1942: Panama

Details regarding military collaboration within the critical Caribbean and Central American area, all the countries of which are cobelligerents with the United States, are necessarily withheld from publication. By an agreement signed on May 18 and by other agreements concluded before the war, the United States is entitled to use numerous defense, aviation and practice areas in the Republic of Panama and the Gulf of Fonseca. The largest of these is the Rio Hato air base, eighty miles southwest of the Panama Canal. The United States has paid the Panama Government over $21,000,000 for land taken by the U. S. Army for use as an airfield and training center. The administration of Ricardo Adolfo de la Guardia, who took over the presidency in October 1941, has been unquestioning and unstinted in its cooperation with the United States, a very significant fact in the defense of the vital Isthmian waterway. His regime has meant many internal reforms.

Following strenuous debate, a joint resolution transferring United States-owned lands and facilities to the Government of Panama, under agreements already negotiated by the State Department, was passed by the United States Senate on Dec. 4, by a vote of 40-29, in spite of minority charges that the executive branch of the Government was trying to usurp the Senate's treaty-making powers. The bill remains to be passed by the House of Representatives. This legislation turns over water and sewer systems installed in Panama City and Colón, which are wholly within the jurisdiction of the Republic of Panama, as well as certain commercial and building lots in those cities, valued at $11,500,000. It also cancels a $2,500,000 Export-Import Bank loan, representing Panama's share in the construction of the Rio Hato highway leading to vital air bases. The United States will bear the whole cost of constructing and maintaining this highway, as a military enterprise of the United States. Under the revised treaty of 1936, the United States was left with the responsibility for Panama's sanitation and for effective operation and protection of the Panama Canal. As a result, ownership of the above properties remained in the hands of the United States, a fact that has been repugnant to Panama's sense of national sovereignty. This latest agreement should relieve resentment, therefore, and serve as positive demonstration of the Good Neighbor policy at a time when the relation between Panama and the United States, always delicate, is of the greatest importance.

Announcement was made in July of an all-weather 'pioneer' road (see COSTA RICA), to be financed by the United States, to extend from the railhead in Mexico to the Panama Canal Zone. This undertaking does not modify the plan for a permanent Inter-American highway, authorized Dec. 26, 1941, but is an emergency measure to promote the movement of freight and possibly of troops. Its strategic importance is obvious. It should also relieve the acute transportation difficulties of the Central American countries. All of the nations of Central America have given their consent, and in August surveying was reported to have begun, with the expectation that construction would soon follow. It is estimated that only 625 mi. of totally new road would be required.

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.

1940: Panama

Politics.

Continuísmo, now common practice in all Central America republics, except Costa Rica, for maintaining control of the presidency, was adopted in Panama when President Arnulfo Arias, less than three weeks after his inauguration Oct. 1, presented a project for constitutional reform to the National Assembly which would extend his term, and that of the Congress, from four to six years. The new Constitution was unanimously accepted Nov. 22 but, since Panamanian procedure calls for ratification by two successive Assemblies, the government held a national plebiscite in mid-December and, subsequently, issued a decree abrogating the 1904 Constitution and announcing the effectiveness of the new basic law on Jan. 2, 1941. The revised Constitution has been bitterly attacked by all except the small governing clique. Even the President's brother, Harmodio Arias, a key figure in the republic's politics, who has heretofore supported the President, in his newspaper, the Panama-American, criticizes its strict artificial controls over national economy and its provision for price-fixing and the establishment of official monopolies. The new Constitution retroactively denies citizenship to Panamanians descended from certain vaguely defined races, whose further immigration is prohibited.

The supporters of Ricardo J. Alfaro, opposition candidate in the presidential elections held June 2, finally refrained from voting, declaring fair elections were impossible. The Alfaro candidacy was supported by the Peoples' Front, composed of liberals and Socialists but not of Communists. Arnulfo Arias, termed the 'national candidate,' had the active support of the administration and of the Panamanian political machine. About a month before he left office acting-President Ernesto Boyd decreed general amnesty for political prisoners accused of conspiring against the government during the elections.

Economic Situation.

The External Debt Readjustment Plan, filed with the Securities Exchange Commission, provides for the reduction to 3¼ per cent of interest on Republic of Panama 5 per cent Dollar Bonds, $11,313,500 of which are outstanding. The deadline for acceptance of the government's offer is Jan. 24, 1941. It has received the endorsement of the bondholders' committee. The biennial budget for 1939-40 estimated revenues and expenditures at $22,795,000.

