Created: 3/30/1973

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Th. Depot, Dlnctor of CWrd Intolligenc.

The Drrecftx o( IrJvlllg^nc* and toteareh. Deportment of State The Director, Defense Infeltlgence Aaertcyirector, Notionol Security Agency "the Director, DreWoei of International Security Affairs, Atomic fneryy Comr The Special Assistant to the Secretary of the Treasury

A brfa in/nets

The Assistant Director, FssaWeol turtsau of tnreitioation, the subject being o

of hii jurisdiction.



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Supporters and

The Factor of NaborvalismEconomic


3 3


.New ccom-

lo Present Negotiating Posture (as Restated inNew Initiatives or Corrcrssioos

Efforts to Keep Present Negotiationson CentralOffers of Ail Hocon Secondary Ones

to Reopen Negotiations at HigherCis'c on Central Issues. Generosity on Secondaryof Readiness to Esplolt Vulnerabilities

Off Credits, Reinforce SecurityZone, Limit Panama's Earnings FromTale-It-Or-Loavejit SetUerncnt





earalf of intermittent and inconclusive negotiationsanal treaty, General Torrijos is presently displaying anand contentious stance. He hasecision to dig In hard on certain basicand early Panamanian jurisdiction over the Canal Zonereaty of limited duration. And, in the meeting of the UN Security Council and elsewhere, he lias attempted to bring international pressure to bear on tho US.

Torrijos will interpret the expressions of support which Panama has received as evidence of growing international backing andationale for going ahead with similar tactics. In fact, he has gained no real leverage on the US; his recent power plays in this direction have proved counterproductive in that he has had torice in US good will.

In his efforts inside Panama to exert pressure on the US, Torrijos will try initially toine line. Having predicted thatwould be likely against the US veto, he will probably go ahead with some carefully staged and controlled "popular" protests. He will hope to show that Panamanian nationalism, despite its nascent stage of development and despite the apathy of most Panamanians during the Security Council debates,ignificant force.

One other way Torrijos can now move is to expand Panamas r< latioiis with Communist nations, as well as to broaden them furthc with Third World countries. At present there are no official Coo; munist missions in Panama. But not only did Torrijos recently cstablis* ties with nations like Libya and Algeria, he acted immediately afte the Council meetings to open formal relations with Bulgaria, and h> is presently considering relations with the USSR and China. Cube* he understands,pecial problem. He has expanded unofficial con tacts and permitted some Cubanfew In the security field-to make extended visits. Although he will probably move atom with the other Latin Americans on the matter of establishing forma relations with Cuba, be will probably stop shortery close align mcnt with Castro so long as he retains hopeegotiated settlemen: on the canal.

For the foreseeable future, the environment in which Torrijos must operate will be strongly influenced by US policies and actions. Most of his decisions, if not made in direct response to US moves, will still reflect what he perceives a* the US stance toward him and toward Panama. And his perception of what the US isof what that implies forbe conditioned by certain of his persona! characteristics and his own feel for his power hold. Two factorshim to press ahead with an activist, challenging approach will be his increased confidence in his ability to rule and histendency to impulsiveness. Partly offsetting these, and conducive to some restraint in his behavior, will be his wary respect for US power and his recognition of Panama's economic vulnerabilities.

Torrijos* likely future policy can thus be most usefully examined in the light of the particular course of action the US may be following Four indicative US courses ofTorrijos' probable reactions todiscussed onndave been deliberately drawn so as to describe limiting cases; each of themough US course. B, in effect,ontinuation of the present US posture, while C, which involvesifferent negotiating approach, is considerably more forthcoming.



eneral Omar TotTtfos. Panamanian strongmans presently displaying an unyielding altitude on tho canal issue. Over much of the past yearalf ofand unsuccessful negotiationsanal treaty, bis govcrssment has seemed unsure of its negotiating strategy. Over the past few months, two striking changes have occurred. First Panama hasecision to dig in and lake an uncompromising stance on what it considers the fundamentaland early Panamanian jurisdiction over the Canal Zonereaty of limited duration. This position was signaled by its latest position paper, and its subsequent public airing of the US aod Panamanian negotiating positions (Sec fnldout

