Pension mess is setback for Panama's Torrijos

By Mike PowerThu Jun 30,12:23 PM ET

Panamanian President Martin Torrijos, son of populist dictator Omar Torrijos, began his term with diplomatic and fiscal successes but has run into stiff opposition to a plan to raise the retirement age for state workers.

After a month of strikes, riots and criticism from the influential Catholic Church, Torrijos backed down in a fight with unions and the opposition over a law that raised the retirement age for state workers by three years to 65 for men and 60 for women.

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

Torrijos was forced to ask parliament this week to freeze implementation of the law, which the national assembly passed in early June. Parliament is expected to do so this week. The decision to back down was his first serious setback since taking office last September.

The pension law was his key economic reform and he will now have to negotiate with the country's unions to see if he can save it. Panama's pension system has a $100 million annual deficit, say officials, and faces bankruptcy by 2012 if nothing is done.

Mario Rognioni, a Panamanian political commentator, blamed the president's troubles on inexperience. "The steps he has taken are difficult and dramatic, but the team, through lack of experience, did not know how to explain them to the nation," he said.

Political analyst Richard Millett added: "Unfortunately he listened to people who were good on economics and bad on politics."

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

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

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

But Torrijos's political stock has plummeted in the botched pension reform as unions, the Church and foreign investors all question his rule.

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

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

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

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

Foreign investors are anxious for the pension reform to stay intact.

"The government has been weak over this. I would have expected the administration to stand by the reforms since it had already paid a huge political cost for them. I think investors are losing confidence," said analyst Gustavo Baltar of Credit Suisse First Boston in Sao Paolo.

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