The Power and the Money

A real anti-imperial triumph

  It seems as though the Argentine ambassador in France will no longer need to pay embassy expenses out of his own pocket.  A French judge lifted the freeze imposed on April 3rd.  More importantly, a German judge released the funds that German companies owed Argentine tax authorities.  Interestingly, Judge Wölber did not base his decision on sovereign immunity.  Rather, he ruled that since the tax payments were owed by the companies’ Argentine operations, German courts had no authority.  It remains to be seen if this precedent will be followed by other European courts, but the Argentine government is optimistic.

Interestingly, U.S. courts have taken the same position.  In 1999, the New York-based Leucadia National Corporation sued Nicaragua over $26 million in defaulted debt that it had purchased for $1.14 million.  A New York court granted the company $87 million.  (No, I don’t know why.)  It tried to collect by attaching Nicaragua’s share of the ticket and landing fees paid by U.S.-based airlines that flew to that country.  U.S. courts, however, refused to uphold the judgment.  But don’t cry for Leucadia.  Eventually the World Bank paid off the debt at 4.5¢ on the dollar, including accrued interest.  By my calculations, Leucadia received about $7.8 million, for a nice return of 584%. 

I am increasingly unsympathetic to Argentina.  But I am also relatively unsympathetic to the vulture funds that try to use the judicial system to impose sanctions on defaulting governments.  I may change that position if we start seeing more ploys like President Correa’s brilliant gamble, but that’s still a hypothetical fear, not a real one. 

P.S.  It seems like I was wrong about Ecuador.  I’ll discuss why, but only if there’s interest.  No reason to admit error if nobody cares ...

Really unbecoming American sensitivity

 Most of the (few) readers of this blog are certainly aware that in 1978 the United States agreed to transfer full control the Panama Canal back to Panama in 1999.  (I'll discuss the reasons benind that agreement that in another post, if anyone's interested.)  The resulting treaties were controversial.  Most Americans forgot about it right quick, but the Texas Republican party continued to rant about it until 2003.  From their old platform: 

“The Party urges Congress to support HJR 77, the Panama and America Security Act, which declare the Carter-Torrijos Treaty null and void. We support re-establishing United States control over the Canal in order to retain our military bases in Panama, to preserve our right to transit through the Canal, and to prevent the establishment of Chinese missile bases in Panama.”

That's a whole lotta crazy.  But it represented a defensive nationalism that seemed pretty much to be over.  After all, the United States is not a country that harkens back to a grand imperial past.  We are not a country bothered by our military defeats.  We are not a country afraid to recognize past wrongs, we move past ours, we ask others to move past theirs.  Nor does relative decline bother Americans; if we become more prosperous and more secure, there is no worry that others have overtaken us.

Oh, wait!  That's some other country I'm talking about.  Maybe Finland.  We get things like this:

My oh my.  But thank God for Geraldo.  America owes a lot to half-Jewish half-Latin guys from the New York metropolitan area, that's what I always say. 

When lawyers declare war!

  You know, the more I learn, the more I think that President Correa of Ecuador is really playing with fire in defaulting on his debts.  Brazil is mad at him, and you don't want to get the new imperial rulers of South America mad at you.  But more importantly, he's got his American creditors mad at you ... and it seems as though those creditors may have a rather powerful legal recourse.  It'll all depend on the definition of a “central bank.”

But let's start at the beginning.  What happens when lawyers declare war on a country?  Well, remember this post, on the U.S. sanctions against Manuel “La Piña” Noriega ?  Turns out that the sanctions weren't really Elliot Abrams' idea.  Rather, the credit goes to a lawyer, William Rogers, acting on behalf of his client, former President Eric Delvalle of Panama. 

La Piña, you see, had an anger-management problem.  He decapitated Hugo Spadafora, one of his political opponents.  When the President of Panama, Nicolás Barletta, made the mistake of thinking that he, you know, ran the country, and decided to investigate the head-chopping, Noriega locked him in his office and threatened his family.  At 3am, President Barletta appeared on national television and offered his resignation, which the National Assemby accepted in a late-night emergency session.  Eric Delvalle, the education minister, then became President.  A little while later, Delvalle decided to pass on to La Piña an American offer to let him peacefully resign with all his ill-gotten gains.  In response, Pineapple-face ejected Delvalle from the presidency.  Delvalle got word that he was going to be arrested the next day, and managed to make it to an American military base.  His ambassador-at-large hired Rogers, and then ...