Since Panama's European trade has been negligible, practically all of its exports of bananas, cocoa, coconuts and hardwoods being sold in the United States, this country is least disturbed of any of the Latin American republics by the war in Europe. Moreover, the decision of the United States to construct a third set of locks for the Panama Canal, for which appropriation was made this year, and to increase the Canal's defenses and defense forces, is certain to have a favorable effect on Panama's economic situation. The country has no exchange problem and its unfavorable trade balance is compensated by the tourist trade and the pay rolls of the Canal and the United States Army in the Canal Zone. For military reasons the United States is also supplying money and materials to aid highway construction. To this end the sum of $2,500,000 was made available to the Republic by the Export-Import Bank early in 1940, while a grant of $1,500,000 was made by the United States Congress.

Reactions to European War.

Allegations in the United States press of the pro-Nazi, 'anti-Yankee' inclinations of the Arias Government, as indicated in his inaugural address and obstructionist tactics regarding the acquisition of air bases, run counter to the reported assurances made in March by Colombia, Panama and Costa Rica that they would permit the use of their airfields by United States military planes whenever necessary for defense of the Panama Canal. The lease of British naval and air bases in the Caribbean in exchange for United States destroyers has special significance as a measure of Canal defense.

In March President Boyd protested to Great Britain in behalf of the American republics against the violation of the 'safety zone' set up by the Declaration of Panama in the case of the scuttling of the German freighter Wakama off the coast of Brazil, but since none of the European belligerents has accepted the 'safety zone,' or paid heed to such protests, it was more-or-less a routine gesture.

The European War reduced the tolls of the Panama Canal during the fiscal year ended June 30 by $2,516,346, and traffic was cut by 500 ships. Tolls collections for the year, $21,144,675, were the lowest since 1933.

1939: Panama

Financial Matters.

After three years' delay the United States Senate, on July 25, ratified the treaty with Panama, signed March 2, 1936, which replaces the pact of 1903. The stumbling-block to earlier ratification has been Article X, which called for consultation in case of threat to the Canal. The United States will now pay Panama an annual rental of 430,000 balboas in perpetuity, instead of $250,000, which sum, since 1934, the United States has offered in depreciated dollars and which Panama has refused to accept. This new gold basis of payment was made retroactive to 1934, and on Sept. 20 it was announced that payment of $2,580,000 had been made in complete settlement of annuities in arrears. The added income of 180,000 balboas a year will make a great difference to the Panama budget, and will help to realize the external debt readjustment program authorized by the Government of Panama in April, by which new bonds of lower interest rates will be issued in exchange for the $18,500,000 dollar bonds outstanding.

Defense of Canal.

Strengthening of the Panama Canal's defenses, under consideration before the outbreak of hostilities in Europe, has been realized. The Canal Zone was put under military control Sept. 6, and increases in the Panama garrison make the Canal the most heavily defended military position of the United States, with the possible exception of Oahu. A new, third set of locks, to be reserved chiefly for the United States fleet, has been approved by Congress, as a 'purely defensive' measure, but the appropriation to implement the plan has not yet been authorized. Canal tolls for the year ended June 30 totaled $23,661,121, netting a return of nearly 3 per cent on the cost of the Canal. Traffic for the year was the heaviest in a decade.

Elections.

The death of President Juan Demóstenes Arosémena on Dec. 15 brought the vice-president, Dr. Augusto S. Boyd, in line for succession. Dr. Arnulfo Arías, Minister to Great Britain and France, has been nominated as presidential candidate in the elections scheduled for June 1940. He has the support of the Conservative and National Liberal Parties and of the National Revolutionary Party, of which he was founder, and will probably be unopposed.

Panama Conference.

Under the shadow of the European war and its threat to the peace of the Western Hemisphere, Pan American solidarity and cooperation assumed some semblance of reality when an Inter-American Consultation Conference, representing all the American Republics, met in Panama Sept. 23 to Oct. 3, summoned in accordance with the principle of consultation established in Buenos Aires in 1936 and implemented at the Lima Conference in 1938. The delegates were unanimous in desiring 'to keep war out of the Americas.' The agenda of the Conference included three main headings: neutrality; defense of the peace of the Western Hemisphere; and economic cooperation. A declaration of general neutrality was adopted, leaving to the individual republics how to make the general principle effective. A noteworthy departure from international law is to be found in the Declaration of Panama, formal notification of which was sent to Great Britain, France and Germany on Oct. 4. This establishes a 'safety zone,' averaging 300 miles in width, about the American republics, within which the warring nations are asked to refrain from all belligerent activity and the American states claim an 'inherent right' to exclude hostile acts. None of the belligerents has conceded such an 'inherent right.' On Oct. 13, the British Admiralty stated that it did not recognize any extension of territorial waters beyond the commonly accepted three-mile limit. President Roosevelt said in September, however, that American territorial waters extend 'as far as our interests require,' and the idea of the safety zone was the United States' chief contribution to the conference. (See also INTERNATIONAL CONFERENCES; INTERNATIONAL LAW.)

