Foreign Relations of the United States, 1977–1980, Volume XXIX, Panama

55. Memorandum of Conversation¹

Washington, June 29, 1977, 7–8:15 a.m.

SUBJECT

• Briefing President Carlos Andres Perez of Venezuela on Status of Canal Negotiations

PARTICIPANTS

• Venezuela

  • President Carlos Andres Perez
  • Foreign Minister Ramon Escovar Salom
  • Gonzalo Plaza, Interpreter

• United States

  • Ambassador Bunker
  • Ambassador Linowitz
  • Anthony Hervas, Interpreter

PEREZ: How is Panama coming along?

LINOWITZ: It’s coming along but we need your help. A great deal has happened since we met with you in Caracas,² most of it good.

BUNKER: We have made a great deal of substantial progress, however, as Ambassador Linowitz suggested, we are now going into a difficult question.

LINOWITZ: You, Mr. President, are in a uniquely favorable position to do a considerable amount of good for both sides. We are very concerned because this may truly be the moment of truth, and if we do not seize upon this moment, we may have lost it for good. I think that you know that the only issue that now separates us is the matter of financial arrangements.

PEREZ: I spoke with General Torrijos on Saturday³ and last night I spoke with the group of Panamanian negotiators who are presently in Washington, D.C., and both have said the same thing, that is, that we already have almost reached an agreement regarding what will more or less go into the finished treaty itself. It is a treaty in which the Panamanians feel they have made great concessions to satisfy United States requirements. They understand the reasons why it has to be so, however, though the matters of lands and waters, neutrality, and security are practically agreed, Panama feels it is now confronting considerable difficulty in the area of economic compensation. They base their positions on three arguments:

First is the argument that Panama like all other countries is living through an accelerated inflationary process and has to confront the claims for better salaries that are being made by Panamanian workers; that for the Panamanian people the settlement of the Canal will produce no visible or tangible results, that as far as the people are concerned all is going to remain the same. Also for a number of other reasons there will be a deterioration in the economic situation within Panama. They need to demonstrate to their people that a solution of the Panama Canal issue through a treaty will also provide some improvement in their standard of living. They are aware that they are confronting internal criticism regarding the manner in which the Canal issue is being settled. General Torrijos has the intention of submitting the treaty to a plebescite, a measure he feels will provide the treaty with greater strength, and he thus fears a situation which could be critical if he cannot as a result improve the economic situation in Panama.

His second argument is that a new treaty should be drawn along the lines of other agreements that the United States has signed with other countries and should reflect the same kind of terms and a similarity of conditions. It should pay compensation for concessions in the areas of lands and waters and military bases that are being provided by Panama in the treaty.

Thirdly, the treaty is going to impose upon Panama certain new obligations, obligations that carry with them a cost, and also the serious responsibility, after the year 2000 of assuming responsibility for the management and operation of the canal. This in turn will require that the people of Panama achieve a high level of development. This will serve the common interest of the United States and Panama and such action will not be possible for Panama to undertake without the effective economic cooperation of the United States.

I personally believe that you should have something along those lines. The two problems that you face are first how are you going to present this before U.S. public opinion and before world opinion. Secondly, how much money is going to be paid and how is this to be done. I have made great efforts to convince General Torrijos and his advisors that he must act in such a way that he be most careful to avoid making the new treaty appear as if it were a new sale of the canal, as if the canal were being sold all over again, because this would do considerable damage to the image of both countries. It is also necessary to take care of appearances, to make sure that the impression is not created that simply this or that member of the National Guard is going to be pocketing substantial sums of money. They understand this, that it should be presented in their view as an effort to support cooperation for development through some type of direct or cash contribution for the immediate solution of social problems. However, for them it is impossible to accept an outcome without some kind of settlement of this nature. They tell me that the United States had been negotiating with the Philippines and offered substantial compensation for the presence of U.S. military bases on Philippine territory, and they could not understand why the same could not be true for Panama. This is the picture as they presented it to me.

