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FY 1997 Development Assistance: $3,500,000
Introduction.
USAID's program in Panama supports U.S. foreign policy objectives aimed at successful implementation of the Panama Canal treaties. Under the treaties, Panama will assume full ownership, control and operation of the Canal on December 31, 1999. In the interim, the United States has begun transferring extensive U.S. military bases and Canal operating areas to Panamanian control.
Assistance to Panama at this critical juncture is clearly in the U.S. national interest. A substantial amount of U.S. and world trade transits the Panama Canal. A democratic, prosperous and stable Panama will help ensure a smooth transfer of Canal ownership and control, contributing to efficient Canal operations well into the 21st century. Environmental protection of the Panama Canal Watershed is vital to safeguarding the fresh water resources upon which Canal hydrology depends. Well-planned, productive use of the reverted areas can help offset the loss of income resulting from the closure of the U.S. military bases, help contribute to political stability, and help preserve the ecology of the Canal watershed.
The Development Challenge.
Fresh water powers the Panama Canal. Every ship that transits the Canal requires 52 million gallons of gravity-fed fresh water which is then lost to the sea. The operation of the Panama Canal uses as much fresh water daily as a city of 11 million people. Widening of the Canal, which is now underway to permit additional transits, will further increase the demand for water. Fast-growing urban populations at each entrance to the Canal depend upon the same sources of fresh water for individual and industrial needs, and their demands are increasing.
The Panama Canal watershed is the only water source available to meet these needs. Its rivers feed two large lakes which are indispensable to Canal operations and to urban potable water supply. Over the past 30 years, the watershed has suffered massive deforestation, reducing its forest cover more than 60% and eroding its river valleys and lake shores. As a result, the fresh water supplies of the Canal watershed are increasingly vulnerable to siltation, flood and drought. Protection of existing forest cover and extensive reforestation throughout the Canal watershed is an urgent priority.
Imminent transfer of the Canal and the reverted areas presents Panama with great opportunities as well as challenges to its system of democratic governance. The extensive U.S. military bases and Canal operating areas which border the Canal from the Atlantic to the Pacific are already reverting to Panamanian control. Some of these areas retain thick forest cover, most have prime real estate potential and all have been carefully safeguarded and controlled over the years by the U.S. military and by the Panama Canal Commission. With the scheduled reversion of all properties to the Government of Panama (GOP) before the end of 1999, Panama must strengthen the central and municipal government institutions responsible for managing and protecting these areas. Mounting population pressure and encroachment from nearby urban concentrations threaten long-term protection, planning and productive use. Strong democratic governance and community participation will be required to ensure that future use of the reverted areas is compatible with environmental protection of the Canal watershed, yet also generates continuing sources of employment, income and enjoyment for future generations of Panamanian citizens.
The USAID program in Panama is scheduled to be terminated within the next five to ten years when USAID's activities associated with the transfer of the Panama Canal, i.e. protection of the Panama Canal Watershed and facilitation of productive uses of the reverted territories, have achieved their objectives.
Other Donors.
The Inter-American Development Bank (IDB) is the lead donor in Panama, with a projected $900 million loan program over the next several years. The IDB is optimally positioned to move into sectors from which USAID is withdrawing. These include financial management reform, administration of justice and economic policy development. USAID-IDB coordination efforts ensure continuity between prior accomplishments in these sectors and future plans. The IDB also provides loan funding for new initiatives in rural road construction, energy development, agriculture, secondary and technical education, health services, housing, and improved systems for urban potable water and sanitation. In addition, the IDB has played a key role in helping the GOP develop general use and regional plans for the reverted areas.
In 1995, the World Bank provided a $25 million rural health loan and a $40 million loan for primary and secondary education. A $30 million economic recovery loan is pending. Germany, Spain, the European Union and Japan provide a total of approximately $40 million annually in grant assistance. All are involved to some extent in supporting environmental protection, although none has focused its assistance upon the Panama Canal watershed. The International Monetary Fund, the World Bank and the IDB are expected to provide a $90 million loan package to support a restructuring of Panamanian commercial debt sometime in 1996.
FY 1997 Program.
Over the past five years, USAID has contributed to the restoration of Panamanian democracy and to the resumption of Panama's broad-based economic growth. USAID programs at the central level of government helped re-establish sound financial management, supported free market economic reforms, improved administration of justice, and strengthened the administrative framework for the free and fair national elections of 1994.
