58. Memorandum of Conversation1


  • Informal Meeting of Panama Canal Negotiators


  • Panama

    • Ambassador Romulo Escobar Bethancourt
    • Minister Aristedes Royo
  • United States

    • Ambassador Ellsworth Bunker
    • Ambassador Sol M. Linowitz
    • Anthony Hervas, Interpreter

BUNKER: We have just had a meeting with a number of Senators and General Brown, the Chairman of the Joint Chiefs of Staff, came along with us and he did very well in his presentation.2 I feel he made a good contribution and offered useful insights on the status of the negotiations.

ROYO: I wanted to tell you that Ambassador Escobar and I, as well as the members of our Government and General Torrijos himself, who called us to let us know, are very pleased with President Carter’s statement on the Panama talks.3 General Torrijos is especially pleased with the reference that President Carter made to the economic aspects as part of the solution that we have to find to the treaty.

ESCOBAR: Last night we had a long talk with President Carlos Andres Perez of Venezuela. It was a very profitable conversation, not only because President Perez has been a consistent supporter of Panama, without any vested personal interest, but also because he is an individual of great political experience and of high stature in Latin America. President Perez told us that in his talks with you4 as well as with President Carter he had transmitted his own concerns as well as [Page 193] those of Panama5 and the rest of Latin America, regarding a satisfactory settlement of the Panama Canal issue. He also indicated the great difficulties that you and the President have to face here in the United States. He stated that, in his personal opinion, the President and both of you were honestly attempting to arrive at an agreement with Panama. He felt that President Carter was being kept well informed by you regarding the status of the negotiations. We also told him that we felt President Carter and you were earnestly seeking a treaty with Panama. We told President Perez that we were going to have this private luncheon with both of you and he is aware of the fact that we would be bringing up matters, which at this time, it is not advisable to bring up at the negotiating table. He advised us that in discussing in all honesty and candor the economic issues, that we should not lock ourselves into positions. I feel that what has brought us here together today, is our desire to seek a solution to what has been labelled economic aspects, but which we really believe are political decisions that the four of us must reach.

We have seen in recent days indications of an attempt on the part of the United States delegation to seek a satisfactory solution. The very fact that they have tried to present a new formula, is in effect important to us. We are not here to go over the history of our negotiations regarding that aspect which refers to what Panama expects in terms of economic compensation.6 We have done so repeatedly at the negotiating table. For instance, we are aware of the formula suggested under which as a result of a twenty-five cent increase in the toll additional revenues would make possible annual payments to Panama in the order of $45 million. We have already indicated that we find that that is too little, and that we expect a formula will be developed in the near future to make that amount larger.7

On the other hand, Mr. Cooper and Mr. Solomon are meeting with Mr. Gonzalez and Mr. Barletta to try to see how the U.S. can support [Page 194] our economic development. This is based on the thesis that it is appropriate to provide aid to a friendly nation and in fact an associate who, in the future, would be responsible for the administration of the Canal. It is in your interest that that be a wealthy country. Therefore, what is of interest to us is to seek all formulas that we can take back to Panama and that can be subject to discussion during the meetings that we will be holding during the course of the next week.

