PANAMA

	FY 1998 Actuals	FY 1999 Estimate	FY 2000 Request
Development Assistance	$3,182,000	$4,598,000	$3,500,000
Economic Support Funds	---	---	$1,000,000

Introduction

U.S. assistance to Panama contributes to the achievement of U.S. foreign policy objectives in the areas of economic growth, environment and democracy. Specifically, the assistance supports the successful implementation of the Panama Canal Treaties, which is clearly in the U.S. national interest. Under the Treaties, Panama will assume full ownership, control and operation of the Canal on December 31, 1999. U.S. assistance focuses on assuring effective protection and management of the Panama Canal Watershed, productive uses of reverted military and other properties, and on substantial improvements in the criminal and commercial justice systems of Panama.

Substantial amounts of U.S. (13%-14%) and world (4%) ocean-going cargo transit the Panama Canal. The protection of the watershed's natural environment is vital to safeguarding the fresh water resources upon which canal hydrology depends. Additionally, a democratic, transparent, prosperous and stable Panama will help ensure smooth transfer of Canal ownership and control, contributing to efficient Canal operations well into the 21st Century. Finally, well-planned, productive uses of U.S. military bases and other properties scheduled to revert to Panama can help offset the loss of income from the closure of the bases, contribute to political stability and help preserve the ecology of the canal watershed.

Development Challenge

Fresh water powers the Panama Canal. The Panama Canal Watershed (PCW) is the only source of water to meet the needs of the Canal as well as the fast growing population in the area. During the past 50 years, massive deforestation has reduced the forest cover in the Watershed by 60% and in the process eroded its river valleys and lake shores. As a result, the fresh water supplies of the watershed are increasingly vulnerable to agricultural and industrial pollution, siltation, sedimentation and the reduction of storage capacity of the lakes. Increasing rates of population migration into the watershed, with concomitant urbanization and economic activities, threatens its environmental health. With USAID assistance, the Government of Panama (GOP) has provided essential infrastructure and equipment, and has developed management plans for the five national parks located in the watershed. USAID has also supported GOP efforts to establish a comprehensive monitoring program to measure changes in forest cover, hydrology, biodiversity and human settlements in the watershed. An Ecological Trust Fund that provides a permanent source of funds which finances environmental education and awareness activities by local NGOs, as well as related management and protection activities, was successfully established with USAID's assistance. USAID will continue to provide assistance to improve the management and technical capabilities of key responsible GOP institutions, local governments, non-governmental organizations and communities in the area, to better protect and conserve the natural resources of the watershed.

Development in Panama, including the environmental sector, is affected by a justice system that is inherently slow, complex and non-transparent. The system is difficult to understand or access for both Panamanians and non-Panamanians, and is highly susceptible to manipulation. USAID will provide assistance to support the consolidation of ongoing efforts by the GOP to implement critical reforms of its criminal and civil systems. The assistance complements a larger effort supported by the IDB in criminal justice. It will also provide additional resources to address issues in commercial justice, an area in which the IDB is not involved. In an effort to modernize the justice system, selected technical assistance and training will focus on the application of internationally recognized commercial law and legal practices, enforcement of environmental regulations, and on the active participation of an organized civil society.

The reversion of the Panama Canal is based upon the 1977 Torrijos-Carter treaty, which established that the United State would progressively give back to Panama by December 31, 1999 all the lands, water resources, and infrastructural installations (including the military bases) necessary to administer, operate and defend the Panama Canal. The Regional Interoceanic Authority, established in 1993 to oversee the reversion process, aims to ensure that the uses of the reverted areas do not impair the proper functioning of the canal and the reverted properties make maximum contribution to Panama's economic and social development. USAID is providing resources to assist the GOP in the development of policies and administrative options for the management of reverted properties. Assistance is financing studies, selected technical assistance, training and computer equipment and software to help the GOP in the efficient conversion and management of reverted properties. Due in part to USAID assistance, the GOP has been fairly successful so far in converting seven military bases or other installations already transferred to productive uses.

Currently the GOP's external public debt is $5.0 billion. Servicing of the external debt is 33.4% of the public sector budget. The U.S. Government has no plans for debt relief.

