PANAMA CITY — A serious breach has opened between the United States and Panama over the use of American economic aid and a U.S. demand that Panama change its banking secrecy laws in order to prevent the laundering of drug money.
Panama's Controller General Ruben Carles, who is being pressured to give U.S. officials access to secret bank accounts believed to contain drug profits, said Wednesday in an interview that laws on banking secrecy "are not going to be changed."
But a U.S. official said that if the laws are not changed, "it will lead to a very difficult situation."
"This is a key U.S. political issue," the official said. "If Congress says the Panamanians aren't doing what they're supposed to be doing, there isn't going to be any more aid."
The official expressed confidence that such drastic action will not be necessary. He pointed out that Vice President Dan Quayle, who was in Panama over the weekend, "made it very clear how important it is" that the banking secrecy laws be changed.
But Controller General Carles said: "We don't have to change our whole legal system because of drugs. We can't change the whole legal system because of one thing."
The dispute began with a remark by President Guillermo Endara, who is under pressure from Panama's weakened banking industry, that only "minor changes" in the banking laws are needed.
The U.S. official said he was not "very assured by President Endara's words."
International banking was an important factor in Panama's economy before 1988, when the United States imposed economic sanctions against Panama in an effort to bring down military strongman Manuel A. Noriega.
The industry employed about 8,000 people and handled billions of dollars with few restrictions or requirements as to the identity of depositors or the source of their money.
There are also differences between the U.S. and Panamanian governments over how U.S. aid money is to be spent. President Bush, in his budget message to Congress on Monday, proposed that $1 billion be allocated for aid to Panama, and the U.S. official here said that Panama's first priority should be a reduction in its foreign debt.
"Hell, no!" Carles said when advised of this suggestion. "We can't give top priority to settling arrearages (in interest payments on the debt). We have a social responsibility. We have to take care of our own. . . . Then we can settle our debts."
Unemployment in Panama is estimated at 25% or more of the work force. The gross national product is down by about 25% in the last two years because of the U.S. sanctions. And businessmen say they have lost as much as $700 million because of the looting and rioting that followed the U.S. invasion in December.
Endara had asked Washington for about $1.5 billion in aid. He said that $200 million would go into a public works program and at least $40 million into housing construction in an area particularly hard hit during the U.S. invasion. He also asked for a $700-million loan guarantee program for businessmen whose stores were looted or otherwise damaged.
His request was rejected. Instead, Bush proposed $500 million in direct financial assistance and an additional $500 million in indirect assistance, including loans and trade preferences.
Endara called the U.S. proposal generous, but other Panamanian officials complained about the amount and the purposes for which it was to be used.
The U.S. official who took issue with Panama's banking laws said the country's needs are great and it is important "that the government be perceived as doing something" to help the people, but he insisted that Panama must first address the foreign debt.
If the aid goes first into the creation of new jobs, he said, "you will have created in the long run a basket case."
"If you spend the money on public works," the official added, "it will take away from debt payment . . . and that will be similar to what Alan Garcia has done."
He was referring to the policy of the president of Peru, who has chosen to ignore foreign debt. Many economists believe that this has led Peru to economic ruin.
Carles said of the U.S. official: "He is wrong. We're not arguing that we won't pay. That is what Garcia did. We are willing to pay part now and the rest later."
This, the U.S. official said, is not good enough. He acknowledged that "maybe the (aid money) is not enough to do the job; to get this economy going you have to clear up the arrears with international financial institutions, other governments and banks."
Once the debt problem is cleared up, he said, Panama will have restored international confidence and will be able to attract investment funds.
The official U.S. view is that Panama, compared to the rest of Central America, is well off, with relatively low inflation and a relatively high standard of living. Therefore, economic recovery should be the country's No. 2 goal and No. 1, in the U.S. view, should be acceptance of responsibility for solving its problems.
A key part of accepting this responsibility, the U.S. official said, is dealing with the banking laws.
Under a 1986 law, the government of Panama can ask a bank to disclose the identity of the person who controls a given bank account if the information is pertinent to a criminal investigation.
As Carles and Endara see it, this is sufficient. They say that problems came about in the past as the result of Noriega's failure to enforce the law.
What U.S. officials want, they say, is an agreement similar to one the United States has with the Cayman Islands. The Caymans, a tiny country in the Caribbean made up of three small islands, has been an international banking center because of its banking secrecy and tax laws. The agreement with the United States, signed in 1984, provides for the exchange of information in fighting the laundering of illegally acquired money.
"If we can work it out with the Cayman Islands," the U.S. official here said, "why not with the Panamanians?"