ROYO: There is an important point that I want to make. It is that we have not come here today to discuss figures with you. I would like to precede my comments with the following remarks. Dr. Escobar and I are not negotiating here in the United States, because we are the best lawyers in the country or because we are the best patriots in Panama. We are negotiating here because General Torrijos selected us as part of a group to come to negotiate with you. But more specifically, Dr. Escobar and I have been selected because we will be the ones responsible for defending the treaty in Panama. The defense of the treaty in the United States will involve explaining it to Congress, presenting it to the press, and convincing a certain sector of American public opinion. For us the defense of the treaty involves something further. It means that we will have to meet in public plazas or squares, in the meeting halls of universities, in union halls and address workers and speak to students, as well as appear on TV panels and answer questions from our enemies. These enemies will try to portray themselves as greater patriots than we. Now, why have Dr. Escobar and I been selected? Because both of us were student leaders. Dr. Escobar for more years than I but in addition we were selected because none of us has been a Congressman nor a cabinet minister nor a high-level official in any previous Panamanian government. This means that we start with a clean slate. As a result, and I hope you excuse the false modesty implied, because of our credibility as leaders. It is this credibility that will make us more effective when we confront workers, farmers, and students, and take up the defense of the treaty that we will sign with you. Dr. Escobar has been rector of the University of Panama for five years. In that university he had all kinds of elements, Maoists, Castro-communists, capitalists, and all other representatives of the political spectrum. On the other hand, I have been Minister of Education for three and one-half years and I am sure you are well aware of what it means in Latin American to be a rector of a university or a Minister of Education. It is indeed a very different proposition from what those positions entail in the United States.

Dr. Escobar and I have firmly decided that upon our return to Panama when the treaty is agreed, we will assume the responsibility [Page 195] of selling the treaty, of disseminating information on its value and we shall do so by telling the whole truth. We will be reporting on the good things in the treaty and I feel sure that in five minutes you could prepare a list of those things, as well as the bad things, something on which we could also prepare a list in less than five minutes. We naturally assume that you will also be talking about the good things in the treaty and we are well aware that Congressmen will be pointing out the bad things in the treaty. Within that framework of explaining the treaty by telling the whole truth about it, we feel we will be facing great difficulties. The question that arises is whether we will be able to defend before our people a treaty, simply by explaining what the achievements are in contrast with those other matters that are not that favorable, and that in fact hurt the people of our country. Machiavelli in his book “The Prince” stated that the people are quick to forget their gratitudes for the positive things that their governors have provided, yet they always maintain their claims to the unfulfilled promises, and it is the latter that they always remember. In other words our people would not be looking so much upon what we got for them under the treaty as to those things which we did not get for them. It is our wish to strike a balance between the good and the bad in the treaty and maybe this can be accomplished by achieving the “ugly” that is to say through money. This is because our people are still affected by malnutrition and there are considerable social needs that the government yet has to meet, and funds are necessary to find solutions to those pressing problems.

It is very difficult for us, and we plead with you that you believe our sincerity, to present the argument which says: In the area of Panama’s economic aspirations, we have obtained an increase in the tolls that ships will have to pay for transitting the Canal; we have also obtained a greater margin regarding long-term financing of loans for development projects. These loans are debts that have to be paid back. We have also heard about possible cooperation between the two countries as outlined by Mr. Solomon and Mr. Cooper, but all these refer to possibilities to obtain more financing. These deal only with certain economic aspects, but not with those that Dr. Escobar and I feel constitute actually a political issue that requires a political solution. We have to bear in mind the argument that with the military bases staying in Panama, this could justify economic compensation to our country for the use of such bases. Therefore, we would like to find out whether it would be possible to find some kind of a formula of a mixed or ambivalent nature which could serve the U.S. Government in the sense that it could avoid stating that it was giving economic compensation, a matter [Page 196] which we understand is very difficult, and at the same time would serve us, and allow us to say that for the use of the airspace the military installation, and some other privileges, over the next 23 years, our country could obtain some benefit.

ESCOBAR: That is the general framework of the ideas we wanted to present to you. We know that the matter of an annuity is one which can be satisfactorily arranged by the economists of both countries. We also know that the United States, in fact, would help considerably in the economic development of Panama. It would do so with pleasure because it is a country which believes in development. The political problem for us is to find through some formula, through some avenue the solution which will make possible the approval of the treaty by the Panamanian people. We must receive some cash amount before, or at the time of, entry into force of the treaty. Let me explain why. At the time the treaty goes into force, we will not be otherwise in a position to produce an immediate reduction in unemployment. We will not be able to solve some of the basic needs of our country. This our people will not understand and they will reject the treaty. On the other hand, with the adoption of our own emergency plans, we could create favorable conditions and favorable attitudes regarding both positive and negative aspects of the treaty. We have an immediate need to satisfy economic problems in our country. We are not trying to say what sum this should be. That could be worked out as we progress in the negotiation of the treaty. The money is not important to General Torrijos nor is it important to us. It is important from the political point of view in the context of having the treaty approved.