Taking the C-levels

  Peter asks, was a sea-level canal possible in Panama?  The answer is yes. 

The French initially planned a sea-level canal.  Of course, they failed.  But the American government also considered a sea-level plan.  They rejected it only when a group of consultants presented a report that killed the idea on something other than cost.

First, they calculated the rate at which dirt could be moved away from the excavation, and figured that a sea-level canal would take at least 15 years to build.  (The actual canal took 11 until the first transit and 17 until full commercial operation, but it was planned to take only 8½.)  Second, because a sea-level canal would be pretty narrow for most of its length, transit times would be longer.  (Narrow is a relative term:  the above and below pictures show one of the narrowest parts of the Canal.)    Third, it would be shallow for long stretches.  (41 feet, in fact.)  Finally, it would require locks anyway:  the Pacific tides are twenty feet higher than the Atlantic tides.  Without locks, there would be a 4.5 knot current ... on average.  In fact, it would vary quite a lot, making navigation much tougher. 

In addition, it would be just as vulnerable to sabotage (lots of talk of dynamite-laden vessels in the 1906 report) and require a 180-foot masonry dam on the Chagres, rather than the 135-foot earthen dam actually constructed.  Which would look cool, but be vulnerable.

Later plans were much more grandiose. 

Expansion!

  In 2006, the Panamanian electorate voted in favor of a plan to expand the Panama Canal.  The reason was not that the Canal had reached full capacity:  in fact, by a back-of-envelop calculation done by myself and a fellow named Andrew Baldwin, the Panama Canal is at roughly half its maximum throughput in terms of the number of ships.  (The ACP, I should add, does not agree with us.)  Rather, the reason is that 35% of the planet’s commercial shipping consists of ships too large to fit through the current locks, and Panama wants a piece of that business.

The current locks measure 1,050 feet by 110 feet.  They can accomodate ships meausring up to 965 and 106 feet.  An expansion project started by the Americans in 1939 and abandoned in 1942 would have built a third set of locks measuring 1,200 feet by 140 feet, with 45 feet of depth.  The abandonment turns out to have been a great thing for the Panamanian economy:  the new project will build locks measuring 1,400 × 180 × 60, capable of accomodating ships up to 1,200 × 160.  (And to be honest, I suspect that will eventually be pushed up to 1,315 × 176.) 

How large is that?  Pretty f----n’ large.  The new notional Panamax will be 1,200 × 160.  The real new Panamax will be closer to 1,315 × 176.  Well, Malaccamax is 1,543 × 197.  Still not big enough for supertankers, but big enough to capture a lot of the new traffic.  (And Nimitz-class aircraft carriers, should it ever come to that.)  The plan is for the expansion to be finished by 2014.  (Uh huh.) 

The abandonment of the American project also turns out to be a great thing for the Panamanian ecology.  Every time one of the current lock chambers is filled, it drains 26.7 million gallons of fresh water from Lake Gatún.  The problem is that rainfall has been falling in Panama.  The American new locks would have increased that number to 40.8 million gallons for every ship to head through the new passages. 

So the new locks will recycle the water, pumping it out of the locks into reservoirs.  It should allow the Canal to use only 10.7 million gallons per lock crossing, despite the larger size of the locks.  

  

Questions or comments? 

An army in all but name

  So spoke the current U.S. defense secretary about Panama's police forces.  When you see these fellows in action, you can understand why he said that.

But they are not an army in name.  Article 310 of the Panamanian constitution reads as follows:

The Republic of Panama shall not have an army.  All Panamanians are obligated to take up arms in order to defend the independence and territorial integrity of the state.  In order to conserve public order, prevent criminal acts, and protect the lives, honor, and property of those under the jurisdiction of the state, the law shall organize the necessary police services, with separate commands and rank structures.  Under threat of external aggression, temporary special police services may be organized in accordance with the law in order to protect the Republic’s frontiers and the area under its jurisdiction.  The President of the Republic shall be the chief of all services established under this Title; such services, as agents of authority, shall be subject to the civil authorities; therefore they shall obey the orders issued by national, provincial, or municipal authorities in the course of carrying out their legal responsibilities. 

