There will always be 34 percent of the Senate on the blackguard side of every question.

—Secretary of State John Hay, 1901

Recently, along with many others on the mailing lists for known “liberals,” I received a handsome brochure enumerating various “myths and facts” about the Panama Canal, and imploring me to “help make the voice of reason and responsibility heard.” The treaties signed by Presidents Carter and Torrijos last September were, I was warned, imperiled by a “gigantic, well-financed campaign” to prevent their ratification by the Senate. To assure smooth passage for the bills, I was urged to write my senators (on postcards conveniently enclosed) and to send money to an organization calling itself New Directions. This group, I was assured, is dedicated to “forward-looking policies,” and is most definitely nonpartisan, although, alas, not deemed tax-exempt by the IRS.

This self-professed “citizens’ lobby,” it turned out on further investigation, sent out one million such letters at a cost of $137,000—funds provided by unions, businesses, and the Democratic National Committee. Although I have not the slightest objection to turning the Canal over to Panama, or for that matter, Guantanamo to the Cubans and Florida to the Seminoles, I was surprised that a group marshaling such heavy artillery, so to speak, should be so eager to extract $5 from me. With State Department officials summoned from their vital tasks in Bangui, Ascunción, and Dacca to do missionary work for the treaties before the Rotarians of Yakima and Oswego, with President Carter pre-empting “prime time” to explain the virtues of his pact, and with the AFL joining forces with Big Business and the Big Dems, why should the pro-treaties lobby need me?

The answer is simple, but then maybe not so simple as it might at first seem. There is the obvious reason that opposition to the treaties is so pervasive and so well-organized, and the not so obvious reason that the major support for them is coming from surprising places. On the opposition side, groups such as the Conservative Caucus and the American Conservative Union have sent out millions of letters opposing the treaties, bought newspaper ads and TV time, set up workshops and discussion groups around the country, and raised an estimated $1.5 million, much of it in the form of $5 and $10 contributions. A good part of that money, and the grassroots sentiment behind it, is being used to marshal support for a wide range of conservative issues. Even if they lose on the Canal, conservatives figure they can generate a pressure group that can block such liberal objectives as arms control, tax reform, and a federally financed medical program.

Playing on such powerful themes as patriotism, frustration over the Vietnam war, and the obvious inability of the US to orchestrate world politics as it would like, the right wing has found an emotional issue in Panama. Withdrawal from the Canal, declares the Hon. Philip Crane, a congressman from Illinois, would be “one more nail in the coffin of American sea power…one more crucial American step in a descent to ignominy.” Denison Kitchel, manager of Barry Goldwater’s 1964 presidential campaign, fears the Panamanians will botch up the Canal’s locks and open the gates to communist penetration. Communists are also very much on the mind of retired diplomat John Davis Lodge, who described the treaties to readers of The New York Times as “a mini-Munich” and warned against lessening US control of “this vital waterway and rampart at a time when Russian imperialism, heavily and increasingly armed, is very much on the march.” (Reference to the Russians is particularly ironic, since Philipe Bunau-Varilla, the French hustler who conned the Americans into buying up the shares of the bankrupt French-owned Canal company, first tried to persuade the Russians to build it—as David McCullough relates in his absorbing and richly detailed account of the creation of the Canal.)*

While the Russian peril is sometimes evoked by opponents of the treaties, more often their pitch is made on vaguer and more emotional grounds. The Canal issue has unleashed deep, if dimly articulated, anxieties on the part of the public. There is among Americans, as the American Security Council, which is opposed to the treaty, phrased it, “a desperate feeling that giving away the canal would be wrong in some way more important than they know how to say.” Even Barry Goldwater, when asked why he thought the American public would reject Carter’s pleas for the treaties, replied: “Don’t ask me why. It’s like the American flag. They’re wrapped up in it.”

Scenting an issue that could be turned to their advantage, right-wing politicians such as Ronald Reagan have come rushing into the battle. Withdrawal from the Canal would, they charge, turn the US into a second-class power, imperil American security, encourage leftists throughout the hemisphere, betray a historic American achievement, and allow the Cubans, maybe the Russians, too, to seize the vital artery of our nation’s well-being and security. Further, the far right, showing a recently developed sensitivity toward civil liberties, has declared that it would be shameful to sign any treaty with someone displaying such dictatorial tendencies as General Omar Torrijos. Reagan, who has not heretofore displayed any qualms about the most intimate US ties to the Maximum Chiefs of such countries as Chile, Iran, South Korea, and the Philippines—and who cites the complaints of the Panamanian oligarchs exiled in Miami, the Estoril of the Caribbean—has declared that the “fatal weakness” of the treaties is that they would “serve the purpose of solidifying the position of a dictator who seized power in a military putsch over his people.”


