$1.2 Billion Needed for Rebuilding, Panamanians Say : Economic aid: Officials liken the task to the reconstruction of Japan after World War II. They look to the U.S. for most of the money.

Panama will need at least $1.2 billion to rebuild its economy from the wreckage left by the ravages of Manuel A. Noriega’s corrupt rule and the devastation that accompanied the American invasion and occupation of the country, Panamanian officials and economists say.

Likening the task to the radical reconstruction of Japan after World War II, Second Vice President Guillermo (Billy) Ford said in an interview that “we will easily need $1.2 billion, not just for the physical” projects, “but to create an attractive and positive atmosphere for investment.”

While listing international financial organizations and other governments as sources for help, Ford, who still carries a .45-caliber automatic pistol in his waistband, made it clear that he expects most of the aid to come from the United States.

“The president (Guillermo Endara) has appointed special envoys to the United States . . . whose mission is to obtain liberation” of funds held up by Washington as part of its economic sanctions against the Noriega regime and to negotiate other financial assistance, he said.

The vice president--who, among government leaders, met the American invasion most warmly and who has appeared least worried about the psychological, social and cultural impact of a foreign occupation--nevertheless said that the United States must pay to help heal the scars left by the invasion.

“I don’t know how much it should be,” he said as he rocked back and forth behind the desk he uses in his temporary office in the Foreign Ministry. “But I am looking for funds from the United States to indemnify us for property destroyed” in the invasion. And that, he said emphatically, “should be unqualified--not a loan.”

The initial object of the Panamanians working in Washington for aid is to obtain the release of hundreds of millions of dollars in Panama Canal revenue and taxes owed by American companies operating in Panama that had been impounded by the United States in the effort to penalize Noriega.

However, this is the focus of the first point of disagreement between the two countries. Panamanian officials privately say they should receive at least $700 million from the escrow accounts where the money has been held for the past three years. The United States, on the other hand, says the figure is $400 million.

The size and cost of the reconstruction effort is so immense, most experts say, that it is unlikely the country will ever recover its one-time level of prosperity. If it does, they say, it will be as a total dependent of the United States, addicted as much to American financing as Noriega was to drug-trafficking money.

‘We Are Bankrupt’

“The Americans already are planning a lower grant package than expected,” said political economist Marcos A. Gandasequi. “We are bankrupt and will be forced to accept money as loans. That will push Panama into the same Third World debt cycle that has ruined other nations in the region.”

But even before considering such long-term economic implications of the revolution sparked by the Dec. 20 American invasion and the removal of Noriega from power, the pressures caused by the economic emergency are providing the first signs of conflict between the Panamanian administration and its American sponsors. Political experts also say that the three men who form the ruling coalition--Endara, Ford and First Vice President Ricardo Arias Calderon--are already at odds over development strategy.

Adding to both the economic and political strains created by the Noriega government and the destruction of war are conflicting U.S. and Panamanian views as to the purpose of the invasion and how long American troops will remain here.

Then there is the problem of inexperience in the Endara government and the nightmarish need to continue using the leftover Noriega bureaucracy, a labyrinth of corruption and inefficiency.

“I wish the American soldiers had blown up every government office and all the bureaucrats inside,” said one Panamanian official who asked not to be named because he still has to work with the old civil service. “At least then our mistakes would be our own.”

“I can’t get anything done,” Ford said. “I say, ‘Let’s do this,’ and two hours later someone returns and asks, ‘Do you really want to do that?’

“When I say yes, I mean yes, and when I say no, I mean no,” Ford said, waving his hands, “but no one believes me.”

Mistakes, bureaucratic blockages, even sabotage--these all pale before the grotesque problems of both developing an economic reconstruction program and paying for it.

“The situation without the war would have been a tough problem to solve under any circumstance,” said a European diplomat with close contacts to the new government.

“Noriega’s theft set this place back 30 years. But the invasion set it back even more. It is fair to say there is no economy right now.”

It was not always that way. When Noriega assumed power in 1981, Panama had Central America’s highest standard of living. Bank deposits totaled $42 billion, a free trade zone was attracting large-scale investments, particularly from Asia, the Panama Canal revenues financed a generous social security system and tourism brought in hundreds of millions of dollars.