Recently, however, President Torrijos has been accused of violating Article 310 and remilitarizing his country.  Is that true?

Getting around Panama City

  Transportation in this town is a mess.

Now, “mess” is a relative term.  During the time that I lived in Mexico City (1995-2004, with some sizeable interruptions), traffic worsened almost continually.  By the time I left, the situation had become almost unmanageable.  Before that, I lived in the Bay Area towns of Mountain View, Palo Alto, and San Francisco, where I learned that you did not risk driving on Highway 101 anytime between 4pm and 6pm for any reason.  (By 1999, when I briefly returned to NoCal, the no-go-101 time extended from 2:30pm to 7.  I think it’s improved since .  Marcia?  Will?)  In 2002-03, I had to make regular and time-sensitive journeys between Fort Dix, New Jersey, and New Haven, Connecticut, which was no fun at all.  Finally, I regularly drove between Boston and Philly in 2004-06, with stopovers in Manhattan.  So I know from traffic messes.

Panama City is a mess.  One day, it took an hour to get from the Multiplazas mall to the Canal Authority HQ.  Another day, at the same time, it took 20 minutes.  That’s a mess. 

Three additional problems make it worse.  First, the public transit system is confused, privately-run, and highly unpleasant, so that nobody who can possibly avoid it will take it.  Second, although the city is not in fact that large, the crazy lack of planning means that you need the sense of adventure possessed by my wife, but few others, if you are going to walk any distance at all.  Finally, the city government has converted many of the city’s streets to one-way traffic ... without synchronizing the traffic lights to suit.  Add that to the fact that in the last decade the population density of the inner city has soared from a Queens-like 10,000 per square mile to a half-Manhattan of 35,000, and you’ve got a transportation problem from hell.
 
The Panamanian government has a plan to solve (some of) it.

People call it “estilo Miami.”  I didn't have the heart to tell them that Miami is nothing like it.

Improved carrier asset utilization

  If that title didn’t put you to sleep, then you either work in logistics or didn’t bother to read it.

 

In 1998, one year before it took complete control of the Canal operation, the Panama Canal Authority (ACP, for its Spanish initials) granted the rights to rebuild and operate the Panama Railroad to a joint venture of the Kansas City and Southern Railroad and a logistics company with the awful name of Mi-Jack.  When the U.S. controlled the Canal Zone, the Panama Railroad carried mostly Panama-bound freight from the port of Colón to the southern towns in the C.Z. or Panama City.  In the 1950s, the railroad lost much of that business to Panamanian trucking.  (There is a great story there, which I'll tell later.)  By the time the U.S. handed the railroad over to Panama in 1979, it had already gone into decline.  It was never officially abandoned, but some pictures from the late 1990s are enough to make you wonder.

 

Allowing the railroad to decline was the wrong call.  The right call was that a functioning railroad would allow shippers to enjoy “improved carrier asset utilization.”  What that is and why it allows the Panama Canal to charge more is below the fold.   

The Panamanian flag

  Panama's flag flies from myriad vessels around the world.  The crews may be predominantly Filipino, and the owners quite likely to be Greek, but 20 percent of all registered merchant vessels fly a Panamanian flag.

The roots go back to 1916.  In that year, Panama's government allowed foreign-owned Panamanian corporations to register their ships under the Panamanian flag. It also enacted a law requiring the recognition of English language contracts. It took until the 1920s to become popular, by which point Panama had created a global network of consuls who, as part of their duties, could transfer and register ships under the Panamanian flag.  Better still, the U.S. cooperated with Panama:  if no Panamanian consul were available, American consuls would serve. 

Why did shippers like to use the Panamanian flag?  I'll turn the floor over to W. Leslie Comyn, a corporate officer of Pacific Freighters:

¡Panamá!

  I could say something about Teddy Roosevelt, or “A man, a plan, yadda yadda,” but what I really think of when I hear “Panama” is:

 Jump back, what's that sound?
 Here she comes, burnin' down now
 Hot shoe, burnin' down the avenue
 Model citizen, zero discipline

 

Which fairly well describes the first impression you have of the capital city.  The road from the airport arrows into the city from the east, passing a bunch of bland tightly-packed housing developments that could be in California and a dramatic group of new towers sprouting by the beach.  The road then angles out onto a causeway over the water with the ruins of Panamá Viejo on your right and burns down the avenue right into … a giant mess.

