Natural Resource Management Team for Panama

Improved Management and Conservation of Biodiversity and Critical
Watersheds in Panama:

A Design Study for USAID

Panamá, Panamá

*Final Draft, May 2006*

Natural Resource Management Team for Panama

Improved Management and Conservation of Biodiversity and Critical
Watersheds in Panama: A Design Study for USAID

*\-- Final Draft, May 2006\--*

*[Contents]{.underline}*

Part I. Background and Purpose of This Study 1

1\. USAID Objectives and Activities 1

2\. The Existing Watershed and Protected Areas Project 2

3\. Objectives and Approach of This Study 3

Part II. The Panamanian Context 6

4\. Biodiversity and Protected Areas in Panama 6

4.1. Panama's Biodiversity in a Regional and World Context 6

4.2. Panama's Range of Species 13

4.3. The System of Protected Areas 16

5\. Water and Watersheds in Panama 18

5.1. Sources of Water and Principal Watersheds 18

5.1.1. Precipitation and Surface Water 18

5.1.2. Groundwater and Reservoirs 20

5.1.3. Watersheds 20

5.2. Principal National Demands for Water 22

5.3. The Changing Relation between Water Demand and Supply 23

6\. Principal Trends and Problems Affecting Biodiversity and Watersheds
26

6.1. Deforestation, Sedimentation and Contamination 26

6.2. Environmental Risks 29

6.3. Poverty, Biodiversity and Water 30

7\. Critical Watersheds and Biodiversity Areas 31

7.1. The Panama Canal Watershed 31

7.1.1. Principal Characteristics 31

7.1.2. Biodiversity in the Panama Canal Watershed 33

7.1.3. Threats to Biodiversity in the Panama Canal Watershed 35

7.1.4. Poverty in the Panama Canal Watershed 38

7.1.5. Critical Sub-Watersheds and Areas of the PCW 39

7.2. Río la Villa Watershed 44

7.2.1. Principal Characteristics 44

7.2.3. Biodiversity in Río La Villa Watershed 46

7.2.3. Threats to Biodiversity in Río La Villa Watershed 46

7.2.4. Poverty in Río La Villa Watershed 47

8\. Key Aspects of The Policy Framework 48

8.1. Institutional Responsibilities for Biodiversity, Water and
Watersheds 48

> 8.1.1. Biodiversity 48
>
> 8.1.2. Water Resources and Watersheds 50

8.2. Panama's Principal International Agreements for Biodiversity

and Watersheds 56

8.3. Current Approaches and Experiences for Ecotourism 58

8.4. Current Approaches and Experiences for Cleaner Production 61

8.5. Policies for Forestry and Forest Management 63

8.6. Policy Issues in Biodiversity, Water and Watersheds 64

Part III. Alternative Interventions for Managing Biodiversity and
Watersheds 67

9\. Overview and Points of Entry 67

10\. Economic Approaches for Managing Biodiversity and Watersheds 69

10.1. Goal and Methodology 69

10.2. Environmental Services 70

10.2.1. Background: Environmental Services and Economics 70

10.2.2. ESP Systems for Biodiversity and Water 71

10.2.3. Implementing and Costing an ESP System 76

10.3. Forestry and Reforestation 78

10.3.1. Background: Links to Biodiversity and Commercial Opportunities
78

> 10.3.2. Forestry and Reforestation Needs in the Selected Watersheds 80

# 10.3.3. Profitability for Landowners 80

10.3.4. Options for Reforestation in Panama 82

> 10.3.5. Costing a Reforestation Program and USAID Options 85
>
> 10.3.6. Related Initiatives 87
>
> 10.3.7. Conclusions for Forestry in the Canal Watershed and Río La
> Villa 88

10.4. Sustainable-Seal Agriculture 89

10.4.1. Sustainable Seals and What They Do 89

10.4.2. Certification and Biodiversity and Watersheds in Panama 92

# 10.4.3. Costing Parameters for Certification Programs 93

10.4.4.Potential Roles for USAID 94

10.5. Bio-Trade 96

10.5.1. Background and Examples 96

10.5.2. Potential in Panama and the Selected Watersheds 97

10.5.3. Potential Role for USAID and Cost Considerations 98

10.6. Ecotourism 99

10.6.1. Definitions 99

#  10.6.2. Local Wealth Creation 100 10.6.3. Current Eco-Tourism Plans in Panama 102

10.6.1. Possible USAID Roles 104

11\. Elements of an Integrated Biodiversity and Watershed Management
Strategy 106

11.1. Objectives and Action Areas for an Integrated Strategy 106

11.2. Strengthening Environmental Governance at the Watershed Level 107

11.2.1. Local Capacity for Biodiversity and Watershed Management 107

11.2.2. Strengthening Inter-institutional Coordination 114

11.2.3. Planning for Watershed and Biodiversity Management 115

11.3. Strengthening Conservation Practices in Watersheds 119

11.3.1. Practices for Biodiversity Conservation 120

11.3.2. Practices for Water and Soil Conservation 121

11.3.3. Marketing Environmentally Friendly Products 124

11.4. Costing an Integrated Management Strategy 127

Part IV. Outline of Options for Critical Watersheds 129

12\. Río La Villa Watershed 129

12.1. Application of an Environmental Services Payment Program to
Support

Biodiversity and Watershed Improvement 129

12.2. Reforestation in Río La Villa 133

12.3. Ecotourism in El Montuoso Forest Reserve 135

13\. The Sub-Watersheds of the Panama Canal Watershed 136

13.1. General Approach 136

13.2. Environmental Services Payments in the Panama Canal Watershed 137

Annexes 139

A. Maps of Selected Watersheds 140

B. Globally Threatened Bird Species in Panama 143

C. Potential Water Charges and Watershed and Biodiversity Recuperation
in

The Montuoso Forest Reserve 147

D. Comparative Matrix of Watershed Characteristics and Threats

E. List of Persons Interviewed

List of Tables and Figures

[Page]{.underline}

Table 1. Panamanian Plant Species Protected by CITES and UICN 14

Table 2. Algae and Other Aquatic Species in Panama 14

Table 3. Number and Size of Protected Areas by Management Category 17

Table 4. Health Costs Associated with Urban Water Contamination

In Latin America 30

Table 5. Population in the Panamá-Colón Metropolitan Area and the

Canal Watershed 36

Table 6. Population Growth Rates, Panamá-Colón Metropolitan Area and

PCW (%) 36

Table 7. Types and Degrees of Threats to Ecosystems in the Upper

Chagres Watershed 37

Table 8. Characteristics of Principal Sub-Watersheds in the PCW 40

Table 9. Distribution and Scope of ESP Schemes Surveyed 72

Table 10. Certified Forests in Panama 82

Table 11. Hectareage in Certified Forests in Central America 83

Table 12. Cost of the Forestry Development Effort at Different Scales

of Operation 86

Table 13. Categories of Ecotourism Experiences 100

Table 14. Steps in the Process of Strengthening Local Organizations 108

Table 15. Improving a Watershed Environment according to Soil Fertility

> and Slope 125

Table 16A. Summary of Relevant Environmental Services Provided by Upper

> and Middle Watersheds of Rio La Villa: Local Services 134

Table 16B. Summary of Relevant Environmental Services Provided by Upper

> and Middle Watersheds of Rio La Villa: International Services 135

Figure 1. Forest Cover in Panama, 1947, 1986, 1992 12

Figure 2. Role of Youth in Integrated Watershed Management 111

Figure 3. The Staircase of Watershed Research and Action 113

Figure 4. Examples of Elements of a Watershed Baseline 116

Figure 5. Steps in Establishing SOL Sites and the SOL Process 123

Figure 6. Identification and Evaluation of Market Opportunities for
Small

> Rural Producers 126

Improved Management and Conservation of Biodiversity and Critical
Watersheds in Panama: A Design Study for USAID

*\--Final Draft, May 2006\--*

**Part I. Background and Purpose of This Study**

**1. USAID Objectives and Activities**

USAID's scope of work for this study calls for the development of an
integrated set of options for improved management of biodiversity and
critical watersheds in Panama. It responds to the Strategic objective of
the Panama Mission of "Economic Freedom: An Open, Diversified and
Expanding Economy." One of the principal results under that objective is
the "Improved Management and Conservation of Critical Watersheds."
Achieving this result is also a key to protecting Panama's significant
biodiversity, which is under threat in a number of critical areas.

The Mission has been laying the foundations for improved management of
biodiversity and watersheds through cooperative efforts with the
Government of Panama and the private sector to establish and replicate
best production practices, improve policies for watershed management,
promote appropriate land use patterns, and improve environmental
governance by promoting participation of all stakeholders in the design
of watershed interventions.

The Mission is also carrying out other, complementary activities in the
areas of trade and investment promotion, strengthening the rule of law
and increasing transparency in government, and community and local
economic development in the Darién. USAID's Central American Regional
Mission and the Latin American and Caribbean Bureau in USAID/Washington
are supporting improved environmental management in the Mesoamerican
Biological Corridor, increasing the sales of specialty coffee,
mitigating threats to the Amistad Biosphere Reserve (through the Parks
in Peril program), and helping protect the Chagres National Park and the
Darién National Park, through a debt-for-nature swap for Protected Areas
under the Tropical Forest Conservation Act (TFCA).

USAID has been supporting better management of the Panama Canal
Watershed and protected areas since 1970s. The initial emphasis was on
institutional strengthening of government agencies involved in
watersheds and protected areas, and on defining and implementing
improved conservation practices. More recent priorities have included
strengthening participatory mechanisms and civil society organizations,
developing and carrying out environmental education campaigns, and
supporting certification efforts for sustainable forest management.

**2. The Existing Watershed and Protected Areas Project**

USAID's current project in this area, managed by AED, has worked in
selected areas of the Panama Canal Watershed (PCW) and has had the dual
aims of supporting better management of selected sub-watersheds and
improved management of protected areas. It has worked closely with
governmental institutions, NGOs, and community organizations in
localities where the effort is concentrated. The emphasis has been on
developing pilot experiences that can show the way to better watershed
management on a wider scale. The effort also has led to major reforms in
the policy framework affecting the Panama Canal Watershed and has
strengthened environmental education. A recent evaluation[^1] of this
project highlighted the following key accomplishments:

• Studies that analyze policy options for sustainable livestock
management, plantation

> forestry and natural forest management, pineapple production, cleaner
> pork production, and reduction of soil erosion caused by roads.