With earlier tasks now largely accomplished, USAID will focus its FY 1997 program on the strategic objective of protecting the Panama Canal Watershed while supporting the related special objective of facilitating efficient transfer of the Canal and sustainable productive use of the reverted areas.
Agency Goal: Protecting the Environment
Panama is exceptionally rich in biodiversity. Its tropical forests, reaching from the western border with Costa Rica to the eastern border with Colombia, form a unique "biological corridor" for Central and South America. Thousands of species which exist here are found nowhere else. Unfortunately, deforestation in Panama is proceeding at the rate of 57,000 hectares a year, due to legal and illegal logging, mining operations, and the clearing of forest for cattle ranches and subsistence farming. Forest cover, estimated at 70% in 1947, will be less than 30% by the year 2000 if current trends continue.
Given USAID funding constraints, the FY 1997 program will directly focus resources on only one relatively small geographic area -- the Panama Canal watershed. Protection of the watershed is vital to the long-term operation of the Panama Canal, since the watershed supplies all of the water upon which Canal hydrology depends. In addition, one and a half-million people depend upon the watershed lakes for potable water.
The Canal watershed has seen its forest cover fall from 70% of the total area in 1947 to about 30% today. Further deforestation could pose a threat to the water supply and future operation of the Panama Canal, particularly during the dry season when the Canal must rely upon stored water. Deforestation increases erosion within the Watershed, leading to greater levels of siltation in watershedrivers and lakes. This decreases storage capacity. With deforestation, water runoff also accelerates, and less water is retained for future use.
During the past year, USAID helped the GOP survey and demarcate boundaries for three of the five national parks within the Panama Canal watershed. This will help the GOP enforce protection for 30,000 hectares of park land. With USAID support, the GOP has begun a construction program to build ranger stations, living quarters for forest guards and administration facilities within the national parks of the Canal watershed.
USAID established with the GOP and The Nature Conservancy a $25 million environmental trust fund, invested largely in U.S. securities. This will generate financial resources in perpetuity to fund Panamanian nongovernmental organizations (NGOs), community groups, and the GOP in reforestation and protection of the Panama Canal watershed and other important areas of Panama.
The key to providing lasting protection for the Panama Canal watershed is strengthening the responsible central government institutions so that they can work effectively with the municipalities and local communities which border the watershed and, in some cases, maintain legal rights within it.
Agency Goal: Building Democracy
Democratic governance in Panama will be put to the test over the next three years as Panama prepares itself for ownership, control and operation of the Panama Canal and of the extensive U.S. military bases and Canal operating areas which border the Canal from the Atlantic to the Pacific. It is essential to Panama's future political stability that this process be carried out in an open, transparent and efficient fashion, and produce results in which all Panamanians from all social classes clearly benefit.
USAID will continue to target limited resources to support the strengthening of the GOP Canal Transition Commission (PCTC) and its successor, the Panama Canal Authority (PCA) which will come into existence during FY 1997 and will assume operational control of the Panama Canal on December 31, 1999. USAID will continue to support specific objectives of the GOP Inter-Oceanic Authority (ARI), which is responsible for the planning, privatization and productive use of the reverted areas as well as for the environmental protection of the Canal watershed.
During the past year, the GOP Panama Canal Transition Commission began drafting the legislation required to create the Panama Canal Authority. It was only at the end of this period that the Transition Commission recruited a full-time executive director. He has requested USAID support for technical assistance in developing financial management systems and personnel systems for the new Canal Authority organization.
Recent U.S. Government General Accounting Office studies of base closures in the United States demonstrate the difficulties and lag times associated with transforming these properties to other productive use. Panama faces an unprecedented challenge in the reversion of ten major military installations over a five-year time period. In addition, Panama must replace the $250 to $370 million a year it gains at present from the salaries to Panamanian employees, local purchase of goods and services, construction and repair contracts and personal expenditures which the U.S. military currently provides. This represents 5%-13% of gross domestic product, depending on the economic multiplier used to calculate these estimates.
During the past year, the Inter-Oceanic Authority, with USAID support, developed a strategy and master plan for the development of a tourism complex at what is presently Fort Amador, at the Pacific entrance to the Canal. Private sector implementation of the plan would generate thousands of jobsfor Panamanian citizens. USAID assisted the Inter-Oceanic Authority with the purchase and installation of computerized geographic information system (GIS) equipment to enable the Authority to catalogue, survey and control physical infrastructure within the areas reverting to the GOP.
