Supplemental

Government Strategy[1]

Domestic Government Strategy

The domestic government strategy includes two parts: a policy strategy and a media strategy.

Policy Strategy

Anti-corruption efforts should be initiated first in areas where the public perceives corruption problems to be the worst or in areas where changes can be implemented easily and quickly. To build its credibility, the anti-corruption campaign should achieve some tangible successes within six months. All changes should be accomplished without introducing overly burdensome bureaucratic procedures that could undermine the campaign’s success. The following government actions will ensure the effectiveness of anti-corruption reform:

• Create a Watchdog and Enforcement Agency. To ensure compliance with anti-corruption laws, an investigative and monitoring unit should be established with appropriate authority—perhaps reporting directly to the legislative body. To secure its independence from other political offices, this unit should work together with Transparency International and a National Advisory Committee. The new enforcement agency could be required to periodically evaluate public services based, in part, on citizen polling. Such evaluations will help keep corruption on the front burner and will provide continuous input for governance improvement. To operate successfully, an anti-corruption agency must possess the following[2]:
  • Committed political backing at the highest levels of government.
  • Political and operational independence to investigate all levels of government.
  • Adequate powers for accessing documentation and questioning witnesses.
  • Leaders who are publicly perceived as maintaining the highest integrity.
  • Power to freeze assets when suspicions of corruption are reasonably substantiated. This presupposes the implementation of a system for monitoring the assets, income, liabilities, and lifestyles of decision-makers and public service officers.
  • Power to protect informants.
• Additionally, the anti-corruption unit should conform to international human rights norms and be accountable to the courts for upholding the law.
• Create a National Advisory Committee. The government can encourage the formation of a National Advisory Committee on Transparency to ensure participation of the different sectors of society in the adoption and implementation of an anti-corruption code. This Advisory Committee[3] should work together with the watchdog agencies to guide the reform process. It could advise on measures to foster public support and on how to modify practices and procedures that are conducive to corruption. The Advisory Committee, as well as the watchdog agencies, should be required to publish quarterly reports on the state of corruption in the different government institutions. Panama can follow Hong Kong's approach in organizing this Committee (See Exhibit #13).
• Empower the Ombudsman. The Ombudsman should be fully empowered to ensure integrity within the government. Most important, the Ombudsman needs full Constitutional power to investigate non-jurisdictional activities of the judiciary. It can recommend improvements to procedures and practices and provide an incentive for public officials to keep their files in order at all times. The Office of the Ombudsman needs to be responsible for its own budget and not rely on another larger department for its funding.
• Reform the Judiciary. The judicial system needs to be reformed in order to limit corruption at all levels of government. Most important, a separation of power between the judiciary and the other branches of government needs to be clearly established, and mechanisms designed to ensure the integrity of security and law enforcement officers (and their managers) need to be instituted.
• Introduce Civil Service Reform. The government workforce needs to be downsized and revised to most efficiently serve the public. Both conduct standards for public officials and improved hiring procedures should be established. To complement this effort, it is important to fully implement the provisions of the Administrative Career legislation. Additionally, there needs to be an effective mechanism for protecting those who report corruption, and penalties for corruption need to be more severe. (The Singaporean anti-corruption law can be used as a model.[4]) If a public official receives $20,000 or less as a bribe payment, imprisonment should be for a term not exceeding two years;  if the amount ranges from $20,000 to $50,000, imprisonment should be for a term not exceeding five years; if the amount ranges from $50,000 to $100,000, imprisonment should be for a term not exceeding seven years; and if the amount exceeds $100,000, imprisonment should be for a term not exceeding 10 years.
• Introduce Administrative Reforms. To reduce opportunities for corruption, conflicts of interests within the public administration must be addressed. Legislators’ unjustifiable benefits and prerogatives should be curtailed and officials in all three branches of government need to be held accountable for all their income sources.
• Government Procurement Reform. Transparency principles should be incorporated into the procedural standards for every privatization and government transaction. To ensure such transparency, an independent agency should be given power to monitor best practices in privatization and commercial transactions, including those in the Canal areas.  Moreover, to ensure compliance with the laws prohibiting payment of bribes to government officials, the government should adopt and apply Transparency International’s Pacts of Integrity to government procurement transactions.
• Introduce Regulatory Reforms. Transparency principles need to be adopted to ensure that laws and regulations achieve their desired social and economic objectives without burdening economic activity more than necessary. Regulatory reform will improve the investment climate, which is critical to ensuring sustainable economic growth (See Principles for Regulatory Reform).
  