2 Tlie second change was reflected in Panama's successful bid toeeting of the UN Security Council in Panama. This movehift fromlay fur International sympathy and pressure. Despite assurances that they would do nothing at the Security Council to damage the negotiations, in the end the Panamanians insistedesolution that they knew the US would veto. They have nowrop aganda campaign to exploit this veto asof US intransigence. While mostdid not take sides in the Security Council debates on the specifics of thethere were expressions of support for Panamaumber of countries in Latin America and elsewhere in tho Thlid World. Panama is tlteroforr likely to interpret the results of the Security Council proceeding as csidence of mfernatidnal backing and con firmation that piessurc tactics are paying off.


Torrijos.learly the controlling figure in Panama and the arbiter of hisposition and tactics in theks. In tlie beginning years after his assumption of power he was uncertain of hi* ability to run the countryirnpuW style ofcompound of his dictatorial tendencies,temperament and lack ofinhibited him in following throughiven political course.anipulator and action-oriented, he still tends to be impatient with tho complexity of issues in the canal negotiations and apprehensive that he might somehow be tricked by the US into selling out Panama's national interest*.

But during his fouralf years ofperiod in which he has had to over-come crises affecting his powerTomfos has gradually' developed skill inpeople and problems. He is now more relaxed and less erratic. He stillight rein on President Lakas and other principal of fin. but he has gained enough assurance to loosen his arbitrary control overand over their inputs to policy-making. At tho same time, while his earlier insecurities might well reappear in circumstances of heavy pressure, he has come to believe that he is the man destined to bringjust" solution of the canal issue,


and Opponent! Theelement In Tomjos* bold onto be the Cuardia Nacionalrivalry among top officers intheir loyalty to Torrijos remains

strung. Moreover, thebility tothe will of the Torrijos government on apassive populace is nosvreater than

Torrijos has progressed only slowly in building popular support Id his constant travels throughout the eountr>-side he has managed to generate active baching here and there among local oificials. And among the campestnett, whom he visits regularly, he hasonsiderable personal appeal in which he takes comfort and pride.

But among the more politically articulate groups, hbess impressive.nie that hb efforts to improve economic andconditions in Panama Itaveumber of able technicians to the government, and bo has won over some of the younger businessmen (eg, the new Ambassador to Ihe US.ost of thecommunity, however, remains suspicious thatmight be planning to turn in dm-cMoris which could destroy their Hill diriv-ing private sector. And member* of the form-erly dominant political and social class watchowed position in Panama,ostile but feckless pollure in exile, hopeful of op-portiinlbcs to exploit any futures in his power isosition.

Among students, workers, and the urban population generally, there base been fesvexpressions of active support for theolicies. NeJtlser have there been any significant demonstrations ofho governments tight control of the media lias obviously had the stating elicct desired. Moreover, the transformation lastof Tor-rifos' provisional military juntaovernment, via anut powerless assembly,ertainconsolidation of Torr^os' power. The process served both to embelUsh the Imagt ol lawful institutional government and toTorrijos' sense of legitimacy as rsoh'tica! leader.

Factor o/ Nationalism. Inphenomenon ofessin larger Latin American countries,or Braxil. Afterotal reliance on the US,till inconstant, its strengthdepend more onplayed up by thepress and radio than on anynational goab.nijiiJcitation* of anti-USthe population are rare. Yetincreasingly systematicPanama's demands on th.

and to portray the USovernment* in the Canal Zoneige oi colonialism andational bon have been presumably broadc base of popular supportrro nxufara stance on the canal.

principal advisor mForeign Minbterensethe faitly small numbernationalists. Ina hard position, Tackby the stronglyAdvisory Council, acitizens coriDeeted withThe generallythe only pre-Torri|osto operate- alsoline but is

very far from Torrijos' polid DMmiFJsMl appointedimis are, at least on the suif sive to the practical demand


Tomjos' decisions thin lo the Communist Party.)

