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PANAMA: To Expand or Not to Expand: That's the Canal Question
By María Mercedes de la Guardia
PANAMA CITY, Sep 30 (IPS) - On Oct. 22, Panamanians will head to the polls in a referendum to decide the future and possible expansion of the Panama Canal, the main economic driver of this country of three million people.
The canal is expected to generate 1.4 billion dollars in the 2006 fiscal year, of which 560 million will go to the state coffers. According to the Panama Canal Authority (ACP), the proposed expansion would increase these revenues to 6.23 billion dollars by 2025, boosting treasury contributions to up to 4.19 billion.
If to this year's 560 million are added the 2.21 billion dollars that according to renowned economist Nicolás Ardito are attributable to the broader Canal Economic System (SEC) - ranging from the maritime sector to the multiple trade-related services - that brings the total generated by the canal to nearly 20 percent of the country's gross domestic product (GDP).
But economics is just one factor.
Panama became a republic in 1903, under the protection of then U.S. President Theodore Roosevelt (1901-1909). His goal was to negotiate with the fledgling state the construction of a route to link the Atlantic and Pacific oceans across the isthmus.
The Hay-Buneau-Varilla treaty paved the way for the project, and created a U.S. enclave on Panamanian territory - the Canal Zone - the focus of much nationalist ire and the defining issue in Panama's foreign policy in the 20th century.
In 1977, after decades of talks, demands and disputes, Panamanians voted to sign the treaties negotiated by then-President Omar Torrijos and his U.S. counterpart Jimmy Carter, which arranged for the U.S. to pull out of the zone on Dec. 31, 1999, handing over control of the canal to Panama.
The expansion is, then, the first major decision Panama has faced on its own with regards to the canal.
The canal currently has two lanes of locks, stepped compartments that move ships between sea level and the lakes that make up the route, fed by water from Gatún Lake. The ACP has proposed adding a third lane, which would entail two new sets of locks on the Atlantic and Pacific mouths.
The new lock compartments would be larger, enabling the canal to increase its lock-traffic flow and accommodate post-Panamax vessels. The latter are too large for the existing system, which can handle only Panamax ships up to a width of 32 metres, a draft of 12 metres and a length of 294 metres.
The project price tag, estimated at 5.25 billion dollars, includes design, administration, construction, tests, environmental-protection measures and implementation, as well as a contingency fund of 1.03 billion dollars. It is expected to take between seven and eight years to build.
Roberto Brenes, executive director of the Panama Stock Exchange and president of "Sí al Futuro" - one of the civic groups registered with the electoral court, in favour of the expansion proposal - believes that "the project is necessary to maintain the competitiveness and strategic leadership of Panama as a main thoroughfare for international maritime traffic."
This is, in a nutshell, the argument put forward by ACP, the government and the more than 200 "Yes" groups registered with the electoral court.
The main competitors of the Panama Canal route are the U.S. Intermodal System and the Suez Canal. The first, a land extension of the trans-Pacific route, is costly and complicated, but makes up for it in shorter transport times, because it doesn't involve long waits. The second - which separates Africa from Asia and links the Mediterranean with the Red Sea through the Suez isthmus - can handle post-Panamax vessels.
A widened canal would make the Panamanian route the best of all these options.
The project stands to generate profits in the range of 12 percent, according to ACP figures, and would pay for itself through gradual increases in tolls. Current toll revenue procedures convincingly back up these forecasts. Every day, 38 ships pass through the canal; of these, 24 have a reserved spot. Each day, an additional spot is auctioned to the highest bidder, while the rest of the ships pass through on a "first come, first served" basis.
On Aug. 26, a Panamax freighter bid 220,300 dollars in the auction, versus the 13,430 dollars it would have paid if it had waited out the seven days for its turn.
Job creation is also a major factor for those campaigning for a "yes" vote. They estimate that, during peak construction years, between 6,500 and 7,000 new jobs will be created, not counting the indirect jobs produced by the construction sector boom and other related activities.
Finally, in a country where politicians and government agencies tend to be eyed with suspicion, there is general consensus that the ACP, a state-run company with 9,000 employees and an annual budget of 800 million dollars, has provided efficient management and leadership, bolstering the credibility of its proposal.
However, engineer Tomás Drohan, former director of the Canal Engineering Department, has criticised ACP calculations, saying they have overestimated transport demand.
According to Drohan, distance factors keep Panama from competing with Suez on important routes such as New York-Hong Kong.
Furthermore, Drohan has warned that, given that the Suez Canal has paid off the improvements that allow the passage of post-Panamax ships, it could "afford to lower tolls to maintain and increase its market."
Carlos Guevara, a professor of political science, believes that the proposal "does not correctly measure the project's impact on the public debt; an excessive increase could have disastrous consequences for the country."
Guevara estimates that by 2011, Panama's public debt - 10.27 billion balboas (or dollars) as of Dec. 31, 2005 - could skyrocket to 16 billion, taking into account the fact that the ACP requires foreign loans of some 2.3 billion dollars.
The ACP maintains that the national government will not be legally responsible for money borrowed for the project. However, Guevara said that, constitutionally, "as Panama has shares in the ACP, the liabilities of this organisation are also part of the nation's sovereign debt."
He added that "the proposal does not deal adequately with certain ecological and social aspects, and is not tied to a national development strategy. It should be rejected to make way for a better prepared and researched expansion proposal."
Another sensitive issue deals with water: there is a fear, unfounded according to the advocates of expansion, that the additional demand from the new locks could strain the public water supply, which comes from the lakes that comprise the interoceanic route.
In 2005, residents in the metropolitan areas of Panama City and Colón used approximately 950 million litres of water per day, an amount that would supply 4.5 lock trips, as each passage requires 209 million litres.
On the other side is the "No" vote, championed by the National Front for the Defence of Economic and Social Rights (Frenadeso), a leftwing trade-union organisation that issued a press release warning that "the proposal submitted by the ACP, the Revolutionary Democratic Party (PRD) and the dominant class is bad for Panamanian society and endangers our nation's future."
As for the opposition political parties, their leaders have come out publicly against the proposal, but many are privately in favour of the expansion.
According to Brenes, "this project is key to maintaining the growth of the economy's service sector (which represents 60 percent of GDP), given that the canal is the driving force behind the port hubs on both coasts and is a critical factor in the success of related activities, such as the Colón Free Zone." The massive free zone on the canal's Atlantic entrance re-exports a wide variety of merchandise to Latin America and the Caribbean.
The major negative aspect, aside from a worst-case scenario in which the financial projections turn out to be wildly inaccurate, is summed up by Drohan's warning that "a population desperate for new jobs could look to this project as a solution, which it is not." According to the Comptroller's Office, last year's unemployment rate reached 9.5 percent.
Another danger, described by Carlos Iván Zúñiga, lawyer and ex-dean of the University of Panama, is that "the ‘Yes' vote is linked with an image of the cornucopia of abundance in the eyes of the people."
This means that, despite the canal's importance to the Panamanian economy, or perhaps precisely because of it, the government must address the country's inequitable distribution of wealth, education, judicial security, roadways and urban planning, among other issues on which Panama has made little or no progress.
According to the Human Development Index published by the United Nations Development Programme (UNDP) in 2002, 40.5 percent of Panamanians were living in poverty, with 26.5 percent - mostly in indigenous regions - living in extreme poverty.
(END/2006)
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