asians' taking over the Panama Canal. In real-life Panama, the story is no less peculiar: a new President is about to be sworn in amid charges that the government has switched control of the canal to a company allegedly controlled by the Chinese People's Liberation Army. The catfight over that is just a preview. The canal handover--the U.S. will pass the waterway over to Panama at noon on Dec. 31--is unleashing political separation anxiety in the U.S. and everything from panic to greed in Panama. Le Carré must be amused.

The furor comes at a time when Panama is trying to reinvent itself. While only 7% of the country's economy is dependent on the canal, nearly 100% of its self-image is wrapped up in the belief that it serves as one of the world's most important trade links. This Wednesday the country will swear in a new President, Mireya Moscoso, 53, whose overriding challenge is to try to turn a world-class location into a world-class country, technologically literate and future oriented. More ambitious Panamanians (and the country's well-educated middle class is full of them) talk of becoming the Singapore of Latin America. Doing that means making the post-handover canal as profitable as possible.

What has America's right wing spooked is how assiduously the Panamanians are working to make the canal--which has always been run on a nonprofit basis--into a cash cow. It is not a new complaint. In the 1970s, when President Jimmy Carter sold the handover treaty to Congress, there was much whining about turning the canal into little more than an expensive toll road. The latest version of this anxiety adds a national security tweak: fear of China. In 1997, the Panamanian government finalized a rich deal with Hutchison Whampoa Ltd., based in Hong Kong, to run two ports near the entrances to the canal. American-owned Bechtel lost out to Hutchison under a less than transparent bidding process.

Almost immediately, U.S. officials complained that the Bake-Off had been unorthodox. The issue was rekindled in August when Senate majority leader Trent Lott complained that the U.S. had given the farm away without a shot being fired. In particular, said Lott, the deal means U.S. naval ships will be at the mercy of Chinese-controlled pilots and could even be denied passage by Hutchison, which he calls an arm of the People's Liberation Army.

Few observers believe that Hutchison is an arm of the P.L.A. The publicly held firm manages 19 ports in Asia, Europe and the Americas. Shipping experts consider the company among the world's finest. And, says Joseph Cornelison, the commission's deputy administrator, we'll control the timing of ships going in and out of Hutchison's ports. Moreover, under the treaty, U.S. Navy ships will keep their privilege of cutting to the front of the line of vessels waiting to traverse the canal.

With only four months left until U.S. envoys hand over the keys to the waterway, the alarmists may have delayed too long to scupper the deal. The treaty allows the U.S. to intervene militarily--but only if the canal's neutrality is menaced. While critics now include presidential candidates Gary Bauer, Pat Buchanan and John McCain, it is hard to imagine the U.S. backing out.

President-elect Moscoso takes office with enough troubles already. She lacks a legislative majority, and any concession allowing the U.S. military back into Panama would be unpopular. Moscoso picked up her political acumen from her late husband, though a 46-year age gap separated her from the former President, Arnulfo Arias. His career provides a sobering lesson. Arias was elected three times, and each time the army deposed him. Diplomats in Panama say Moscoso knows she must tread cautiously. She has vowed to keep politics out of the handover, entrusting the canal's operations to the autonomous Panama Canal Authority. Moscoso expects Washington to do the same, leaving rumbles of Chinese conspiracies to the thriller writers.


Building a New Future
Hot items on Mireya Moscoso's agenda after she takes office as President:

Canal: Moscoso must respect the canal's neutrality while guarding it from Panama's endemic corruption.

Economy: Unemployment is above 13%. Closings of U.S. military bases may raise that rate.

Security: Colombian insurgency has spilled into Panama's Darién jungles. Panama has no army, and its ill-equipped, 13,000-man National Police force is no match for Colombian rebels.

With reporting by Massimo Calabresi/Washington, Maria Cheng/Hong Kong and Michele Labrut/Panama City