-   Organization of coordination committees for local stakeholders and
    demonstration activities to promote integrated watershed management
    in the Hules-Tinajones and Caño Quebrado sub-watersheds.

-   Facilitating agreement among Government of Panama agencies on
    environmental indicators for monitoring the PCW and on assignment of
    responsibilities for them.

-   Developing communications materials related to integrated watershed
    management in the

PCW.

-   Establishment, jointly with the Panama Canal Authority (ACP) of a
    \$5 million fund for grants to local NGOs for demonstration
    activities in improved watershed management.

-   Completion of a study for a strategy for ecotourism in the Soberanía
    National Park.

-   Helping the National Environmental Authority (ANAM) draft
    regulations that were approved for administrative and service
    concessions in protected areas.

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-   Helping the Panamanian Tourism Institute (IPAT) to obtain a
    consensus for the national ecotourism strategy.

-   Helping the Panamanian Association of Tourism Operators (APOTUR)
    develop a database of business activity around a national park, and
    supporting ANAM's development of a memorandum of understanding with
    a group of tour operators for development of a tourism cluster based
    on the concept of an ecological route between two oceans.

-   Preparation of a training plan for ANAM personnel related to
    management and supervision of ecotourism.

-   Reaching agreement with ANAM to pave the way for establishment of a
    foundation that would co-manage the Chagres National Park, and of a
    steering committee to review the management strategy and oversee
    implementation of the co-management plan.

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-   Development of a conservation action plan for this park.

-   Facilitated the ratification of a debt-for-nature swap between the
    Governments of the U. S. and Panama that will provide about
    \$375,000 per year for 14 years to finance conservation activities
    in the Chagres National Park.

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-   Preparation of 51 farm management plans to mitigate environmental
    impacts caused by traditional farming and livestock ranching in the
    Chagres National Park.

-   Investment of \$1.5 million in demonstration activities for water
    supply and sanitation, clean production, and solid waste management.

To this list, the present study team would add:

-   Development of an analysis of options for an environmental services
    payments

scheme in a sub-watershed of the PCW.

-   Development and implementation of an extensive program for training
    personnel of the judicial system, in both public and private
    sectors, in principles and precepts of environmental justice and
    their application.

**3. Objectives and Approach of This Study**

This study has been mandated to take a broad look at biodiversity and
watershed issues and options in Panama, both geographically and
thematically. The scope of work encourages review and selection of other
candidate watersheds in addition to the PCW, and it asks for development
of optional interventions that promote integrated management of
biodiversity and watersheds. Since the scope of work was issued the
potential funding level for the new project tentatively has been revised
downward, and hence the option of working in multiple watersheds now
faces some uncertainty. Nevertheless, the Mission has asked the study
team to report its findings with respect to other watersheds, since
options may still be open, and for possible use in other circumstances
in the future.

Budgetary circumstances also may restrict the possibilities for
promoting fully integrated, multi-faceted approaches for biodiversity
and watershed management. However, the Mission and the study team
believe that interventions must be designed in the context of an
integrated view of how watersheds should be managed in order protect
them and enhance the environmental services that they provide. Therefore
a central part of this study is devoted to development of the main
components of an integrated watershed management strategy that would be
applicable for Panama, with appropriate adaptations for each locality.
Part of the process of developing this framework has been a critical
analysis of the main threats to Panama's biodiversity and watersheds and
the extent to which existing institutions and policies need
strengthening in order to respond adequately to them.

Accordingly, a major thrust of this report is a development of a vision
of the issues that need to be faced in order to improve biodiversity and
watershed management, and based on that, development of approaches that
are likely to be productive, as well as the potential roles of USAID and
Panamanian institutions in supporting implementation of those
approaches. Sustainable management of biodiversity and watersheds
requires appropriate technologies of production and resource management.
But in order to ensure the technologies are implemented it requires
community participation in program design and implementation, tangible
benefits for poor communities, economically viable approaches,
sustainable sources of financing, adequate institutional capacity and
policies, and market-driven processes of resource management. These
issues are discussed throughout this report, in the context of critical
areas for biodiversity in Panama.

The link between biodiversity protection and the management of water
resources is a strong one. Water is essential for the conservation of
all biological resources. This means that the higher the environmental
quality of a natural site, the more effective the conservation of
ecosystems and habitats of both flora and fauna. Adequate protection of
water resources in Panama generally requires maintenance of natural
(mixed) forests around water sources and along the numerous permanent
and intermittent tributary streams that are found in all watersheds.
Those forests in turn are the main type of habitat for Panama's
internationally recognized terrestrial, aquatic and avian biodiversity,
and both flora and fauna also depend on the presence of relatively
uncontaminated and reliable supplies of fresh water.

The intimate relation between natural forests and water supplies arises
from the conditions that characterize most of Panama's watersheds. The
slopes in upper and middle watersheds often are steep, especially in the
arroyos where the streams are located, and the kinds of natural pastures
that replace forests usually do not retain runoff well, so runoff
becomes faster and water supplies more seasonal in deforested areas. The
reduction of rates of water infiltration into soils, worsened by the
erosion and crusting over of topsoil layers that often accompanies loss
of vegetative cover, reduces aquifer recharge and consequently lessens
aquifer flows into rivers downstream. In effect, it reduces the capacity
of water systems to store water. The problem is exacerbated by the fact
that the deforestation frequently extends to the riverbanks themselves.
Because of these phenomena, field interviews carried out by the study
team uniformly indicated a reduction in dry season water supplies in
deforested areas.[^2] In short, forests are important guarantors of he
hydrological capacity of a watershed.

In addition, adequate flows of relatively uncontaminated fresh water are
essential for the survival of freshwater species (aquatic and amphibian)
and some marine resources and there is evidence of degradation of marine
habitats along Panama's coasts. In some localities contamination of
freshwater has severely affected fish populations, aquatic flora and
insects. Section II below comments on the large number of species of
flora and fauna in Panama that are classified as critically endangered
and locally endangered, and internationally and locally vulnerable, and
the nature of the threats to them.

For these reasons, in designing potential interventions in watersheds,
this study adopts the following principal and interrelated objectives:
i) protecting biodiversity and promoting its increase where feasible;
ii) protecting and increasing annual and dry season water flows; and
iii) reducing contamination of water supplies, especially in areas where
it affects biodiversity.

The working procedures of the study have been designed to provide and
describe:

-   identification of areas of high biodiversity within the PCW and
    other critical watersheds;

-   an understanding of the range of issues affecting biodiversity and
    watersheds in Panama, and their technical foundations;

-   the main characteristics of critical watersheds and sub-watersheds
    in the country and the issues particular to each one;

-   existing institutions, programs and policies that have been
    established to deal with the

issues;

-   possible avenues for strengthening those institutions, programs and
    policies, to increase their effectiveness;

-   potential interventions that could be applied in the Panamanian
    context, and their technical bases and requirements; and

-   on the basis of the above, the potential role of USAID in supporting
    modified and new

approaches and wider replications of existing approaches.

To fulfill aims i) through iii), an extensive set of interviews was
carried out, both in the capital city and in critical watersheds and
sub-watersheds (see the annexed list of interviews), and previous
studies were consulted (see bibliography). Site visits were especially
helpful in forming a clear perception of the issues on the ground, and
they contributed to the process of selection of critical watersheds and
sub-watersheds. Panama's watersheds exhibit wide variation in basic
conditions and in the threats they face from human activity, and to
fully appreciate that variation it is vital to have recourse to direct
observation, interviews with knowledgeable persons, and review of
relevant studies.

Reviews of international experiences, discussions within the study team,
and the interviews all contributed to developing an understanding of
measures needed to protect biodiversity and watersheds, and of
alternative approaches for achieving the results. The team is very
grateful to all the persons interviewed for sharing their extensive
knowledge, their patience in answering what sometimes were very long
lists of questions, and their willingness to work jointly with the team
members to develop and refine ideas.

**Part II. The Panamanian Context**

**4. Biodiversity and Protected Areas in Panama**

***4.1. Panama's Biodiversity in a Regional and World Context***[^3]

The Isthmus of Panama is one of the planet's most interesting regions
from a biological viewpoint, thanks to the great diversity of species
found in a relatively small territory (75,517 km^2^).[^4] The
combination of altitude variations and climate, its geological history,
and its geographical position in the neotropics, surrounded by two
oceans, have given the country an unusual richness of ecosystems,
habitats, species and populations. They provide the country with very
many benefits, both tangible (goods) and intangible (environmental
services). Panama includes 12 of the world's 30 Holdridge Life Zones.
Those that cover the largest percentages of Panama's territory are:
tropical moist forests (32%), pre-montane wet forests (18%), tropical
wet forests (13.4%), pre-montane rain forests (12.6%), tropical dry
forests (7%), pre-montane moist forests (3.5%), lower montane rain
forests (3.2%), and pre-montane dry forests (3%).[^5]

According to (Barthlott, *et al*., 1996) the plant life of the Isthmus
is recognized as one of the six centers of maximum biodiversity on the
planet,[^6] all of which have more than 5,000 species per 10,000 km^2^.

Panama is part of two of 34 Critical Biodiversity Places[^7] in the
world, defined as:

\(1\) The *Tumbes-Chocó-Magdalena Hotspot* that runs for 1,500
kilometers through Peru, Ecuador, Colombia and Panama as far as the
Canal, covering an area of 274,597 km^2^. It is a zone of very high
biodiversity and includes the Chocó region of the Darién, the western
part of Colombia.

\(2\) The *Mesoamerican Hotspot*, which extends from central Mexico to
the Panama Canal and includes all of Costa Rica, Nicaragua, Honduras, El
Salvador, Guatemala, Belize and two-thirds of Panama.

The *Tumbes-Chocó-Magdalena Hotspot* includes a wide variety of
habitats, from mangroves, beaches, and rocky coasts to deserts as well
as the dense, humid tropical forest in the Colombian Chocó and the dry
coastal forests of South America. In general the region can be divided
into two regions of great importance for the geography of plant life:
the humid and rainy forest of the Chocó in the Darién and Colombia, and
the dry forest in the southern part of Tumbesian Ecuador and Peru. Some
11,000 species of vascular plants have been identified in this region,
of which 25% are endemic. Of this total at least 5,000 were found in the
Chocó (Panama and Colombia), which is considered the site with greatest
biodiversity of flora in the neotropics and the largest plant community
in the world. The Chocó is home to humid rainy forests of global
importance that host more than 300 tree species per hectare, including
the genus *Podocarpus*, *Talauma*, *Hedyosmum*, *Meliosma*, *Brunellia*,
*Ponapis* and *Ilex*.

