With Panama amid an important and delicate period as the United States draws down its military presence here and prepares to turn over control of the Panama Canal, the last thing the country needs is turbulence in its relations with the United States.
So when revelations of drug money being given to President Ernesto Perez Balladares's 1994 campaign came out last month, Mr. Perez Balladares decided to act quickly and openly. Tainted money had "unknowingly" entered his campaign, he said, and the incident would be fully investigated.
The president's quick response immediately led to comparisons to a similar but larger campaign-finance scandal in neighboring Colombia.
US diplomats made supportive comments. Analysts say that Panama's scandal could end up a positive event by awakening Panamanians to the drug traffickers' influence and to the need for tighter campaign and banking legislation.
"The important issue is to raise the consciousness not only of the political parties but of everybody ... of how easy it is for the drug traffickers and money launderers to infiltrate the decent structures in our society," the president said in a Monitor interview last week.
No doubt with one eye on the quagmire in which neighboring Colombian President Ernesto Samper Pizano finds himself, Panama's president last month told his country he was "eating [his] words" of his initial rejection of the accusations. Two checks totalling $51,000 from a suspected Colombian drug trafficker now awaiting trial in a Panamanian prison had indeed been received by his campaign.
Perez Balladares said the $51,000 - called "narcochecks" in Panama - was thought to be the only money from suspected drug-trafficking sources in his campaign. But he said a full investigation into the contributions would be undertaken "regardless of consequences." He said the investigation would look into accusations of links between some of his advisers and suspected drug traffickers.
Even critics who maintain that the influence of drug money in Panamanian politics extends far beyond the two checks, praised the president's quick response. And the US has been particularly laudatory. "The president seems to have successfully nipped [the scandal] in the bud," says one US official here. "It is our belief at this point that it doesn't hurt him personally."
The blame game
But some observers say a tendency among Panamanians to blame the country's drug involvement on next-door Colombia could slow the investigative and legislative processes.
That reluctance to acknowledge Panama's responsibility for the problem flies in the face of widely held suspicions that Panama - with its nearly 120 banks and dozens of gleaming new (and sometimes empty) skyscrapers - is a drug-money-laundering center.
Confusion has also surfaced over just how far Panama's leaders really intend the investigation to go. Last week, Perez Balladares told the Monitor that, according to his own instructions, the attorney general's investigation was to include recent allegations of wrongdoing within his own Democratic Revolutionary Party (PRD) - a point he also made in a July 10 letter to the Miami Herald.
But Attorney General Jose Antonio Sossa subsequently told the Monitor that the president's formal letter to him included no such request. The letter, he said, was limited to requesting a full investigation into any connection between the Perez Balladares campaign and Jose Castrillon Henao, the imprisoned Colombian accused of heading the Cali cartel's operations here.
But is he serious?
Such discrepancies feed speculation that the president is not as bent on a full investigation as he sounds. And the focus of the speculation is Mayor Alfredo Aleman - a Perez Balladares friend and adviser, and an influential member of the ruling PRD party - and a vice-president of the board of Panama's BANAICO bank. The bank's collapse in March led to investigations from which the current campaign scandal arose. Mr. Castrillon Henao was a BANAICO client, while according to press reports Mayor Aleman owns a company that is under investigation in the US and in Spain for drug-trafficking.
"The president's problem is that he has some pretty shady friends and hasn't really disengaged himself publicly from them," says Roberto Eisenmann, founding publisher of La Prensa, the Panama City newspaper that broke open the BANAICO investigation.
Panamanians realize that their country, with its important banking sector, its free-trade zone, and trade services related to the canal, is susceptible to money laundering, Mr. Eisenmann says. "But we are not a country with many options," beyond those service industries, he adds, so the immediate response is to take the steps necessary to protect them.
The problem is that "protecting" can lead to cleaning up - or covering up. Panama's leaders insist the drug-money scandal is prompting the former.
Foreign Minister Ricardo Alberto Arias says there will be stricter campaign-financing laws. Prez Balladares has named a new bank reform commission to study legislation needed to make bank dealings more transparent - and avoid other bank collapses.
Still, Attorney General Sossa - who himself was the target of a mysterious attempt this month to link him to drug traffickers through a phony check - says Panama's "problem" is not so much in legislation, but in a "morbid" atmosphere in which everyone now suspects drug traffickers and money launderers everywhere.