Panama has always been a place where strange truth gives fiction a run for its money. In John le Carré's 1996 novel The Tailor of Panama, a Cockney living in Panama City tricks money out of British intelligence by stitching up a plot involving Asians' taking over the Panama Canal. In real-life Panama, the story is no less peculiar: a new President is about to be sworn in amid charges that the government has switched control of the canal to a company allegedly controlled by the Chinese People's Liberation Army. Meanwhile, in the U.S., the Dec. 31 handover of the Canal is unleashing political separation anxiety. Le CarrŽ must be amused.

The furor comes at a time when Panama is trying to reinvent itself. While only 7% of the country's economy is dependent on the canal, nearly 100% of its self-image is wrapped up in the belief that it serves as one of the world's most important trade links. This week, the country will swear in a new President, Mireya Moscoso, 53, whose overriding challenge is to try to turn a world-class location into a world-class country, technologically literate and future oriented. More ambitious Panamanians (and the country's well-educated middle class is full of them) talk of becoming the Singapore of Latin America. Doing that means making the post-handover canal as profitable as possible.

What has America's right wing spooked is how assiduously the Panamanians are working to make the canalÐwhich has always been run on a nonprofit basisÐinto a cash cow. It is not a new complaint. In the 1970s, when President Jimmy Carter sold the handover treaty to Congress, there was much whining about turning the canal into little more than an expensive toll road. The latest version of this anxiety adds a national security tweak: fear of China. In 1997, the Panamanian government finalized a rich deal with Hutchison Whampoa Ltd., based in Hong Kong, to run two ports near the entrances to the canal. American-owned Bechtel lost out to Hutchison under a less than transparent bidding process.

Almost immediately, U.S. officials complained that the Bake-Off had been "unorthodox." The issue was rekindled in August when Senate majority leader Trent Lott complained that the U.S. had "given the farm away without a shot being fired." In particular, said Lott, the deal means "U.S. naval ships will be at the mercy of Chinese-controlled pilots and could even be denied passage by Hutchison," which he calls "an arm of the People's Liberation Army."

Continue >