Your Bananama Republic has long maintained that Panama is not a place anyone would want to do business for, among other reasons, its lack of legal security and abundance of corruption. Today, El Panama America started publishing from the WikiLeaks diplomatic cables, and it turns out that only eight weeks into the Martinelli administration, US ambassador Barbara Stephenson harbored similar feelings.
In a cable dated August 27, 2009, Stephenson relates how Martinelli unilaterally changes terms of contracts and concessions granted to foreign corporations operating in Panama. To energy giant AES, he rose the price of using water for hydroelectric power generation by no less than 14,000%, supposedly to be able to lower electricity prices for consumers:
According to AES reps and newspaper reports, President Martinelli and his cabinet on August 23 adopted measures to raise the price of water for hydroelectric plant operators to 2 cents per kilowatt hour (a 14,000 % increase for AES) and to lower the cost of power for electricity consumers.
AES reps believe the 2 cent per kilowatt hour increase in payments will cost AES $35 million and will dramatically change the cost structure for their significant investments in Panama. Depending on the hydroelectric generation plant, AES's profit will either drop to zero or go negative. The effect on AES is greater than simply profits on operations in Panama; rating agency Fitch already requested a meeting to discuss Fitch's rating on $300 million dollars worth of bonds which are financing AES's largest project in Panama. AES reps are worried that their bonds will lose their current investment grade rating and their stock price will fall.
When the measure was then implemented, government officials showed little understanding of how things would work:
According to AES reps, AES accepted a $10 million loss on electricity sold this August, in order that the cost savings would be directly passed to consumers and help Martinelli. Government officials were upset when electricity bills mailed to consumers in August had higher electricity rates than in July and blamed AES and other suppliers of manipulating the market. AES reps counter that they do control the transmission nor the distribution of electricity and that their August reduction would not show up until September billing cycles. AES reps speculated GOP officials do not understand the market and/or have an overly simplistic view of their operations.
This is supposedly a business oriented government?
But it gets better. Stephenson also writes on how the embassy had to intervene to prevent Martinelli from changing the contractual arrangements with the Manzanillo International Terminal in Colón. The ambassador, who later described Martinelli as a bullying blackmailer and a threat to Panama's democracy and institutions, outlines Martinelli's procedure to shake down businesses and opponents:
AES's situation is not unique under the eight week old Martinelli Administration. To applause from a majority of the public, Martinelli has methodically rolled out similar efforts and tactics against owners of property in the former Canal Zone (specifically the Amador Causeway), the Casino Industry, the Colon Free Trade Zone, and the Port Operators. Generally, Martinelli's modus operendi is to make a very public, bombastic announcement against a certain group that outlines the government's possible actions against the group. He does not communicate with the group for several days, in order to exert pressure and create uncertainty. He then grants an audience with the group and negotiates an agreement, then announces it while publicly chastising his perceived foe.
Why would Martinelli, who keeps telling the world that "Panama is open for business", act in a way that destroys business? The ambassador doesn't know, but speculates:
The Martinelli Administration takes the position that, under previous administrations, concessions and other contracts awarded were tainted due to cronyism, bribery, and incompetence - GOP attorneys and experts were bested by professional private-sector contract attorneys and experts. The newly collected money is apparently destined for Martinelli's ambitious public investment plans and support his campaign promise to lower consumer prices. Non-official attributions of Martinelli's motivations are often less flattering and range from settling old business and political scores, to Martinelli supporters wanting to take over the now "less profitable" business.
At the time, most of the (foreign and domestic) business community was still cheering Martinelli as a pro-business president who would open up the country to investors and thus spur development. But the US ambassador was not to be fooled. Concludes Stephenson:
While Martinelli has a pro-business reputation due to his campaign rhetoric and self-made fortune, his actions have the potential to significantly erode one of Panama's competitive advantages -- a predictable investment environment that consistently attracts 10% of its GDP in foreign direct investment.
Martinelli, true to form, came out today and commented that basically he couldn't care less about the allegations.
The full text of the cable is here.