Reagan, of course, has some reason to question both the General’s principles and his sincerity. On seizing power in October 1968 the dashing young army officer—whose easygoing machismo and self-conscious dabs at “poetry” moved Graham Greene to such enthusiasm in these pages—consolidated his power by buying off the upper echelons of the National Guard (that is, the army). He declared all political parties to be illegal, censored the press, refused to recognize the legitimacy of the oligarchy-controlled parliament, and exiled or imprisoned his more vocal critics.

Liberals were assured that these deviations from parliamentary proprieties were in a good cause—and initially there were reasons for thinking so. An authoritarian in the populist rather than the rightist vein, Torrijos put the emphasis of his regime on “social justice,” promising rural development, farm collectives, land redistribution, and structural reform. Some progress was made in carrying out this program—at least enough to frighten the oligarchy, which, from its posh haven at the Union Club in Panama City, accused the General of Castroism and beseeched Washington to relieve them of this most ominous threat to “hemispheric stability.”

Rather than emulating Fidel, however, Omar Torrijos has apparently found some inspiration in the anti-Castro, US-government-run School of the Americas. Based in the Canal Zone and dedicated to the eradication of left-wing guerrilla movements, the School has trained some 35,000 officers from all over Latin America, including 3,400 members of the Panamanian National Guard. Among its proudest graduates is Omar Torrijos, who regularly gives visitors a tour of his old alma mater. At the school Torrijos and his fellow officers learned from their Yankee instructors that only military discipline could create the order needed for economic development, and that civilian politics was chaotic and corrupt. Today, with most of Latin America under military rule, nearly all the officers who seized power are graduates of the School. Having been taught that national discipline was more important than constitutional proprieties, they are understandably puzzled by President Carter’s admonitions on human rights.

Torrijos, as Walter LaFeber makes clear in his timely and enormously useful history of the Panama Canal, is in the classic mold of the Latin American caudillo who rises from the ranks and uses military methods to break the hold of the oligarchy and try to deal with the problems of unemployment, poverty, racial antagonisms, corruption, and unrest. Basing his power on guns, student enthusiasm, and the aroused hope of the masses, Torrijos promised sweeping economic and social changes. But while thundering against the oligarchy, he also reached out his hand to the giant international banks. In an effort to prop up Panama’s economy and give the banks a stake in his own survival, in 1970 he rewrote the nation’s banking laws to provide a tax-free haven for foreign banks—a convenience similar to that long enjoyed by foreign shipping. Just as Greek and other shipping magnates have found it useful to register their tankers in a country where no questions are asked and few taxes imposed, so the international banks flocked to Panama. Since 1970 bank deposits have risen from a few hundred million dollars to the present level of more than $8 billion, with the number of foreign banks increasing from a handful to seventy-four.

While the 1970 law made Panama a paradise for bankers—allowing them to funnel money through the country to their European branches without paying taxes on the profits—it also put the Panamanian government at the mercy of the banks. Any attempt to tax their profits or to cut Panama’s ties to the dollar would simply induce the banks to close up shop, bringing disaster to Panama’s finances. The Panamanians also surrendered control of their economy to the foreign banks. In 1960 local banks controlled 70 percent of the deposits and 96 percent of loans in the country; in 1976 foreign banks controlled 91 percent of the deposits and 77 percent of the loans. As LaFeber dryly observes: “The economy remained colonialized; only the forms were slightly altered.”


If the banks ran the economy, they realized that their privileges rested on the durability of Torrijos. Any threat to him was a threat to their freedom of operation. Consequently, when a 1973 recession raised doubts about his staying power, the local branch of the First National City Bank (Citibank) organized a consortium to lend the regime $115 million. Torrijos returned the favor by rescinding a decree that threatened to impose restrictions on mortgage lending. Today Panama owes US banks an estimated $1.8 billion—more than ten times its debt when Torrijos seized power in 1968. A staggering 39 percent of the nation’s budget is being siphoned off to service this debt (as compared to 7 percent in the US), with the bill coming to some $42 million a year.

The General’s friends at Citibank could not, however, prevent the economic recession that gripped Panama in the early 1970s. The 8 percent annual economic growth rates of the 1960s ground to a halt, victim of world inflation and of rampant real estate speculation at home. New office buildings and upper-income apartments stood empty. Corruption reappeared, with the National Guard shedding its former Puritanism and demanding a cut of the take. Unemployment shot up, along with the price of food staples. Impoverished peasants flooded the cities, enlarging the already wretched slums.

