When the United States completed construction of the Panama Canal in 1914, it had taken American and French companies 34 years and a fortune in treasure and blood – more than 27,000 workers had died primarily from malaria and yellow fever.
The monumental canal project has been an engineering feat likened to the eighth wonder of the world.
On Oct. 22, the Panamanian people will vote in a special plebiscite regarding an equally staggering project: widening the Panama Canal to allow for large container ships.
The decision to expand the canal is entirely Panama's. In 1999, the U.S. finally completed its transfer of the canal to Panama, which turned over control to the Panama Canal Authority (ACP).
Each year some 5 percent of maritime world trade passes through the canal, and it remains the principal shipping route between Asian ports and the East Coast of the United States.
It's been estimated that 60 percent of new container ships are "post-Panamax" ships – larger than 4,000 containers.
The ACP also sees the canal reaching capacity in the next decade, maxing out at about four dozens ships transiting each day.
For the canal to remain competitive, size matters. In July, Panama's Congress approved a $5 billion proposal to add a new set of locks to the canal and to widen the existing locks from 108 feet to 150 feet.
If the Panamanian people approve the plan, construction is to begin in 2007 and the entire project should be completed by 2014.
The government headed by President Martin Torrijos – son of the late dictator Omar Torrijos – has vigorously pressed the project, arguing it will generate employment, boost the Panamanian economy, and help Panama join the First World.
The rosy view painted by the government is not shared universally. Critics fear a massive new debt burden, little economic benefit to Panama's poor, and a bonanza for corrupt politicians and contractors.
Guillermo Endara, the first democratically elected president after the military dictatorship of Manuel Noriega, and still a prominent political figure, worries most about corruption.
"This is the project of a small group that is motivated by financial gain," Endara told NewsMax.
"They're in a hurry because they want financing and contracting of the work to be done during this administration."
Panama continues to be plagued by official corruption and ranks poorly on corruption indexes compiled by organizations such as Transparency International. (TI ranks Panama's corruption levels on a par with Mexico, Ghana, and Turkey.)
U.S. ambassador William Eaton recently expressed his concerns.
"There is a lamentable culture of impunity protecting the powerful as well as government officials," he said.
In November 2005, the United States revoked the visa of Panama Supreme Court Judge Winston Spadafora, citing corruption.
But defenders of the canal improvement plan say corruption will be limited because the project will be administered by the ACP, an institution that has gotten high marks from Americans and Europeans.
"Corruption is a big problem in Panama but the Panama Canal has never been run better than it is today," said Roger Noriega, former Assistant Secretary of State and a visiting fellow at the American Enterprise Institute.
Spokesman William Ostick of the U.S. embassy in Panama explained that the autonomous Canal Authority has been highly transparent in its contracting and finances. "We expect that financing and execution of this project will done with the same transparency that has characterized the ACP so far," he said.
But some Panamanians see corruption infecting the ACP.
The ACP has "never managed a project of this magnitude before so it's impossible to say that corruption will not be a problem," said Miguel Antonio Bernal, a Panamanian constitutional law professor.
Bernal opposes the project, and points out that board members of t
he ACP are often former government officials. They include Norberto Delgado, a former minister of economy and finance in the notoriously corrupt government of President Mireya Moscoso. Delgado was the subject of a high-profile investigation for illegal enrichment that was eventually halted by the Supreme Court on a technicality.
"You cannot be corrupt in New York and be non-corrupt in California," said Bernal.
Panama is a relatively small country of 3 million people. Its GDP amounts to just over $14 billion (by the current exchange rate) – and some estimates place the actual cost of the canal improvement project just under that figure.
Any new debt would add to Panama's current national debt of more than $9 billion.
But President Torrijos has assured the nation that the project will be self-financing. No debt will be incurred by the state and Panama will not guarantee loans needed to finance the undertaking, as the ACP is an autonomous institution.
Construction will be paid for by the ACP itself and additional financing of no more than $2.3 billion will be sought on the financial markets. The ACP projects that its profits will increase from $484 million in 2005 to $4.3 billion in 2025. Thousands of jobs will be created as the project attracts other businesses and investors to Panama.
"The proposal and its financing certainly reflect the professionalism of the ACP regarding this extraordinary project," Roger Noriega remarked.
Various banks and governments of user countries have also voiced support for the proposal.
"I'm not surprised, because this is a gift to the users that we are paying for," says Tomas Drohan Ruiz, the former head of engineering and dredging at the Panama Canal. He is one of the many independent experts who claim that the project will cost much more and that it is too big a risk for Panama to take.
"In 1993, a Tripartite Commission, with representatives of the Panamanian, United States, and Japanese governments, presented a report about constructing a new set of locks, and they calculated that it would cost more than the ACP now estimates," says Drohan.
In a public forum, the ACP confirmed that if the total cost exceeded $6 billion, the project would not be profitable. Drohan estimates that it will cost around $10 billion. Global Insight, a consulting firm hired by the ACP, said the project would cost $7 billion and necessary toll increases would "virtually equalize the cost of going through the Panama and Suez canals."
"Eventually, world trade will need these bigger locks," says Drohan. "But if the users need bigger locks, the users should pay for them. Even the U.S. did not want to take this risk alone in 1993, so why should a poor and small country like Panama?"
Drohan counters the government proposal with a user-backed proposal calling on nations like the United States, China, and Japan to form a consortium to finance the project, thus spreading the risk.
The International Monetary Fund has also questioned the financing of the canal expansion. In its latest annual report, the fund notes: "There is no firm evidence at this stage to judge whether markets would be willing to finance the [canal project] without an explicit government guarantee."
The IMF further said the ACP does not qualify as an autonomous commercially run entity. The ACP rejected that contention, insisting that under Panama's constitution its finances are managed autonomously.
Polls suggest that the public was for the project – but also show that support has been shrinking. Still, the best guess is that the proposal will pass.
"I support the project because of the benefits it will bring directly" and "subsequent investments that it is likely to bring," said Robert Raymer, former U.S. consul in Panama, who now works as a consultant for the Panamanian government on foreign policy.
"I have always thought that Panama could do better for itself and its people, and believe that greater world exposure and presence can have a positive effect on [Panama's] income disparities."
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