During FY 1997, the Inter-Oceanic Authority faces the challenge of strengthening its financial management and control systems, marketing its newly acquired properties worldwide and working with municipal governments to ensure the protection and equitable distribution of benefits from development of reverted military bases.
| Encouraging Economic Growth | Stabilizing Population Growth and Protecting Human Health |
Protecting the Environment |
Building Democracy |
Providing Humanitarian Assistance |
Total |
|
|
USAID Strategic Objective |
||||||
|
1. Improve Management and Protection of Canal Watershed Dev. Assistance |
|
$2,400,000 |
$2,400,000 |
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| USAID Special Objective | ||||||
|
1. Ensure Smooth Transfer of the Panama Canal and Productive Use of the Reverted Areas Dev. Assistance |
$632,000 |
$468,000 |
$1,100,000 |
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|
Total Dev. Assistance |
$3,032,000 |
$468,000 |
$3,500,000 |
USAID Mission Director: David E. Mutchler
PROGRAM: PANAMA
TITLE AND NUMBER: Environmental Protection of the Panama Canal Watershed Improved, 525-SO01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1997: $2,400,000 DA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2000
Purpose: To protect existing forest reserves within the Panama Canal watershed, to assist reforestation and to help prevent other environmental degradation in order to protect and preserve fresh water sources vital to the operation of the Panama Canal.
Background: The Panama Canal is dependent upon on abundant and continual source of fresh water for its operations. Every ship that passes through the locks requires 52 million gallons of fresh water which is then lost to the sea. In addition, over one and a half million people depend upon the Canal lakes for potable water. The five rivers which provide this water lie within a watershed whose area covers 326,000 hectares. In 1947, about 70% of the watershed was protected by thick forest cover. Today, only about 30% of the watershed is forested. Deforestation continues, due to population pressures from the nearby urban concentrations of Panama City and Colon, the spread of cattle ranching, and the persistence of slash-and-burn agriculture. If this process continues, erosion in the river valleys, siltation, and loss of storage capacity in the Canal lakes will jeopardize the future operation of the Panama Canal.
USAID Role and Achievements to Date: USAID has supported development of a plan for coordinated protection and sustainable development of the Panama Canal watershed. The GOP Inter-Oceanic Authority (ARI), the GOP Institute for the Management of Renewable Natural Resources (INRENARE) and the Smithsonian Tropical Research Institute (STRI) are USAID's principal partners in implementing this plan. In 1995, USAID, the GOP and The Nature Conservancy established a $25 million environmental trust fund which generates additional financial resources each year to the Panama Canal watershed and other priority areas. In 1995, USAID worked with the principal municipalities surrounding the watershed to design a municipal development project which will provide technical assistance and training for municipal officials and local communities so they can play an active role in the protection of the watershed. In 1995, USAID developed a special program with the Smithsonian Tropical Research Institute to assist INRENARE in the design and establishment of environmental monitoring systems within the watershed which will measure, on a continuous basis, changes in forest cover, water quality, siltation, demographic pressures and biodiversity. In 1995, USAID established with INRENARE a program to survey the national parks which border the Canal and to demarcate their boundaries. Three of the five parks have now been demarcated.
Description: During FY 1997, USAID will work directly with key municipalities within and bordering the Canal Watershed to enlist community participation in discouraging encroachment into national parks and encouraging reforestation within the watershed. USAID will work with the private sector to reforest more than a thousand hectares of reverted lands bordering the Canal. USAID will assist more than one hundred farmers and cattle ranchers who have legal title to land within the watershed to reforest significant portions of their land holdings. USAID will support the GOP in surveys and demarkation of the remaining two national parks and in the construction of ranger and guard facilities. USAID will support environmental education programs for municipalities, schools, and communities within and bordering the watershed. USAID will work with the Controller General of Panama to establish in his office an ecological accounting unit and an ecological auditing unit to strengthen stewardship of natural resources at the cabinet level of the GOP.
Host Country and Other Donors: USAID is the principal donor supporting management of natural resources in Panama, although Germany, Spain, the European Union and Japan are increasingly active elsewhere in the country. USAID is the only donor supporting major conservation efforts within the Panama Canal Watershed. INRENARE has a national budget of $20.8 million for 1996. This includes a GOP contribution of $4.6 million, donations from the U.S. and other donors, and income from fines, fees and taxes on timber.
