Hot spots: Panama.(International Section)

Dr. Belcsak is president of S.J. Rundt & Associates, Inc. Telephone: 973/783-5206; fax: 973/744-3073; e-mail: info@rundtsintelligence.com; web site: www.rundtsintelligence.com.

Newly elected President Torrijos' political honeymoon will be short. Among the hot issues that will test him right away are a possible budget crisis, a social security system on the brink of collapse, and an urgent need for a master plan for the Canal's furore. Technically, all these problems can be solved. Practically, each presents a major political challenge.

Martin Torrijos, the man who won the recent elections, is the son of General Omar Torrijos, a populist dictator who ruled Panama from 1968 until his death in 1981. More precisely, he is one of six children whom Gen. Torrijos fathered with four different women. A 40-year-old construction tycoon, who lived half his life in the United States, Martin Torrijos' campaign leaned heavily on the memory of his lather as a champion of the poor, the "visionary" who negotiated the treaty which gave Panama control of its Canal.

He vowed to fight corruption and the unequal distribution of wealth that has plagued most of Panama's history. He also pledged to uphold democracy, protect human rights, and defend freedom of expression. And he succeeded in getting the local and international business communities to view him as the most "market-friendly" of the four major candidates. As a result, Panama's foreign-traded bonds have rallied this year as his victory became increasingly predictable.

Torrijos won with a lead of nearly 20 percentage points over his closest rival, Guillermo Endara (a former President). He will take office on September 1, but will not have time to enjoy much of a political honeymoon. Awaiting him is a dreadful state of fiscal affairs, which the outgoing government of President Mireya Moscoso has tried to hide with highly creative accounting and by including the Panama Canal Authority's profits in its public-sector accounts.

The law stipulates that the budget deficit may not be greater than 2% of GDP. The tricks President Moscoso used to meet this requirement are not sustainable and, in the case of the PCA profits, breach the assumption that Canal and government money would be kept separate and that politicians must not raid the Canal's coffers. To get an honest reduction in the fiscal deficit to 2% of GDP, Mr. Torrijos will have to bring in rather draconian austerity measures. The same holds true for the need to rein in the ominously growing liabilities of the country's pension system. To ease these pressures, the government will either have to increase the retirement age, hike worker and employer contributions, pare benefits, or--what is most likely--impose a combination of all these measures.

All such moves will be highly unpopular. Any of them could risk triggering massive street protests, especially as the election campaign did not produce any real debates on issues. This pertains also to the Panama Canal, where traffic has been boosted by booming Chinese and other Asian exports to the U.S. Atlantic seaboard and by ...