The Chocó forests are considered to warrant the maximum conservation
priority on a world level (Dinerstein, 1995). They have a high degree of
endemism but also are under very severe threats. According to BirdLife
International[^8] the Chocó region, together with the Tumbesian region
in Ecuador, are two of the most important and critically threatened
regions in the world. In the Chocó 51 species of birds are protected.
The region also is rich in species of fauna, including mammals,
reptiles, amphibians, invertebrates and fish.

In spite of the fact that the Chocó forests in the Darién are relatively
intact and protected by a complex of nature reserves, of which the most
representative is the Darién National Park covering 560,000 ha., serious
threats to their conservation are posed by factors such as climate
change; increased ultraviolet radiation; pressure to alter land use
patterns; hunting and capture for sale of species, mainly mammals and
birds; and the exploitation of mangrove resources for wood and charcoal.
A bio-geographical analysis[^9] of the distribution of terrestrial
vertebrates (amphibians, reptiles, birds and mammals), diurnal
butterflies, and 37 families de plants (Walschburger, *et al*., 2002,
2004), suggests it is necessary to strengthen initiatives for the
conservation of new sites complementary to the conservation areas
already created in the Chocó, and widen the area of study and monitoring
from the PCW to northwestern Ecuador.

The Eastern Region of the Panama Canal Watershed is a mountainous area
that includes an intricate network of rivers and arroyos and an almost
uninterrupted chain of humid forests that connect with the rainforests
of the Chocó. This area includes four life zones (Holdridge, 1979):
humid tropical forest, very humid pre-montane forest, very humid
tropical forest, and pre-montane rainforest. They are home to numerous
ecosystems and important endemism. Of 900 species of flowering plants in
this area, 143 are endemic (12% of all endemic species in Panama). In
the relatively small area of Cerro Jefe alone 486 plant species were
identified in 2003, of which 43 are endemic (Candanedo, *et al*.).
Regarding fauna, ANAM estimates there are 145 species of mammals in the
Canal Watershed.[^10] The most important group is that of bats, which
are important as bio-indicators of the state of the forest. Mammals are
abundant in both higher areas (Cerro Bruja, Cerro Jefe, Cerro Brewster)
and in lowlands.

The *Mesoamerican Hotspot* contains both tropical and subtropical plants
and is especially rich in biodiversity thanks to its position as a
bio-geographical bridge between North and South America and between
Central America and the Caribbean. In addition, it also includes a
considerable number of Caribbean and Pacific islands of great biological
importance because of their endemism. Its diversity of mammals is the
second highest in the world list of hotspots,[^11] and 1,193 species of
birds (1,052 resident and 141 migratory) have been identified, a number
exceeded only in the tropical Andes. Scientific assessments show that
the region is home to at least 37 threatened species of terrestrial
vertebrates. Of these, 25 are endemic to the southern part of this
hotspot and 28 are endemic to Mesoamerica proper. 25 species of the
southern region are concentrated in three areas: the mountains of
northern Costa Rica; the Pacific slope of southern Costa Rica; and
western Panama including Escudo Island in Veraguas.

The Panamanian part of the *Mesoamerican Hotspot* is the bi-national
region of Talamanca that covers the Talamanca-Bocas del Toro corridor
formed to a substantial extent by the Biosphere Reserve La Amistad
shared by Panama and Costa Rica. This corridor contains more than one
million hectares and connects the Talamanca cordillera with the
Caribbean Coast and the wetlands of northwestern Panama and the
Indigenous Comarca Ngobe--Bugle. In this region of the country there are
seven protected areas and one indigenous territory that together cover
429,040 hectares of land. The most noteworthy from a conservation
perspective are the International Park of La Amistad (207,000 ha), the
Protection Forest Palo Seco (125,000 ha), and the Volcán Barú National
Park (14,000 ha).

In the extreme southeastern part of the *Mesoamerican Hotspot* there are
relatively untouched humid and very humid forests of the montane,
pre-montane and submontane parts of the Western Region of the Panama
Canal Watershed, principally in the areas of Donoso (Colón), the Omar
Torrijos National Park (Coclé), and the Altos de Campana National Park
(Panama Province). The combination of variations in altitude and climate
provide habitats for 1,332 species of flora in the Omar Torrijos Park
and 1,100 in Donoso. In this part of the hotspot are found 13% of all
the endemic plant species of the country, among which are: *Manetenia
hydrophila, Anthurium coclense, A. Amicola***,** *Matisia exalata*,
*Calophyllum nubicola*, *Clethra coloradensis*, and *Dendropanax
panamensis*.

In the Panamanian part of the Mesoamerican Hotspot various species of
fauna can be observed in the forest canopy, including birds (e.g.,
*Capito maculicoronatus* and *Amazonia ochrocephala*) and mammals
(*Cebus capucinus*, *Coendou rothschildi*, *Tonata brasiliensi* and
*Minon crenalatum*). The forest floor supports other bird species
(*Anamia agamí*, *Geotrygon veraguensis*, *Amazilia amabilis*) and land
mammals such as *Tapirdus bairdii*, *Tamandua mexicana*, *Puma
concolor*, *Pantera onca* and *Mazama americana*. Local residents have
reported the presence of the Harpy Eagle. Studies in the region have
identified a total of 200 species of mammals, which represents more than
80% of all mammal species found in Panama. This region also is well
known for its amphibians, bats and reptiles. Among amphibians, the
golden frog (*Atelopus zeteki*) is protected by law. At present the
USA-Panama Golden Frog program[^12] is being developed to stop the
destruction of habitat of this amphibian and assure its continuing
survival. It is one of the best-known amphibians in the world and has
gained fame for its cultural importance.

In the marine part of the hotspot, the Coiba Marine Park[^13] is one of
the oldest natural reserves and is home to the second largest coral reef
in the Pacific. This reef contains species that are found also in sites
such as the Mediterranean, the Caribbean and the Western Atlantic.
Scientific expeditions to these reefs carried out between 1996 and 1998
by researchers from the Universidad Autónoma de Madrid[^14] found 19
species of coral from the family *Syllidae* (subfamilies *Autolytinae,
Eusyllinae* and *Exogoninae)*. Among them were four species found for
the first time in the Eastern Pacific:  *Eusyllis lamelligera* (Marion &
Bobretzky, 1875), *Exogone exmouthensis* (Hartmann-Schröder, 1980),
*Proceraea cf. cornuta* (Agassiz, 1863) and *Sphaerosyllis (S.)
magnidentata* (Perkens, 1981). Ten other species new to the Central
American Pacific Coast were found.[^15]  One-fourth of the species that
appeared in the samplings are found only in warm waters of the Pacific.
Other important coral reef sites in Panama are Bocas del Toro, the Gulf
of Chiriquí and the Comarca Kuna Yala.

Coiba also is a site with endemic plants and animals. Of 147 bird
species found on Coiba, one species and 20 sub-species are endemic. The
agouti (ñeque) of Coiba Island (*Dasyprocta coibae*), a sub-species of
the howler monkey with hair on all its body (*Alouatta palliata
coibensis*), a sub-species of possum (zarigüeya, *Didelphis marsupials
battyi*), and a sub-species of white-tailed deer (*Odocoileus
virginianus rothchildi*) are species that are not found anywhere else on
the planet.

Although it is acknowledged that a large part of the Panamanian portion
of the Mesoamerican Hotspot (excepting part of the Western Region of the
PCW) is still relatively intact (principally the mountainous chain
Parque Internacional de la Amistad-Volcán Barú-Parque Omar
Torrijos-Donoso), it is considered threatened by increasing levels of
human activity, including land converted for use in monoculture cropping
(bananas) and subsistence agriculture, intensification of commercial
agriculture in the buffer zone around the Parque Internacional de la
Amistad and Volcán Barú, illegal hunting, and selective extraction of
timber and non-timber species (the latter mainly orchids), the opening
of new roads such as the highway between Almirante and Punta Peña, and
possible mineral extraction activities in Donoso.

Panama's territory contains a disproportionately high number of
endangered species, compared to the rest of the world. Its share of the
world's territory is almost infinitesimal at 0.057% but its share of the
world's endangered plant species, for example, is 3.36%. For mammals,
its share of the world's endangered species is 1.76%, and for reptiles
it is 2.39%. A measure of the importance of each square kilometer of
Panamanian territory can be obtained by dividing this endangered species
ratio by the territory ratio. It may be called the Endangered Species
Importance Coefficient (ESIC). If a square kilometer of Panama had, on
average, the same number of endangered species as a typical square
kilometer in the rest of the world, the coefficient would be 1.0. In
fact, the ESIC for Panama is very much higher. Its values are: for
plants, 58.95; for mammals, 30.86; for birds, 23.55; and for reptiles,
41.91.[^16] While these high coefficients undoubtedly reflect Panama's
endowment of species in general, they also reflect the global importance
of biodiversity protection in Panama.

ANAM has limited capacity to guarantee that the official Protected
Areas, which are those areas with the greatest degree of biodiversity,
remain intact. Other factors are that several Protected Areas, including
the Amistad Biosphere Reserve, contain human settlements within their
boundaries, which increases the risk of deforestation and environmental
degradation in spite of Laws that aim to protect the environment, and
that some of the Protected Areas are too small to provide adequate
protection for the biodiversity they shelter, since their size makes
them much more vulnerable to human incursions.

The scheme for biological corridors being promoted by GEF in the
Mesoamerican Hotspot, and which the CEPF (Critical Ecosystem Partnership
Fund) plans to reinforce, has selected the Talamanca-Bocas del Toro
Corridor as one of three priority conservation areas.

The reduction in Panama's forest cover over the decades is shown in
Figure 1 on page 12 (source: FAO).