The economic situation was desperate. But there remained one untapped source of revenue. For salvation Torrijos, like his conservative and populist predecessors alike, turned to the Canal. In 1973 he demanded a new arrangement for the Zone. The Nixon administration, eager to ensure its economic hold over a restive and neglected Latin America, agreed to resume negotiations for a new Canal treaty. With his left flank momentarily mollified by this challenge to the Yankees, Torrijos then turned to his friends at the banks. Citicorp obligingly formed another syndicate to lend him $45 million, while the Continental Bank of Chicago and three other banks chipped in $17.5 million. Selling off his last remaining asset, Torrijos in 1975 turned over operation of Cerro Colorado, one of the world’s largest undeveloped copper deposits, to Texasgulf.

In a gesture to the right, he put land reform on the back burner, eased leftists out of government jobs, and studiously ignored his own liberal labor code. Simultaneously, as part of his balancing act, he made a symbolic gesture to the left by making a state visit to Cuba. There Fidel solemnly blessed his demands for US withdrawal from the Canal, but just before he was supposed to join Castro in a joint denunciation of US imperialism, the General precipitously returned to Panama. While Torrijos’s public relations appearance in Havana is brandished by the far right as proof of his communist leanings, it did not at all trouble the State Department or the American bankers. They knew they could work with the General. When riots broke out in the fall of 1976—directed this time not against the Yankees but against the regime—the US made no protest against the repression that followed.

By this time it became obvious that the US could work with Torrijos and that a mutually beneficial treaty could be negotiated. The General needed to gain control of the Canal, and more importantly its revenues, not only to satisfy nationalistic sentiment but to pay off the banks and redeem some of his pledges to a nation foundering in unemployment and economic stagnation. The US wanted a settlement in order to improve its relations with Latin America and to avoid the prospect of a nasty guerrilla war in the Zone. In 1976 Carter appointed the crusty old career diplomat Ellsworth Bunker and the Washington lawyer Sol Linowitz to lead a new negotiating team. The accords they brought back—played out against the background of Panama’s deteriorating economy and dependence on foreign financing—represented sweeping concessions by Torrijos from the demands that Nixon in 1973 had agreed to negotiate.

Although Panama would gain full control of the Canal in the year 2000, the US would retain the permanent right to defend the Canal’s neutrality from any threat. This concession, which Torrijos stanchly resisted, was gained by paying for it. Instead of the $2.3 million it now receives annually in Canal revenues, Panama would receive at least $20 million and as much as $30 million annually until 2000, and thereafter all toll revenues. Further, the Carter administration agreed to provide a $295 million loan package over five years, plus $50 million in military assistance over ten years—the latter being a handsome sweetener for the National Guard. Even with this pay-off, the treaties came under sharp attack in Panama, with leftists condemning Torrijos for accepting another “perpetuity” clause similar to that of the hated 1903 treaty establishing the Canal Zone.

Although one might have expected US debate over treaties to settle along the usual conservative-liberal lines, this was not the case. Liberals supported the treaties virtually as a reflex gesture, viewing them as restitution of an old wrong done by the Colossus of the North toward a weak neighbor. A good many conservatives, however, have also supported the treaties, among them William Buckley and John Wayne—who went to Panama and found the Supreme Chief an hombre in his own image. Bad Boy of the Right, Buckley (a closet liberal if there ever was one) returned from a visit to Panama so enthusiastic about the accords that he invited Reagan to debate the issue on his television program. There Buckley, with the wit and scorn that he usually reserves for soft-headed liberals, castigated the governor for being both misinformed and short-sighted. To cap it off he defended Panamanian ambitions on the grounds that every people has a sacred right to sovereignty and independence, and told Reagan that “the notion that someone…wants freedom for Panama because he is being manipulated by the communists” was merely Birchite drivel.

What conservatives like Buckley understand, and what his visit to the Supreme Chief apparently confirmed, is that Torrijos’s brand of caudillo radicalism is of no danger whatever to US economic and political interests. As has been pointed out often enough, the Panamanians have a vital interest in keeping the Canal revenues rolling in and avoiding any provocation that would trigger a US intervention. It is obviously far better to let the Panamanians run the Canal than to fight a guerrilla war to keep it out of their control. In any case, as Ellsworth Bunker lectured the treaties’ critics, “It is not ownership but use that is important.”