peculiar character ofat this stage ofotential strength and aweakness for Torrijos. He cannot,grounds, count on widespreadwhich will be solid, consistent, andWhat he can look to, however, isof volatile elements in thepopulace which can be suddenlyfor nationalist activity directedUS, Yet certain of the very peoplehe first in the streets in aswill, in normal situations, beto whether their head of governmenteffectively with US officials. Some of

li.fVi' II ll , ll be Openly Critical if

they come to feel that their government is either selling out toettlement or clumsily provoking unpleasant US

Considerations. Economicin Panama encompasses manychallenges Torrijos most wants toit also poses the most acutehe faces.eneral sense,oing wellis running about eight percentand, for the imrrtccbate future,financialnderHut the rapid growth of publicoutlay's in recent years has led todeficits, now amounting to aboutol total government expendituresTo finance those deficits, thehas, in the past, resorted toloans In foreign money markets.last two years It has been able tocredits; in3year loan from aofapanese. European andbanks which will enable it to meet

3 external obligations and to finance most of its planned budget deficitillion. The remainder of the deficit will bo covered by foreign aid. substantially from tho US.

he recent improvement in thedebt management, tlie continued high level of Income generated directly and indirectly from the canal (about one-third ofhe country's emerging status as an international banking center, and its strong economic growthmake Panama at the presentood credit risk. Hut Use government's financial strains havo made Torriios acutely aware that hb ability toto float large foreign loans will depend on In- wvoiding. locations in ^Panama's cconyiay. Panama's credit worthiness, as weighed by fotoign lenders, will also depend considerably on Ihe prospectsew canal treaty. If lenders abroaderious impasse In thethey are likely to turn moreand demand more costly terms, if tho negotiations broke down completely, their reaction would be such as to limit severely Panama's ability to get new credits This would create serious new budgetaryfor Torrijos- If on the otherew canal treaty were comrjlctrd which would provide Panama with greatly increasedfrom tlie canal. Torrijos couldignificant reduction in hb reliance on foreign loansew and permanent source of capital for hb development programs. In short. Torrijos' continuing financialon Income from the Canal Zone and on foreign loans and aid. and hb hopes foruch more profitable arrangement on the canal infuture, constitute an important constraint against hb moving to an extreme positionb the US.


orrijos has charged that (he US veto of Panama's resolution at the Securityreflects continuing US intransigence. He has taken this line even though he had come close lo reaching agreement with the USompromise teat; he reversed himself at the last minute apparendy on the ads-ice of his hard-line nationalist advisers. Tofrijos had predicted, even hefore the vote, that demon-strata against the US action would be llkoly and. despite the apathy of the Panamanian public during the Security Council debates, heprobablysomecontrolled protests In addition, he is likely to conclude that the Security Council proceedings have put the US on the defensisethat Panama should exploit this advantage on the international stage. He will convince himself that support for Panama's cause is building up and that, if he works at it. he can generate still more.

ne way be can move is to expand Panama's relations with Commonirt nations, as well as with the Thirdt present there arc no Communist embassies ortrade missions in Panama. Unofficial eon-tacts with Cuba have expanded over the pust year, however, and some Cubanew in the security field, have visited Panama lor extended periods. Immediately after the Council meetings, the Torrijos gov-ernmeot established rebnoos with Bulgaria, and there are indications that Torrijos is con-sldering relations with die Soviet Union and China. How far and fast he moves in this direction will be conditioned by his Judgment, at various stages, as to whether the advantages to be gained from such additional support outweigh the risk of antagonizing the US

toountries.eeenlt,mii,ith Libya. AUicela. and Cuuiea.

and important economic interests in P. Torrijos understands that Cuba is acase. Though ho will continue toormalizing relations with theeat in line with the generalemisphere, he will probably stopx-ry close alignment as long asopesegotiated settlement on the ,

n the negotiationsobably not yetir. complete strategy for the future. In vie Ihe Security Council outcome there is chance that he will decide toegotiations in their present form. He tainly svill not expect any new and prom, treaty offer from the US in the month* mediately ahead. Nonetheless, after his in exploitation of theto. he inav i, further efforts to shift the discussion to his levels in order lo capitalize oil US seateni, to the Security Council that bilateraltMtioiu svould continue He would hop. least to induce tho US to make ad hoc conimodations on secondary issues,reased Panamanian use of Canal Zone tei lory and facilities, and the eliminationore visible symbols ol the US presence the zone. Such arrangements would dertK strale that his approach can pr<iduce cerU benefits for Panama and that he can hand the US. But his present planningainly callsontinuationard hi on the central Issues and theressure on the US.