LINOWITZ: Mr. President, as usual you have summarized very simply and clearly the issue and you have accurately reflected the position of the Panamanian representatives, as we understand it. Let me start by stating the fact that we both want the same thing. First, we want Panama to prosper and second we want Panama to feel that it is receiving a fair arrangement with the United States that will be useful to the furtherance of the good relations between our two countries. However, the primary issue at this point is the matter of timing, and of the inter-relationship between the treaty and some kind of internal development program for Panama.⁴

What we are saying quite simply is, let us take one thing at a time. Let us conclude a treaty, one in which we are offering very generous economic compensation which is directly related to the canal itself, and then when the treaty is signed be assured that the United States Government will work in any way it can, to assist in the development of an economic program that would involve not only the US Government but also international lending agencies, that will contribute to the achievement of the goals that you have set for your country. However, if we tie one to the other you are basically assuring the defeat of the treaty in the US Senate. Because, as Ambassador Bunker stated when we visited Caracas, the most prevalent question posed to us when we are up on the Hill is “Do you mean to say we are giving them all of this which we value at more than $6 billion and we still have to pay millions or billions of dollars to have them take the Canal over?”

To further complicate the achievement of a satisfactory treaty, something which is difficult at best, would be the effect of trying to tie an economic development program to the outcome of such a treaty. It would suggest to the Congress that it is part of the price that we have to pay for the treaty and would consequently strengthen the hand of those who oppose the treaty in Congress.

What I have said to our friends on the Panamanian side is simple: let us give you assurances of our desire to help you; of our desire to be friendly and to cooperate in all possible forms; but let us not make it part of the treaty negotiations.⁵ However it is something that we do not manage to have them understand and yet it is important that they do so both for their own sake as well as ours.

BUNKER: That is an accurate reflection of where we stand. We also have an additional problem in the fact that their proposals involve such enormously large ones that it makes it impossible for us to consider them. I assume that this is an opening gambit in the negotiations yet their figures are much too large to consider.

PEREZ: They claim that there are two issues involved. First they understand the difficulties that the United States Government has in Congress, however, for them to present an agreement to Panamanian public opinion and to Latin American public opinion, they need to link both aspects, even if they were to be dealt with in separate documents or be treated separately. They see no way in which they can submit one without the other, and they consider this a condition which they cannot renounce. That reason makes them very demanding. As far as the amount of monies to be received, it is a question that can be negotiated. However, it is probably the time for the United States to make a counter-proposal for their consideration.⁶

LINOWITZ: A counter-proposal from us?

PEREZ: Yes.

LINOWITZ: One must understand the matter of the figures they have brought up in the negotiations because they elevate the negotiations to the high atmosphere and we certainly cannot engage in astronomical gyrations. We understand that this might only be a tactic. However, I do not believe it is wise for them to use this approach because, for instance, yesterday, in connection with this very same problem, they met with very high-level representatives of the Department of the Treasury, the U.S. State Department and representatives of the international banks.⁷ And all of them were shocked by the figures suggested by Panama.

However, taking into account their concerns—and we can appreciate the reasons for some of their concerns—it would be possible to find a simple way of broaching the subject. First, we could sign a treaty. Secondly, we would have a period between the signature and the ratification of this treaty. Third, during this period we would be happy to work on a program for the economic development of Panama, however, one cannot be part of the other. For their purposes they can say that they have achieved this economic development program and present it to their people as if one were part of the other, but we, in the United States, cannot say that one is a part of the other.⁸

PEREZ: That could be part of a confidential agreement between both countries.⁹

LINOWITZ: Excuse me, sir, but we cannot be in a position in which we have to go before the Senate to testify and when we are asked if there are any other agreements, we can’t lie,¹⁰ we have to tell them that there is another understanding.

PEREZ: The right hand does not necessarily have to know what the left hand is doing.¹¹

LINOWITZ: We have two right hands.¹²

PEREZ: Maybe another group could negotiate that issue separately.