Media Strategy

A national media strategy will help enlist community and public sector support for anti-corruption reforms. Both businesspeople and the general public need to understand their role in identifying and denouncing corrupt practices. Toward this end, two campaigns should be initiated:

• Mass media campaign. The National Advisory Committee and the watchdog agency can organize regular media publicity, including paid and non-paid radio, television and newspaper coverage.  Radio and television dramas of investigative work, news programs, and press releases should be used to communicate anti-corruption messages.
• Non-traditional media campaign.
  • Create billboard messages emphasizing civic and moral values.
  • Create a web page featuring the National Advisory Committee’s and the watchdog agency's activities.
  • Produce educational videos on how to prevent corruption.
  • Produce educational bulletins for the private sector and the general public, especially for students at the kindergarten, primary, secondary and university levels.
    

Principles for Regulatory Reform

For Panama’s anti-corruption campaign to succeed, regulatory reform will need to accompany the adoption of an anti-corruption code. Ineffective and excessively intrusive regulations must be eliminated, along with government protection of monopolies and barriers to foreign trade and investment that unnecessarily increase investors’ costs. As international trade policy expert Geza Feketekuty has noted, “When government regulations are not well targeted at a clear social objective, or anytime they seek to accomplish the identified social objective through more red tape and government intervention than necessary, they introduce unnecessary costs. The increased cost of business services translates into increased costs for everything a country produces and to consumers.”[5]

The recent Asian financial crisis illustrates the problems associated with inefficient regulation. It resulted from of a combination of inadequate regulatory supervision of market participants’ fiduciary performance and insufficient liberalization of controls on investment opportunities. 

Regulatory reform may also be needed to curb discretionary controls that are built into many of Panama’s regulations and provide opportunities for bribery and corruption.

The following good governance principles can guide Panama's government in developing sound laws and regulations[6]:

• Transparency
• Due process
• Predictability
• Nondiscrimination
• Objective, performance-based criteria
• Minimizing the regulatory burden
• Transparency of regulatory objectives
• Use of market mechanisms
• Minimizing the scope of regulations

Transparency. Transparency is the most important principle of sound governance. It holds that governments should publish all the laws, regulations, and administrative proceedings that affect market participants. To ensure fairness and economic efficiency, it is important that everybody affected by laws and regulations understand those laws and regulations prior to engaging in economic activity. The private sector cannot make informed decisions if government regulations are not published and transparent.

Due process.  Due process assures that laws are administered in an impartial and objective manner and helps boost economic growth. It provides a predictable regulatory framework for market participants, makes the application of laws more efficient, and helps ensure that the most competitive firms succeed in the market place. Through this principle, firms are guaranteed the right to:

• Consult the government on the interpretation and application of the regulations that affect them.
• Appeal regulatory decisions to appropriate judicial bodies.
• Obtain timely responses to requests for regulatory decisions.

Predictability. Predictability lowers investment risk by enabling market participants to make long-term plans. Governments should not arbitrarily change laws and regulations. When changes are necessary, interested parties need to receive adequate notification.

Nondiscrimination. In applying laws and regulations, governments should not discriminate against any player. By eliminating arbitrary discrimination, the state ensures that the most efficient firms are not disadvantaged.

Objective, performance-based criteria. To ensure that a regulatory system does not impede economic performance, its provisions and enforcement mechanisms should be based on objective, measurable, performance-based criteria. Objective criteria not only add predictability and transparency to enforcement of the regulations but also ensure that laws and regulations have a clear purpose. Objective, performance-based criteria eliminate discretion that can lead to corruption. 

Minimizing the regulatory burden. Laws and regulations should be designed so that they do not burden economic activity. That is, the regulatory system should not be more burdensome than necessary.

Transparency of regulatory objectives. The objectives of laws and regulations should be clearly stated. This helps eliminate unnecessary laws and confusion as to their purpose.

Use of market mechanisms. Whenever possible, governments should allow market mechanisms to accomplish social regulatory goals. This implies allowing market forces to determine the most efficient manner to accomplish a social objective. Preferential treatment creates domestic inefficiencies and distorts trade and competition.

Minimizing the scope of regulations. To minimize the economic costs of regulation—costs that can distort market competition—governments should only regulate activities directly related to achieving a regulatory objective.

International Government Strategy

Panama can advance anti-corruption reform and signal its commitment to provide a transparent and fair investment climate by playing an active role in international trade fora and other international organizations. Additionally, Panama needs to publicize its anti-corruption actions internationally through a comprehensive media strategy.