Other Donors

Currently, USAID is the major donor active in the watershed. Under the Common Agenda Initiative, the Government of Japan (GOJ) has indicated interest in assisting the GOP in the conservation and protection of the watershed, with activities complementary to the USAID program. To date, GOJ assistance has been modest. It recently awarded a $240,000 grant to a local NGO to establish a training center. However, Japan plans to expand its training and technical assistance activities and to assist in significant reforestation beginning in FY 2000 and beyond. The World Bank (IBRD) anticipates a lending program to Panama of $130-225 million over the 1999-2001 period. This support will concentrate on poverty reduction, economic growth policies, and selective activities focused on environmentally sustainable development. Planned activities in land administration will complement watershed conservation.

The IDB is currently assisting the GOP to develop a National Environmental Strategy. Assistance is also planned for the productive reconversion of areas in conflicting land use in the watershed. The IDB is also the lead donor supporting a major GOP effort in the improvement of its administration of criminal justice systems. USAID administration of justice activities complement this effort.

FY 2000 Program

USAID will focus resources on: 1) the protection of the canal watershed; 2) assisting on-going efforts of the GOP to implement critical reforms of its criminal and commercial justice system; and 3) resolving issues related to effective and productive use of the reverted areas adjacent to the Panama Canal. During CY 1999, USAID will develop a Strategic Plan that outlines the range of activities to be implemented beyond FY 2000 within the framework of the three objectives indicated above. In FY 1999, USAID will continue to support the institutional strengthening of GOP institutions responsible for the protection of the watershed. To enhance the sustainability of the protection of the watershed, USAID will encourage the participation of civil society, the private sector, local governments and residents of the watershed in this effort and provide appropriate financial and technical support. USAID will also provide assistance to the court systems, prosecutors and civil society to effect fundamental changes in the justice sector. Finally, USAID will continue to support GOP efforts in planning and implementing privatization and productive uses of the reverted areas.

PANAMA

FY 2000 PROGRAM SUMMARY
($000s)

USAID Mission Director: Lars Klassen

USAID Strategic and Special Objectives	Economic Growth & Agriculture	Population & Health	Environment	Democracy	Human Capacity Developmnt	Humanitarian Assistance	TOTALS
S.O. 1 Improved Management and Protection of Panama Canal Watershed -D.A.	---	----	2,500	---	---	---	2,500
S.O. 2 To facilitate Legal and Policy Changes Required to Sustain Fair, Fast and Independent Criminal and Commercial Justice Systems - ESF	---	---	---	1,000	---	---	1,000
Sp.O. Efficient Transfer of the Panama Canal and Facilitate Productive Use of Reverted Areas -D.A.	1,000	---	---	---	---	---	1,000
Totals -D.A. -ESF	1,000 ---	--- ---	2,500 ---	--- 1,000	--- ---	--- ---	3,500 1,000

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ACTIVITY DATA SHEET

PROGRAM: Panama
TITLE AND NUMBER: Improvement in the Institutional Capacity to Manage and Protect the Panama Canal Watershed, 525-SO01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCES: FY 2000: $2,500,000 DA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: 2006

Summary Numerous studies, including one conducted by USAID in 1994, have demonstrated the link between the environmental protection of the Panama Canal Watershed and the effective long-term operation of the Panama Canal. Protection of the environment helps assure the availability of adequate volumes of water for canal operations by maintaining an increasing forest cover where possible, and by minimizing sedimentation and drainage of contaminants into the Canal. Efficient operation of the Panama Canal relies on the freshwater provided by rain across the 326,000 hectare watershed, as each ship passage requires 52 million gallons of fresh water. As the GOP assumes responsibility for the operation of the Canal on December 31, 1999, the mandate of the newly created Panama Canal Authority (PCA) will extend beyond the management of the Canal itself to include, in coordination with other competent Panamanian authorities, the protection, conservation, and maintenance of the water and natural resources of the watershed. The purpose of this Strategic Objective is to assist Panama in assuming this responsibility for management of the watershed and to serve the U.S. interests in the sustainable operation of the Canal. The direct beneficiaries of this objective will be the Canal watershed ecosystem, the 143,000 residents of the watershed, and the operators and users of the Canal and watershed. The indirect beneficiaries will be the 1.4 million people along the transisthmian corridor on the east bank of the Canal, the population of Panama as a whole, and the global economy.