he environment In which Torrijos mus operatelor the foreseeable future. b< strongly influenced by US pobcies and actions Most of his decisions, if not made in direct response to US moves, will still reflect what he pcrccis-cs as the US stance toward him and toward Panama. And his peiceptton of what


US isof what thai implies forbe concbtionod by tcrtain of his personal characteristics and his own feel for his power hold. As indicated in Sections II and HI, two factors inclining him toward on activist, contentious approach will be his increased confidence in his ability to rule and his continuing tendency to impulsiveness. Partly offsetting these, and conducive to some restraint in his behavior, will be his wary respect for US power and his recognition of Panama's ecoocarnc vulnerabilities.

The four VS courses ol action considered below are meant to beather than definitive. Various other permutations and combinations iiould of courseave beendraun so as to describe limiting eases; each of themough VS course. B, in effect.ontinuation of the present VS posture; C, uhtchuite different approach. Is considerably more forthcoming.

A Hold to Present Negotkitieg Posture (oso New Inltlotlvesoncessions

f Torrijns comes to believe over the coming months that the offer made by tlie US in3 is final, ho could be ex-pected to react strongly. He might first make further attempts to mobilize mterrsationalagainst the US but be would realize before long that the endeavor was notHe would then turn to cruder tactics at home (of the sort he has recently told foreign visitors he would have torobably he would devise somedemonstrativeanal Zone facility.ove could readily trigger more drastic actions, delilserate or not. Even if he intended to avoid direct provocation to the US. tho chances for spontaneous violence in the heightenedatmosphere would be appreciable. Ihe resulting tensions couldoint of crisis and give the US little choice but to persist In confrontation rather than be pushed by these tacticsew pliasc of negotiations.

ft. Additional efforts lo Keep PresentAlive-No New Initiatives on Central0*ten of Ad Hoc Accommodation onnes

course of action in effectthe negotiating posture the USbefore the Security Councilwoulduitesuch US of 'tor offers at first; byhe could show the Panamanianswas making visible, if not veryHe would also recognize that inhe might be getting something freeUS could otherwise have used forrxirposcv Andhile hetemper his anti-US propagandahis nationalist appeals.or later, he would likely becomethat the US was trying to divertfrom insisting on settlementbasic issues. And be would thento pressurein theunder Course A.

C Initiative to Reopen Negotiations af Higherwiih Some Give on Central Issues. Generosity on Secondaryofto Exptoil Variabilities

course of action would beto Torrijos' desire (mentioned above)talks nt tbe highest levels. He issimplyeeling that bea belter deal in that way; it isto him, In and of itself, that hebargaining with the highest rankingHe has never had muchthe capacity of Panama's negotiatinghe must convince himself and other key

Panamanians thai he has pressed the US to its final offer. In this kind of forum, Torrijos would probably be businesslike and prepared to engagerank, private exchange on the limits to Washington's position as well as the factors he must weigh for Panama.

* The Director of Intelligence and Research,of State; the Director, National Security Agency; and the Special Assistant to the Secretary of the Treasury- consider the wtimnie Incomplete tn that none of the putative US courses of action offers moreair cliance of success inew Canal Treaty. Inaise the odds onreaty to even or better, underhe US would almost certainly have to be prepared to make concession* tn Panama along the following lines on the two central bsuet;

later than the end of

to Panama over aof upatherears.

This is not to suggest that agreement would be rapid or easy. Torrijos will beto budge from the stance he has taken on the issue of jurisdiction and still moreto move on the question of duration. If the US made clear early on, that It was prepared to be generous on secondary matters, and to move right away on some of them, the odds for progress on central issues would grow. At some stage, hints of US readiness to exploit Panama's economic vulnerabilities could also be effective. There would, of course, he risk that such tactics would offend his pride and cause him to withdraw from the negotiationsemonstrative manner.