We confront a difficult problem of attitude in our country. We might present to the people of our country all the documents we want signed by the highest authorities in the United States, yet our people will feel frustrated because they believe that the U.S. will not live up to those commitments. That is the interpretation people give to your actions in our country. People do not believe in what we are doing and they say that anything we sign with the United States is going to be worthless because they do not trust the U.S. I am sorry to say so, but I have to be frank and that is the atmosphere that exists in our country. Therefore, there must be some way for our people to really see that the United States is serious in its negotiation with the United States and the only way to demonstrate it to them is with money. Money that we can use to provide employment, health, and schools. These should be funds that are not subject to programs, but to use at our own initiative. When the people of our country hear about a program of loans, they feel much resentment. They do not understand such a [Page 197] program and they do not like it. We know better, and we realize that these programs can be useful. Yet our people don’t understand these programs and they want to see something more concrete. This is what we need to present a treaty that will be approved. We must make efforts now to find the way to return the faith of our people so that they believe in the possibility of better relationships with the United States. In order to do so, we cannot proceed from theory to reality or from hope to material realizations, but on the contrary, we have to start from reality and we have to start from material accomplishments.

I must also say that General Torrijos is the only person who has managed to hold things under control in Panama. In our country we have many individuals who have been trained in Cuba, in North Korea, in China and in the Soviet Union. However, we have managed to contain them for many years. We feel that when those individuals who are now restrained are released, the outcome might be more costly to the United States than would be the economic or cash compensation we are seeking now. We might reach a time when it is not possible to control those elements in our society any longer. That is why we ask the two U.S. negotiators, that they don’t allow that current of opinions to overcome the present Government of Panama, because though it would be very hard on Panama, it would be much more costly to the United States. These individuals could paralyze the Canal operation at will in spite of the efforts of our government. You are well informed of their existence, we have always communicated with you whenever they have been arrested or whenever they have planted in the Canal Zone or when they have attempted to interfere with the operation of the locks. It is for these reasons that we want to find a solution to the problem that we face and reduce the possibility of having the country fall under another type of regime. These threats are true facts of life in Latin America.

In other words our question, which we are posing to both of you now, is the following: Is it possible to undertake a search for some formula without immediate reference to an amount in dollars, that would permit the Government of Panama to handle a sum of cash, which would make it feasible for the treaty between the United States and Panama to succeed, or do you feel it is not going to be feasible to find such a formula? I very frankly have to say that we are going to have very hard and difficult meetings during the course of the next week when we return from Panama. We must be able to say that the economic arrangements do not depend exclusively on income derived from tolls or on financial loans. We must be able to say that it will be possible for the Government of Panama to handle a certain amount of [Page 198] monies in cash. If you really feel that this is going to be impossible, please tell us. We will quote you at our meetings in Panama. I feel that if this is the case, I will not dare continue negotiating with the U.S. on this matter.

LINOWITZ: Just for purposes of clarification, I would like to ask a question. You have said, if I have understood you correctly, that you were confident that it would be possible to agree on an annual payment under the terms of the treaty. That somehow a formula could be found to get approval for this concept.

ROYO: The figure you quoted was low. However, this could be a possible avenue.

LINOWITZ: That is to say if we could agree upon so many cents per ton?

ROYO: That could be a part of the economic package.

LINOWITZ: You heard President Carter’s statement yesterday.8 Those are our instructions, and that is why it is important for us to know your answer to my question. Can we say that our Panamanian friends have assured us regarding the annual payment?