LINOWITZ: Exactly. And that is what we told them yesterday. At the beginning of yesterday’s meeting, we spent over half an hour discussing this matter because Ambassador Romulo Escobar Bethancourt, who is a brilliant lawyer, wanted to tell those present that their presentation was all a part of the negotiation. And we had to insist that it was not a part of the negotiating process. It appeared impossible for them to understand that it was not a part of the negotiation. We have made arrangements for Mr. Barletta and other Panamanian representatives to speak with high-level officials in the Treasury Department without our presence as negotiators because we ourselves cannot be involved in that aspect of the discussions.

PEREZ: Wouldn’t it be possible to find some more general formula in order to arrive at a solution to the treaty? The new treaty creates a new inter-relationship between the U.S. Government and Panama. The two countries now acquire new common responsibilities which require economic obligations that will assure the future operation of the Panama Canal. Under such circumstances, the United States could assume to study what kind of program they would have to put into effect to fulfill the new U.S. responsibilities under the treaty and what part would be required from Panama to fulfill its responsibility under the terms of the treaty.

LINOWITZ: If you can get General Torrijos to go along with something along those lines, we will undertake to try to convince our side here of the advisability of such an approach. This very idea could be the answer that we are seeking.

PEREZ: There must be other officials in the U.S. Government who could confidentially work out what that cooperation would consist of.

LINOWITZ: Yes. We are doing this right now.

PEREZ: There are certain objections that I feel you should know of and I, as an outside participant, as an observer, would have to say certain things that the United States would not be willing to accept. First, that the sovereignty over the Canal was illegitimately taken away from Panama by the United States. This is not my personal opinion, yet that is the way in which many people see it. That is how the situation is perceived and it is one of the reasons that could give rise to attacks on the manner in which General Torrijos is conducting or directing the negotiations and could be the basis for attacks on the treaty you reach on the part of extremists who seek out any argument that will provide them a basis for criticism of the treaty and of the Torrijos Government. This kind of solution is not one that would be received with applause by all concerned. Some would accuse Panama because they will not recover all of the lands and waters, and because military bases will still remain. They would argue that the only achievement would be that there has been a shrinking in the military occupation but that basically nothing had changed. This would be a way to attack the treaty as it is now conceived. This is a matter of the greatest concern for Panama. They feel that the U.S. Government pays for the use of bases in other areas and they see no reason why they couldn’t do so in Panama also. Therefore, the solution they seek appears to be the only defense that would offset the charges that could be leveled against them. I am making these observations because I see the Panamanian position hardening considerably now.

About ten or twelve days ago the Panamanian negotiating team came to Venezuela to visit me and I gave them a number of reasons why they should not speak in terms of millions of dollars but rather should discuss only numbers of projects to be implemented. However, General Torrijos was both concerned and angry that I told him this because he expected support from me in his aspirations. That was the reason General Torrijos came to Caracas on Saturday.¹³ I was able to give him a number of arguments to demonstrate to him that he should be very careful regarding any outcome that would mention the fact that large amounts of cash were being received. In spite of this, last night Romulo insisted that they were going to maintain the same position. So I do not see easy progress in the negotiations now. You are at a very difficult impasse, and General Torrijos does not understand well that the negotiations might be—at present—at a critical juncture.

He told me that he was not interested in having a treaty ratified by the Senate now, that it could be ratified some years later. I told him that it is not so in countries such as ours, that we cannot simply sign a treaty and lock it in a desk drawer and maintain it secret. It has to be exposed to public scrutiny and submitted to Congress for ratification. It is evident that the U.S. now is at a most difficult time in the negotiating process and that it has to agree on a treaty that will be least subject to attack in the Senate. Maybe one problem is that we are starting with the wrong premise, the premise that the Panama Canal belongs to the United States. So the problem is further complicated and I think that General Torrijos will not accept an agreement without a precise and certain assurance regarding compensation.

