'Taking Out The Cancer'

Lookouts whistle in warning when the unmarked police car enters an apartment block in the fetid Panama City slum of Curundu. Two Panamanian cops emerge, sweating and anxious. The apartments above them bristle with grenades and machine guns. On an earlier patrol, someone threw a body from an upper-story window--perhaps as a warning. "This is the most dangerous area we have," says Sgt. Javier Batista, scanning the rooftops while holding a pump-action 12-gauge. "If someone starts firing from up here, a shotgun won't reach them." As the Panama Defense Forces under Gen. Manuel Antonio Noriega, they always entered the area well armed. Now demoted to civilian police by their American occupiers, they carry only shotguns and sidearms. The U.S. servicemen who accompany them appear unsympathetic. American military adviser Joseph Guilmette says he draws his gun "on a daily basis" in the barrios. "We get shot at. It's no big deal. It's part of the job."

Six months after the action to dislodge Noriega, Panama is having a hard time doing the job by Washington's rules. The occupation has curtailed much of the corruption that flourished around drug trafficking and money-laundering industries. But the regular economy offers a bleak alternative: the country is now $6 billion in debt. National pride is suffering. "I'm a military man," says Col. Eduardo Herrera Hassan of the newly civilianized Public Force. "For us it's painful to see American troops on our soil." A mysterious outfit calling itself the Dec. 20 Movement has claimed responsibility for a number of terrorist attacks, including the March bombing of the My Place bar, in which one U.S. serviceman was killed. And some fear that the U.S. presence may provoke Panama into anointing a new dictator. "The Americans have taken out the cancer," says the wife of one prominent government official, "but they have left the patient with so many problems that he still could die."

Nostalgia for the prosperous days of dictatorship thrives in a giant refugee shelter across the railroad tracks from "Hollywood," a shantytown in the capital. Here two enormous aircraft hangars, part of the old Albrook Air Force Station, have been converted into temporary housing for 3,100 men, women and children left homeless by the leveling of the Chorrillo neighborhood--a barrio where families resided in run-down tenements and hustled their way through life. "Many didn't pay for anything," says Bernardo Munoz of the Panamanian Red Cross. "They didn't pay for water, they didn't pay for light."

Now the refugees live in cubicles, about 10 feet on a side, made of wood and plasticized fabric. The 729 rooms are probably more sanitary than Chorrillo ever was; children attend an immaculate day-care center. The hangars are well policed and violence free. Still, the inhabitants are unhappy. "We didn't ask to come here," says Carmen Isabel Ruiz, 33, who lives on cots with her five children in a single cubicle. "This isn't life." The old days under Noriega--that was living. In the barrio, says Ashton Bancroft, the elected head of the Chorrilleros' governing committee, people had freezers, televisions, stereos-- "All that. The people who want to go back to Chorrillo, they want to go back to that life that Noriega gave them, that easy life, that gangster life."

Even the business community is beginning to recall the time of prosperity before U.S. economic sanctions. Savings accounts have been unfrozen, and some Panamanians are putting money into them. But the economy as a whole is practically comatose Unemployment is running about 25 percent. Per capita income has dropped from an estimated $2,300 to $1,600 a year since the onset of sanctions. In the dictator's final days the national bank was pillaged. Million-dollar checks were made out to "bearer." The chauffeur of a top Noriega aide cashed a single one for $3 million. The result, according to one U.S. official: "The government has an overdraft of $900 million on the national bank."

Prosperity under Noriega was due largely to legal but shady ventures. Eighty percent of the economy is built around service industries, many of them designed to help foreign companies and individuals circumvent the laws of other countries. Corporations took out official papers in Panama to disguise their ownership. Ships registered there to evade regulation. The Colon Free Zone allowed merchandise to come in under one label and go out under another with little oversight. Bank accounts were secret, to disguise the source of the income. By the mid-1980s, according to present government officials, more than 80 percent of the country's construction business was funded by money laundering.

Can Panama's economy comply with U.S. standards and still recover? Washington recommends a greater emphasis on tourism, light manufacturing and agricultural exports. But almost every developing country is competing for these same markets and Panama has relative disadvantages, including one of the most liberal labor codes in the hemisphere. If reform means reduction of wages and benefits, nationalism and anti-Americanism will grow. "For the people of Panama, the only thing they know is that during Noriega unemployment was very, very low," says Jorge Endara, uncle of U.S.backed President Guillermo Endara, and the head of the social-security system. "What worries me is that at the end of the line they will blame all our problems on democracy." Or as Noriega himself might say: better jingo than gringo.