ROYO: Not with respect to the amount.

ESCOBAR: We are not here to discuss quantities.

LINOWITZ: However, we must know whether we are within the range.

ESCOBAR: As a starting point the answer is yes.

ROYO: If, in addition to the figures that you gave us with respect to certain toll values—it were not the only one and we could find other sources, then the figure is within the range of the reasonable. However, it would be crazy for us to say that if an increase of twenty-five cents might produce $45 million, then an increase of $1 or $2 or $3 might produce $200, $300, or $400 million; it would be unacceptable to follow that kind of reasoning.

What we came here to find out is whether there might be any other formula, not necessarily one using income from tolls. In that case then we would be within what you call the range.

BUNKER: Are you talking about sources outside the terms of the treaty?

ROYO: That doesn’t matter to us.

LINOWITZ: However, it is very important for us. It is of the utmost importance to us to know whether you accept that concept within the [Page 199] context of what is possible within the terms of the treaty. This is the question that we will be asked, and we need a reply to that question.

ESCOBAR: I want to make two statements. First, that you and Ambassador Linowitz appear to be very shocked. Secondly, that you need not be shocked. You know as a good lawyer, that in a treaty, certain issues can be stated concretely and others can be stated in generic terms. This arrangement can be worked out in another document. And I trust that we have the time and the imagination to find such a formula.

LINOWITZ: If we are asking you this question, it is because we will be asked this very same question by individuals who are not good lawyers. They will ask us what did you accept in the treaty.

ROYO: As a courtesy to us, we want to ask you, our colleagues, not to place us in a quandry, not to corner us and leave us no way out.

LINOWITZ: I understand that you do not want to commit yourselves now.

ROYO: Not regarding any amount, only regarding an agreement on seeking a formula to satisfy our request.

We have not come here to discuss between the four of us all of the economic aspects. However, formulas must be found. Those formulas will not be found by the economic team. They will study the financial arrangements, the specific economic development plans and will advise us on quantities. Yet, here we are dealing with a political issue and that is to try to find a formula.

LINOWITZ: Are you telling us you are satisfied that we can find a solution to the economic issues?

ESCOBAR: Not exactly. Regarding the annuity, if it were to be increased, the concept is acceptable. However, other economic aspirations remain and we have to find formulas following different criteria.

ROYO: We want an answer to the following question. Are you ready to find a different formula to those that have been presented to satisfy the concepts that we have explained to you during our lunch?

LINOWITZ: It is now rather late, and we will have to leave by 3:15 this afternoon.

ROYO: We do not expect a formula to be evolved now. But we want to know whether there is a will to find a formula and we are aware of the fact that you have imagination and great experience and great knowledge of the U.S. Government, especially Ambassador Bunker has many years of experience in the U.S. Government, and this remark is not intended as an offense to you, Ambassador Linowitz, but we should tell you that though we don’t expect to hear any figures, [Page 200] any amounts, today we do wish to know whether there is a will to find a formula so that we can go back to Panama, and quote that Ambassador Linowitz and Ambassador Bunker are working in search of a formula that will not imply a possible denial by Congress, and that you will do so while we are consulting in Panama.

ESCOBAR: We are going back to Panama and we are going to be asked the following question. Is the U.S. ready to give an amount in cash to Panama and we are not asking you to name that amount, in order to solve the problem of the treaty, or is this not the case. We pose this question in the context of the problem of the military bases. The answer to this issue we feel is crucial at this meeting.

ROYO: If we go back and present a formula that includes only income from the tolls and the possibility of loans, I do not think we can return. In fact, I know it.

BUNKER: We will try to work something out with our economic team.

