Caribbean & Central America - March 2014 (ISSN 1741-4458

This month the Venezuelan government led by President Nicolás Maduro severed relations with its Panamanian counterpart led by President Ricardo Martinelli. The decision was triggered by Panama’s recent efforts at the US-dominated Organization of American States (OAS) to hold a session at its Washington headquarters to discuss the internal political situation in Venezuela following deadly unrest which began last month. These efforts laid Martinelli open to accusations from Venezuela of interfering in Venezuela’s internal matters and being a lackey of the US. The rupture, which comes a decade after relations were last severed (under Maduro’s predecessor, the late Hugo Chávez, and former Panamanian president, Mireya Moscoso [Partido Panameñista, 1999-2004]), takes place as bilateral ties have come under increasing strain over the inability of Venezuelan companies to pay debts of some US$1.2bn to suppliers in Panama’s Colón Free Trade Zone (FTZ).

Attributed by President Martinelli to Venezuela’s official foreign currency controls (which restrict the supply of US dollars available to Venezuelan companies for trading purposes), the debts had led Martinelli – who notably was one of the first regional leaders to recognise Maduro’s slim presidential victory in April last year - to pay a visit to Caracas the following July to seek a solution. The subsequent announcement of a technical bi-national commission to ensure the payment of the debts failed to produce any results.

While Venezuela is not a leading destination for Panama’s exports, along with Colombia, it is a key market for re-exports through the FTZ. The latest report by Panama’s comptroller general’s office, released in June 2013 shows that while Panama’s GDP grew 7% in the first three months of 2013, compared with the same period in 2012, trade declined 2.2% due to “a 14.1% drop in Free Trade Zone activity as a result of the decline in re-exports to Panama’s main South American clients, Colombia and Venezuela”.

The rupture in relations a decade earlier, in August 2004, had followed similar accusations by the Venezuelan government that Moscoso was acting on behalf of the White House; on that occasion the spat was triggered by a pardon issued by Moscoso for four Cubans nationals including Luis Posada Carriles, accused by Cuba and Venezuela of terrorism for the bombing of a Cubana airliner in 1976. Relations were normalised the following month after the Partido Revolucionario Democrático (PRD) government led by former president, Martín Torrijos (2004-2009), took office.

• New foreign minister - The spat with Venezuela is the first major challenge for Francisco Álvarez De Soto, who recently took over as President Ricardo Martinelli’s fourth foreign minister. A lawyer, political economist and former deputy foreign minister (2009-2013), De Soto replaced Fernando Núñez Fábrega, who stepped down on 31 January. While Núñez Fábrega cited “personal reasons”, his departure followed various diplomatic gaffes- most recently his recommendation that Martinelli not attend the summit of the Community of Latin American & Caribbean States (Celac) held in Cuba on 28-29 January to show Panama’s displeasure with Havana’s refusal to reply to information requests regarding a shipment of Cuban weapons seized on a North Korean ship detained in the Panama Canal in July 2013. Panama and El Salvador were the only members of the 33-member bloc not represented by their heads of state at the Celac summit.