1941: Panama

The special international position of Panama has made the foreign policy of that Republic a matter of deep concern to the United States. The attempts of the administration of President Arnulfo Arias to maintain strict neutrality with respect to the European war exposed it to repeated charges of pro-Axis sympathies. The manifesto issued in March, permitting the erection of defense sites outside the Canal Zone, on terms designed explicitly, however, to maintain Panama's sovereign rights, seemed to indicate a more cooperative attitude towards the United States and the problems of continental defense. A decree of Oct. 6, following the sinking of several North American-owned vessels under Panamanian registry, banned the arming of merchant vessels flying the flag of Panama. This marked a return to strict neutrality.

Three days later, as the result of a bloodless coup d'état, President Arias was deposed and the Minister of Government and Justice in his Cabinet, Ricardo de la Guardia, was chosen by the Cabinet to succeed him. Charges of United States' complicity in the coup, coming both from Berlin and from American critics of the Roosevelt administration, led to an official denial from Secretary Hull that the United States had any 'connection, direct or indirect, with the recent governmental changes in the Republic of Panama.' The new president immediately pledged 'the most absolute collaboration' with the United States in continental defense, which was admitted to be especially important regarding Panama. On Oct. 20, the Arias ban on arming merchant vessels was revoked, and authorization was given the owners, at their own expense, to provide ships flying the Panamanian flag with the necessary arms. Permission to put North American-owned freighters under Panamanian registry was first granted in February and, in the course of the months following, about 125 vessels had been so registered, making Panama's registered merchant marine the sixth largest in the world. In this way the restrictions of the United States Neutrality Act on North American ships entering the North Atlantic combat zone could be escaped.

Further indications of the strongly pro-United States position of the new administration are the creation of a special government department to cooperate with the Canal Zone authorities in defense problems; the declaration of the Spanish Minister, Count de Bailén, as persona non grata for remarks attributed to him disparaging to the United States; and the stringent measures taken to enforce a law, passed by the Arias administration, excluding from commerce certain races, including the Japanese, whose immigration to Panama is prohibited. This last step was protested by the Japanese Foreign Office, in November, as 'inhuman' and 'racially discriminatory.' On Dec. 12, Panama joined the Central American and Caribbean republics in declaring war on the Axis powers.

A $4,000,000 issue of 3 per cent long-term bonds, secured by a portion of the Canal Zone annuities payable by the United States Government under the Treaty of 1936, marks the first public offering of Latin American dollar bonds in years. The proceeds are to pay off outstanding 5 per cent bonds, due 1953, and to pay for the expenses of the external debt readjustment plan offered April 4, 1940. This latter scheme to service Panama's dollar obligations was commended by the United States State Department in February. A central bank with authority to issue Panama's first paper money was decreed Sept. 30.

Panama may be able to supply two commodities hitherto secured from the Philippine Islands: coconuts and Manila hemp. A plant for the production of copra (dried coconut meat) was under construction late in 1940. The United Fruit Company has planted 100,000 acres with Davao seed; thus Panama is the only Western Hemisphere country producing Manila hemp, hitherto a virtual monopoly of the Philippines, in commercial quantities. Its indispensability for marine cordage makes it a critical raw material. See also PAN-AMERICAN AFFAIRS.