June 30, 2005

Pension mess is setback for Panama’s Torrijos

By Mike Power

PANAMA CITY (Reuters) - Panamanian President MartinTorrijos, son of populist dictator Omar Torrijos, began histerm with diplomatic and fiscal successes but has run intostiff opposition to a plan to raise the retirement age forstate workers.

After a month of strikes, riots and criticism from theinfluential Catholic Church, Torrijos backed down in a fightwith unions and the opposition over a law that raised theretirement age for state workers by three years to 65 for menand 60 for women.

It also required state workers to pay into the pension fundfor 25 years to qualify for a pension, up from 15 years now.

Torrijos was forced to ask parliament this week to freezeimplementation of the law, which the national assembly passedin early June. Parliament is expected to do so this week. Thedecision to back down was his first serious setback sincetaking office last September.

The pension law was his key economic reform and he will nowhave to negotiate with the country's unions to see if he cansave it. Panama's pension system has a $100 million annualdeficit, say officials, and faces bankruptcy by 2012 if nothingis done.

Mario Rognioni, a Panamanian political commentator, blamedthe president's troubles on inexperience. "The steps he hastaken are difficult and dramatic, but the team, through lack ofexperience, did not know how to explain them to the nation," hesaid.

Political analyst Richard Millett added: "Unfortunately helistened to people who were good on economics and bad onpolitics."

Torrijos' rule started decisively when he restoreddiplomatic relations with Cuba, broken over Panama freeing fourmen jailed for plotting to kill President Fidel Castro.

Next, Torrijos quickly used his parliamentary majority topush a tough fiscal reform package through in January.

Wall Street welcomed the measures, which helped avert aforeign debt default and narrowed a 2004 budget gap of $700million.

But Torrijos's political stock has plummeted in the botchedpension reform as unions, the Church and foreign investors allquestion his rule.

His popularity has dropped by half -- from 60 percent to 30percent, polls say -- just 10 months after taking officefollowing a landslide 2004 election victory.

Part of his initial political success was based on theenduring popularity of his father, Omar Torrijos (1968-1981),who became a national hero for negotiating a 1977 deal in whichthe U.S. government handed over control of the Panama Canal inDecember 1999.

While Omar Torrijos ran the country with a free hand, hisson has had to operate within the confines of a full-fledgeddemocracy where deal-making is essential, say commentators.

Now, November's planned referendum on expansion of thePanama Canal could be delayed amid fears voters would opposeanything he supports, analysts say. "At the moment, the countrywants to punish him in the canal referendum," Rognioni said.

Foreign investors are anxious for the pension reform tostay intact.

"The government has been weak over this. I would haveexpected the administration to stand by the reforms since ithad already paid a huge political cost for them. I thinkinvestors are losing confidence," said analyst Gustavo Baltarof Credit Suisse First Boston in Sao Paolo.