# The Story That Panamá Decided to Write

## The Panama Canal through the Years

By Alberto Alemán Zubieta

A few days prior to the date set for the transfer of the Panama Canal from the United States to Panamá, a reporter from a U.S. news network asked me, “Mr. Alemán, what can you tell the American public about what will happen the day after December 31, 1999?”

This question summed up all the doubts the international community had about our country’s ability to operate one of the most important commercial infrastructures in the world. After recalling the tremendous effort that Panamanians and Americans alike had made during the past four years to achieve a seamless transition of the canal to Panamanian hands, I looked at the reporter and replied, “The only thing that will come after December 31, 1999, is January 1, 2000.”

Today the comments about the canal and Panamá do not express doubts whether Panamá can accomplish its goals. The story now centers on how its decision to expand the canal will influence what countries like the United States are doing to adapt to the new shipping market that will emerge as a result. By 2015, the canal will have a third set of locks, resulting in increased traffic and bigger ships. The work is already half completed.

Yet, with the passage of time that gives us a different perspective, the former doubts and uncomfortable questions surrounding the transfer of the canal to Panamá are more understandable.

Since the signing of the Torrijos-Carter treaties in 1977, Panamá experienced political instability, having to rebuild its democracy nearly from scratch in the early 1990s after the U.S. invasion. All of this happened within 10 years of receiving the waterway.

However, the canal for us was not only an economic asset to be incorporated to our economy, but something far more deeply rooted in our identity as a nation. From the beginning of the 20th century, many generations fought, and even sacrificed their lives, to make the canal Panamá’s patrimony and to correct a historical injustice that gave the United States the right to manage it perpetually.

And now that we have achieved the dream of several generations, we are not going to let it fade away. Prior to the transfer, Panamanian society as a whole—employers, trade unions, professionals, students, politicians—decided to create a constitutionally mandated independent status for the canal to ensure the waterway’s efficient operation and to generate the benefits that we had longed for during so many years.

Here I’m referring to something more comprehensive than a legal change. Think about it; even in the midst of a severe economic crisis, Panamanians decided to bet on the canal’s development instead of eating the goose that lays the golden egg. The canal would be managed by a public entity, independent of the government. This entity would manage the canal’s budget and its procurement system, keeping out of politics and avoiding problems that do so much harm to other government institutions.

These and other new legal standards were part of the transition that was in process in different areas of the canal as part of the treaty. Therefore, on December 31, 1999, we were ready to receive the canal.

#### A TIME OF CHANGE

Receiving the canal in an orderly and seamless fashion was only one of the challenges ahead. Our citizens had the double challenge of generating more profits for Panamá and improving the service provided to the international community.

