Deepening Chaos in Panama

The Reagan Administration’s drive to dislodge Panamanian dictator Manuel A. Noriega has claimed an unintended victim, the Panamanian economy. U.S. sanctions were supposed to throw that already troubled, debt-ridden nation into such chaos that Panamanians would rise up and demand Noriega’s ouster; instead, the U.S. moves have helped create an economic disaster and structural damage so extensive that it is almost certain to persist whether or not Noriega remains in power.

Nearly all economic indicators from Panama these days are ominous. Since March, when U.S. banks froze Panamanian assets in the United States, Panamanian economic activity has been cut in half, the unemployment rate has soared beyond 20% and investor confidence in what was once a vital international banking center has collapsed. Foreign bankers have fled to other off-shore havens. As U.S. dollars--Panama’s official currency--have vanished, retail sales have fallen by 70% and many middle-class Panamanians have resorted to barter to obtain life’s necessities. The churches are feeding the poor.

Noriega, of course, blames his country’s impoverishment on the United States, and, increasingly, he gets a sympathetic hearing from bankers, business leaders and others who wonder why the Administration maintains sanctions that hurt only Panamanians, not the ruthless and corrupt general who governs them. We also wonder why. Do the State Department and the White House cling to the sanctions only because they can’t bear to admit publicly what everyone knows--that their Panama policy failed and that, in the words of Deputy Assistant Secretary of State Michael G. Kozak, “the U.S. has no leverage” in Panama?

The sanctions by themselves did not bring on all of Panama’s troubles, which are rooted in inept management, corruption and debt. And the lifting of the sanctions wouldn’t provide an immediate cure. But the unfreezing of Panama’s assets in the United States and the resumption of U.S. payments for the use of the Panama Canal would at the very least get U.S. dollars flowing into Panama once again and restore some U.S. influence. And the Administration might be able to head off moves, now under discussion, for Panama to abandon the U.S. dollar, print its own money and adopt an economic model more like that of Cuba. That way lies madness, we think--runaway inflation, the nationalization of most Panamanian industry and commerce and the permanent shrinkage of the private sector.

For years Administration foreign policy has revolved around the notion of preventing the establishment of Cuba-like regimes in Central America. Wouldn’t it be strange if that’s what emerged, with the help of U.S. sanctions, in Panama?