Regime’s Economy Seen as ‘Mortally Wounded’ : Blows at Panama Also Strike U.S. Firms

PANAMA CITY — If stringent new U.S. economic regulations are interpreted narrowly, the 450 American companies doing business in Panama will not even be allowed to pay their light and telephone bills or buy postage stamps. Under such conditions, American firms operating here agree, they will have no choice but to close.

Previous U.S. steps aimed at ousting strongman Gen. Manuel A. Noriega have already ravaged an economy that once offered one of the most attractive investment climates in Latin America.

Foreign and Panamanian analysts here say the Reagan Administration’s latest steps, invoked last week to tighten the stranglehold, are inviting economic devastation unless they succeed quickly, or unless significant exemptions are granted. And whatever government follows Noriega, they say, will face nightmarish problems of recovery.

“The economy is mortally wounded already,” said the director of an American insurance company here. “At this rate, we’re going to become another Guatemala or Honduras.”

Noriega seems oblivious to the chaos that has engulfed his country over the past six weeks and appears bent on hanging onto power despite the long-term structural damage to the economy. The Civic Crusade has failed lately to mobilize mass opposition despite the mounting hardship.

To intensify the pressure, President Reagan invoked emergency powers last Friday to make mandatory the month-old voluntary ban on payments by American companies and citizens to the Panamanian government, including taxes, utilities and airline landing fees.

Until then, American firms, including Texaco and United Brands, had provided one of the few sources of revenue that allowed Noriega’s government to limp along. Unofficial estimates put those payments at about $5.5 million, which allowed the government to distribute partial salaries to some soldiers, retirees and government workers.

Under the new restrictions, according to a source familiar with government revenues, all such U.S. payments have ceased this week. The government’s income, he said, dropped to about $100,000 a day, and cash reserves to about $3 million, a fraction of what is needed for salaries alone. The government’s liquid assets, including money locked in the vaults of closed banks, are down to about $30 million, one tenth the level in January, 1987. Those are precisely the problems the sanctions are meant to create.

“The target of the controls is the regime’s finances,” the source said. “Given the importance to the United States of bringing Noriega down sooner rather than later, the Administration is obviously willing to have some (American) parties suffer in order to keep money from flowing into the treasury.

“That is not to gainsay that the economy is being destroyed at a fairly rapid pace,” he said. “It’s already in bad shape, and it will get worse, not only for the government but the private sector--and nobody’s trying to hide that fact.”

Panama’s economic slide began 10 months ago when the crusade formed to campaign for Noriega’s departure. Protests, strikes and non-payment of taxes ignited a flight of capital by foreign firms.

After two federal grand juries in Florida indicted Noriega in February on drug-trafficking charges, the United States endorsed the domestic anti-Noriega campaign. Reagan froze Panamanian government assets in U.S. banks and cut off other payments.

That prompted Panama’s banks to close indefinitely March 3, leaving private businesses unable to pay taxes to Noriega’s regime. Companies could not meet payrolls, and workers could not cash paychecks. Many firms are now idle, and thousands of workers have been laid off.

It seems that every second retail shop is closed. Street crime and burglaries are reported to be increasing, and churches are giving lunch to 70,000 people a day.

Panama uses the U.S. dollar as its currency and thus is more susceptible to American pressure because it cannot print money to circumvent the pressures.

Recovery Plans Drafted

The insurance executive said that whatever the outcome of the political conflict, Panama will need hundreds of millions of dollars in U.S. aid to rebuild. Crusade leaders are known to be drafting recovery plans with members of Congress in Washington, but the executive said he and others were skeptical that sufficient help would be forthcoming or that business confidence would ever be the same again.

For years, Panama’s growth has exceeded that of the rest of Central America, thanks to its service industries, such as international banking, which took advantage of secretive laws and a stable climate to oversee vast regional operations from Panama. Now, out of 130 foreign banks, about half are believed to have shut permanently or to be preparing to do so.

The 450 firms either wholly or partially American owned account for about 25% of Panama’s economic activity, according to a U.S. Embassy official.