We were always implementing new programs or strengthening the existing ones. For example, we swiftly implemented an ambitious modernization plan to replace or rehabilitate key canal operations equipment such as locomotives and tugboats, as well as marine traffic, management and many other systems. It was a 10-year plan that required the investment of more than US$2 billion dollars. Along with the operational modernization, we undertook studies and strengthened our relationships with the international maritime industry to better understand the business and its needs. This led us to take measures such as segmenting different types of customers, creating a reservation system and introducing new products. We started new training and promotion programs for the nearly 10,000 Panama Canal employees. We began a permanent crusade for performance efficiency and excellence. We revamped completely the way the institution contracted its goods and services, measured performance and planned for the future. Most of these measures were difficult to implement, so we had to be consistent in our decisions and, above all, continue to improve the quality of our service. The growing confidence of customers and the international maritime community helped us make major changes such as a new toll structure. The maritime community understood that the fees should be based on the value of the service provided, allowing for what it costs to maintain a route that helps save time, distance and money. The canal also had to change its relationship with Panamá. Even though the waterway was in the heart of the country, it was unknown territory to many Panamanians. A cultural change was crucial. Community relations programs gave the canal a national presence. Visitor centers were built so all Panamanians could admire the patrimony that they had been deprived of for so many years. As part of that effort, work with the communities along the Panama Canal Watershed began to ensure water availability. The waterway uses 2 billion gallons of water to ensure the transit for close to 40 vessels from the Atlantic Ocean to the Pacific, and vice versa, on a daily basis, and the only way to safeguard this resource was to preserve the basin surrounding the canal. The Panama Canal Watershed also supplies Panama City and several major urban centers with drinking water. To ensure water availability it was necessary to help farmers to better exploit their land by granting them land titles and working with them to show them ways to have sustainable farms. Today, the canal is one of the top water managers in the world, and its alliance with its neighboring communities has been recognized internationally. #### THE MOMENT TO GROW Once the canal had gained customer confidence and credibility among its stakeholders, it was time to make the necessary decisions in order to grow, expand, compete and capitalize on international market demand. Previously, at the beginning of the 1990s, a commission made up of members from the United States, Japan and Panamá had examined the possibility of expanding the waterway, but the effort succumbed to political complexities. We then undertook a study that led us to the development of the Panama Canal Master Plan, describing the main challenges for the canal. We hired the best experts in engineering, design, water, environment and finance and administration. The study determined that the canal’s operation would reach full capacity in a few years, resulting in a decrease in service levels. In our discussions with the maritime industry, it became clear that they were interested in our taking on the expansion project. However, the first step was to confirm that the country as a whole agreed. In accordance with our Constitution, the proposal had to be submitted to national referendum. An interesting challenge for the Panama Canal arose. The majority of us were engineers and technicians in specialized fields, and now we faced the challenge of explaining in accessible terms the need to expand the canal to all Panamanians. It had been only six years since we received the canal and already we were contemplating its future. As the institution responsible for the project, it was up to us to explain the canal’s needs to all levels of society. It was not an easy task. We were talking about investing close to$5 billion dollars at a time when the national debt was close to \$10 billion dollars. In this sense, a fundamental premise of the expansion project was that the canal should use its own funds, without governmental guarantees and never decreasing its direct economic contributions to the state.

After an extensive national debate, on October 22, 2006, the Panama Canal Expansion Project was approved by nearly 80 percent of the national vote. That is, eight out of every ten Panamanians voting agreed with the expansion.

In 2007, we started the expansion project that is rapidly moving towards its goal of transforming the global shipping industry. The canal expansion is changing trade patterns as it did almost 100 years ago with its opening. This time it is neither the French, nor the Americans who are doing it; this time it is the Panamanians.

The waterway’s expansion has triggered important discussions in the United States, the principal user of the waterway, regarding the country’s maritime and port facilities. Last July, the White House ordered expediting work on five port facilities on the East Coast to adapt them to the dimensions of the new vessels that will transit through the expanded canal, carrying more cargo and with more trade moving to and from the United States. Latin America will have enormous opportunities for trade through this project; in fact, Colombia, Jamaica, and Chile are already taking measures to capitalize on the new value the canal route will offer.The expansion is half completed and is expected to be in operation by mid-2015.

Next year the Panama Canal will reach its centennial, and its contributions to humanity are far beyond the union of two oceans. From the Isthmus arose contributions to medicine, engineering, environmental conservation, work safety, job security and many other developments that are now common concepts.

For Panamá, these 100 years of history are full of sacrifice, effort and achievements. It took Panamanians only six years to surpass the economic contributions of 85 years of U.S. administration. As a matter of fact, from the year 2000, the Panamanian government has received more than 8 billion dollars in direct contributions from the canal. In its main business route, from Asia to the East Coast of the United States, the canal went from a market share of 11 percent to 43 percent today. Thanks its credibility, Panamá obtained financing for its expansion project in 2008 without major drawbacks, during one of the worst financial crises in history.

With the expansion of the Panama Canal, new times begin that promise more changes, but all with the constant of a country committed to use its geographical position to bring the world together and contribute to the sustainable development of its people.

On the national level, however, the challenge remains to transfer the canal’s success to other aspects of social life. Our geographical position provides us with unique natural competitive advantages that we must know how to develop. It’s not easy, of course, but as we have shown the world, we have already done it with the canal.

Alberto Alemán Zubieta, a professional engineer, was CEO of the Panama Canal between 1996 and 2012. During his tenure, the United States handed over to Panamá the management of the waterway, the canal was modernized and the expansion of the canal, the largest project since its construction in 1914, was undertaken.