Mega-Projects and Economic Development:

The Proposed Expansion of the Panama Canal

Friday 29 October 2004, by Mark BROOKS

Completed in 1914 by the United States, the Panama Canal has been described as “one of the supreme achievements of all time” and “the greatest liberty Man has ever taken with Nature”. Including the failed French effort to build a canal across the isthmus in the late 19th Century, it is estimated that at least 20,000 workers died during construction of the 80 km waterway due primarily to yellow fever and malaria. Construction of the canal was a profoundly important historic event. Because of it, Panama, formerly a province of Colombia, became an independent nation; significant advancements were made in medicine and engineering; and the United States embarked on its role of active involvement (or interference) in the affairs of the Americas.

When the U.S. took over the canal construction effort from the French, it was decided that, rather than attempt a sea level canal, a dam would be built at the Atlantic mouth of the Chagres River thereby creating a 163 square mile reservoir called Lake Gatún at 26 meters above sea level. Two sets of parallel locks able to accommodate two-way traffic would lift ships up to the lake where they could sail across and be lowered by another set of locks on the other side.

At the time of its completion, the huge locks of the Panama Canal were large enough to accommodate any ship in the world. However, this is no longer the case. Many ships today are too large to fit through the canal and the number of these so-called ‘post-Panamax’ vessels is increasing every year. Approximately 60% of ships on order for construction in 1999 were post-Panamax and 30% of the global fleet is projected to be post-Panamax size by 2020. The canal is also approaching its daily transit capacity limit. The current canal capacity constraint of approximately 47 transits per day and 17,000 per year is expected to be reached by 2012. For these reasons, a construction of a third set of larger locks is being considered by the Autoridad del Canal de Panamá (ACP), the government agency responsible for the canal’s administration and operations. Despite the expected social and environmental impacts, canal expansion has been deemed essential by the ACP in order to remain competitive and foster continuing economic growth for Panama. Without expansion, the Panama Canal will lose its importance to global shipping and become obsolete within a few years according to the ACP. With expansion, commercial growth of the canal is projected to increase 400% between 1990 and 2060.

As it is a fresh water canal, operation of the locks is entirely dependent upon a reliable and continuous supply of vast quantities of water from Lake Gatún - approximately 52 million gallons or 200 million liters per ship transit. However, as the reservoir also serves as the water source for many of the people of Panama, a burgeoning population and increasing canal transits are increasing water demands on the reservoir. Lake Gatún does not have sufficient water to supply an expanded canal as well as increasing urban demands. Therefore, in addition to the construction of a new set of giant-sized new locks, canal expansion proposals also call for the construction of a new dam on the Indio River - the river closest to Lake Gatún - with a reservoir size of at least 4500 hectares (45 km_) and the subsequent diversion of water to supplement the canal. It has been estimated that upwards of 3500 people living in the region - mostly poor campesino farmers - will have to be relocated as their lands will be flooded by the new dam. Canal expansion may also lead to deforestation, massive excavation of lands, and significant environmental impacts associated with dam construction.

Cost projections have been made for the Panama Canal expansion project ranging from $2 billion to upwards of $12 billion USD. As Panama’s population is only 3 million and its annual GDP a mere $12 billion USD approximately, even a modest $6 billion price tag amounts to roughly half of the nation’s GDP. Understandably, some observers have identified the economic feasibility of the project to be one of the most significant obstacles to its implementation. With Panama already burdened by a public debt of more than $9 billion, an $8-$10 billion price tag would put Panama in the 10th worst position in the world for debt to GDP ratio. Should the people of Panama be solely responsible for financing the canal expansion? If so, how will they pay for it?

A rural peasants organization called La Coordinadora Campesina Contra las Embalses (CCCE) is opposing construction of a new dam in the canal watershed and any plans involving the inundation of their lands. Among other activities, the CCCE has organized in communities throughout the new canal watershed and has staged numerous protests in the cities of Colón and Panama.

Claiming that the ACP has thus far been unwilling to discuss any details regarding the new dam or how people might be impacted, the campesinos are deeply concerned about their future. They claim most of the land in the region is already being used and there will be nowhere for them to go should they be displaced. While agreeing that the region needs to develop economically, the campesinos claim never to have seen any benefits from the current canal and are skeptical that they will do so in the future. They are not necessarily opposed to an expansion of the canal; they simply do not want to lose their land. Without land, they say, they have nothing. It is their life, their history, their means of survival.

Most have never lived in the city and have no desire to do so now. They claim the ACP’s reticence to discuss their intentions has only heightened fears and distrust.

For their part, the ACP claims that, should a new dam be required, they will comply with internationally recognized protocol for openness, transparency, and public participation. However, at this stage they say there are no formal plans and, therefore, there is nothing to discuss. Moreover, canal expansion may provide significant and much-needed benefits to people of the region according to the ACP. A long-term increase in the canal’s revenue stream could contribute to the capital available to the government for socioeconomic investment in rural regions such as the Indio. The ACP has also suggested that the construction of a dam will bring infrastructure to the region such as better road access, clean and abundant water, and electricity. Moreover, the construction phase may offer quality employment opportunities to campesinos.

With a per capita annual Gross Domestic Product of $4020 USD, Panama appears at first glance to be one of Latin America’s richer nations. While there is indeed considerable wealth in the country, income disparity in Panama is among the world’s highest, second only to Brazil in Latin America and only marginally better than South Africa. 37% of the population lives below the poverty line, over half of these in extreme poverty. In addition, fully half of all Panamanian children live in poverty. Of those living below the poverty line, 77% live in rural parts of the country. Among their most pressing requirements, campesinos living in the Indio region identified the urgent need for adequate health care facilities and treatment, electricity, school repairs, a regular teacher, a potable water supply, a phone line, and road improvements.

As with many mega-project development initiatives, the proposed expansion of the Panama Canal presents formidable challenges that, depending on how they are managed, could either impede or contribute to Panama’s future development and environmental sustainability. Viewed strictly as a strategy for economic development, the project raises many serious questions in regard to whether it is the most appropriate course of action - questions that thus far the Panama Canal Authority has yet to address. Canal expansion may present an opportunity to repay Panama’s substantial social debt to its most disenfranchised; however it could also contribute to further marginalization and increased poverty. Similarly, environmental conditions in the canal watershed may well improve should the project be carried out in conjunction with conservation and restoration efforts. However, ecological conditions in the region have already been eroded already due to extensive land degradation. Should the inevitable impacts not be minimized, the risk of further deterioration will increase. The project viability, then, may ultimately depend on what exactly the ACP decides to do and how those most affected - the campesino farmers - are to be included in the decision making process. Canal expansion may well turn out to be the most important decision of the new century for the people of Panama, just as construction of the original canal profoundly shaped the course of the country’s history in the 20th century.

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