On Dec. 23 a joint protest of all the American republics was sent to the three belligerents against the violation of the safety zone in the Admiral Graf Spee incident and others, which have brought the war into American waters. Replies received from all the warring nations give no definite indication of acceptance of the zone. Although the protest was unanimous, divergent views were revealed in the framing of it. Uruguay and Argentina both advocating diplomatic sanctions with regard to the internment of belligerent warships. Fear of too long delay of the protest led to the mere statement that the matter of enforcing the sanctity of the safety zone would be the subject of a later communication. Enforcement presents very grave questions of practicality and risk of involvement in the European War. Thus the underlying objective of neutrality and isolation might be defeated. The declaration states that the American republics 'may carry out individual or collective patrols, whichever they may decide through mutual agreement.' It provides only for 'joint representation' and 'consultation' in the case of hostile acts within the zone. The zone covers 5,000,000 square miles of open water and applies to 8,500 miles of Atlantic Coast and 5,300 miles of Pacific coastline.

Another innovation resulting from the Panama Conference is the creation of a permanent Advisory Committee of 21, to sit in Washington for the duration of the war, to consider the financial and economic effects of the war on the Western Hemisphere and to deal with emergency problems. The first meeting was held on Nov. 14. Whether the formidable list of projects under consideration will lead to any such international economic organization as they contemplate is questionable, but they are patent evidence of an awareness of the value of economic cooperation in this hemisphere.

1938: Panama

A boundary treaty signed with Costa Rica on Sept. 26, involving mutual concessions, was withdrawn from the Costa Rican Congress in October, due to popular protest expressing an opposition which was largely political. Final settlement of a frontier controversy which Panama inherited from Colombia, and which, in 1921, was the occasion for armed hostilities between Costa Rica and Panama, is therefore postponed. Following the withdrawal of the agreement a bill was introduced in the National Assembly authorizing an appropriation of $1,000,000 for the purchase of arms and munitions.

The treaty with the United States signed in 1936 still awaits ratification by the United States Senate. Its failure to receive approval has delayed payment of Canal annuities, now amounting to $2,150,000, which, in turn, is responsible for the continued default on the foreign debt of $17,837,696, guaranteed principally by these annuities. A reduction has been called for in the interest service of the external bonds, which now carry 5 to 5½ per cent. A plan to purchase Panama's defaulted bonds from the proceeds of a new 3-per cent issue of $6,000,000 was before the National Assembly in October. Foreign banks threatened withdrawal until a government decree, in November, exempted them from purchase of the bonds to the amount of 20 per cent of their deposits, as required earlier. Foreign trade reached the highest level in Panama's history in 1937, due chiefly to increased import trade caused by the broadening of the Canal Zone market for Panamanian merchants. The revised budget for the biennial period Jan. 1, 1937-Dec. 31, 1938 estimated receipts and expenditures at $18,814,000.

Japanese fishermen, who were accused of destroying fish by dynamite, were barred from Panama's waters by presidential decree, effective Feb. 1, for 'reasons of security and national defense.' The fishing grounds are now reserved to nationals of Panama. It was reported that the Japanese fleet would go to Costa Rica, where a concession had been requested, and to El Salvador and Nicaragua. Japanese shipping lines engaged in the Pacific Coast-East Coast South American trade were charged with unfair trade practices before the United States Maritime Commission in December. The threatened rate war was ended Dec. 22, when the Japanese lines, which had been cutting the charges on carrying coffee from $1 to 50 cents a bag and which had demanded 25 per cent of the coffee business, agreed to a common rate.

An enlargement of the Panama Canal, for reasons of military necessity, was proposed by Col. C. S. Ridley, Governor of the Canal Zone, in his annual report to the United States War Department. Secretary of War Woodring, in his report, also urged stronger Canal defense, such as the bombproofing of locks and dams and the elimination of chances of sabotage, in order that the Canal might be made 'impregnable.' Increasing the Canal's facilities and defense will be a major item in the 1939 defense plan. In the last fiscal year 5,837 commercial vessels, carrying 28,058,109 tons, passed through the locks, which have an actual capacity of 70,000,000 tons annually.