[Enclosure]
RECENT DEVELOPMENTS IN U.S. ECONOMIC ASSISTANCE TO PANAMA
Upon the recommendation of all interested agencies, on October 31
Under Secretary Dillon
approved an allocation from FY 1961
Contingency Funds of $6.0 million for emergency assistance to
Panama, of which $5.0 million is to be a fifteen year loan to help
the recently inaugurated government of President Chiari in facing a serious
current
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budget problem. The balance of $1 million is to be used to initiate
several small social development projects of rapid visual
impact.
Other recent U.S. economic assistance to Panama includes a $5.3
million loan by DLF, part of a
$14.5 million program for farm-to-market roads, and a $2.5 million
loan for low cost housing in Panama, thus implementing the last of
the Nine Points in the President’s Program, announced on April 19,
to improve our relations with Panama.
Several sources report that current accounts due and payable by the
Panamanian Treasury amount to about $16 million with no cash
position. Arrearages have been running at the rate of about $1
million per month. These deficits can be attributed to fiscal
irresponsibility on the part of the previous regime.
The new administration came to power in orderly fashion on October 1.
President Chiari has come
out for an austerity program, recognizes the urgent need for
socio-economic reforms and advocates the diversification of the
economy away from its present overdependence on the Canal Zone.
Chiari is against
Communism, is anti-Castro, has praised ICA and the President’s initiative for a Latin American
social and economic development program. Thus far, at least, he
seems more interested in promoting a peaceful socio-economic
evolution for his country, rather than seeking further economic
concessions from our presence in the Canal Zone.
The ability of the Chiari
Government to survive over the next six months and carry out badly
needed administrative and budgetary reform depends upon an immediate
infusion of financial assistance to restore fiscal order in the
budget and a greater measure of liquidity in the nation’s banks.
Should the present government fall, social and political chaos would
most likely follow. A successor government might well be a
Castro-oriented or -inspired regime with Communist leanings; a
government which in view of our long range strategic interests
there, would undoubtedly constitute a serious threat to the
maintenance of our presence in Panama.
Our relations with Panama have improved steadily since the
unfortunate violence of a year ago as a result of the new Canal
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Zone
procurement policies, the President’s Nine Point Program, the flag
decision, and the efforts of the newly appointed principal United
States representatives in the area. The Chiari regime, if it can survive
its current financial crisis, offers hope for political stability,
peaceful socio-economic evolution, and a friendly and reasonable
relationship with us, all necessary to the attainment of our Isthmus
policy objectives.