Though there arc many unpredictablcs, this much is clear: there could be no accord without appreciable movement by both sides on the central issues of jurisdiction andThus Torrijos would have to become considerably more flexible on these matters than he has been to date. All thingsthe chancesew Treaty could be produced through this course of action arc only fair.1

D. OvertOff Credits, Ret forte Security Measures In Zone, limit Panama Earnings fromTerms of Tax. It-Or-Uavc-lt Settlement

in response to Torrijos' actions, tr.

US were toombination of overt pre surcs, whether applied gradually or virtuall all at once, Torrijos would be driven into difficult comer. If only outar respect for US power (including the mear

it could use against Panama)void the uncontrolled violence that woul probably arise in the assumed circumstance he would have to give consideration lo atroffered settlement andake the best of the situation. Conccivabl lie could persuade himself that so doing svoul bo the better of two very bad courseS-

would be much more likely,to defy the US and to exhort allto stand behind him. Torrijosof course, be able to pany the UShe would be able to inflame thethe populace in the face of thispressure. He would try forof various kinds, though not much,propaganda support, would beHis main reaction would have toand would likely Include massstaged incursions into thea widening spiral ofresort, this might even includesabotage the canal. Torrijos mightsurvive in officeeriodand strain. If he did not.bargaining would obviously becharacter of the governmenthim. There would bea successor government inopenew treatyThere would be considerablethat the successor couldstick.



Panama's Position

The Pariamanians are askingew treaty which wouldossible short extension if the US expands the canalswant full jurisdiction over the canal area no later than five yeanugningreaty. They would grant the US use of very limited land ulnlaining, and protecting

Panama would have primary responsibility for the protection ofcanal from local threats. In cooperation with Use US. Defense from external threats would be multinational and conducted from bases outside Panama. US forces in the area would be strictly limited.

The new treaty wouldive-year limitation on an option for the US to buildea-level canalhird set of locks finally, Panama would expect greatly expanded financial and economic benefits from the canal under the new treaty (Panama's negunaton have hinted0ear).

Th* US Poiition

The US is willing to abrogate3 treaty andew treatyItreaty that would last aboutears, with options to extend itears from the completion of construction if third locks are built orearsea-level canal is built. But It wants an open option (beginninR Inears at the earliest and extending possibly up to the end of the century) to decide on whether and how to expand the capacity of the canal

In any case, the US wants to retain certain hjrisdxriorul rights lo order to operate, maintain, and protect the waterway during the life of the treaty. Panama would gain Immediate jurisdiction In criminal and civil cases insohitig only Panamanians in the canal area, but most other types of Isirisdiction would be passed to die Panamaniansransition period of up tooint patrols with the Cuardiaduring the transition period, after whichwould gel exclusive police authority. The US would still retain the right to maintain security guards around US property and employee residences, as well as certain other rights directly connected with canal operations.

There wouldubstantial reduction in land and svatcr areas usod by the US In operation, maintenance, and protection of the canal and even these lands could be opened to Panamanian development with US consent. The US would retain the right to defend the canal in peace or war. the power of decision in this area remaining with the US.

Finally, there wouldubstantial in fmancul benefit, to Panama from the operation of theoyalty on tonnage amounting toillion annually at present traffic rate* (comparedillion annuity at present) and the expectation ol steadyncome to Panama during the hie of the treaty.

'i*-. fs*


of ivt*usg*rie*,tor Ihe

d. Director oTNoWor th*of tho Navy

AssistantfU5Af. for thol the Air

. Director, Division of lnt*rndtlonol Securitytomic Energy Commission j istant Director, FBI, for th* Federal Bureau of Investigation h. Director of NSA, for the National Security Agency

L Special Assatont to the Secretary of the Treasury, for the Deportment ofTriinry

irectorlral Reference Service, OA, for ony olSe. Deparlraenl

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The title of this document when used separately from th* textONFIPENTIAl

DISTRIBUTION. Whit* House Notional Security Covnd Deportment of State Depart me (it of Defense Atomic EnergyFederal Bureau of investigation Department of th* Tnsasury

Original document.

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