Maybe we could search for some way, as I stated earlier, in the form of a general declaration that would express confidence in decisions, decisions to be taken in other places, regarding the development program. It would be necessary to avoid an impasse such as the one that resulted at the time of the negotiations on lands and waters and security and neutrality, all of which have now been overcome. Maybe it is necessary now for the United States Government to present a counter-proposal.

There is another important aspect, that of the annuity. According to the Panamanians, the U.S. Negotiators hold the thesis that any annuity could only come from the benefits resulting from the tolls collected. Therefore, if Panama wants a higher amount, it would be necessary to increase the tolls for transit through the Canal. This, in their view, would set world public opinion against Panama. If you were dealing with a single enterprise, responsible only for the transit of ships through the Canal, it would be appropriate to think that Panama should receive only income derived from the operation of the Canal. The issue however is much more complex, because in addition to a canal you have military bases, as well as other areas of Panamanian territory devoted to other activities which are affected by the use of the canal. And that has a price. Therefore they need to see the U.S. change its position regarding the payment of an annuity and not link it to the tolls.

LINOWITZ: Mr. President, you have just touched upon the key issues in our negotiation. First, regarding the annual payment under the new treaty for the use of the Panama Canal, we have been directed by the President—and have assured the Congress—that, considering all the commitments and other conveyances to be made to Panama (with a value of approximately $6 billion), we cannot go to the Congress for an annual appropriation as part of the treaty. Therefore, any payment resulting from the terms of the new treaty must come from the tolls. Though we have not formally presented it yet at the negotiating table, we have ready to present a study which indicates, that with a 25% increase in the tolls, the traffic through the Canal would remain high, and there would be no adverse effects.¹⁴ As a result, a sufficient amount would be received to provide $1 billion during the life of the treaty. That is to say, that they will receive substantial amounts under the formula we are considering. This could be one formula that could be approached. Secondly, we would be turning over assets worth approximately $6 billion.

BUNKER: Many of these assets in fact would be earning assets which would make an additional contribution to the economic benefits that Panama would derive.

LINOWITZ: Millions of dollars will come into Panama as a result of some of those assets to be turned over. For example, $115 million are to be received for services rendered to the Canal operations, such as bunkering, etc. These we would turn over immediately at the time of the signature of the treaty. In addition as a result of the return of a number of commercial operations, they would also be benefitting from new sources that would bring a number of millions of dollars a year. So financially, they would be doing very well as a result of our present offer. Our problem is to explain to the Congress why we would have to give something in addition. This would represent an added obligation, of a multi-million dollar level to an economic development program, which complicates the negotiations to the point that we cannot count on a serious consideration of the matter as they are now presenting it.

In your presentation, Mr. President, you may have the formula that we could perhaps follow. Panama could agree to the conclusion of a treaty, and agree on most of the other issues that are now related to compensation within the terms of the treaty. Perhaps then at the time the treaty is signed, and while discussions are taking place outside of the negotiating process, you could tell General Torrijos that the U.S. Government will do all that it could possibly do to help with an economic development program. You could also assure General Torrijos that the United States desires to help in any way that is possible. Thereafter, through ensuing negotiations and discussions on the form of the economic aid—once these are brought to solution before ratification—Panama would find itself in a position that would permit General Torrijos to state that he has a satisfactory treaty and that he has a satisfactory program for economic development. However, I feel we should neither stop the negotiations now nor tie one thing with another.

PEREZ: The internal difficulties faced within the U.S. Government are obvious, and I understand them. Yet I also see that General Torrijos cannot risk to announce the satisfactory conclusion of a treaty if he does not have a clear indication on other pending matters. This reflects a very difficult situation. Because if at the same time he cannot announce that the economic aspect is resolved, his personal political situation would be endangered in his own country. We have to bear in mind the inter-play of personal ambitions within Panama. We cannot tell what the outcome of these might be. There are always hidden forces that are interested in a confrontation and could create difficulties in the Canal Zone.

I see that we are coming to a moment of great danger. The expectations are many. For all practical purposes you have already reached an agreement that would favor a positive conclusion. Yet I am very confused, because I see that we have reached a point where the two sides have become firm and entrenched in antagonistic positions.