Key Results: USAID has determined that four key intermediate results are necessary to achieve this objective: (1) Institutional arrangements for effective watershed management and protection adopted; (2) watershed monitoring and evaluation system institutionalized; (3) Protected areas management systems functioning effectively; and (4) Local capacity to protect and manage the watershed increased.

Performance and Prospects: Performance over the past year has been as expected, with successes in all aspects of the portfolio.

The GOP, with USAID assistance, made progress during FY 1998 in improving the institutional arrangements for effective management of the watershed through drafting of alternative organizational structures for the legally mandated Inter-Institutional Commission for the Canal Watershed (IIC), passage of a framework law for the newly created National Environmental Authority (ANAM), and appointment of the members of the newly created PCA's Board of Directors. To finance watershed protection activities, the USAID-created Ecological Trust Fund (FIDECO) provided more than half a million dollars to the GOP for operation and maintenance of protected areas, and an equivalent amount for NGO projects including sustainable agriculture, biodiversity conservation, and watershed management. Over the next two years, USAID expects to support the establishment of the IIC, and assist the GOP in developing policies, regulations, and sustainable financing systems for watershed protection activities.

Continued support to the Smithsonian Tropical Research Institute's watershed monitoring program resulted in a functioning unit of scientists and technicians collecting monitoring information on biotic and abiotic conditions in the watershed including forest cover, hydrology and soils, biodiversity, and human settlements. This monitoring team has provided useful information to decision makers. The identification of an appropriate institutional home for the unit has been moving slowly with continuing discussions between USAID and appropriate GOP institutions. Over the next two years, USAID expects the monitoring unit and its information to become an invaluable resource for managers in the watershed.

Over the past year, USAID has supported the GOP with multiple activities to strengthen the functioning of protected areas within the watershed. USAID is supporting the development and improvement of park-use plans and construction of infrastructure facilities. Over the next two years, USAID will complete these activities and work with the GOP to implement co-management arrangements in the protected areas in accordance with the new environmental law.

Local capacity to conserve natural resources and to manage the watershed was increased through pilot agroforestry activities and support for the institutional consolidation of the Association of Panamanian Municipalities (AMUPA). Activities over the next two years will assist AMUPA to play a lead role in helping local governments implement the regional land-use plan, and help communities solve environmental problems such as solid waste disposal.

Possible Adjustments to Plans: USAID will dedicate significantly more resources toward the development and strengthening of civil society organization and encourage their increased participation, together with local and national government entities and the private sector, in watershed conservation and protection activities.

Other Donor Programs: The IDB and the WB have begun developing projects that will improve management of the watershed. Both entities anticipate activities in land management and watershed conservation as part of their planned $130-$225 million lending program. The IDB has ongoing activities which support the establishment of an institutional and operational framework to promote the development of a modern national environmental strategy and strengthen comprehensive watershed management programs elsewhere in the country. Under the Common Agenda Initiative, Japan is considering establishing a training center in the watershed to provide environmental education and awareness as well as training in forestry and agroforestry techniques. USAID is working closely with all of these donors to ensure complementarity of projects.

Principal Contractors, Grantees or Agencies: Current grantees and contractors include the Smithsonian Tropical Research Institute (STRI), the Academy for Educational Development (AED), the International Institute for Education (IIE), the International Executive Service Corps (IESC), and Technoserve.

Major Results Indicators:

	Baseline 1997	Target 2000
Land use in the Panama Canal Watershed compatible with the approved Regional Plan	57%	63%
Community-based, pilot agro-forestry activities on-going	1	5
The Inter-Institutional Commission (IIC) to strengthen coordination among public and private institutions in the PCW established and decision-making mechanisms functioning	No	Yes
Note: End-of-Activity Targets to be Developed

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ACTIVITY DATA SHEET

PROGRAM: PANAMA
STRATEGIC OBJECTIVE: To Facilitate Legal and Policy Changes Required to Sustain Fair, Fast and Independent Criminal and Commercial Justice Systems, 525-SO02
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $1,000,000 ESF
INITIAL OBLIGATION: FY 1991 ESTIMATED COMPLETION DATE: FY 2006

Summary: The Panamanian justice system is a mixed inquisitory/accusatory one which is inherently slow, complex and non-transparent, is difficult to understand or access for both Panamanians and non-Panamanians, and is highly susceptible to manipulation. Recently, an increasing number of policy formulators and opinion leaders have spoken out against the systemic slowness and inefficiency of justice in Panama. Most of the negative remarks have been confined to the criminal system, but the same criticisms apply to commercial law.