> ![](media/image1.pct)Figure 1

***4.2. Panama's Range of Species***

In the year 2000, 44% of the national territory was covered with forests
(33,646 km^2^), which harbor a great variety of plant life. Panama ranks
no. 19 in the world list of 25 countries with the greatest diversity of
flowering plants (angiosperms), and no. 4 for Central and North America
(Correa, *et al*., 1998), with 9,000 species (3.5% of all the species
recognized at a world level and 10% of those recognized in the
neotropics). Of these angiosperm species, 5,438 are considered
vulnerable according to national classifications and 483 species are
listed in the CITES Appendix II. In addition, in Panama 1,100 species of
ferns and related plants (gymnosperms; 104 are threatened) have been
identified, which represents 7.3% of the

world's gymnosperms and 27.5% of those found in the neotropics. Other
representative groups of plants in Panama include the briófitas (both
hepáticas and mosses, with 826 species;

these are especially important for maintaining water balance in forested
areas), lichens (451 species) and algae (1,289 species). In total, it is
estimated that at least 80 species of plants are in critical danger
(protected species) and another 1,041 are locally in danger.

In regard to the economic value of Panama's endowment of plants, more
than 100 species of trees with marketable wood have been identified,
including big leaf mahogany (*Swietenia macrophylla*), two members of
the cedar family \--cedro espino (*Pachira quinata*) and cedro amargo
(*Cedrela odorata*), cativo (*Prioria copaifera*), varieties of
mangrove, principally red mangrove (*Rhizopora harrisonii*) and white
mangrove (*Laguncularia racemosa*), and others. Some trees such as
mahogany and the sandbox tree (cativo) are considered overexploited.
Trade in big leaf mahogany is regulated by CITES and its classification
has been raised from CITES Appendix III to Appendix II in light of the
excessive felling of this tree. Panama also possesses a wide range of
flora species that are used in traditional medicine and foods, both at
the subsistence consumption level and as marketed products.

Panama has a high rate of endemism in plants. Some 1,500 species of
plants, or 15% of Panama's total, have been found that are endemic to
the country. The majority of them are included in the CITES list of
threatened species or on UICN's list of globally threatened plants
(Table 1). According to the World Conservation Monitoring Center (WCMC,
1998), 13 endemic species are threatened according to international
data. They are:

  ----------------------- ----------------------- -----------------------
  *Adelobotrys jefensis*  *Couepia scottmorii*    *Meriania panamensis*

  *Amphitecna             *Dorstenia panamensis*  *Psittacanthus
  spathicalyx*                                    pusillus*

  *Blekea elliptica*      *Erythroxylum brennae*  *Sievekengia butcheri*

  *Brunfelsia dwyeri*     *Escheilera garagarae*  *Struthanthus
                                                  anamensisi*

  *Cordia lesliae*                                
  ----------------------- ----------------------- -----------------------

The principal loci of endemism are found in the mountains of the
Cordillera of Talamanca, which extends from Chiriquí and Bocas del Toro,
beginning in Costa Rica, to the central cordillera of El Copé National
Park (Coclé); in the central part of the country in Cerro Jefe and Cerro
Azul in the Panama Canal Watershed; and to the east and southeast in the
mountainous zones of the Darién \--the Serranía of the Sapo, Serranía
Pirre and Cerro Tacarcuma (Davis, et al, 1997). Of these sites, Cerro
Jefe and Cerro Azul have endangered biodiversity and the others are
threatened.

Table 1. Panamanian Plant Species Protected by CITES and UICN

  ---------------------------------- ------------------- ----------------
  Group                              CITES               UICN

  Angiosperms                        955                 369

  Gymnosperms                        11                  6

  Ferns and allied species           33                  0
  ---------------------------------- ------------------- ----------------

Source: ANAM, Estrategia Nacional del Ambiente, Riqueza Biológica de
Panamá,

> Análisis de la Situación Actual, vol. 5/7, Panamá, 1999.

Panama also has considerable diversity of algae and other aquatic
plants, both in coastal waters and in fresh water. The botanical
divisions of these plants and their estimated numbers in Panama are
shown in Table 2 below.

Table 2. Algae and Other Aquatic Plant Species in Panama

  ------------------ -------------------- ----------------- --------------
  Division           Freshwater species   Marine species    Total species

  Algae              482                  718               1200

  Chlorophyta        309                  70                379

  Rhodophyta         7                    113               120

  Euglenophyta       70                   \--               70

  Pyrrophyta         13                   \--               13

  Chrysophyta        9                    594               503

  Phaeophyta         \--                  34                34

  Cyanophyta         74                   7                 81

  Spermatophyta      91                   7                 9

  Total              573                  725               1298
  ------------------ -------------------- ----------------- --------------

Source: ANAM, Estrategia Nacional del Ambiente, Riqueza Biológica de
Panamá,

> Análisis de la Situación Actual, vol. 5/7, Panamá, 1999.

Panama is recognized worldwide for its great variety of birdlife. It
contains 10% of all the world's bird species (930 species including
resident and migratory species), including highly prized birds such as
peacocks, parrots, macaws and parakeets. At least 8 species are
catalogued as endemic to Panama[^17] (Ridgely & Gwynne, 1993): the fiery
throated hummingbird (*Selasphorus ardens*), the stripe-cheeked
woodpecker (*Piculus callopterus*), the Coiba spinetail (*Cranioleuca
dissita*), the beautiful treerunner (*Margarornis bellulus*), the
yellow-green tyrannulet (*Phylloscartes flavovirens*), the green-naped
tanager (*Tangara fucosa*), the Pirre bush-tanager (*Chhlorospingus
inornatus*), and the yellow-green finch (*Pselliophorus luteviridis*).

In the mountains of the Parque Internacional de la Amistad and the
Darién and in the central cordillera including the Canal Watershed,
there are active nests of the harpy eagle (*Harpia harpyja*), the
largest raptor in the Americas. Panama shares with the rest of
hemisphere 122 regular migratory species and 60 occasional migratory
species (Ridgely and Gwynne, 1989). Internationally recognized nesting
sites include the Taboga-Urabá wildlife reserve in Panama Bay, where the
largest colony of brown pelicans in the world is found, and the mudflats
in the eastern part of Panama Bay. In 2002 the latter was designated a
Wetlands Site of International Importance (Ramsar site), where between 1
and 2 million shore birds arrive each year. At times there are more than
300,000 birds at this site simultaneously. In total, about 1% of birds
observed in Panama are endemic to the country.

A recent assessment of Panama's biodiversity offers the following
information about the threatened status of birdlife: Panamanian laws
officially protect bird 38 species. Among them are large birds including
3 tinamous, 2 raptors, and 4 curassows and guans, and also 10 ducks, 1
quail (*Odonthoporus gujanensis*), 11 doves and pigeons, 6 macaws and
parakeets, and the quetzal (*Pharomachrus mocino*). However, 1997
national workshop of experts unofficially recommended 210 species be
considered threatened (IUCN 1999, Angehr 2003), and in 2000 the workshop
recommended 145 species be added to CITES appendix II and 205 species be
considered threatened in Panama (ANAM 2000). These lists are not
official.[^18]

Since Panama is a biological bridge between the northern and southern
hemispheres, the country's fauna are characterized by many species of
South American origin. On the Isthmus 259 species of mammals have been
identified (around 5% of 4,327 mammal species of the planet), of which
14 are carnivorous species and at least 10 are recognized as endemic
species. Thirty-four mammal species are protected by law, including
large cats such as the American puma (*Puma concolor*), the jaguar
(P*antera onca*), the margay (*Leopardus wiedii*), and the ocelot
(*Leopardus pardales*), which regularly inhabit the best preserved
areas, among which are the Chagres and Soberanía National Parks in the
Canal Watershed. Others protected include 5 edentates (anteaters, sloths
and armadillos), all 8 monkeys, 2 canids (bush dog - *Speothos
venaticus* and gray fox), an otter, 3 raccoon-like animals, the manatee
(*Trichechus manatus*), the tapir (*Tapirus bairdii*), 2 peccaries, all
3 deer, and 3 caviomorph rodents (ANAM 2000).[^19] It is estimated that
10% of the country's mammals are endemic.[^20]

Parker *et al*. also point out that there are 14 mammal species included
in CITES Appendix I, 5 in Appendix II, and 12 in Appendix III (CITES
1998, ANAM 2000). 1997 workshop recommended unofficially that 83 species
be classified as threatened (IUCN 1999) and the workshop in 2000
recommended that 10 species be considered as threatened in Panama (ANAM
2002).

Reptiles are another species of fauna strongly represented in Panama,
including iguanas, turtles, caimans and a great variety of serpents and
vipers. In an earlier study, Myers stated that there are more than 224
species of reptiles in Panama. More recently, Ibáñez, Solís, Jaramillo
and Rand have estimated there are 229 species of reptiles in the
country. Parker, *et al*., state, on the basis of ANAM work, that ten
species of reptiles are protected in Panama, including the caguama
turtle (*Caretta caretta*), green turtle (*Chelonia mydas*), Carey
turtle (*Lepidochelys olivacea*), canal turtle (*Dermochelys coriacea*),
Galapagos turtle (*Geochelone carbonaria)*, babillo (*Caiman
crocodilus*), boa (*Boa constrictor*), and green iguana (*Iguana
iguana)*. CITES Appendices I and II include 17 species of reptiles in
Panama. Here 1997 workshop recommended that 128 species be listed as
threatened (IUCN 1999), and in 2000 workshop recommended the addition of
48 species to the list (ANAM 2002). Twenty-four reptile species are
endemic to Panama.

Myers also estimated there are more than 169 species of amphibians in
Panama, and the more recent study of Ibáñez, *et al*., (2001) puts the
number at 176, with 16% endemic. According to Parker, *et al.*, "only
one species \[of amphibian\] is officially listed as endangered
(*Atelopus zeteki*), due to overexploitation and habitat loss. Eleven
species are included in CITES Appendices I and II. A follow-up review of
amphibian conservation status recommended that 100 species be considered
as threatened (IUCN 1999) and a recent unofficial \[review\] found 45
species to be threatened (ANAM 2002)."

Marine fauna include dolphins, a wide variety of sharks and other fish,
and a great diversity of crustaceans and mollusks. It is estimated that
there are 190 species of freshwater fish and 1,351 species of marine
fish. "Panamanian coral reefs are among the highest in diversity in the
Caribbean region, whereas the Pacific coral reefs' diversity is highest
in the continental American Pacific. Especially rich are the coral found
in the Archipelago of Bocas del Toro, Kuna Yala, the Gulf of Chiriquí,
and Coiba" (Parker, *et al*., 2004, citing ANAM studies). Of the
freshwater fish species, it is estimated that 57 are endemic,[^21]
making it the category of fauna and flora with the highest degree of
endemism.

