THE CANAL CRONIES

The evidence against Pedro Miguel Gonzalez was strong. Three eyewitnesses said they saw him gun down U.S. Army Sergeant Zak Hernandez in 1992, days before a scheduled visit to Panama by President George Bush. The vehicle used in the shooting was found abandoned at the Gonzalez family ranch, the alleged murder weapon buried at Gonzalez’s sister’s workplace. Nevertheless, on Nov. 1, after years of delay and controversy, a jury found Gonzalez, the son of the head of Panama’s ruling party, innocent of murder, setting off an explosion of indignation. In a replay of the rhetorical battles that marked U.S.-Panama relations in the 1980s, Ambassador William Hughes charges that the verdict is an outrageous injustice rendered in a “climate of intimidation.” Calling Hughes’ remarks “unfortunate,” President Ernesto Perez Balladares responds that Washington should mind its own business. “Very frankly,” he says, “I didn’t like the result of the O.J. Simpson trial either.”

Concern over the Gonzalez verdict goes beyond the imperfections of Panama’s court system. The U.S. is scheduled to turn over full operation of the Panama Canal to Panama two years from now. And the question arises: If this is the way the Panamanians run their criminal-justice system, what hope is there for the canal?

So far, the transition to Panamanian operation of the canal, which handles 13,000 ships annually, representing 14% of all U.S. trade, is proceeding smoothly. More than 90% of the canal’s 9,400 employees, including its chief administrator, are Panamanian. To the question of what will happen at noon on Dec. 31, 1999, when the official transfer is made, administrator Alberto Aleman Zubieta says, “Nothing will change except the name on the checks to the personnel.”

Still, the Gonzalez acquittal is one of several events that raise questions as to whether the canal can remain free from Panamanian politics–widely acknowledged to be among the most patronage-ridden in Latin America. The fear, especially among shippers, is that the canal, which contributes $100 million of its $600 million in annual tolls to Panama, will be used as a cash cow for fiscally strapped governments and an employment agency for whatever party is in power.

The international shipping community prefers that the U.S. continue to play a role in running the canal. But even Panamanians who cheered the 1989 U.S. invasion that overthrew strongman General Manuel Antonio Noriega consider the completed handover a point of national pride. The best those in favor of a continued U.S. presence can hope for is a successful conclusion to current talks aimed at establishing a multinational antinarcotics center at what is now Howard Air Force Base. Those talks, however, are foundering over the issue of who would control the U.S. troops that would provide logistical support for the center.

Panamanian officials point out that the canal is so important to world commerce and to Panama’s future that they have taken strong measures to keep it above politics, including a constitutional amendment that makes the canal an autonomous corporation. “I think we and the U.S. have a common desire to accomplish the transition in a seamless way so that the users don’t even notice it,” Perez Balladares said in an interview with TIME. “Basically, we are in good shape.”

But critics of Perez Balladares, a beefy, combative millionaire businessman known as Toro, or Bull, say his actions are out of step with his words. Heir to the helm of the Revolutionary Democratic Party, once in the grip of Noriega, Perez Balladares has appointed Noriega’s former Foreign Minister, Jorge Ritter, as his Minister for Canal Affairs and chairman of the new 11-member Panama Canal Authority, the agency that will run the facility after 2000. In addition, the President has invited a storm of criticism by naming a passel of relatives and political cronies to the Canal Authority board. They include his former son-in-law, his cousin, two of his wife’s cousins and his campaign finance chairman.

“Given the fears, he should have gone out of his way” to avoid any suggestion of nepotism, says Marc Falcoff, a Latin American scholar at the American Enterprise Institute in Washington, who has just written a book on Panama. “Nothing would have given the international community more confidence.”

Perez Balladares denies he was influenced by family ties and points out that all but one of his appointees–the son of the Minister of Justice–are either members of the current Panama Canal Commission or have worked on canal-related projects. “I really tried to balance those choices,” the President says. “But of course the common denominator is that they are not my enemies.”

No Perez Balladares appointment is more controversial than Ritter, who has thrived in politics despite his close association with the corrupt Noriega regime. Robert MacMillan, a New York lawyer who was a member of the Panama Canal Commission from 1989 to 1994 and its chairman for a year, says with Ritter as canal czar, “anybody who thinks that politics will be kept out of the Panama Canal is smoking pot and inhaling.”

Falcoff points out that “there are troubling rumors concerning Ritter’s ties to drug traffickers”–a reference to testimony at Noriega’s trial in 1991 alleging that Ritter had purchased a car for a Colombian cocaine dealer. Robert Pastor, who helped negotiate the Panama Canal treaties and who now teaches at Emory University in Atlanta, agreed that Ritter was a “surprising” choice for a job “where you want a person who stands for integrity.”

Ritter insisted in an interview that his reputation as a Noriega henchman is undeserved–that he remained in the Noriega government only to help negotiate the general’s departure. As for the drug charge, he says that while he was Panama’s ambassador to Colombia in 1986, he sold a car to an auto agency that he only later learned was owned by a drug lord.

In the former Canal Zone, meanwhile, another diplomatic tiff concerned Panama’s decision to award a contract to run the ports of Cristobal and Balboa to Hong Kong’s Hutchison Whampoa Ltd. in a deal that Ambassdor Hughes said was unfair to American bidders. And in a confused transaction that gives potential investors little confidence, the government leased land to Hutchison that was also needed by the Panama Railroad and the local airport authority. The resulting legal mess was only recently resolved.

Former commissioner MacMillan contends that Panama has badly neglected the military bases, ports and other facilities that have been placed in its charge, and shows reporters photos of abandoned Panama Railroad cars overgrown with grass and tropical vines. The railroad was handed over to Panama in 1979, and after falling into disuse, is now being privatized by a Kansas City, Mo., firm.

Perez Balladares answers that the railroad was in poor repair and losing money at the time it was given to Panama. He thinks Washington wanted the venture to fail, “so they could say, ‘See, they are not capable of running a railroad; how can they run a canal?'”

The President also sees U.S. machinations behind a report last year by the U.S. Army Corps of Engineers, commissioned in preparation for the handover, that listed more than 1,000 canal maintenance chores and equipment upgrades that needed quick attention. “The idea, I guess, would be to hand Panama a canal that would run into problems shortly afterward,” says Perez Balladares. “Thank God, it was detected in time.”

MacMillan dismisses the charge as “nonsense”–though the Canal Commission is now embarked on a $1 billion modernization program that encompasses most of the Corps of Engineers’ recommendations.

Still to be decided is what will happen to the mile upon mile of manicured lawns, handsome red-roofed houses, schools, supermarkets, golf courses and offices to be vacated in the Canal Zone and U.S. military bases and known collectively as the “reverted areas.” Though what was returned before 1994 is generally derelict, the government has elaborate plans for the rest, including the creation of export manufacturing zones, hotels and eco-tourism. A few contracts have been signed.

The reverted areas represent a broad swath of the national territory, and their development could transform Panama. But there are more skeptics than optimists. Panama’s dream is to become another Singapore–a prosperous banking, transportation and tourism hub exploiting to the fullest its ownership of one of the world’s most important waterways. The alternate, nightmare vision, unfortunately, is of a nation handed a great resource that it then wastes through corruption and mismanagement.

–With reporting by Michele Labrut/Panama City