Beneficiaries: Preservation of the Panama Canal watershed will benefit the U.S. and other international users of the Panama Canal, the 7,500 permanent Canal employees, the people of Panama who derive 6% of gross domestic productfrom current Canal operations, and the 1.5 million population of Panama City and Colon which depends upon the Canal lakes for potable water.
Principal Contractors, Grantees or Agencies: USAID implements activities through a grant with Smithsonian Institution and cooperative agreements with U.S. and Panamanian NGOs such as The Nature Conservancy. The Panamanian Institute for the Management of Renewable Natural Resources also implements elements of this strategic objective.
Major Results Indicators:
Baseline Target
All waterways and forested areas in the Canal watershed
declared legally protected (in hectares) 156,000(1990) 245,000 (2000)
Forest cover in the Canal watershed (in hectares) 122,575 (1992) 126,000 (2000)
Land area reforested in the Canal watershed by private
sector (in hectares - cumulative) 100 (1993) 6,400 (2000)
Funding disbursed from Ecological Trust $000 (1994) $6,100 (2000)
Fund to NGOs, community associations,
education groups and GOP entities for
conservation and environmental activities
($000 - cumulative)
PROGRAM: PANAMA
TITLE AND NUMBER: Efficient Transfer of the Panama Canal and Productive Use of the Reverted Areas Facilitated, 525-SpO01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1997 $1,100,000 DA
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 1999
Purpose: The purpose of this special objective is to prepare for a seamless transition of the Panama Canal to Panamanian ownership, control and operation; and to offset the loss of employment and income resulting from the closure of U.S. military bases.
Background: The Panama Canal Treaties, signed in 1977, provide for the transfer of the Panama Canal to Panama and for the closure and transfer of all U.S. military bases by December 31, 1999. Democratic governance issues are central to this process.
The Panama Canal Commission has taken the lead in preparing a "milestone plan" for the transition of the Canal to the Government of Panama. The GOP is now organizing itself to address the governance and management issues outlined in that plan. The GOP must now further develop its own transition plan and draft basic legislation. It must develop a governance structure for the new Panama Canal Authority, establish personnel and administrative procedures, adapt labor policies to maintain sound labor and management relations, implement business-like financial systems, develop procurement policies and programs, establish a tolls policy in accordance with marketing and operating factors, and establish new authorities over Canal ports.
The GOP has created the Inter-Oceanic Authority (ARI) to carry out planning and marketing for private sector productive use of the U.S. military bases and Canal operating areas which are already being transferred to Panamanian control.
USAID Role and Achievements to Date: USAID actively supported the creation of ARI, providing computer equipment, technical assistance and training. USAID funded development of feasibility studies of tourism development for Fort Amador, optimal uses for Albrook Air Force Base, and privatization of Gorgas Hospital. With respect to the Canal transfer, USAID developed the terms of reference and funded development of the GOP transition plan which helps guide current planning.
Description: At ARI's request, USAID will work with the International Executive Service Corps to provide highly experienced U.S. technical experts on a short-term basis to address a wide range of specific base conversion issues identified by ARI. USAID will provide additional long-term technical assistance and training to help ARI and the GOP's Panama Canal Transition Commission strengthen financial management, including budgeting, accounting, procurement and auditing.
Host Country and Other Donors: The Inter-American Development Bank is providing ARI with loan-funded technical assistance to develop a general use and a regional plan for the reverted areas. These plans, to be completed in the next six months, will then guide more specific reconversion project planning.
Beneficiaries: The beneficiaries are the U.S. and other international users of the Panama Canal; the Panamanian people, who derive 8%-15 % of gross domestic product at present from U.S. military bases and the Panama Canal; and the Panamanian labor force, including 7,500 permanent Panama Canal Commission employees, 3,500 U.S. military civilian employees, and 8,000 U.S. military contract and concession employees.
Principal Contractors, Grantees or Agencies: The implementor will be the International Executive Service Corps.
Major Results Indicators:
Baseline Target
New jobs created replacing those lost
by closure of U.S. military bases (cumulative) 0 (1995) 10,000 (1999)
New revenues generated replacing income lost by
closure of U.S. military bases ($000 - cumulative) 0 (1995) $125,000 (1999)