The project "Conservación and Repoblación de las Areas Amenazadas del
Bosque de Manglar del Pacífico Panameño" contains a descriptive study of
the marine fauna associated with the mangrove resources in Chame, Azuero
and Chiriquí. It identified 22 unique species in the mangroves of Azuero
and 13 in Chame. Regarding terrestrial fauna in mangrove zones, the
study found 83 bird species, 1 mammal species and 3 reptile species in
Azuero, and in Chame 32 bird species, 3 mammals, 2 reptiles and 1
amphibian.

Further details of Panama's biodiversity in selected watersheds are
provided in section 7 below.

***4.3. The System of Protected Areas***

The National System of Protected Areas (SINAP) constitutes 65 areas
legally designated as part of the system.[^22] They cover 24,468.4 km^2^
(2.5 million ha.), or 32.5% of the country's total area. They represent
all the recognized life zones in Panama; the humid pre-montane forest
and the dry tropical forest are the least represented. The national
parks protect about 59% of all the protected area of the country. In the
year 2000, they represented a forested area of 10,801.40 km^2^
(1,080,140 ha), or about 32.1% of the total national forested area in
that year (33,645.9 km^2^).

Twelve protected areas are recognized internationally: (i) the Darién
National park, declared a World Natural Heritage Site (1981) and a
Biosphere Reserve (1983); (ii) the International Friendship Park,
declared World Natural Heritage Site (1990) and Biosphere Reserve
(2000), which also includes the Volcán Barú National Park, the Fortuna
Forest Reserve, the Palo Seco Protection Forest, the Bastimento Island
National Park, the Laguna de Volcán Wetland, and the San San Pond Sak
Wetlands; (iii) five wetlands constitute Ramsar Sites: the Wetlands of
Punta Patiño (1993), the Gulf of Montijo Wetlands (1990), the San San
Pond Sak Wetlands (1993), the Wetlands of the Eastern Region of Panama
Bay (2003), and the Damani-Guariviaria Wetlands (2004); and (iv)
Portobelo National Park (1980) and the Protection Forest-Protected
Landscape San Lorenzo (1980) were declared World Cultural Heritage
Sites.

The protected areas are classified in 16 management categories,[^23] of
which the following are the principal ones:

> Table 3. Number and Size of Protected Areas by Management Category

  --------------------- --------------- ------------ ---------------------
  Management Category   Number of PAs   Area (ha)    \% of National
                                                     Territory

  National parks        15              1,195,829    15.8

  Forest reserves       7               346,947      4.6

  Wildlife refuges      5               136,205      1.8

  Wetlands (including   6               192,533      2.5
  Ramsar Sites)                                      

  Protected Landscapes  2               12,606       0.2

  Natural Monuments     3               5,739        0.1

  Other protected areas 12              567,134      7.5
  of the central system                              

  Municipal protected   15              11,835       0.2
  areas                                              

  Total                 65              2,468,375    32.6
  --------------------- --------------- ------------ ---------------------

> Source: Autoridad Nacional del Ambiente, Dirección de Patrimonio
> Natural, Depto. de Administración de Areas Protegidas y Vida
> Silvestre, Panamá, julio 2005.

Each protected area has diverse natural processes, such as the
connectivity of the ecosystems, the representativeness of these
ecosystems in the SINAP, the health of the habitat, conservation of key
species, biological diversity, conservation of endemic species and the
natural state of the evolutionary processes. Analysis of these
characteristics shows that the protected areas of the Atlantic region
conserve almost unaltered their vital processes, with pristine
environments in preserved to a high degree. It is different in the
Pacific region, where some of the most important protected areas
(excluding the Volcán Barú National Park in Chiriquí, the Chagres and
Soberanía National Parks in the Canal Watershed, and the Darién National
Park) are at risk or show a high degree of intervention and
fragmentation of habitats.

Besides the protected areas, 15,103.4 kms^2^ or 20% of the Panamanian
territory lies in five comarcas and one indigenous territory recognized
by law.[^24] Since some comarcas and protected areas overlap in their
territory, the indigenous people's traditional practices of using
natural resources have helped to conserve natural areas of great
biological importance, principally in the Atlantic region where the main
portions of the comarcas are located. Nevertheless, the serious state of
poverty in which most indigenous populations subsist, and the pressure
of a population growing more rapidly than the nation as a whole, are
generating risks for the conservation of the environment in the
territories in which they live.

**5. Water and Watersheds in Panama**

***5.1. Sources of Water and Principal Watersheds***

Panama possesses considerable quantities of water resources in the form
of surface waters, underground water, and reservoirs. The rainy, and
very rainy, tropical climates have until now provided sufficient volumes
of fresh water to allow the functioning of activities that have high
demands for water, such as the Panama Canal; human water consumption;
industry, agriculture and livestock; electricity generation; water
transport; aquaculture and other productive activities that require the
use of water.

***5.1.1. Precipitation and Surface Water***

It has been estimated (by IRHE) that the volume of annual precipitation
of the country is about 223.8 billion m^3^, equivalent to 3,000 mm of
average annual precipitation. The Atlantic slope receives 36% of this
precipitation (some 83.9 billion m^3^), while the Pacific slope receives
64% (149.8 billion m^3^). The country's average surface runoff is 144.1
km^3^/year, distributed 60% to the Pacific and 40% to the Atlantic, as
indicated by the respective river volumes.

Rainfall patterns are affected by phenomena such as El Niño. It was weak
in the second half of 2005, reducing precipitation levels, and the
commencement of La Niña[^25] at the end of 2005 and early 2006 generated
an increase in rainfall on the Pacific slope and a reduction of it on
the Atlantic slope. In 1997-1998 the El Niño phenomenon hit Panama
especially hard, causing a prolonged drought that reduced river flow
substantially and affected hydropower generation and the capacity of the
Panama Canal to make ship transits.

In addition to the rainfall, the geographical configuration of the
country, its relief and geological characteristics are conducive to the
presence of an extensive hydrological network.[^26] The continental
divide is the mountain chain that traverses the country from East to
West, and in it rise the majority of the rivers. Given the proximity of
the mountains to the coast on the Atlantic slope, the rivers are short
and the combination of steep hillsides and high rates of precipitation
gives rise to rivers with high flow volumes and torrential character.
Their average length is 56 km. On the Pacific slope, where the mountains
are more set back from the coast, the average length of the rivers is
greater, at 106 km and their average grade is 2.27%. On this slope, the
alternation of rainy and dry seasons has greater effect on the
variability of river flows.

The country's average annual surface flows total approximately 4,570
m^3^/s, a little over 60% of which drains to the Pacific. The largest
rivers are the Changuinola (163 m^3^/s) on the Atlantic slope, and the
Bayano (162 m^3^/s), the Chucunaque (94.8 m^3^/s), the Tabasará (48.6
m^3^/s), the Tuira (82.1 m^3^/s), the Coclé del Norte (40.1 m^3^/s), and
the Fonseca (68.1 m^3^/s) on the Pacific slope.

In terms of drainage of their watersheds, on both slopes there are
rivers with water yields greater than 72 lt/sec/km^2^), among which are
the Changuinola, Guarumo, Cricamola, Calovébora and Guázaro on the
Atlantic slope, and the Chiriquí, Fonseca, Tabasará and San Pablo on the
Pacific slope. These rivers have strong potential for diverse uses, and
hydroelectric power has been the main use in the last three decades.

The Pacific rivers, in spite of having greater hydrological capacity,
are the most variable in their flows over the year. On the Atlantic
slope, the flows are more evenly distributed over seasons, with 20% to
30% of the flow occurring in the months of January to April and 70% to
80% in the rest of the year. In some areas of the Pacific slope, human
activities have reduced the capacity of soils to absorb water, which has
exacerbated the rivers' tendency to flood in the rainy season and to
deliver very reduced flows during the dry season.[^27]

***5.1.2. Groundwater and Reservoirs***

Little is known about the groundwater resources of Panama, but there are
clear indications of declining water tables in the drier parts of the
country (see below). Between 1999 and 2003 annual groundwater
extractions in the entire country were about 30 million m^3^. The bulk
of this water was used for domestic purposes, above all in the regions
where surface water is less abundant, as in Azuero and Coclé.

Four reservoirs play a fundamental role in the productive activity of
the country:

• Gatún (423.1 km^2^) and Alajuela Lakes (57 km^2^), which provide water
needed for ship

> transits in the Canal; this activity represents a daily demand for
> water of about 10.0 million m^3^.

• Bayano (360 km^2^) and Fortuna Reservoirs, utilized for the production
of hydropower.

Also of some economic importance are two natural lakes, Damani Lake (1.7
km^2^) and La Yeguada (1.1 km^2^), both of which have the status of
protected areas.

3.  ***Watersheds***

Watersheds play a vital role in hosting biodiversity, capturing water,
regulating its flow year around, recharging underground sources of
water, and regulating the natural interconnections between groundwater,
rivers and lakes, and runoff. The country contains 52 watersheds, 18 on
the Atlantic slope and 34 on the Pacific slope. Many of watersheds
contain an extensive network of tributary streams as well as principal
rivers. Together these 52 watersheds cover approximately 97% of the
national territory.

There are 13 watersheds with more than 2,000 km^2^ of drainage area
each, located principally in Bocas del Toro, Darién and Panama
Provinces. Watersheds with the greatest abundance of water and potential
for its utilization are those of the Changuinola-Teribe, Guarumo,
Cricamola, Calovébora and Veraguas Rivers on the Atlantic slope and the
Chiriquí, Fonseca, Tabasará and San Pablo rivers on the Pacific slope.
However, the Caldera and La Villa Rivers on the Pacific slope are very
important from an economic viewpoint although their flow volumes are
somewhat less. The Chagres River, with the artificial lakes of Alajuela
and Gatún, is the principal natural vehicle for management of the runoff
that is vital for navigating the Panama Canal.[^28]

The National Environmental Strategy (2000) identified priority areas and
watersheds as a function of the degree to which they are degraded and/or
made vulnerable by the human activities carried out in them. In these
areas it is necessary to strengthen management capacity and implement
measures to increase the production and efficient use of water
resources, develop soil and water conservation projects, consolidate the
protected areas as a means of protecting biodiversity, reduce major
sources of contamination and generally improve environmental quality.
Among these watersheds are the sub-watersheds of Cirí and Trinidad,
areas adjacent to Lakes Gatún and Alajuela, and the upper watershed of
the Chagres, all in the Panama Canal Watershed; Río La Villa Watershed;
the upper watershed of the Río Bayano, and the middle and lower
watershed of the Río Santa María.

