Has Panama weaned itself off drugs and cleaned up? By Will Grant

Central America correspondent, BBC News Published duration 2 August 2014

image copyright Getty Images image caption A drugs haul guarded by a Panamanian soldier

In 1988, a US Senate subcommittee headed by then-Senator John Kerry came up with a new word to describe Panama - "narco-kleptocracy".

It referred to the years of corruption, cronyism and theft of state coffers under the government of military strongman Manuel Noriega.

Noriega spent decades on the payroll of the CIA as an agent while simultaneously rising in importance in the powerful Medellin drug cartel.

For years, Washington turned a blind eye to the Panamanian leader's blatant drug trafficking and money-laundering until it could be ignored no longer.

The United States invaded Panama in 1989 in what it called Operation Just Cause.

Noriega was ousted from power and arrested. Since then he has served consecutive jail sentences in the US, France and now in his native Panama.

image copyright Getty Images image caption Manuel Noriega waving after seeing off one of several coup attempts during his rule

At the time, the Senate subcommittee described Washington's close ties with Noriega as the "most serious foreign policy failures for the United States".

But following a presidential election in Panama earlier this year, John Kerry, now US Secretary of State, congratulated the country on its "peaceful and orderly" vote.

So has Panama genuinely moved from a "narco-kleptocracy" to a peaceful and orderly democracy in just 25 years?

Far from perfect

"It's a difficult question to answer," says Prof Orlando Perez, of Central Michigan University. "Panama's institutional system has certainly improved significantly since 1988. There is no question about that."

The credit-ratings service, Moody's Corporation, agrees. It recently described Panama's institutional strength as 'moderate' - a significant improvement on previous years and on other countries in Central America.

"[Panama] has been a success story," says Panamanian lawyer and political analyst Ebrahim Asvat.

"Since the US invasion, Panama has been able to put all the different pieces in place and try to run a country with democratic institutions and a balance of power between the different branches of government."

That said, democracy and governance in Panama are still far from perfect.

"Where I hesitate is in the question of corruption," says Prof Perez.

"Corruption is still a major problem inside Panama. To some extent it's systemic to the way Panama's economy is structured."

Corruption

Panama has a very open, dollarised, service-based economy.

In fact, more than 75% of its gross domestic product (GDP) comes from the service sector. While that has attracted significant foreign direct investment (FDI), it has also brought an undercurrent of less transparent business interests too.

"Openness can be positive in terms of trade and FDI. But it can also mean openness to drugs, money-laundering, arms-trafficking and so on," says Prof Perez.

The Russian mafia is believed to control some prime real estate in Panama City while the Sinaloa Cartel - perhaps the most powerful drug-trafficking organisation in the world - brings its cocaine from Colombia via Panama on its route north.

image copyright Getty Images image caption Panamanians celebrate the news that Manuel Noriega's rule has ended

Compared to the Noriega era, the government has made significant in-roads in terms of improving cooperation with international organisations, tracking flows of money and strengthening the local police.

But despite those advances, key structural problems still exist.

"Many Panamanians tell me, 'We want to cooperate with the United States, Interpol, Europol and others over these illicit money flows,'" says Orlando Perez.

"But they say we can't do anything to jeopardise the competitive advantage that Panamanian banks have. That would essentially destroy our 'brand'."

For Mr Asvat, an independent judiciary is also still lacking in Panama. "We still haven't been able to create a system that can work on its own and stay well away from the power politics of government," he says.

Yet despite the challenges, many observers see green shoots of optimism for Panamanian democracy, particularly in the last presidential election.

Ahead of the vote, the outgoing president, Ricardo Martinelli, appeared to be trying to cling on to power. His party's presidential candidate was a relative unknown, criticised as a puppet for Mr Martinelli, while the president's wife, Marta Linares, was also on the ticket.

Opposition politicians called it "re-election in disguise".

Crucially, though, it didn't work.

Unequal society

In the end, the Panamanian electorate rejected Mr Martinelli's overtures, and the race was won by the country's vice-president, Juan Carlos Varela, who had split acrimoniously with the governing coalition some weeks earlier.

Mr Varela ran on an anti-corruption platform and used televised advertisements to claim intellectual ownership of some of Mr Martinelli's more popular moves. They included major infrastructural projects in Panama City and social programmes, such as a monthly payment of $100 to the elderly.

image copyright AFP image caption Mr Varela said that tackling Panama's expanding public debt will be one of his major challenges

His campaign chimed with Panamanians, and last month he took the presidential sash from Mr Martinelli.

With it, he inherited one of the region's fastest growing economies from his predecessor. Panama currently boasts much higher growth rates than the Latin American average and attracts greater levels of FDI than even Chile.

But it is also one of the most unevenly distributed economies.

While parts of Panama City are often compared to Dubai, Singapore or Miami, others have more in common with the slums of Rio de Janeiro or Caracas, and poverty levels in parts of the countryside can reach 90%.

Furthermore, Panama is also yet to throw off its reputation as a haven for international criminals, fugitives and tax exiles.

Country of contrasts

The latest case to cause controversy is that of the former head of the Colombian secret police, Maria del Pilar Hurtado, wanted on multiple charges in Colombia. Under Mr Martinelli, she was granted asylum in what was perceived as a favour to his ally, the former Colombian President Alvaro Uribe.

That decision was overturned by the Supreme Court, and it is now down to the Varela administration to find her and extradite her to Colombia.

The challenges ahead for Panama are numerous and complex. But Panamanians only need to glance in their rear-view mirror to see the corrupt "narco-kleptocracy" whence they came, and be heartened by how far they have come.