Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

147. Memorandum of a Conversation, Panama City, August 9, 1956¹

Panama City, August 9, 1956

SUBJECT

• Suez Canal Problem

PARTICIPANTS

• From Panama
  • President Arias
  • Acting Foreign Minister Molino
  • Harmodio Arias²
  • Dr. Octavio Fabrega
• United States
  • Ambassador Julian Harrington
  • Assistant Secretary Henry Holland

The first three hours of the meeting were taken up by a long rehearsal by the Panamanians of different complaints regarding U.S. implementation of the treaty between us. That will be reported in a separate memorandum.³

At the end of this period I raised the problem of the Suez Canal. The Panamanians showed some surprise and said that they had not intended to raise the problem. I said that I would like to do so because I felt confident that it was one upon which they had been thinking heavily and that I felt it was one of importance between our two countries.

Prior to the conference I had undertaken to outline in my own mind a presentation which might be appealing to all of the different shades of thinking that I felt sure could be found among the President’s advisers, and which might persuade each of these groups to follow a line of temperance with respect to the Suez problem.

I told the President and his advisers that I had, in my thinking, attempted to put myself in the place of a Panamanian and determine what would be the best course for my country. This, of course, depended upon what my objective with respect to the Panama Canal might be.

I knew that some Panamanians favored eventual nationalization or internationalization of the Canal. If I belonged to this group I would see two possible courses. The first would be to try to intervene in the Suez problem, to identify Panama with Egypt and to draw analogies between the two canals. The second course would be to avoid any participation in the Suez problem and to await a more favorable time to pursue my objective.

Of these two courses, the second seemed to me the better. The first would necessitate the immediate sacrifice of some exceedingly valuable short-term assets of Panama. These are the present good will of the United States people and Government and the intention of the administration to urge favorable action by the next Congress on the legislation appropriating funds to construct the bridge across the Canal, the legislation regarding equal pay rates in the Zone and the legislation transferring to Panama certain lands and other assets covered by the recent treaty amendment. Likewise, the first course would necessitate Panama’s identifying herself with the enemy of the United States and of Panama, since it is probable that Soviet Russia will align herself with Egypt.

As a Panamanian, my objective might be the continuation of the present arrangement between the United States and Panama regarding the Canal. If this were my objective, then I would be intent on a course of action having two major features. The first feature would be to neutralize the efforts of three local groups which will surely try to embarrass the Government of Panama with respect to the Suez problem. These groups are the local communists, the local sector which favors nationalization of the Panama Canal and the local opposition to the existing Government. As a defense against the activities of these three groups I would publicly evidence intense interest in the Suez problem; I would publicly express a desire to participate in the London Conference, but I would be exceedingly careful to avoid the slightest possibility of actually being drawn into that Conference. If Panama were to be included in the London Conference it would be inevitable that she would be forced to adopt a position which would prejudice the Government. Panama would have to identify herself either with the Egyptian point of view or with the U.S. point of view. In the first case, she might sacrifice the enormous asset represented by present U.S. good will toward her. In the second case, the Government might find itself embarrassed domestically and exposed to the attacks of the three opposition groups mentioned above.

The second feature of my course of action if my objectives were continuance of the existing Panama Canal regime would be to seek to extract from the Suez dispute something of legitimate benefit for Panama. I thought I saw an opportunity to do this. For some time Panama and the United States have been negotiating regarding the acquisition by the United States of the right to establish radar and defense installations on two hilltops adjacent to the Canal Zone. If, at this time, when the public of the United States is deeply concerned about the implications of the Suez problem and, particularly, its possible effect on our interests in the Panama Canal, Panama were to grant these defense sites, the effect on the public and Congress of the United States would be very favorable. The Government and people of the United States would take this as a courageous demonstration of solidarity on the part of Panama. This is exceedingly useful to Panama at this time. We foresee great difficulties in achieving enactment by the next Congress of the legislation implementing our last treaty revision and described above. The labor unions are going to oppose the legislation regarding equal salaries. The shipping interests are going to oppose the construction of the bridge, because they fear that its cost might result in increased charges for transiting the Canal. The good will which would be generated by an authorization of the radar sites would, in my judgment, be an important factor in achieving favorable action on the legislation at the next Congress.

