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US-Panamanian Relations Since 1903

© 2001 Donald J. Mabry

    Two provisions of the 1903 treaty immediately became a source of conflict between the two countries: the division of the economic benefits and the sovereignty question. Of the two, the economic issue has been the easier to solve. In 1909, the United States agreed to end private trading in the Canal Zone while allowing only the Canal Commission to sell imported goods to employees of the canal company without paying Panamanian taxes; thus Panamanian merchants received some of the protection they wanted although not as much as they had demanded.  
    In the 1936 treaty revision, the annuity was adjusted upwards to $430,000 to offset the dollar devaluation but no other major economic concessions were made until the 1955 revision. In that year, the annuity was increased to $1,930,000 and the United States gave Panama the right to tax non-US Zone employees and some goods entering the Zone, altered some boundaries in favor of Panama, and returned some land as well, relinquished the exclusive right to construct trans-isthmian railroads and highway, and granted Panamanians a large share in supplying goods to the Zone market. In a separate agreement, the United States promised to end wage discrimination against the Panamanians working for the canal company. The United States acted slowly, however, and anti-US demonstrations marked the late 1950s. In 1960, President Eisenhower took executive action to implement some of the changes promised in an attempt to reduce tensions.
    The economic issue was linked to the more inflammatory sovereignty question, which was the more serious threat to US interests in Panama. Since 1904, Panama contended that it is sovereign over the Zone and that the United States has limited "jurisdictional sovereignty." US citizens, on the other band, have believed that the Zone is an integral part of the United States(1) (in ignorance of the 1903 treaty and its subsequent revisions) or that Panama yielded all Zone rights in perpetuity. As long as Washington considered the Canal essential to its security, it refused to budge on the issue, for it did not trust Panama to protect US interests. Panamanian political instability further discouraged the United States from yielding.(2) The 1936 treaty revision was ratified in 1939 only after Panama agreed to allow the United States to continue military intervention when the latter thought it necessary. Panama ceased to be a protectorate in name only. This fundamental disagreement meant that Panamanian demands met fierce resistance in the United States and the Zone while failure to budge prompted demonstrations and riots in Panama. Both Panamanian and US politicians found the sovereignty issue replete with demagogic appeal.
    Nevertheless, the United States slowly yielded to Panama's demands albeit unwillingly. Defense sites acquired in 1942 were abandoned in 1947 after violent demonstrations encouraged the Panamanian congress to reject the extension agreement. The 1955 treaty was negotiated after a series of anti-Yankee protests; and was only fully implemented after student demonstrations, attacks on the US embassy, and threatened mob invasions of the Zone. The US government decided that its interests were best served by conceding. In response to more nationalist demands, Eisenhower, in 1960, ordered the Panamanian flag flown in parts of the Zone and President John Kennedy, in 1963, ordered the Panamanian flag be flown jointly with the US flag over civilian installations and that foreign consuls accredited to Panama be allowed to operate in the Zone. Such actions temporarily improved relations but did not solve the sovereignty problem.
    Continued Panamanian nationalism, combined with a decline in the importance of the canal, resulted in the proposed 1967 treaty revision. In 1964, US high school students raised the US flag in violation of orders and instigated a riot in which 24 were killed and hundreds injured. Because US troops clashed with Panamanians in the Zone, President Chiari demanded an Organization of American States and a United Nations investigation of what he called US aggression and suspended diplomatic relations. Shortly thereafter, negotiations on a new treaty began. President Lyndon Baines Johnson, however, determined not to yield the canal, agreed to negotiate three treaties. One would change the military defense of the canal. The second would recognize Panamanian sovereignty over the Zone and give it more control over the canal. The third was for the possible construction of a new canal (since the Panama Canal was antiquated and incapable of handling the super ships being built) after the best possible site was determined. That the proposed new canal was not specified and discussions included possible construction in Nicaragua or Mexico, the United States had tremendous leverage over Panama, The treaties were not ratified, however, because they faced opposition within the United States and the military government which replaced the 1967 government was not satisfied with the terms.,
    By the mid-1970s, the United States was willing to concede to Panama's demands on the sovereignty issue if both nations could got the necessary ratifications. Since the development of a two-ocean navy, nuclear submarines and carriers, long-range bombers and missiles, the Canal's strategic importance and the necessity of the military bases there have declined. Some experts assert that the Canal has no strategic value. The development of excellent internal transportation in the United States as well as the use of super ships (which cannot go through the Canal) have reduced the commercial importance of the Canal to the United States. About 80% of the traffic through the canal by the 1960s was Latin American. By December, 1973, the two nations agreed in principle that the United States would return the Zone to Panama while gradually involving Panama in the Canal's operation and defense, that Panama would receive a more equitable share of the benefits, that the United States would retain only three of its fifteen military installations in the country, and that the new treaty would have a fixed life.