The US has nothing to lose by turning the Canal over to Panama, given the waterway’s declining importance, the high cost of fighting off guerrillas, and the ability of the US to apply its military power whenever it unilaterally decides that the neutrality of the Canal is compromised. But many have much to gain. Aside from the Torrijos regime and those Panamanians who will siphon off the Canal revenues, the American business and financial community has a considerable stake in the treaties. US corporations, with some $24 billion invested in Latin America and a two-way trade that amounted to $34 billion in 1976, have no intention of imperiling their investment over squabbles about the “sovereignty” and “neutrality” of a waterway that serves only 10 percent of US coastal trade. (Today the major beneficiaries of the Canal and its subsidized low tolls are Japan, South Korea, Taiwan, the Philippines, and the Pacific Coast states of Latin America.)

It is no accident that the US business community has been in the front line of those pushing ratification of the treaties. US direct investment in Panama alone is nearly $1.6 billion, exceeding that of its stake in Peru, Argentina, or Colombia. Panama’s convenient banking and shipping laws make it a most hospitable friend of the multinationals. No wonder that some two dozen of these multinationals formed the Business and Professional Committee for a New Panama Canal Treaty with a half million dollar budget for lobbying and propaganda. Their efforts have been supplemented by the US Chamber of Commerce and the Council of the Americas, a well-heeled association composed of every major US firm doing business in Latin America. Among those in the forefront of lobbying for the treaties are such giants as Braniff, Gulf Oil, Rockwell International, Pan Am, and the major US banks operating in Panama—Chase Manhattan, Citibank, Bank of America, and Marine Midland. Among the directors of Marine Midland (until he recently resigned under conflict of interest charges) was Canal negotiator Sol Linowitz, whom Carter met at the Trilateral Commission—an organization, one cannot resist pointing out, established by David Rockefeller of Chase Manhattan.

Given what is at stake for US banks—the carte blanche banking laws they enjoy in Panama and their $1.8 billion in claims against the Panamanian government—their support for the treaties is hardly remarkable. The $30-odd million annually that the US has pledged to Panama—presumably to come from Canal tolls—will go a long way toward paying the interest and amortizing the principal on the loans outstanding to the Torrijos regime. It makes one wonder. As Congressman Crane, sounding more like a Bryanite populist than a Reaganite, points out in his little book: “It isn’t Moscow or Havana that is keeping the bankrupt Panamanian government afloat; it’s the New York banking community…eager to keep favor with General Torrijos because of the hundreds of millions of dollars in credit and investment they have sunk into his regime….” The promise of Canal revenues and an additional $345 million in US aid is, he charges in words almost identical to those of the radical left, simply a “bail out” of the banks by US taxpayers.

Although the argument is well taken, the fact that the treaties help the banks and the multinationals is no reason to reject them. Since when has the US government been reluctant to set up sweetheart arrangements for Big Finance and Big Business? The treaties have to be supported, as Buckley and other pragmatic conservatives realize, because they do not in any way threaten US control over the Canal, because they avoid the messy effort that would be needed to protect it from Panamanian guerrillas, and because the stakes in Latin America are too high to piddle around with such chicken feed. So far as US interests are concerned, the whole issue is about as important as a new fishing treaty with Iceland. Rarely, it can safely be said, have so many argued so much over so little. That the Canal treaties have been blown up into an issue of such magnitude is a result both of the administration’s own ineptitude in making such a peripheral matter a center-piece of its foreign policy, and of the ability of the radical right to turn a mood of public anxiety to its own purposes.

The game played by Reagan and the ultra-rightists in the Senate like Thurmond, Dole, and Laxalt is a double one, directed against both the administration Democrats whose foreign policy and feeble efforts at domestic reform they would like to torpedo, and also against the main-line Republicans, from whom they hope to seize control of the party by 1980. The strong public response to their initiative has put such moderate conservatives as Buckley, Gerald Ford, and Howard Baker in the uncomfortable position of having to defend a Democratic administration not only because defeat of the treaties would rebound against US investment in Latin America, but because a defeat for Carter would be a defeat for the moderate Republicans as well.

For the administration the question is no longer the merit of the treaties—which are certainly far from perfect—but its ability to get any coherent foreign policy initiative through Congress. If Carter suffers a defeat or even a stalemate on the treaties, his efforts to achieve far more important objectives—such as a new SALT accord or a Middle East settlement—will be gravely compromised. Having laid its prestige on the line over an emotional and far from urgent matter, the administration has played into the hands of its enemies. Even if Carter manages to get the Canal treaties through the Senate, he may have given the conservatives the issue they need to block his entire domestic and foreign policy program.

Already one can hear the knives being sharpened on Capitol Hill by those who have sensed confusion and weakness in the White House.

This Issue

March 23, 1978