The man plotting the course of one of the world’s key waterways

Five years ago, Ricaurte Vásquez, a 72-year-old economist who has twice been Panama’s finance minister, was a happy retiree, “stubbornly opposed to the idea of having a formal job” again. But then the board of the Panama Canal asked him to apply to be its administrator – and the rest is history. The position has huge economic and symbolic importance to the Central American nation. The 80km freshwater canal, which runs from the Pacific to the Atlantic, employs 8,500 people, handles 5 per cent of global maritime trade and accounts for 8 per cent of Panama’s gdp. Yet it was US-owned and run for 85 years from when it began operating in 1914 until 31 December 1999.

In January it was back in the news when US president Donald Trump said in his inauguration speech that his country needed to “take back” the canal, claiming that it was a bad economic deal and that Panama had allowed China to control it. Trump claims that Hong Kong-based Hutchison Port Holdings, which operates two ports here, threatens the canal’s neutrality clause, signed when its ownership was transferred to Panama. Though the statement might sound like populist bombast, it has led to frantic negotiation and US secretary of state Marco Rubio chose the small isthmus as the location of his first state visit.

Vásquez’s office is inside a building on a raised vantage point with a commanding view of the waterway. Like the canal, it was built by the US and from the outside it resembles a government building that you might find in Washington. Inside, the rotunda features elaborate murals depicting scenes of men cutting through the jungle and building the canal, which was completed 10 years after then-president Theodore Roosevelt encouraged Panama to cede from Colombia. Though Panama has always had a deep affinity for the US, the latter’s presence here is complex and has frequently been the subject of protest.

Relaxed and smiling, Vásquez talks to monocle against a backdrop of containers and cranes outside his window as a green vessel makes its slow passage down the canal. His mood is conciliatory and he prefers to talk about matters such as extreme weather than the off-the-cuff remarks of a leader to the north. — L

What do you make of Trump’s allegations of Chinese control of the canal? Those containers we see outside the window are in one of the ports operated by a Hong Kong-based corporation.
I hope that this will be resolved in an intelligent matter and I trust in the president’s prudence. I do think there are things he can bring to the table. Some of the US complaints are valid and we must recognise that.

Such as?
Levels of corruption. Odebrecht [a corruption scandal that originated in Brazil] did a lot of harm to Latin America. We are still not cured of it.

Panama broke off relations with Taiwan in 2017 and established them with China. Does China have a strong presence in Panama?
Yes, China has a presence in Panama. Our president, José Raúl Mulino, has ordered an audit of these ports. We shall wait for the results. If everything is above board, there is nothing for China to worry about. But it is true that the culture of some companies, where bribing is part of the way of doing business, came with them to Panama.

There was apprehension when the canal became state-owned in 1999. Yet last year you handed President Mulino a cheque for $2.5bn [€2.4bn].
The Panama Canal Authority has done it well. We have been responsible and we have not taken sides. The reason why the neutrality clause in the treaty was important, and remains important, is for the continuous operation of the Panama Canal in times of war and times of peace, open to vessels of all nations. This means that despite the role we have globally, Panama doesn’t get drawn into situations that have nothing to do with us.

Did your experience in the public and private sectors stand you in good stead for this role?
My experience working at General Electric had a significant effect on what I bring to the Panama Canal. I saw a huge, extremely successful US icon go down [during the financial crisis between 2008 and 2010]. You don’t want the same thing to happen to the Canal. I saw what happens to companies as successful as General Electric when they don’t evolve. The Panama Canal has been an organisation run by engineers all its life. I arrived and said, “We’re going to do things differently.” You have to become disruptive. What we have done over the past five years is based on brainpower; it’s beyond infrastructure. For example, we became extremely creative in the way that we handled prices and economic value when dealing with drought.

How did that work? A drought in 2023 slowed the crossing of ships significantly.
During the drought, everyone was saying to us, “What is going on? Prices are going through the roof.” Well, we had let the market decide. The Panama Canal, thinking as a business organisation, introduced a new way. We have always worked with two systems: a first-come, first-served basis, and a reservation-based system. Not any more. Now everyone needs a reservation; every day we auction open reservation slots and during the drought we had a surge in auction prices. Also, from October to December 2023, we generated revenue from water scarcity. We applied a congestion premium on vessels over a certain length depending on the availability of water that day. Anyone who’s a businessperson – and that includes the current president of the US – understands how supply and demand works. We all want market forces to perform and allocate resources until the moment that it works against you.

You applied economics to climate change?
Exactly. For centuries, we did not pay for what we took from nature. Now nature is claiming back all those externalities that were not included in the overall economic cost of doing things. We’re going to start paying now. This is an organisation that is climate dependent. We operate on fresh water – the only major global maritime route that does so – and that puts the Panama Canal at a disadvantage. So we added a price to water.

Climate change is here to stay. You are going to have to be disruptive again, aren’t you?
That means changing the concept. So far the Panama Canal has moved vessels by water. What if the Panama Canal moves cargoes by land, by doing transshipments and making a land bridge to complement the water one? By doing so, we would reduce water dependence and enhance reliability. We would also expand capacity.  We need to be thinking outside the box of maritime structures and complement maritime operations. That’s why we acquired 22,000 hectares to protect the environment and our biodiversity, and to build a transshipment facility on 12 per cent of that land to make us less water-dependent. It’s going to take five to 10 years to finish but we have to ensure that we have the elements in our toolbox, including reservoirs to enhance the reliability of the waterway. Complementing activities that do not require water for operation will anticipate what could happen with the climate in the next 50 years.

Do you think that this helps to protect the Panama Canal from other governments and maintain its relevance?
It does. We looked at market conditions and saw that there was potential there. We have quantified the possibility. The value of alternative transportation systems is nothing different to what Panama has done throughout five centuries. The Spanish conquistadores used the Chagres river, known as the Camino de Cruces. Then in the 1800s it was a railroad. In 1914 it became the Canal. So if you look at it from a long-term perspective, Panama’s role has not changed. Only the technology has changed. The fundamental role that Panama plays in the world has remained the same. Panama has been a bridge to the world, from the time of the Conquista to today.

Panama’s motto, ‘Puente del mundo, corazón del universo’ [Bridge of the world, heart of the universe], seems to be a double-edged sword.
What other country of four million inhabitants and 75,000 sq km has the relevance that Panama has in the world? And with the same consequences that any disruption to it – such as a drought – can bring to world trade?

How can the Panama Canal stay being Panamanian and not come under the control of the US again or the influence of China?
Can you show me any of these complex global conflicts that are actually being fought on the soil of any of the belligerent countries? Russia’s conflict is mainly in Ukraine not Russia. And China’s is in the Pacific islands. These political struggles and conflicts, as in the case of the First and Second World Wars, are being ignited in areas that are not necessarily the major powers in the conflicts. So here it comes once again. The role that Panama plays in the world – being so small and in the middle of international, global titans – how do you play out that situation? Panama became an independent republic because of the Canal. So it’s very much a part of who we are. We Panamanians have to understand the role of the Panama Canal – the role we have played in the past and the role that we would like to play in the future. The Panama Canal brings a responsibility. We play the role of a bridge to the world. Because it’s here, and because we do it every day, we don’t realise how important that is.