Notwithstanding past Panamanian, USAID and other donor efforts, the criminal justice system continues to suffer serious, systemic weaknesses that have produced delayed, flawed, or simply wrong decisions. Major consequences of these weaknesses are increasing backlogs in cases, and a prison population in which 65% of the prisoners held in preventive detention have never even appeared before a judge. Just as worrisome, the courts appear subject to manipulation, corruption and political influence. The civil system, including its commercial component, is similarly lacking. Court productivity is low and slow: approximately 60% of all cases in the system (the majority in civil courts) have been pending over a year, and 40% have been waiting for over three years.

The purpose of this SO is to support GOP efforts in facilitating fundamental change in the justice sector. A fair, timely and transparent justice system is necessary to ensure the economic health and political stability of the country. In particular, fundamental change to the justice system will improve the confidence of Panamanian citizens and U.S. and international businesses and investors which, in turn, will facilitate the productive uses of formerly owned U.S. properties. Additionally, it will contribute to improving and strengthening the legal foundation upon which the institutional framework for sustainable Panama Canal Watershed management and protection is based.

Key Results: USAID has concluded that four key intermediate results are required to achieve this objective: (1) An informed civil society (NGOs) working with other sectors to improve the justice system; (2) An improved prosecution and public defenders system on a sustained basis; (3) Effectively functioning court systems, and alternative dispute resolution systems; and (4) improved police organization and capabilities (through the Department of Justice).

Performance and Prospects: Since Panama's return to democracy in 1990, efforts have been undertaken to re-establish independent Panamanian judicial institutions, strengthen operations and modernize laws. When 1995 budget stringencies forced USAID to reduce its presence worldwide, the Mission was instructed to eliminate its Democracy and Governance Strategic Objective, and phase out its successful Administration of Justice project in 1997. After a year's hiatus, USAID has reinitiated its work in the justice sector with relatively modest financial resources. In returning, a USAID sector assessment has determined that major problems persist. However, because other donor assistance in this area has increased considerably with the advent of the IDB's large justice sector loan, USAID will work to complement IDB efforts and focus in particular areas not being covered by the IDB (e.g., NGO development and strengthening, commercial justice issues and police training (with the Department of Justice).

Possible Adjustments to Plans: The objective is to enable the GOP and civil society organizations to formulate, institutionalize and implement activities designed to ensure fundamental sustainable systemic change in the justice systems. A top priority will be to ascertain receptivity to change, and results of research here could result in changes to USAID's approach in the future. Further research will be undertaken to understand better the constraints to justice and the appropriate means to address them. USAID will continue to coordinate and collaborate closely within the U.S. Government and with the IDB.

Other Donor Programs: The IDB is the major donor in the sector with an $18.9 million loan to the GOP. Other donors include the United Nations Development Program (UNDP), the Organization of American States (OAS) and the European Union (EU) with very modest programs. The British, Germans, French and Spanish have small bilateral programs.

Principal Contractors, Grantees or Agencies: Since this is a new SO, there are no contractors or grantees in place. Thus, USAID is considering accessing support through an existing Agency Indefinite Quantity Contract mechanism, Cooperative Agreements, and Participating Agency Service Agreements, supplemented with local and third country expertise where feasible.

Major Results Indicators:

	Baseline 1998	Target 2000
Number of local NGOs actively involved in justice issues	8	10
Number of judges and prosecutors trained in aspects of new penal code	0	200
Note: End-of-Activity Targets to be Developed

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ACTIVITY DATA SHEET

PROGRAM: Panama
TITLE AND NUMBER: Efficient Transfer of the Panama Canal and Productive Use of the Reverted Properties, 525-SpO01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000 $1,000,000 DA
INITIAL OBLIGATION:FY 1995 ESTIMATED COMPLETION DATE: FY 2003

Summary: This activity supports U.S. foreign policy objectives aimed at successful implementation of the Panama Canal Treaties of 1977. According to the Treaties, the ownership, management and operation of the Panama Canal will be transferred from the United States to the Republic of Panama on December 31, 1999. The Treaties also call for the closure of all U.S. military bases and the reversion to Panama of related properties.

