Economic Woes Seen as Threat to Noriega Rule

Although U.S. drug charges formally lodged against Gen. Manuel A. Noriega have created new pressures on Panama’s military strongman, many here believe it will be the deteriorating economy that will eventually break his grip on power.

Private and foreign economists say the government is running short of money and may be forced to severely curtail spending in the months ahead. The possibility of layoffs among the ranks of bureaucrats would be an especially harsh blow to Noriega’s rule, they point out. Government employee unions are among the strongman’s last civilian underpinnings.

The state’s financial situation has already set off a hectic search for funds by the government, including a request for money from Libya.

‘Heard It Before’

“The indictments meant little to Panamanians. They had heard it all (the accusations against Noriega) before,” said Gilberto Mallol, a leader of the Civic Crusade, an alliance of professional groups against Noriega. “It is the economy that is Noriega’s Achilles heel.”

Escolastico Calvo, a Noriega supporter and coordinator of three government-owned newspapers, said, “It is at the economy where the battle lines are being drawn.”

Noriega was indicted last week by two Florida grand juries on charges of drug smuggling and money laundering. Panama does not allow its citizens to be extradited for trial in other nations. Under a U.S.-Panamanian agreement, however, once Panamanians are charged with crimes in the United States, they are supposed to be tried here.

It appears unlikely that figurehead President Eric A. Delvalle will order prosecutors to take Noriega to court; so far, the only response from Panama’s civilian authorities has been one of defiance.

Growing Challenges

It may be easier, however, to resist legal challenges than economic ones.

Panama’s economic problems and as a result, those of the government, are rooted in both the current political crisis swirling around Noriega and coincidental troubles that afflict many Third World countries.

Efforts to unseat Noriega and the resulting turmoil frightened depositors into taking their money out of Panama banks, both from local banks and from the international institutions that make Panama a major offshore banking center.

The drain on local bank deposits, estimated at $8 billion, has virtually brought domestic lending to a stop, thus effectively freezing new construction and investment in the country.

Exit of Banks

Slow economic times in Latin America as a whole also forced some foreign banks to reconsider their presence in Panama. First Chicago Bank, once the largest offshore bank here, closed its Panama office in 1987.

All this has contributed to falling employment and decreased tax income for the government. Dollar reserves in the government’s National Bank fell from a level of more than $200 million at the beginning of 1987 to about $50 million or less by year’s end, diplomats and economists say.

Whether this trend will continue is unclear. The government still has some cost-cutting measures in reserve. For example, it may stop making payments on its foreign debt. Or to win new loans from abroad, it may offer to make some payments.

Government financial authorities are reported to be considering asking foreign banks for a $100-million write-off of interest on old loans and $100 million in new loans.

But there is some question, they add, whether Panama can win new loans at a time when it is behind on payments for old borrowings and its de facto ruler is under the shadow of criminal indictments in the United States.

At least some observers believe the government can hobble along from month to month, paying the salaries of its employees but unable to invest in roads, clinics, schools and other typical public works.

“To fire workers would be a grave political decision,” said Calvo, the government newspaper publisher. “That would be the last resort.”

Late last year, Noriega announced an effort to seek $200 million in emergency aid from Libya, but his negotiators apparently came up empty-handed. Dealing with Libya, with its reputation of support for terrorism, made some Panamanians nervous. Noriega later apologized to Panama’s Jewish community for the initiative and promised “there was no threat of Libyan sabotage.”

The military itself is somewhat insulated from the general economic downturn. It owns numerous businesses, including an import-export license firm that receives fees for shipments that pass through the Colon Free Port, on the country’s Atlantic Coast. The military also owns liquor stores, duty-free shops and an explosives company. Moreover, the army controls licensing for bingo and gambling parlors.

According to the Florida indictments, the military is also the main protector and conduit for drugs passing through here from South America to the United States.

The income from its businesses, both legal and extralegal, helps supplement military income, Panamanians say. Soldiers of all ranks are said to receive extra monthly pay, part of the glue that keeps the military loyal to Noriega.

Noriega’s opponents are taking account of the potential economic hardships, by organizing strikes and other actions. “We can show that although Noriega might rule Panama, the country is ungovernable,” said Mallol.