    A new treaty was finally ratified in April, 1978 under the leadership of President Jimmy Carter and General Omar Torrijos. The negotiations were often bitter and the treaty faced strong opposition in the US Senate. The Canal Zone would be returned to Panama in 1999. The US would leave its military bases in Panama but would have the right to intervene militarily to protect the canal, a proviso Panamanians did not like. Operation of the canal became Panamanian. The fear that they were incapable of doing it proved groundless.
    Relations between the two nations went well until the US decided the invade Panama in 1989 and arrest its dictator, Anthony Noriega. Noriega ruled between 1983 and 1989. His rule became increasingly more harsh. In 1985, his minions tortured and killed Hugo Spadafora, a doctor and journalist who was one of Noriega's most vocal critics. Noriega was an active participant in the drug trade. Noriega clamped down on domestic opposition. His Legislative Assembly demanded the expulsion of the United States ambassador and accused the United States of interventionist aggression. About 500 demonstrators attacked the U.S. embassy and consulate as well as American business establishments in Panama City. Noriega obtained an Organization of American States resolution accusing the United States of unwarranted intervention in Panamanian affairs. A summer, 1987 Gallup poll indicated that 75% of Panama's urban population wanted Noriega to step down, and a July, 1987 nationwide strike indicated that rural areas had also quit supporting Noriega. Two U.S. grand juries indicted him as a drug trafficker in February, 1988, but Noriega argued that "this is simply another aggression against Panama by the United States." 
    Encouraged by the United States, President Eric A. Delvalle, who had been put into office by Noriega under dubious circumstances, ordered Noriega's dismissal as commander of the Panamanian Defense Force but the Noriega-controlled Legislative Assembly dismissed Delvalle and appointed a pro-Noriega man as acting president. Washington continued to recognize Delvalle as the legitimate Panamanian president, however, and stepped up economic and diplomatic pressure on Panama. Noriega easily suppressed a March coup attempt by police chief Colonel Leonidas Macías. By November, 1988, a poll taken in Panama indicated strong opposition to Noriega. Panamanian public opinion definitively turned against Noriega and in favor of U.S. military intervention when Noriega stole the May, 1989 elections and ordered his minions to beat the opposition presidential and vice presidential candidates when they led a massive protest of the electoral fraud. Elements of the Panamanian Defense Force failed to overthrow Noriega in October, 1989. Noriega executed the ringleaders and reorganized the PDF to insure its loyalty. He also sought to neutralize other dissidents, some of whom fled to the Zone and U.S. protection. The thug dictator seemed invincible. In December, 1989, Noriega, growing bolder by his seeming ability to act with impunity, harassed U.S. personnel and had the national assembly assert that Panama was in a state of emergency because of U.S. aggression. For both the average Panamanian and for Washington, Noriega had gone too far.
    Confronted with this intolerable situation, Panamanians welcomed Operation Just Cause even though U.S. military intervention did not meet the strict guidelines of the neutrality treaty. The only legal grounds for U.S. intervention is to prevent closure of the Canal; the U.S. had specifically signed away all other rights to intervene. Noriega had not threatened to close the Canal. By closing the Canal during the invasion (the only time it has ever been closed), the United States gave the Panamanian government the right, under both Panamanian and U.S. law, to resist by military means. This issue was clouded, however, by the problem of which was the legitimate government of Panama.
    Regardless of the legality or illegality of the war against Panama, Operation Just Cause, Panamanians initially, at least, supported the invasion and the capture of Noriega, and the installation of Guillermo Endara as the new president of the republic. By December 20, 1989, Panamanians had so despaired of ridding themselves of the tyrannical dictator that even usurpation of their nation's sovereignty seemed preferable to his continuance in power. Such a euphoric response was unlikely to endure, however, and more thoughtful Panamanians realized that not much had changed in U.S.-Panamanian relations since 1903. The relationship between the two nations remained as unequal as it had been in 1903. Washington could and did manipulate the Panamanian economy at will even though doing so caused suffering for innocent Panamanians. Endara was as much a part of the U.S. colonial system as former presidents had been. In the disputed election of May, 1989, he had benefited from the expenditure of millions of dollars in American funds. He and his vice president had been sworn into office on an American military base shortly before the invasion and then had to be protected by the U.S. military for several days. While the Panamanian business and professional classes, from which Endara and his vice presidents come, clearly supported the new government, Endara's government had few ties to the majority of Panamanians--farmers, laborers, and the urban middle sectors. U.S. military forces were still the key to power in Panama, treaties notwithstanding. Panamanians realized that the longevity of the Endara government depended upon the U.S. military and U.S. economic aid. In short, Panama was a client state.
    The United States asserted that Noriega had to be removed because, under his regime, drug trafficking and money laundering had become serious problems in Panama. With his departure, however, drug trafficking and money laundering increased.


1. The belief that the Canal Zone is as much a part of the United States as Georgia or Michigan has been encouraged by Zonian representation in national political conventions as well as by the sizeable number of US citizens who have lived in the Zone. Nationalistic demagogues have encouraged this belief.
2. The US intervened in 1904,1912, 1918-20, and 1925 to supervise elections or restore order. Panamanian politicians used these interventions and the threat of intervention against their rivals. In order to prevent a boundary dispute war between Panama and Costa Rica in 1921, the US threatened Panama with a battleship and marines.

Don Mabry
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