I concluded by saying that as between the two basic objectives, nationalization or internationalization of the Canal, and continuation of the present situation, I felt that the second was the one which most served Panama’s interest. If the Canal were internationalized or nationalized, the present peculiar relationship between Panama and the United States would, of course, come to an end. That relationship is one which has in the past and will in the future produce real benefits to Panama. These benefits are, in all probability, considerably more valuable than would be those which she might derive from the Canal even if it were nationalized.

At the conclusion of my remarks, Dr. Harmodio Arias asked if I had not observed that the Government of Panama had been following precisely the course that I had recommended. I replied that this was true; that I thought that the Government had done exactly what I felt most served the interests of Panama. It had expressed a keen interest in the Suez problem; it had expressed a desire to participate in the London Conference. This should fully protect it against the attacks of the local opposition sectors I had mentioned. Now the Government should desist from further statements on the subject; otherwise, it might find itself unwillingly embroiled in a problem which could only prejudice the interests of Panama.

Later in the evening, Dr. Arias stated to Ambassador Harrington that the discussion of the Suez problem had been helpful to him, because he had been under considerable pressure from some of the more nationalistic elements of the Government to follow a different policy.

Later in the same evening, I had a further conversation with the Acting Foreign Minister, Mr. Molino. He assured me that in his judgment the existing relationship between the United States and Panama as regards the Canal held benefits for Panama far exceeding in value anything that could be derived from any nationalized or internationalized status for the Canal. He described the existing relationship as a sort of a partnership between Panama and the United States. Any change would mean that, at best, other nations would participate in the benefits of that partnership.

From all the foregoing, it is my feeling that, if Panama supports us at this time, it will be a factor which she will use for years to come in negotiations with us on the many economic problems that arise in connection with the Canal.

In our subsequent conversation, Mr. Molino stated that he had directed the Panamanian Ambassador in Rome,⁴ who is also accredited to Cairo, to go there and maintain contact with the Egyptian Government for the purpose of keeping Panama informed. I told him that I felt that this might prove to be a mistake, and that it might be better for him to advise his Ambassador to stay away from Cairo. This would prevent the possibility of Egypt’s managing to draw Panama into the dispute in some way. I said that we would be glad, if he wished for us to do so, to keep Panama fully informed of the course of the negotiations in London.⁵

1. Source: Department of State, Holland Files: Lot 57 D 295, Panama. Top Secret. Drafted by Holland on August 14. Following the meeting of the Presidents of the American Republics at Panama, Holland, accompanied initially by Secretary Dulles, began a trip to the following South American countries: Colombia, Ecuador, Peru, Chile, and Bolivia. In telegram 98 from Panama City, repeated for information to Holland in Santiago, the Embassy noted that President Arias had confirmed his personal interest in having further talks with Holland the following week. “I strongly favor such a meeting,” Ambassador Harrington stated, “as means of clarifying atmosphere.” (Ibid., 611.19/7–3156) Holland arrived in Panama on August 8 and returned to the United States August 9.
2. Harmodio Arias Madrid, Chairman of the Panamanian Council of Foreign Relations.
3. Not found in Department of State files.
4. Rafael Vallarino.
5. In a memorandum to the President, August 13, Secretary Dulles reported that Holland had a long talk with President Arias and other Panamanian officials regarding matters at issue between the United States and Panama, including the future status of the Panama Canal and the negotiations concerning the Suez crisis. “His talk was, I think, constructive, and on the whole, reassuring,” the Secretary wrote: “He would be glad to report to you personally if you would desire this.” (Department of State, Holland Files: Lot 57 D 295, Panama) The President, through his personal secretary, Ann Whitman, informed Holland’s office that a meeting with the Assistant Secretary would not be necessary. A copy of Dulles’ memorandum in Eisenhower Library, Whitman File, Dulles–Herter Series, bears the President’s initials, indicating that he read the memorandum.