Panama Closes All Banks in Cash Shortage

Panama’s government closed all banks indefinitely today because of a cash shortage it said was caused by the freezing of Panamanian government assets in the United States.

The move appeared to be an initial victory for supporters of deposed President Eric A. Delvalle, who are trying to remove Panamana’s de facto ruler, Gen. Manuel A. Noriega, by requesting the freezing of Panama’s assets worldwide.

A communique issued by Mario de Diego, head of Panama’s banking commission, said private bankers and government officials have come to the conclusion “that the required availability of American dollar bills does not exist for the functioning of the national banking system.”

Panama uses the U.S. dollar for its currency.

Order by U.S. Judge

“The National Banking Commission has resolved to order the suspension of service to the public by the banks of the national system as of March 4, 1988, until further notice,” De Diego said.

De Diego said the cash shortage was caused in part by an “extraordinary and unusual” demand for cash as well as by a restraining order issued by a federal judge Wednesday in New York.

The U.S. district judge barred the transfer of $10 million in Panamanian assets from Republic National Bank in New York to the National Bank of Panama pending a hearing Monday.

The order resulted from a U.S. suit filed by supporters of Delvalle, who was ousted Feb. 25 a day after trying to fire Noriega as Defense Forces chief after the general’s indictment on drug charges in two federal courts in Florida.

Deposed by Assembly

But the National Assembly, controlled by Noriega backers, called Delvalle’s act unconstitutional and deposed him in an emergency session. The assembly named Noriega ally Manuel Solis Palma as his replacement. Delvalle escaped from a virtual house arrest and is now in hiding, reportedly in Panama.

Delvalle has endorsed a plan to remove Noriega by winning the freezing of Panamanian assets and depriving the country of badly needed funds.

De Diego said that as a result of the New York restraining order the National Bank of Panama was no longer able to supply dollars to the private banking system.

The National Bank had announced Thursday that it could not pay out cash reserves to local banks. Businessmen said commercial banks were open Thursday but refused to cash checks. Some said they were worried about issuing payroll checks that would not be honored.