The country’s economy always had a high quotient of corruption, but not so much that it disturbed either the consciences of the entrepreneurial middle class or the profitability of their businesses.

But as Noriega consolidated his power, corruption became the major engine of government economic policy, and drug trafficking and related money-laundering eventually came to play such a major role in the economy that foreign investment began to slacken.

When the United States initiated economic sanctions as part of its effort to drive Noriega from office, the total value of the country’s wealth ultimately dropped by about 40%; unemployment climbed to at least 30%, and the government’s credit dropped to zero, with its checks regularly bouncing.

An example of the size of the corruption is seen in the administration of the free trade zone, According to U.S. sources, the head of the government commission that ran the zone, one-time presidential candidate and Noriega crony Carlos Duque, siphoned off $275 million a year, or about 8% of the zone’s total revenues, for distribution among Noriega’s favorite army officers.

Duque was described as taking $25 million as his share.

There are no estimates of the damage caused by the fighting during the invasion, although huge slum neighborhoods were destroyed by the battles and the fires that followed. “There is no real way of telling,” one local banker said, “but if they want to build modern neighborhoods, the costs could be hundreds of millions of dollars.”

Bankers also say the cost of repairing and restocking businesses and shops vandalized and looted during the three days after the invasion will be hundreds of millions of dollars, very little of which will be covered by insurance.

If there is anything that reflects Panamanians’ relatively relaxed approach to disaster, it is the emergence of a large, makeshift market near the U.S. military headquarters where looted products ranging from $80 pairs of running shoes to state-of-the-art Japanese television sets are sold at cut-rate prices as American troops patrol nearby.

‘The Panamanian Way’

“It’s the Panamanian way of redistribution of wealth,” said one American diplomat.

But that was the only bit of humor in a day that saw the government reopen the nation’s banks and issue paychecks to public workers. While Ford promoted this as a sign of progress and stability, in reality he had to obtain $50 million from the United States so the banks here would have enough money to cash checks.

The vice president’s program, admittedly sketchy after only eight days in office, is aimed at turning the country into an unrestricted free-market economy in order to attract huge foreign investment, international banking operations and tourism and to encourage local businesses to expand and operate efficiently.

“The idea is that private enterprise in a free market will create jobs, which means we can cut back on the number of public workers and cut the government payroll and costs,” Ford said. An estimated 20% of all workers are employed by the state.

As to financing social security programs, Ford said the money will come from selling off government enterprises and property. “But we’re not going to give someone $5 to get drunk as a bribe, like Noriega did. People are going to have to work.”

In this free-market approach, Ford is opposed by Arias Calderon, the nation’s other vice president, who prefers more state intervention in a larger, publicly financed welfare system.

However, President Endara, whose political background tends to populism and state involvement, has nevertheless allowed Ford a nearly free rein for the time being because the free-market approach is most likely to bring American aid.

To Ford, the first step “is to convince the world that we are serious and stable. . . . When they realize we are honest, the investment will come. We may not get back where we were, but we will regain much of our position.”

Other government economists say they are working on a program to guarantee the safety of foreign investments and to encourage development of Panama’s interior, both to diversify the economy and to ease the social services strain on the capital.

But Arias, who is supposed to stay out of economic matters and concentrate on restructuring the military and justice systems, extracted at least one concession from Ford.

Sources said the first massive government program will be construction of a multimillion-dollar public works project including homes, shops and public offices, in the slum area called Chorrillo, which was nearly destroyed when American troops attacked Noriega’s nearby military headquarters.

Ford said that banking, long a refuge for foreigners avoiding taxes, will resume without new restrictions; that is, the amounts of deposits and the names of depositors will remain secret.

This is another source of conflict with the United States, which wants access to bank records in the search for narcotics traffickers and money launderers.

But the major source of differences between Washington and Panama will be the amount of aid and indemnification the United States will pay. “If Ford thinks he can get a billion dollars from us in the next year or so above and beyond the escrow account, he couldn’t be more wrong,” said a U.S. economic source in a telephone interview from Washington.