For purposes of this study, and after a review of several watersheds in
the country, attention has been centered on two watersheds and various
sub-watersheds that are especially important from a national economic,
social and environmental viewpoint and from the viewpoint of their
inhabitants, and in which maintaining biodiversity and the capacity to
produce water is a priority. Both are special places in terms of
biodiversity, as described in section 7 below.

*[The Panama Canal Watershed]{.underline}*

This watershed has an area of 5,527.61 km^2^, divided into the Eastern
Region (ROR) with an area of 3,396.49 km^2^ and the Western Region
(ROCC) with 2,131.12 km^2^. It contains 63 sub-watersheds (9 in the ROCC
and 54 in the ROC). Since the building of the Canal the rivers of the
ROR have fed Gatún and Alajuela Lakes, essential for the production of
water for human, industrial and energy uses as well as for the operation
of the Canal.

Among the main sub-watersheds in the ROR are those of the Chagres (30.36
m^3^/s), Pequení (13.80 m^3^/s) and Boquerón (7.98 m^3^/s) Rivers in the
sub-watershed of Lake Alajuela; and those of the Trinidad (6.71 m^3^/s),
Cirí Grande (7.98 m^3^/s) and Gatún (6.70 m^3^/s) Rivers that flow
directly into Lake Gatún. Together the sub-watersheds of Lake Alajuela
have a drainage area of 1,026 km^2^ that represents 30% of the ROR and
provides 45% of the total runoff necessary for the operations of the
Canal. Most rivers in this sub-watershed arise in the mountainous zones
of the Chagres National Park and are relatively short and have steep
grades (Vargas, 1996).

In the northern ROCC, the Indio, Caño Sucio, Toabré and Coclé Rivers
constitute an important hydrological reserve for potential use for Canal
operations in the future.

Subsequent sections of this report suggest selective interventions in
the following Canal sub-watersheds: Boquerón-Pequení-Chagres, which may
be considered part of the same ecosystem; Río Gatún; and Río Trinidad.

> [*Río La Villa Watershed*]{.underline}

This watershed is the principal source of surface water in the
south-central region of the country, known as the Azuero Peninsula
(Provinces of Herrera and Los Santos). Its main watercourse is Río La
Villa (29.5 m^3^/s) that arises in El Montuoso Forest Reserve and drains
a total area of 1,284.3 km^2.\ The^ tributaries of Río La Villa are very
numerous (50 in all) and generally small. The only ones of significant
size are the Río Estibaná (5.99 m^3^/s) and the Quebrada Pesé. There are
seasonal shortages of water in this region and at times during the dry
season not all the competing demands for water, arising from
agricultural and livestock activities, industrial plants, and rural and
urban household requirements, can be satisfied. The growth of irrigated
agriculture for export (watermelons and cantaloupe) and the opening of
the new household water main in Las Tablas will increase the demand for
water and is likely to intensify conflicts among uses of water
resources.

Groundwater is pumped in the region for household use, agriculture, and
industry. As of 2004, there were 564 wells in watershed, 263 in Herrera
Province and 301 in Los Santos Province.[^29] However, interviews with
the President of the National Pork Producers Association, MIDA
representative in Herrera, ANAM staff in Herrera, and others all confirm
that water tables are dropping substantially and that salt water
intrusions in wells are observed as far as 3 kilometers from the sea. It
is fair to say that a water crisis is developing in Río La Villa
Watershed.

1.  ***Principal National Demands for Water***

The major source of pressure on the availability and quality of water is
the ever-increasing demand for water for diverse uses throughout the
country, principally following:

> *[The Panama Canal]{.underline}*

Transits through the Panama Canal between 2003 and 2005 increased from
13,154 to 14,011 ships annually, of which 90% were of deep draft and of
these, 44.5% were Panamax ships. To maintain this level of operations
requires a daily quantity of water estimated at 10 Mm^3^, which in
annual terms is equivalent to 58% of watershed's yearly runoff. Water
for this operation is provided by Lake Gatún, which in turn is fed by
numerous tributaries and Lake Alajuela, a reservoir created by damming
the Chagres, Pequení and Boquerón Rivers. In March of 2002, ACP
initiated a deepening of the navigation channel of Lake Gatún, which
will increase the lake's storage capacity and the hydrological yield of
the watershed by more than 300 million gallons per day. That is
equivalent to an increase of 25% in the usable storage volume of the
watershed. Projections of future demands for the watershed's resource
continue to be carried out on a regular basis.

*[Municipal Uses]{.underline}*

According to the statistics of IDAAN (Instituto de Acueductos y
Alcantarillados Nacionales), the production of water for domestic use
increased from 311.2 Mm^3^ (82.1 billion gallons) in 2000 to 340.4 Mm^3^
(89.9 billion gallons) in 2004. Households are the major users of
municipal water and represent the only class of use that increased in
the five-year period to 2004. The uses of municipal water by percentage
have been as follows:

> Residential: from 73% (2000) to 75% (2004)
>
> Commercial sector: about 15% during the entire period
>
> Industrial sector: about 2% throughout the period
>
> Public sector: from 10% (2000) to 8% (2004)

Purchases of water represented around of 52% of the total municipal
amount in the period 2000-2004, which indicates that a large share of
water produced and conveyed for human consumption still goes to unpaid
uses.

> *[Electricity Production]{.underline}*

The abundant and rapidly flowing sources of water have favored the use
of the resource in electricity production since the beginning of 1970s.
In 2004, the gross amount of electricity generated was 5,865.53 GWh,
including the SIN (System Interconectado Nacional), the total production
of co-generation plants, and the scattered individual systems. Of that
total, 64% corresponded to hydropower and the remaining 36% to thermal.
A major share of the hydropower came from large hydroelectric plants
such as Fortuna (32% of total electricity), ACP at Madden Dam (13%), and
AES Panama at the Bayano and Estí hydroplants (29%). The demand for
electricity continues to be concentrated in the commercial sector (47%)
and the residential sector (33%). The Government used 15% of the
production, while the industrial sector used only 5%, a share that has
been declining steadily since the beginning of 2000.

*[Agricultural Uses of Water]{.underline}*

A report of the Aquastat Program of FAO indicates that Panama has
approximately 270,000 has. of land appropriate for irrigation,
concentrated principally in the provinces of Chiriquí, Herrera and Los
Santos. However, this same report indicates that on the basis of water
availability (minimum surface flows), particularly in Herrera and Los
Santos, this area shrinks to 71,673 has. (FAO, 1997). The official
registers of public and private irrigation projects indicate that the
irrigated area in 1997 was 27,886 ha., substantially less than 50% of
the country's potential. Most of the irrigated area is devoted to crops
like rice, sugarcane, and watermelon and cantaloupe, with a small
percentage going to improved pastures. On the other hand, the official
registers do not take into account the use of water for livestock, which
for the most part takes the form of small channels and diversion
structures in watercourses that guide the fluid onto farms. These uses
occur without the farmer entering into either contracts or concession
agreements.

***5.3. The Changing Relation between Water Demand and Supply***

The data mentioned above would appear to suggest that Panama does not
face obstacles in meeting demands for water. The production of water in
usable form exceeds the various current uses. Similarly, the country's
small population (3.22 million in 2005, estimated to grow to 4.01
million in 2020, which will be equivalent to a population density of
only 18.8 inhabitants/km^2^), and also the relatively moderate pace of
development of the productive sectors, together would indicate that the
demand for water probably would follow current patterns. However, the
commercial sectors, including the Panama Canal, are dynamic and bulk
large in the national economy, and they could create new patterns of
water demand. Twice in recent years it has been necessary to restrict
cargo loads on ships transiting the Canal because of water shortages. In
addition, the continuing deforestation in watersheds like Río La Villa
and the increasing contamination of water supplies could make water
scarce in some areas and more costly. Therefore it is becoming essential
to take measures to safeguard water supplies, especially in some areas
of the country.

The practice of not charging irrigation users for water reflects the
mindset that prevailed in the past, that Panama always would have
abundant water. But ACP is now starting to carry out studies to assess
the opportunity cost of water, which is another indication that the era
of unlimited water supplies is coming to an end.

Other factors that should be taken into account in assessing the future
availability of water, and to prevent a future water crisis, are the
following:

*[The spatial distribution of water resources]{.underline}*

Although most of the country's hydrological resources are located on the
Pacific slope, it is in that region where the deterioration and
degradation of watersheds is most evident. These trends are a result of
the deforestation and inappropriate cropping patterns that have brought
about an accelerated process of erosion and sedimentation, altering the
hydrological regime of rivers and producing more frequent floods during
the rainy season and a significant reduction of flows, even water
scarcity in some rivers, during the dry season. The Pacific slope
contains around 86% of the country's population and more than 90% of all
the industries, services and commerce, and therefore it is where the
main pressure on water resources occurs and where the biggest human
impacts on water quality and quantity are observed.

Furthermore, water resources of the Pacific slope are themselves
distributed very unevenly. The areas least favored with water endowments
are the south-central region of the country (Veraguas, Coclé and Azuero)
and the western part Province of Darién. The effects of human activity
on watersheds in Azuero (the rivers La Villa, Tonosí, Guararé, Parita,
Estibaná), in Veraguas (the Santa María) and Coclé (the rivers Grande,
Chico and Antón) have exacerbated and extended water-deficit periods
beyond the traditional dry season (ANAM, 1999). In the Azuero and Coclé
regions a marked scarcity of water is now being experienced in the dry
season, along with sharp competition for access to water.

In the case of the Darién, in spite of having some of the
fastest-flowing rivers in the country (Chucunaque, Tuira, Sambú), in the
western part of the Province the only hydrological reserve of importance
is the Filo del Tallo,[^30] which protects small rivers and arroyos
(Iglesias, Punoloso, Metetí, Portuchao, Quebrada Félix and others), that
constitute the only sources of water for a growing population,[^31] with
the result that some towns and settlements have permanent problems of
supply of water supply.

