Engineering: New Path to Progress

The past and future of the Panama Canal weigh heavily on Martín Torrijos, like a freighter inching through a lock. It was Torrijos’ father, the late Panamanian strongman Brigadier General Omar Torrijos, who persuaded the U.S. to sign a 1977 treaty handing over the canal to Panama, which it did six years ago. Now Torrijos, 43, who was democratically elected President of Panama in 2004, is stumping to persuade his countrymen to undertake a more than $5 billion expansion of the 50-mile-long waterway that bisects the isthmus.

The project–which voters look set to approve in an Oct. 22 referendum–may not compare with the big dig that created the canal a century ago, but Torrijos insists it is no less urgent, both for international shipping and Panama’s development. “My dad solved the struggle for ownership,” Torrijos told TIME. “My generation’s challenge is to make better economic and social use of this geographical position history put us in.”

The plan calls for adding a third set of locks, wide enough to serve the supersize, post-Panamax vessels–those carrying more than 5,000 20-ft.-long containers–that many consider the future of commercial-cargo shipping. The canal’s Old World competitor, Egypt’s Suez Canal, can already accommodate the bigger vessels. A resized Panama Canal could be a boon to U.S. ports on the Gulf and East coasts, which currently handle post-Panamax cargo directly to and from Asia only via the lengthier Suez route. Says Gary LaGrange, CEO of the Port of New Orleans: “This will be monumental for maritime trade on the Gulf Coast.”

The expansion, set to be completed in the canal’s centennial year, 2014, could also mark the nation’s coming of age. It’s a chance, say officials, to shed once and for all Panama’s 20th century image as a U.S. lapdog and bolster its bid to become the hemisphere’s Hong Kong–a world-class maritime, financial and commercial center for everything from foreign-exchange banking to aviation services.

It’s also a chance, the officials agree, for Panama’s ruling class to shed its notorious reputation for brazen malfeasance by managing the new canal wealth responsibly and finally doing right by the 40% of Panamanians living in poverty. The country’s GDP per capita is $4,318, which still makes it No. 2 in Central America. Serious doubts about income redistribution are a big reason that only 22% of respondents to a recent poll said they thought the expansion would bring real economic benefits to Panama and its population of 3.2 million. Some 64% of Panamanians said they support the project. “The past,” Torrijos admits, “is haunting our future. It’s a weight on this referendum.”

The canal is Panama’s oil, its critical resource. But under the Americans it was run like a military installation. Since the canal’s handover on Dec. 31, 1999, the Panama Canal Authority (ACP) has run it like a business–more efficiently, more safely and more profitably–doubling toll income to an estimated $1.4 billion this year. (The Suez Canal earns $3.5 billion.) That’s nearly 10% of GDP. “Before, the canal was just about moving ships,” says ACP administrator Alberto Alemán. “Today it’s about moving cargo.”

One of Alemán’s more lucrative changes was creating different cargo classes for toll charges (container, tanker, passenger, etc.), which has had the dual effect of augmenting revenues while presenting users with a fairer fee structure. The new authority also designed a more efficient transit-reservation system: a canal passage that often entailed a wait of several days at the canal’s entrance a decade ago takes less than a day now, increasing throughput.

Still, the biggest problem is traffic jams: more than 14,000 ships transit the canal each year, stretching its outdated capacity. And a growing share of that freight can’t cross Panama at all. By 2010, the number of post-Panamax vessels in the global commercial fleet is expected to jump 74%, to about 700, and by 2011, they will probably account for half the world’s oceangoing commercial-cargo capacity, according to the World Shipping Council in Washington. The expansion design, approved by Panama’s Congress last spring, would dig a new approach channel about five miles long just east of the existing Gatun locks at the Atlantic entrance, and a similar one just west of the Miraflores locks on the Pacific side. Each new channel would hold three-step locks 180 ft. wide, compared with 110 ft. for the existing locks, and they would have massive water-recycling basins, which preclude the need to dig new reservoirs, which many had feared would displace thousands of farms and homes. The project would create as many as 7,000 direct jobs and more than 40,000 indirect jobs at home. Companies such as Bechtel, ABB and the French contractor Bouygues are expected to bid for the project.

Toll increases would pay the expansion’s $5.25 billion projected cost, about half of which would be financed by international banks. Alemán estimates the increased traffic could raise the canal’s annual income to as much as $5 billion by 2025.

But many Panamanians feel Torrijos and the project’s backers are “looking through rose-colored glasses,” says Fernando Manfredo, the canal’s former deputy administrator and a leader of the anti-expansion campaign. Among their fears: increasing Panama’s already sizable foreign debt, now more than $10 billion, or about 60% of GDP; other credible estimates indicate the expansion’s cost would be closer to $8 billion; and uncertainties, like a possible downturn in Asia’s economies, which could deflate the promised benefits. “Our big concern,” says Manfredo, “is whether we’ll really recuperate what we’re going to throw into this.”

Torrijos insists they will. Thanks to its unique location, “Panama was born globalized,” he says, “born to do projects like this.” Alas, piracy is also a part of Panama’s colorful history–and many of its politicians still bring that tradition to projects like this, which is why Torrijos has begun long overdue anticorruption measures like contract-bidding reforms. He knows that even if voters endorse the expansion, it’s likely to be judged less by how well it digs supersize ships into the canal than by how well it digs Panama out of its Third World troubles.