ROYO: However, the economic team appears to be operating with limitations. Regarding the intent, they are only looking at financing loans and with very little money at that. Yet, that is not why we are here. It is the political problem we are presenting here which is the real one we have to deal with in Panama. To give you an example, we have been told that some thought is being given to some kind of corporation with a capital of $360 million. That the Panama Canal Company owes the U.S. Treasury a certain amount. With this amount a joint or mixed corporation could be created. The U.S. could contribute the Panama Canal Company debt and Panama would contribute its natural resources and its geographic location. The joint corporation with income from the tolls, plus a yearly amount that the Panama Canal Company owes the Treasury could provide a figure of about $65 million. This amount resulting from tolls and income from the Panama Canal Company owed to the Treasury, could be used for economic development projects in Panama. It would, in addition, serve to obtain funds in the international monetary market. This has been one of the possibilities that has been stated.9 However, this does not solve the problem that we are bringing up today. Namely, the matter of a cash compensation for the presence of military bases during a period of 23 years after the date of entry into force of the treaty. We sincerely believe that it would be possible to find some kind of formula that would accomplish this and would be acceptable to the U.S. The answer to that question is the one that we will need when we return to Panama to answer the first and the last question that will be posed.

[Page 201]

BUNKER: The formula would apply to the military bases?

LINOWITZ: Which of the following two are you suggesting? A lump sum in advance as payment for military bases during the life of the treaty, or yearly payments?

ROYO: It would be in the manner of compensation from the day of entry into force for the 23 years during which there would be military bases.

BUNKER: Would it be a yearly payment or a lump sum payment?

ESCOBAR: That is something that our economic teams can work out. What we must answer is whether we are going to submit a treaty that will be accompanied by a cash consideration or that will not have such a characteristic. I feel that ways can be found and we must explore them either now or later but we must take back to Panama an answer to the effect that you are willing to consider the possibility that Panama receive a cash amount.

ROYO: The principal question is whether it will be possible to devise a formula that takes into account not only tolls and financing but also a cash payment.

BUNKER: This is something that Ambassador Linowitz and I will have to raise. We are willing to raise this question.

ROYO: For us, that is a response. That you will undertake internal consultations to this effect. We in turn will wait for the outcome of your consultations. I personally feel that it should not be very difficult to find a formula. I would like to know with certainty that our explanation has been clearly understood, that we have been clear in our presentation and that our points are understood by you.

LINOWITZ: Yes, your points are clear. Yet, you should know that we will be asked what is the rest of the agreement with our Panamanian friends on issues of economic compensation. What else is involved in the terms of the Treaty? If we are to seek some formulas, we must know whether there are still other economic problems pending. And that is why we needed you to be more specific. Otherwise it would be harder to get an answer.

ROYO: The entire Panamanian negotiating team will now go to Panama and will work on all the issues. We cannot be very specific regarding the tolls; regarding whether the twenty-five cents is okay, or the $34 million in 1978, or the $45 million average. However, we shall be discussing these issues.

We cannot be more specific regarding the problem of the corporation. Nor can we be more specific on the issues which are being discussed by Mr. Solomon and Mr. Cooper with Mr. Gonzalez and Mr. Barletta. However, we will study those points also. On Monday, July 11, they are going to have some talks and these matters will be discussed, [Page 202] including references to the quantities involved.10 Yet we are insisting that those two should not be the only two alternatives. That we must find another alternative to save the treaty. We cannot be specific now as to the quantity, nor do we want to be. Because we would wish the United States to propose the amount. How much you believe would constitute a dignified cash consideration for Panama. We don’t want an answer today.

One point which is of great importance is the form or manner in which you undertake your consultations. If you state that in addition to the $45 million from tolls and the financing formulas agreed, should Panama receive anything in addition, then the persons you talked to will respond negatively. However if you consult them in terms of considering not only income from the tolls or financing plans but what other solution to Panama’s economic problems can be provided in view of the presence of the United States military bases in Panama for 23 years, as well as other privileges, and whether this would not justify a decision of the United States Government to offer a just and reasonable compensation, then the persons you consult will respond affirmatively. As far as we are concerned, it all depends on the manner in which Ambassador Bunker and Ambassador Linowitz undertake the consultations and present the concerns and the message that Panama wishes to see transmitted.