*[Climatic phenomena]{.underline}*

By virtue of being within the Intertropical Convergence Zone,[^32]
Panama is exposed to abrupt seasonal and annual changes in precipitation
and temperature, associated principally with the occurrence of
fluctuating phenomena such as El Niño and la Niña. The scarcity of rains
generated by these phenomena was felt with great impact in 1997-1998 in
much of the country's economy: (i) the hydroelectric reservoirs reached
their lowest levels ever, requiring the use of additional thermal
generating capacity to meet electricity demand; (ii) water levels fell
in Lakes Gatún and Alajuela, obliging Canal management to reduce ship
transits from 13,459 in 1995 to 13,158 in 1998, and the volume of cargo
transiting the Canal fell from 216.7 million long tons in 1995 to 189.9
million in 1998; (iii) in the agricultural sector, approximately 70% of
pastures and crop yields were affected by the drought, which led to
losses of more than US\$16 million; (iv) there was a lack of sufficient
water for both irrigation and human needs.

Between May-August of 2001 and the end of 2001, with another occurrence
of El Niño, rainfall dropped to its lowest level in the historical
records and again there were adverse effects in the availability of
water for human use, electricity generation and agricultural production.
Historical data on extraction of underground water for human use
indicate a significant increase in their volumes in the year 2001 (32.5
Mm^3^) in relation to 1999 (30.3 Mm^3^), and extractions fell again to
longer-term levels in the following years.

*[Long-term climate change]{.underline}*

This global phenomenon could augment the frequency and impact of
climatic events in the Central American Region, including Panama, which
in combination with human effects on the local environment could affect
permanently the relationship between water supply and demand
(CATHALAC/PNUD, 2005). In fact, research by MIDA indicates that
practically all the Pacific Region, excepting the southeastern part of
Chiriquí, is the area most likely to be affected by adverse climatic
phenomena, and the greatest impacts probably would occur in the area
known as the "*dry arc*" that covers the Pacific Region in southern
Veraguas, Herrera, Los Santos and Coclé. Adverse climatic events in this
zone, through their effects on the hydrology of rivers and on
agriculture, could also increase the vulnerability of poor households.

**6. Principal Trends and Problems Affecting Watersheds and
Biodiversity**

***6.1. Deforestation, Sedimentation and Contamination***

Alterations of the ecosystems of watersheds affect their natural
habitats and consequently their biodiversity. In addition to the
destruction of habitat, inappropriate agricultural practices and
deforestation bring about various forms of contamination, soil erosion
and sedimentation, and they in turn have negative impacts on water
quality and the filtration capacity of soils, increase surface runoffs
in rainy periods, and upset the hydrological equilibrium of rivers.
These changes affect many classes of species, starting with aquatic
species and amphibians, and of course loss of forests affects a broad
range of species.

In the sub-watersheds of Gatún, Alajuela and Gatuncillo in the ROR, the
urban pressure (from Las Cumbres, Cerro Azul, Sabanitas) and widespread
use of land for pastures (Boquerón Abajo, Salamanca, Gatuncillo), have
brought about deforestation of extensive areas, the major part of which
has occurred in buffer zones for the national parks of Chagres,
Soberanía and Camino de Cruces. Within the protected areas, studies of
forest cover (ANAM, 2002) indicate that the rate of deforestation has
diminished, and there has been a slight net increase in forest cover in
these parks between 1992 and 2000. However, site-specific studies
carried out in the Chagres National Park and in its buffer zone in 2003
(Urrutia) and 2005 (Tovar, *et al*.), showed that the number of
livestock ranches increased from 134 in 1998 to 180 in 2005, and the
livestock population did as well, growing from 3,543 head in 1998 to
4,498 in 2004.[^33] Given the prevailing practices for raising
livestock, this trend undoubtedly has led to a reduction of forest cover
in those parts of the watershed.

Another factor of importance in regard to deforestation is the fact that
subsistence agriculture has increased in recent years, and it is
considered the principal cause of deforestation within the Chagres Park
(Tovar, 2005). It is probable, therefore, that both deforestation and
natural revegetation are occurring in different areas of watershed.
Other indicators that reinforce this hypothesis are the increase of
brush and secondary forests within and outside the park, and the fact
that on the Atlantic slope on the park's northern periphery, new rural
settlements are arising on "new lands," that is, lands that were not
cultivated previously.

Water quality is generally high in the upper parts of the sub-watersheds
of the PCW. However, studies carried out as part of the PMCC (1999) and
more recently by ACP,[^34] indicate that the annual production of
sediments (tons/year/km^2^) in some rivers of the watershed is
increasing. These sediments affect the clarity of water, block sunlight
and increase the quantity of nutrients, affecting in some cases species
that inhabit the rivers. Cases in point are:

• In the Río Chagres (Chico monitoring station) the production of
sediments has been

highly variable in the period 1998-2004: the minimum sediment load was
91 t/year/km^2^ in

2001 and the maximum, 805 t/year/km^2^ in 2004.

• In the Río Gatún (Ciento station) except in the year 1999 when the
sediment loads were

unusually high (505 t/year/km^2^), from 2001 onward there appears to
have been a sustained

increase in them (from 105 t/year/km^2^ in 2001 to 350 t/year/km^2^ in
2004).

• In the Río Pequení (Candelaria station), there appears to be a high
correlation between

flow increases and the quantity of sediments; for example, in the years
1998, 2001, 2002

and 2004 (when the flow rates were very high) the quantity of sediments
also

increased from 374 t/year/km^2^ in 1998 to 798 t/year/km^2^ in 2004.

The problems of sedimentation in bodies of water, the dragging of soil
particulates to the lower parts of the watershed and loss of soil
productivity in the upper parts of it, can be mitigated by protecting
the remnants of forests, facilitating the regeneration of the forest
cover with appropriate species, and the promotion of tree crops.

Water contamination in the PCW mostly originates in the lower part of
the rivers in the Eastern Watershed, along the corridor of the
Transisthmus Highway, from industries, repair shops and small-scale
service outlets, and households (PMCC). There also are localized sources
of organic contamination higher up, particularly in Boquerón Abajo, from
pig and poultry keeping and inadequate management of latrines. The
organic wastes have affected oxygen levels in nearby portions of Lake
Alajuela.

The principal effects of continuing discharge of wastewater (domestic
and industrial) and of solid wastes can be summarized as follows: (i)
microbiological contamination by fecal and other coliform bacteria from
cattle ranches and pig and poultry farms, as well as by wastes produced
by the concentration of population, commerce, industry and services in
the sub-watersheds of the rivers Chilibre, Chilibrillo and Gatún, at
levels exceeding by four- or five-fold the internationally accepted
norms; (ii) between 1997 and 1998, during the rainy period, the
concentrations of dissolved oxygen in water have been less than 4.8
ml/liter in the Chilibre, Chilibrillo, Palenque and Gatún Rivers, which
is below the internationally accepted norm of 5 ml/liter; (iii) in the
Obispo, Gatuncillo, Chilibre, Quebrada Ancha, Chilibrillo, Palenque and
other rivers, the concentrations of nitrogen also increased in the same
period, which is another indicator of the increasing contamination by
organic material.

Of 170,687 has. of mangroves in the country, a considerable percentage
in the Pacific coast (Anguizola, *et al*., 1989) has been converted to
shrimp cultivation and to landfills for agriculture and touristic and
urban developments (Punta Chame, Aguadulce, Chiriquí). Although
scientific research about the dynamics of mangrove ecosystems and their
marine species has been extensive, it is recognized that more studies
are needed in this area, including about the reproduction patterns of
principal species, in order to support initiatives for restoration of
mangroves that so far are insignificant in Panama.

In Bocas del Toro and the Comarca Kuna Yala in the Atlantic Region, the
overfishing of species such as lobsters, crabs and sea snails,
sedimentation and the eutrofication resulting from nutrient
contamination of waters are having severe impacts on coral formations,
above all in some parts of the Archipelago of San Blas in the Comarca
Kuna Yala. In 1992 in San Blas, the disappearance of herbivorous species
caused an increase of micro algae of more than 50%, reducing the area of
live coral to less than 10% of its original extent. A significant
increase of algae populations also was observed in the area of Bahía las
Minas and Portobelo (Colón). The loss of coral not only signifies a loss
of natural environment but also of a great variety of fish and
crustaceans that depend on the coral, which translates into loss of
marine biodiversity, an important economic loss, and a reduction of the
natural coastal protection provided by coral.

The mangrove is a coastal ecosystem consisting of groups of trees that
can tolerate high concentrations of salt and survive in flooded areas
because of tides. Prospering under these conditions has required certain
adaptations: roots exposed to the air, seeds that float, and specialized
structures that permit the interchange of gases in soils without oxygen.
These characteristics distinguish it from the rest of the community of
flora, but it is no less important and in fact constitutes one of the
coastal systems of greatest ecological and economic value.

Multiple economic in interests converge in mangrove areas, given the
variety of resources that this habitat contains. Worldwide these systems
are being destroyed by, among other factors, dredging and filling
operations, the construction of dams, urban development, sediments and
toxic contaminants arriving via rivers, eutrofication and a rising sea
level. Klemas *et al.* (1993) indicate that during the last two
centuries some regions of the United States have lost more of 50% of
these environments. The degradation of estuaries, lagoons and other
coastal habitats is increasing also because they feel the impact of
activities carried out in inland areas distant from the coast, mangroves
being the terminal ecosystems watersheds.

These considerations are not foreign to the mangrove ecosystems of
Panama's Pacific Coast. They are subject to constant pressures that have
brought about their deterioration and even destruction. The
establishment of aquaculture operations, agriculture, livestock, and the
extraction of forest products figure among the principal causes of
degradation of mangrove ecosystems. The "Study of the sources of water
in the areas of the mangrove project", which contains a physical and
chemical analysis of the sources of effluents that reach the mangroves,
identified significant levels of contamination especially by solid
wastes and hydrocarbon residues. In light of these threats and the
ecological fragility and diversity of mangrove habitats, appropriate
management strategies, and in some cases protection measures, are called
for.[^35]

***6.2. Environmental Risks***

The impacts of atmospheric phenomena such as heavy rains and windstorms,
combined with of changes in soil use patterns and deforestation, tend to
bring about floods, mudslides and droughts. They also accelerate the
process of erosion and loss of nutrients from soils. In the last five
years the constant inundations in watersheds of the rivers Changuinola
and Sixaola (Bocas del Toro), Chucunaque (Darién), Indio (Colón), La
Villa (Herrera), Caldera and Chiriquí Viejo (Chiriquí), Cabra and Pacora
(eastern Panama City) have affected a large number of communities, with
very substantial human and material losses.[^36]

In the eastern region Panama Province and in the Canal Watershed,
particularly in the buffer zones of Chagres National Park (Cerro Azul,
Las Cumbres, Sabanitas, Gatuncillo, Boquerón Abajo, Salamanca, etc.) and
Soberanía National Park (the rivers Cabuya, Chilibre, Chilibre Centro,
María Eugenia, plus the Madden Dam area, etc.), there has been an
accelerated process of urbanization without adequate measures for
environmental management in the context of an insufficient endowment of
surface drainage systems, and with insufficient systems for potable
water distribution and inadequate management of solid wastes. The latter
frequently are thrown in ravines or bodies of water or left near
mangroves. This kind of situation is also observed in areas to the west
of the Canal, in the districts of La Chorrera and Arraiján. In the lower
watershed of Río La Villa and the middle watershed of Río Caldera,
spreading urbanization reaches right up to riverbanks, leaving
significant stretches of the rivers without any protection zone.

