Panama The Big Squeeze

By John Greenwald

The scene was a bizarre blend of whimsy, fashion and rage. As antigovernment protesters gathered on the Via Espana in downtown Panama City last week, some of the women sported designer sunglasses and diamond-stud earrings to go with their smart dresses and slacks. Clapping in rhythm, the middle-class crowd jeered, "Down with Noriega! Get out, and let us eat!" When passing motorists blared their horns in approval, riot police poured from trucks bearing the painted image of Doberman attack dogs. Then from the side of the road rolled a truck hauling two water cannons inexplicably emblazoned with powder-blue Smurfs.

The demonstrators had no time to stare. Jets of water washed over them while police fired volleys of bird shot and U.S.-made tear gas into the crowd. For the next two hours, knots of marchers chanted, banged poles, and burned tires and garbage in the streets. Shuttling from one area of protest to the next, police forced the groups to seek refuge in bars and boutiques and finally directed their fire into the shops and even into apartments. Said an indignant woman inside a store that reeked of eye-stinging gas: "I'm an old lady with a bad heart, and still they spray that at me. I don't know what we are going to do with these people."

Neither, it seemed, did anyone else, including the U.S. Despite the halfhearted efforts of many middle-class Panamanians to oust him and the maneuverings by U.S. officials, there were no signs that General Manuel Antonio Noriega had lost control. After Noriega was indicted on drug- trafficking charges by two U.S. grand juries last month, President Eric Arturo Delvalle sacked him as head of the 16,000-member Panama Defense Forces; the general simply turned around and had the National Assembly dump Delvalle, replacing him with Education Minister Manuel Solis Palma. Now Noriega faces a stiffer test: a rapidly worsening cash crunch that began two weeks ago, when the U.S. froze some $50 million in Panamanian funds in U.S. banks.

Last week President Reagan announced that the U.S. would withhold $6.5 million in fees collected by the Panama Canal Commission and scheduled to be paid to the Panamanian government this week. The money was held, said Washington, at the request of Delvalle, whom the U.S. continues to recognize as Panama's President. Reagan also suspended trade preferences that will affect $96 million in commerce between the U.S. and Panama. There will be no "business as usual" with the Noriega regime, the President said. Secretary of State George Shultz argued that a severe economic squeeze would force Noriega out. Other officials, including Defense Secretary Frank Carlucci, contended that such actions would simply strengthen Noriega's resolve to stay.

Signs of severe economic pain grew more evident last week. Fearing a run on deposits, Panama's 120 banks remained closed. Thousands of retirees, unable to cash their social-security checks, blocked traffic and angrily waved their pay slips in the air. The government cashed the checks the next day at special offices, after delivering the money in heavily guarded armored cars. But ordinary shoppers were out of luck because grocery stores refused to accept checks or credit cards. While Noriega appeared to pacify soldiers by meeting the military payroll, Panama's government workers faced a cashless payday this week.

As the hardship worsened, Noriega's backers lashed out at Washington. Noting that American forces were staging exercises along the Panama Canal, Foreign Minister Jorge Abadia Arias charged that the U.S. planned to invade the country. The U.S. Southern Command, which has 10,000 troops stationed along the waterway, called the maneuvers routine.

Noriega's bluster could not conceal the bitter truth that most Panamanians want the general out, and they want him out now. Yet the country has not been gripped by the same volatile passions that ignited mass protests in Haiti, South Korea and the Philippines in recent years. Last summer's protests by hundreds of thousands of fist-shaking Panamanians have given way to muted anger. "We're not a violent people," said a middle-class woman in the capital. "We want to do it peacefully, like Gandhi."

The demonstration last week underscored that sentiment. It was called for 2 p.m. People began showing up at about 1:30 and never numbered more than 500. Adolfo, a shop clerk, viewed the crowd from the safety of the store and then explained why. "I want Noriega out, but my getting beat up isn't going to accomplish that." Observed a veteran politician: "Panamanians won't take the suffering. We are a bourgeois society."

That is most apparent in Panama City, dotted with gleaming bank towers. Minimal banking regulations have turned Panama into a global financial center and an alleged haven for profits from worldwide narcotics sales. Hundreds of international firms have opened Panamanian offices to save money on taxes, while dozens of shipping companies register their boats there. The resulting wealth has made Panamanians wary of upsetting the status quo -- even where Noriega is concerned. The National Civic Crusade, a coalition of business and professional groups, called off a general strike two weeks ago, when the action threatened to damage the economy.

Yet the Crusade expects more Panamanians to join the struggle against Noriega as the economic noose tightens. "People don't think parties or Crusade," said Roberto Brenes, a Crusade leader and former investment banker. "They think their bellies." To strengthen its clout, the Crusade last week agreed to back a government of national reconciliation, headed by Delvalle, to replace the Noriega-dominated regime.

Some Panamanians fear that Noriega will never leave without military intervention from the north. "The Americans put Noriega here," said a middle-class protester. "Now they have to get him out." Concurred another: "Everybody is hoping for the Americans to interfere." That includes Mariela Delvalle, wife of the deposed President. Though Mariela and her husband are hiding in separate locations in Panama, they communicate in writing. In an interview with TIME last week, the former First Lady insisted, "I want the United States to be ready to invade Panama if we ask for it. I don't want an invasion. But if we call for one, you better be ready. If you don't make preparations now, you won't be ready when we need you. I know America. You're always late."

But even as the U.S.-Panamanian showdown grew more bitter, rumors circulated that the two sides might strike a deal. According to Elliott Abrams, Assistant Secretary of State for Inter-American Affairs, a Noriega envoy had asked whether the indictment could be withdrawn. "The general is willing to go, but he's not going to be dragged out like a dog," said a Panamanian who knows the general well. Another Panamanian hinted that the leader might consider retiring on April 23, the 25th anniversary of his entrance into the Defense Forces. A second possible date: Aug. 12, when Noriega completes his fifth year as military commander.

So far, though, U.S. Justice officials have refused to consider dropping the charges against Noriega. A dismissal would require Ronald Reagan's signature, and the Administration is afraid of sending the wrong signal just as its antidrug campaign is developing fresh momentum. The Government continued to crack down on drug traffickers last week, when a federal grand jury in Miami indicted Colonel Jean-Claude Paul, the powerful commander of Haiti's largest military garrison. The indictment charged Paul with allowing cocaine smugglers to use an airstrip on his farm to fly drugs to the U.S. He is unlikely to be brought to trial, however, since the U.S. has no working extradition treaty with Haiti.

If Noriega does agree to leave, he will probably insist that a transitional government be in place before he departs and that the Defense Forces remain intact. Although the U.S. might be willing to give him those assurances, Administration officials face another hurdle: Noriega does not trust them. "The way he sees it, he was loyal to the U.S. for many years. After all that, he was betrayed," says a former Panamanian official. In fact, despite the feelers Noriega has sent to the State Department and the Pentagon, he continues to vow publicly that "the only way this general is leaving is $ dead." Meanwhile, the majority of Panamanians watch and wait, many wishing that Washington would somehow remove the general but as yet unconvinced that the situation is serious enough for them to challenge Noriega's troops to a full-scale battle in the streets.

With reporting by Ricardo Chavira/Washington and John Moody/Panama City