You will recall, Ambassador Linowitz, that when you were in Caracas you mentioned that you feared because you did not know what Panama would be asking in terms of economic compensation. At that time you already foresaw difficulties in this area. As I told you at that time I am fully disposed to contribute to softening the position of Panama, yet I must also tell him, General Torrijos, that I am equally willing to assist in softening the United States position.

LINOWITZ: We appreciate very much the formula which you have suggested and which I believe should be further explored. If General Torrijos were to be told in a letter from President Carter, that at the time of the signature of the treaty, of strong indications of the commitment on the part of the U.S. Government to take affirmative, constructive and positive steps to help Panama to work out its economic development plans, this might give him the sense of trust that we need at this time.¹⁵ We would try to work out something, although we do not know the specifics. However, as we negotiate and discuss we would try to arrive at these specifics.

The other alternative would be to hold up the treaty until all problems have been resolved. However, we might lose the appropriate or the best time to achieve progress. This would be a risk that General Torrijos would run, as well as a risk that we would be running.

PEREZ: I will transmit to General Torrijos your thoughts and the ideas that we have exchanged. There is another point that I would like to bring up that has been a source of unhappiness amongst our friends. Apparently, some installations are being dismantled and these are part of what would be turned over to Panama. The Panamanian negotiators showed us some photos of the buildings that were being dismantled. They do not believe that this is due to instructions from higher levels or from high-level decisions in the U.S. Government. Yet decisions are being made at lower levels, and because of the hostility that has existed among certain groups against Panama in the area, these developments are unsettling.

BUNKER: We also saw those photographs. They are of old wooden buildings of over 70 years and the cost of their maintenance is prohibitive. Some of those buildings are coming down because they cannot be maintained. This is done normally on a regular basis and it is not related in any way to this present stage of our negotiations.

LINOWITZ: Ambassador Bunker has checked out these allegations. What happened is what he has explained and we will be happy to show the Panamanian negotiators the reasons why these buildings are being torn down. These actions are in no way related to the negotiations. However, this event underlines a problem that we are facing at present: the long-held suspicion and distrust that we have been working so hard to overcome during the course of our talks. We have great respect for the Panamanian negotiators. We feel they are men of integrity and they are trustworthy. I hope that they will believe us, yet we fear that this distrust still exists. As a result, a small incident such as the one referred to with the photos, as well as two other incidents in recent weeks, together with accusations that have been levelled at the United States make progress more difficult. We are trying to be patient in explaining that we are not trying to get around the provisions of the treaty or harm in any other way the interests of Panama. The U.S. Government and Administration are interested in reaching a fair treaty.

PEREZ: I have a question. How did the U.S. Government negotiate the military bases in Spain, Portugal and the Philippines?

BUNKER: Most of the base agreements do not involve direct dollar grants, but loans and equipment—no specific amounts of dollars. These loans and equipment can be translated into money equivalents, yet the transfer is not of funds but of facilities and loans.

LINOWITZ: This is the same thing that we would be doing with Panama. We would be making resources available in a sense in exchange for use of facilities and of the bases. I am not at all afraid of making comparisons in this context. I would like to add one word; that is, that I am not afraid of such comparisons. We are proud of what we have offered Panama. We would be proud to let the world see and to let our country see the terms of our treaty, because we feel that we have been most generous, most magnanimous, and we have made genuine efforts to arrive at a treaty of which we can be proud. There is nothing therein of which we are ashamed. General Torrijos ought to know that we would be pleased to let the world see what the United States is willing to do. I think it is very important.

We are not unaware of the fact that there are some unhappy chapters in the history of the relations between the United States and Panama, yet we now are at what we could consider the proudest chapter of these relations.