A very cool giant mess, but a giant mess nonetheless. 

A ditch not dug

In 1911, U.S.-Latin American relations almost took a dramatic turn for the different.

In October of that year, the head of the Panama Canal Zone's civil administration, Maurice Thatcher, told a U.S. Senate committee, “We must have courts ...  I would like to see an American civil population here ... These Americans would come here to live, make their homes here, and they would prefer to live under the dominion of the American government, under American laws.” 

George Goethals, the rather un-Brooklyn-like Brooklynite in charge of construction thought differently.  “Introduce the franchise, and we’d go to pieces.”  The Taft administration agreed with Goethals.  The Canal Zone was not to receive elected government, civil courts, or even private property.  The Zonians remained a population of transients.  (Vocal, obnoxious, and slightly-crazy transients, but transients.)

But what if Thatcher had won the argument?  The Zonians would have owned farms and businesses.  They would set their own tax rates.  They would elect their governor.  The strange monopoly that the federal government held over ancilliary businesses would not last.  The Zonians would not all work for the federal government.  They would be a settled population, certainly larger than the actual Canal Zone population, which bounced around 50,000 in the 1950s and '60s.  And it is hard to imagine them lacking a non-voting representative in Congress.

Under such circumstances, could Congress have agreed to give the Canal Zone back to Panama?   

Imperialism can pay

There's a debate out there about imperialism.  Did it pay?  The consensus answer is:  no, it did not.  The British spent far more in defense than they earned from imperial investments; in fact, by the 1880s, the profitability of imperial investments had fallen below domestic and non-imperial ones.  The French believed that their empire after WW2 helped them maintain their balance-of-payments; the numbers don't support that idea either.  The big counterexamples involve the Nazi conquest of France, and the Soviet occupation of Eastern Europe after 1945 ... but after 1970 or so the balance on the Soviet empire hinges on how much you believe control of the Warsaw Pact armies was worth to Moscow. 

But there is a case of imperialism paying, and paying quite well:  Panama in 1903. 

North of south, or the economic consequences of Elliott Abrams

Salvaged from the WiP, or why I haven't been posting much...

Okay, here's the set-up. In 1903, the U.S. sponsored the independence of a mercantile breakaway region of Colombia in a strategically very intriguing location. The constitution of this new country permanently linked its new currency, the balboa, one to one with the dollar. In 1914, the Panama Canal was opened. Canal Zone policy did not allow sales to ships on credit. Banks in Panama filled the gap.

Jump-cut bone to space station here. Seventy years after, in a region whose major products were coffee, bananas, and death squads, Panama managed to seize this tiny bit of comparative advantage and leverage it into a national economy centered around financial services. Swiss-style bank accounts, generous corporate tax policies, and a major re-exporting hub, combined with the use of the U.S. dollar and the low inflation caused by the Balassa-Samuelson effect: all these things made Panama an attractive site for many types of business activity.

Small problem: Manuel Noriega. A scary guy, and I'm not talking about the acne. He was the chief of secret police for the charismatic leftist populist Chicago-influenced leader of Panama, General Omar Torrijos, and the guy who (in theory) was going to disable the Panama Canal if the 1977 treaty didn't go through; and after Torrijos's plane mysteriously crashed in 1981, Noriega quickly moved to consolidate power behind the scenes. Money laundering, drug smuggling, dogs and cats living together, mass kleptocracy. One of the cuter scams was that Noriega's associates ran the company responsible for security in the re-export zone. Guess how that worked.

Now, somehow Noriega had got on the bad side of Uncle Sugar. It's rather difficult to pin down the proximate cause, since the fellow had been messing with drugs and money since the 1970s, when he was heavy petting with the CIA, but whatever. Suffice it to say that by the late 1980s, Noriega had turned from "our bastard" to "liability" in the eyes of the Powers That Be. The change might even have been made in good faith.

Manuel Noriega was indicted in a Miami court on February 4, 1988. On March 3, 1988, all the U.S. accounts of the Banco Nacional de Panama were frozen. The Assistant Secretary of State for Inter-American Affairs, Elliott Abrams, gloated to the press about this neat idea, quipping like only an apparatchik can: "Noriega is hanging on by his fingertips. He'll be out of power in a week. Now we'll see who stole the strawberries." But it was a neat idea, if not very well thought through.