Trade Fora Strategy

Panama needs to take an active role in international trade organizations to address trading partners’ negative evaluations of our investment climate and procurement regime. This strategy involves:

• Becoming a full participant in the FTAA. By participating in the FTAA Working Group on Investment, Panama can convey that it is committed to the creation of a stable and predictable environment that protects investors, their investments and related transactions. The goal of this working group is to establish a fair and transparent legal framework to promote investment in the region.
• Taking an active role in the WTO. Panama can play an active role in WTO discussions of transparency in government procurement and demonstrate that it is ahead of the game in complying with its WTO commitments. The WTO is likely to take action on the issue of transparency in the Millenium Round.
• Acceding to the OECD Anti-Bribery Agreement. Panama’s adoption of the OECD Agreement will also signal to the international community that it is enacting first-world standards and that it is serious about creating the right climate for investment attraction. Argentina, Brazil and Chile have already voluntarily adopted the OECD Anti-Bribery Agreement. (See Procedure to Accede to the OECD Agreement).
• Negotiating an understanding with the United States. Panama can negotiate an understanding with the United States to eliminate its negative evaluation of Panama’s investment climate and government procurement regime. This effort will also help secure USTR’s commitment to promote and communicate Panama’s potential to U.S. investors.  (See Negotiation Strategy).
  

International Organizations Strategy

Panama should adopt several international standards and request technical assistance in reforming Panamanian institutions involved in anti-corruption reform. Specifically, Panama should:

• Implement the OAS Convention on Corruption. Pushing for implementation of the OAS anti-corruption principles is a solid beginning for acceptance and passage of a more comprehensive anti-corruption code. Implementing the OAS convention will also enhance Panama’s stature in the region and serve as the impetus for other governments to take similar actions.
• Request IDB/World Bank Assistance. By requesting the World Bank's Anti-Corruption Action Plan assistance, Panama can receive support in reforming institutions as well as technical assistance on anti-corruption programs, including diagnostic surveys, training workshops and policy advice. The WB program focuses on capability building and is results oriented. Panama can also request IDB assistance for the implementation of the OAS Convention on Corruption.
  

Media Strategy

An international media strategy will help clean up Panama’s image within international business circles. Recommended actions include:

• Implementing a paid media campaign. Advertisements should emphasize the changes taking place in Panama and the opportunities open for investment. The Financial Times, New York Times and The Economist should be targeted along with other reputable media.
• Gaining free news coverage. The transfer of the Canal on December 31, 1999 will attract international media coverage. The transfer should be used as an opportunity to gain free media coverage of Panama’s anti-corruption reforms, as well as investment opportunities in the Canal areas. Additionally, periodic press releases should be sent to wire service agencies, Panamanian embassies and consulates abroad. They, in turn, should send the releases to newspapers and news wire service agencies for free coverage. Ambassadors should visit news media to arrange interviews and free news coverage of government actions.
• Using the Web. An Internet web site can provide information on the new government, democracy, Panama’s stable economy, its strict anti-corruption reforms, the Canal operations after the hand over, the Canal areas investment opportunities, the Banking Center, the Colon Free Zone, and tourism.

Negotiation Strategy[7]

Issue:

The United States has expressed concern in its Foreign Trade Barriers Report about the lack of transparency in Panama’s government procurement regime. This perception of corruption deters U.S. companies from investing in Panama and increases the uncertainty and risk level of U.S. companies already located in Panama. Moreover, if the United States identifies trade barriers in the future, it may decide to take retaliatory action against Panama.

Panama could seek to negotiate an understanding with the United States after implementing anti-corruption reforms. An understanding with United States could serve as a tool to attract U.S. investment and improve Panama-U.S. trade relations.

Preferred Outcomes for Panama:

• Eliminate the United States’ negative evaluation of the Panamanian government procurement regime and the perception that it works as a trade barrier.
• Avoid future commercial disputes and/or U.S. trade sanctions.
• Secure the United States’ commitment to promote and communicate these changes in its different publications and reports available to other government agencies and investors.
• Obtain the United State’s promise to uphold Panama as a model of reform in Latin America.
• Increase investment and trade with the United States.

Allies:

Private sector. The negotiation of an understanding with the United States will receive support from international investors, especially U.S. investors, who represent the largest portion of foreign direct investment in Panama. Panamanian industry associations will also support such an agreement because it would open additional opportunities for increased investment and trade with the United States.

Government. The Trade Ministry, specifically the vice-ministry for foreign trade, will support negotiations with the United States as a means of strengthening Panama-U.S. trade relations and demonstrating that Panama is committed to open trade with one of our most important trading partners.

A win-win strategy:

Negotiating an understanding concerning government procurement with the United States should be straightforward. By taking the initiative on this issue, Panama will not only avoid a future trade dispute with the United States but also increase U.S. investment. The United States is expected to be satisfied with Panama's streamlined government procurement regime, especially because it will assure equal opportunities to U.S. investors.

Benchmarks:

USTR and Panama could together identify benchmarks for judging Panama’s progress in reforming its government procurement regime. Additionally, USTR could be invited to monitor Panama’s successes.

Objective Criteria:

The following standards should be used in assessing the necessary government procurement reforms and identifying benchmarks:

• WTO standards on government procurement
• UN standards
• OECD Anti-Bribery Agreement
• OAS Convention on Corruption
• EU standards

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