ESCOBAR: In closing I would just like to add one more sentence. The more generous you are with the Government of Panama regarding the cash consideration, the more capable we will be on the other hand to deal with the problems of the annuity and the financing programs, and vice versa.

LINOWITZ: Two brief points. First, as Ambassador Bunker has stated, we will raise the question fairly. You can rest assured that you have no better friends or stronger champions for your cause than we [Page 203] are. You can trust us to present your point of view. Secondly, and this is a personal matter, yet I feel I should mention it to you in all fairness, in another five weeks my Ambassadorial appointment as negotiator comes to an end. Between now and the tenth of August when the appointment ends, I will be able to help you along on this issue. I just wanted you to know that it is a six-month Presidential appointment that I am serving under and I wanted to make you aware of the fact that it cannot be extended. Until then I will be with Ambassador Bunker ready to help you.


  1. Source: Department of State, American Embassy Panama, Panama Canal Treaty Negotiation Files, Lot 81F1, 1964–1977, Box 127, POL 33.3.2/Compensation 1977. No classification marking. The meeting took place over lunch at the F Street Club and ended at 3:30 p.m.
  2. See Document 56.
  3. Presumably a reference to Carter’s June 30 news conference, during which Carter answered questions on the treaty negotiations and expressed his hope for a successful conclusion by summer. For the text of the question and answer exchange, see Public Papers: Carter, 1977, Book II, p. 1202.
  4. See Document 55.
  5. More information is scheduled for publication in Foreign Relations, 1977–1980, vol. XXIV, South America; Latin America Regional, 1977–1980.
  6. See footnote 2, Document 52.
  7. Barletta, Gonzalez, Cooper, Solomon, and Arias met for 2 hours on June 30. At the meeting, Cooper and Solomon suggested that a corporation be formed to institutionalize revenues received from the canal Entity, which would include 25 cents per ton payment from tolls and any interest currently paid to the U.S. Treasury. The U.S. canal principal (approximately $369 million) would be converted to shares. The Americans suggested the Panamanians operate the corporation. The Panamanians were intrigued by the concept but considered the annual payments too small. It was agreed that the Americans and Panamanians would explore what USAID could do regarding Panama’s development plans. (Memorandum by Bunker, July 1; National Archives, RG 59, Official and Personal Files of Ambassador at Large Ellsworth Bunker, Lot 78D300, Box 8, Chron July-Dec 1977)
  8. See footnote 3 above.
  9. See footnote 7 above.
  10. Negotiations resumed the week of July 11–15 and focused on economic arrangements and lands and waters. In a July 15 memorandum summarizing the negotiations, Dolvin wrote that the Panamanians reduced their economic demands to a lump sum payment of $460 million in cash, $150 million annual annuity, and help in refinancing their debt and securing loans for development. On July 14, the U.S. offered an annual annuity based on 30 cents per Panama Canal ton. A package derived from meetings with Cooper and Solomon was agreed to: $200 million loan from the Federal Finance Bank, $100 million Export/Import Bank loan, possible guarantee for the Panama National Bank to borrow $20 million from OPIC, and a USAID housing guarantee program loan of $75 million over 5 years. At a July 14 lunch meeting between Bunker, Linowitz, Escobar, Gonzalez, Royo, Barletta and Contreras, the Panamanians suggested: an annuity based upon 50 cents per Panama Canal ton; any savings from reduced expenses in the operation of the new Canal Authority be paid to Panama; Panama Canal employees pay an income tax to Panama; an increase in Export/Import bank commitments; and that Vance designate Panama for special assistance. (Washington National Records Center, IA Region Files, 1974–1979: FRC 330–87–0068, 1976 Update Memos Negotiating Round)