With USAID assistance, the GOP seeks to offset the negative impact on the Panamanian economy, in terms of lost jobs and income, resulting from the progressive closure of U.S. military bases. Compared with the base year of 1994, some 12,300 jobs will have been lost, along with $95 million in annual wages and $250 million in other annual expenditures that accrue to the Panamanian economy. In addition, given that approximately 12% to 14% of U.S. international maritime trade transits the Canal, USAID, acting as facilitator in those areas where it possesses a particular comparative advantage, will continue to provide selective technical assistance and short-term training to the newly established Panama Canal Authority (PCA) during the next two years to ensure a smooth and seamless transition.

Key Results:To achieve this Special Objective USAID has defined two key intermediate results: (1) selected policies and procedures for Canal operations adopted; and (2) enabling conditions established for generating investment and employment in the reverted areas.

Performance and Prospects:USAID-funded technical assistance has contributed to significant improvement in the Inter-Oceanic Regional Authority's (ARI) ability to market reverted properties. Policies for investment development have also been adopted and procedures streamlined with USAID assistance.

As a result, there have been successes in converting for productive use the seven military bases or installations already reverted to Panama: Espinar (1995), Davis (1995), Rodman Tank Farm (1997), Amador (1997), Curundu Flats (1997), Albrook (1997) and Quarry Heights (1998). Conversion of these properties to other uses ranges from 50% of Quarry Heights to 100% of the Rodman Tank Farm. Successes are also evidenced by the sale of 1,186 houses and 80 planned and on-going investment projects implemented in 1998. These projects have been primarily in tourism (hotel and eco-tourism development); plus commercial (fuel tank farm, tanker port) and maritime (overhauling existing ports i.e., Balboa and Cristobal and two new port concessions, Manzanillo and CocoSolo) activities.

Contributing to improvements in the investment climate, USAID-supported activities have led to a number of other accomplishments: new industrial property rights law, amendments to the labor code, legal stability for investment law, streamlining of customs operations and new GOP financial management integrated system.

Given the PCA's recent creation, the focus of USAID assistance has been institutional strengthening, including the introduction of labor mediation (following the model of the U.S. Federal Mediation and Conciliation Service (FMCS)), public information, and financial management.

Possible Adjustments to Plans: To address additional needs in the reconversion and transition process, institutional contractors will be used to address organization and management issues at ARI and PCA. USAID plans to assist ARI in project development for reconverted properties. Emphasis will be technical assistance in urban planning, economics and architecture, maritime industry, tourism, including a School for Tourism Education and master plan development. Technical assistance in business negotiations, customer service, plus public affairs and relations is also contemplated. The institutionalization of the mediation and conciliation system to resolve labor conflicts, using alternate dispute resolution, will be a key element for ensuring continued smooth operation of the Panama Canal.

Other Donor Programs: The IDB has been the major donor in the reversion process. The Bank financed the technical studies that led to the General and Regional Plan (adopted by Law 21). The United Nations Development Program (UNDP) was instrumental in building nation-wide consensus for the passage of Laws 21 and 19 (PCA organic law).

Principal Contractors, Grantees, or Agencies: International Executive Service Corps (IESC), Federal Mediation and Conciliation Service (FMCS), Free Market Development Advisors Program (FMDAP), and Fundación ANDE.

Major Results Indicators:

	Baseline 1995	Target 2000 (a)
Jobs created in the reverted areas (cumulative #)	12,300	6150
Total wages of the newly employed in the reverted areas ($ million/yearly)	95	48.5
Value added of new economic activity in reverted areas ($ million/yearly)	250	125.0
Toll revenues ($ million/yearly)	462.8	503.0
Transits	13,631	14,050
(a) Equivalent to 50% of level attributable to U.S. military presence on December 31, 1994.
Note: End-of-Activity Targets to be Developed

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