PEREZ: I also feel that great progress has been accomplished within the concept that prevails in the United States regarding the Panama Canal—a concept which we do not necessarily share. At the same time we see two parallel views struggling for approval before world opinion. On the one hand there is the view that the United States is handing over assets valued at over $6 billion as well as turning over rights that the U.S. has exercised for many years. On the other hand, there are the views of those who feel that the Canal represents a usurpation by the United States which obtained advantages at a very small cost, from a very large territory it has occupied for many years. Now they should not only return what they took but should also compensate Panama.

This same kind of thesis was sustained by some in Venezuela at the time of the negotiations on the nationalization of oil. Some sectors argued that it was inconceivable to pay compensation to multi-national corporations that for over 50 years had been exploiting our oil resources, oil obtained at very low prices, enabling them to realize very large profits. These profits represented two to three times the investment they had made in Venezuela. Therefore, Venezuela should not only receive the oil installations but also additional compensation. On the other hand the argument was made that this did not represent a rational approach and we were aware of the fact that to reach an agreement we should pay some compensation and we did so. I offer this comparison because it parallels the arguments made by Panama regarding why they should get additional compensation in connection with the conclusion of a new treaty. When I mentioned this to the Panamanian negotiators, they pointed out that there was an essential difference. Venezuela took over productive profitable operations which in turn could benefit the people of Venezuela. In contrast, Panama would be acquiring something of theoretical value but it would be very difficult to provide immediate benefits for the people of Panama and therefore it would be very difficult to explain the value of the treaty to the Panamanians.

I don’t doubt that there is some solid basis for progress, and I feel that this is the time when an imaginative effort must be made to work out some kind of an acceptable formula.

What would be your concept of something that could be provided, some level of funding, not at the levels that Panama is suggesting, yet at some reasonable level which would allow the Government of Panama to do something tangible for their people as a result of the signature of a treaty?

I am aware of the fact that the Senate would raise an uproar if confronted with unreasonable demands.

LINOWITZ: I realize our time is short now. I would like to suggest once again one possibility for discussion. Under the terms of the treaty, a certain amount of funds could be made available in the order of $30–40 million. That amount could be used when the treaty is signed as leverage to obtain a larger loan, something in the order of half a billion dollars. This could be achieved by taking future income from Canal tolls and using it to liquidate the loans. But we cannot have this type of a formula until we have a treaty. We must know where we can start, as well as how we can undertake this cooperation without endangering the successful outcome of the new treaty.

PEREZ: I feel that this is the time to go to work on such a formula and I will try my best to be of assistance in your mutual efforts.

(BREAKFAST MEETING ENDED AT 8:15 A.M.)

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 60, Panama: Canal Treaty of 1977: 6–7/77. Confidential. The meeting took place at the Blair House and ended at 8:15 a.m. Forwarded to Vance on July 1 under a covering memorandum from Bunker and Linowitz. (National Archives, RG 59, Official and Personal Files of Ambassador at Large Ellsworth Bunker, Lot 78D300, Box 4, Panama Key Documents, 1977) Forwarded to Brzezinski on July 1 under a covering memorandum from Tarnoff. (Ibid.)
2. See Document 31.
3. June 25.
4. An unknown hand highlighted the last two sentences.
5. An unknown hand highlighted this sentence and wrote an unintelligible word in the left margin.
6. An unknown hand highlighted this sentence.
7. No record of meeting minutes has been found.
8. An unknown hand highlighted this paragraph.
9. An unknown hand underlined: “That could be part of a confidential agreement.”
10. An unknown hand underlined: “we can’t lie.”
11. An unknown hand highlighted this sentence and marked an “X” in the left margin.
12. An unknown hand highlighted this sentence and marked an “X” in the left margin.
13. In telegram 6476 from Caracas, June 28, the Embassy reported that a June 28 Panamanian story with the headline, “Agreement is Imminent Between Washington and Panama over canal Sovereignty,” quoted Panamanian Government sources “to the effect that General Torrijos personally informed President Perez last Sunday, June 26 during quick visit to Caracas that ‘the problem of the canal is virtually resolved.’” (National Archives, RG 59, Central Foreign Policy File, D770230–0910)
14. Not found.
15. See Document 72.