The lack of a forested buffer zone along the upper reaches of the Río
Cabra in the Panama metropolitan area, for example, was a major reason
why floods there in 2004 resulted in fatalities. SINAPROC is working on
establishing better early warning systems in watersheds that are
particularly at risk, but prevention has to start with better
environmental management of watersheds.

Contaminated water can have serious health effects. Gastric and skin
infections are common consequences. The team's interviews in Boquerón
Abajo, Panama Canal Watershed, revealed cases of hepatitis from
contaminated local water supplies. Bacterial contamination of wells also
has been reported in Azuero. Although the team is not aware of studies
in Panama of the health costs of water contamination, a study by the
World Bank of those costs in various countries of Latin America is
suggestive. Its results are shown in Table 4 below.

Table 4. Health Costs Associated with Urban Water Contamination in Latin
America

+------------------+------------------+--------------------------------+
| > Country        | > Area of Study  | > Annual Health Costs (US\$    |
|                  |                  | > million)                     |
+------------------+------------------+--------------------------------+
| > Brazil         | > Entire country | > 130 -- 389                   |
+------------------+------------------+--------------------------------+
| > Chile          | > Santiago       | > 96-149                       |
+------------------+------------------+--------------------------------+
| > Colombia       | > Bogotá         | > 16.9                         |
+------------------+------------------+--------------------------------+
| > Mexico         | > Entire country | > 3,600                        |
+------------------+------------------+--------------------------------+
| > Peru           | > Entire country | > 500 -- 1,000                 |
+------------------+------------------+--------------------------------+

> Source: Taken from: *Marked-Based Instruments for Environmental
> Policymaking in Latin America and the Caribbean, Lessons from Eleven
> Countries*, World Bank Discussion Paper No. 381, World Bank,
> Washington, D.C., November 1998.

3.  **Poverty, Biodiversity and Watersheds**

Poverty in Panama still is mostly a rural phenomenon although large
numbers of rural poor have been migrating to the fringes of the Panama
metropolitan area. The Population Census of 2000 and the Living
Standards Survey of 2004 (MEF-PNUD) show that the poor and extremely
poor constitute 25.8% of the country's total population 62.7% of the
rural population. In monetary terms this means that while the mean
monthly household incomes in urban areas were US\$535, in rural areas
they were less than a third of that, at US\$163). This latter figure is
less than 70% of the estimated cost of the basic basket of household
necessities (US\$225). Hence poverty is closely associated with food
insecurity.

A study carried out recently under the auspices of MIDA, PNUD and the
World Food Program, titled *Análisis y Cartografía de la Vulnerabilidad
a la Inseguridad Alimentaria en Panamá*, reveals that the areas more
vulnerable to food insecurity are those where access is difficult and
soils are not appropriate for annual crops but rather for forests. In
other words, they are largely located in upper watersheds and, in some
cases, middle watersheds. In these areas their quest for subsistence
leads them to reduce natural habitat by felling trees, engaging in
subsistence agricultural activities that are damaging to soils and water
resources, and hunting wildlife. The poorest areas identified in poverty
studies include those of the upper watershed of Río La Villa in Herrera
and those of the Chagres, Boquerón, Pequení Rivers in the PCW. These are
among areas selected by this study as most appropriate for interventions
for management of biodiversity and watersheds.

The poverty analysis suggests that these poor populations are natural
custodians of a great biological richness associated with upper
watersheds and protected areas. Although traditionally they have been
depredators of that richness in their struggle to overcome poverty, with
proper programs they can become guardians of it while at the same time
improving their living standards.

The poor, both rural and urban, also suffer the greatest impacts of
occurrences of severe weather. This has prompted SINAPROC to seek the
support of the Japanese Agency for International Cooperation (JICA) for
developing four important community projects in high- risk zones. The
projects are:

-   Management Local of Risks in the Darién, in the corregimientos of
    Sambú and

> Jaqué;

-   Reduction of Flood Risk in 3 corregimientos of the District of
    Panama (24 de

Diciembre, the Mañanitas and Pedregal);

-   Developing a Risk Management Manual for teachers;

-   Second phase of the Reduction of Flood Risks Project in 4
    corregimientos (Parque

> Lefevre, Curundú, Tocumen and Pacora).

6.  **Critical Watersheds and Biodiversity Areas**

As the main options for concentration of the new Program for Management
of Biodiversity and Critical Watersheds, this study recommends three
areas of the traditional part of the Panama Canal Watershed and the
entire Río La Villa Watershed in Azuero. These are all areas of
outstanding biodiversity, they are vital for water supply in critical
areas of the country, and they all face serious threats of various kinds
to their natural environments. Descriptions of these areas and the
reasons for their selection follow in the rest of this section.

Prior to selecting these watersheds, a number of other watersheds were
investigated carefully, and their main characteristics and threats to
biodiversity are summarized in one of the annexes, for reference.

**7.1. The Panama Canal Watershed**

***7.1.1. Principal Characteristics***

The traditional Panama Canal Watershed comprises 339,639 hectares on
both sides of the Canal. It includes all the drainage areas that flow
into Lake Gatún. It lies between Panama City and Colón and its longest
axis runs from the Chagres National Park (wholly included in watershed)
in the northeast, to where the isthmus's central spine of mountains
starts to rise again in the southwest. In terms of administrative
jurisdictions it lies in the Provinces of Panamá and Colón and is
bounded by the following administrative units (and includes parts of
some of them):

> the districts of Panamá, Arraiján, La Chorrera, Capira and Chame on
> the south;
>
> the Comarca de San Blas on the east;
>
> the districts of Santa Isabel, Portobelo and Colón on the north;
>
> the district of Chagres on the northwest; and
>
> the district of Penonomé on the west.

The areas to the north and northwest of the traditional watershed drain
into the Caribbean and the areas to the south, to the Pacific in Panama
Bay. The creation of Lake Gatún in the center of the watershed means
that, uniquely, waters of the Panama Canal Watershed flow into both the
Atlantic and Pacific Oceans. (See the PCW map in Annex A.)

In 1999 the definition of the watershed was amended by Law 44 to include
an area farther west with hydrological resources that could potentially
be used for the Canal in the future. It covers 213,112 hectares. This
new area includes the districts of La Pintada and Penonomé in Coclé
Province, part of the district of Donoso in Colón Province, a bit of the
Province of Panamá. It is known as the Western Region of the watershed,
or ROCC for its Spanish acronym. Its sub-watersheds, which drain into
the Caribbean, are: Coclé de Norte, Río Indio, and Miguel de la
Borda/Caño Sucio.[^37]

The traditional watershed has come to be known as the Eastern Region, or
ROC for its acronym, although it includes areas that lie geographically
to the west of the Canal. The work of the current USAID watersheds
project is concentrated in the traditional Canal watershed. In its work
on the Panama Canal Watershed (PCW), this design study for a new project
also has reviewed options only in the traditional watershed.

Together the ROCC and ROR cover part of the Provinces of Panamá, Colón
and Coclé, and they included 11 districts, 50 corregimientos, and 950
populated localities in 2000). In the ROR an estimated 47% of the land
is in forest. The ROCC has been more affected by deforestation. In that
region mature forests cover around 24% of the land, and disturbed
forests about 17%. About half the region's remaining forest is found in
the Omar Torrijos National Park. Including activities in disturbed
forest areas, about 65% of the ROCC has been altered or completely
deforested for use as pastureland or cropland.

Among watersheds in Panama only the PCW has its own administrative
entity, the Panama Canal Authority (ACP), with responsibilities not only
for operation and maintenance of the Canal and related activities but
also for protection of the hydrological resources of the watershed and
for supplying water to Panama City, Colón, Arraiján and La Chorrera. To
strengthen coordination with line Ministries and other governmental
organs that have a presence in the watershed, a special coordinating
body was created, the Inter-Institutional Commission for the
Hydrological Watershed of the Canal (CICH). Both ACP and the CICH were
created by Law 19 of June 11, 1997.

The members of CICH include:

> The Panama Canal Authority (ACP).
>
> The Authority for the Inter-Oceanic Region (ARI, abolished in
> December, 2005).
>
> The National Environmental Authority (ANAM).
>
> The Ministry of Housing (MIVI).
>
> The Ministry of Agriculture (MIDA).
>
> The Ministry of Government and Justice (MINGOB).
>
> Caritas Aquidiocesanas.
>
> Fundación Natura.

CICH also has the authority and responsibility to work with local
governments in the PCW and with all NGOs and community and producer
organizations in watershed. The role of ACP is described in greater
detail in a subsequent section.

*[Economic Importance of the PCW]{.underline}*

The PCW also has unusual economic importance for Panama, because its
waters enable the Panama Canal to function, it supplies potable water to
cities, towns and villages in the watershed and adjoining areas, and it
is a source of hydroelectric energy. In 2004-2005, the transit of 14,011
ships through the Canal and other activities directly administered by
ACP generated \$1.2 billion, about 8% of Panama's GDP. In the same
period the National Treasury received directly from Canal operations a
total of \$448 million, more than 40% of total fiscal revenue (*El
Faro*, no. 5, 2006).

The Canal generates additional income for the country through activities
that have arisen because of its presence, such as port operations, ship
supply, shipping service agencies, and the like. It is estimated that
direct and indirect income from the Canal account for about 25% of GDP.
Because of the importance of the Canal, the Government and ACP are
interested in increasing the capacity of the waterway. Several kinds of
improvements are in the planning stage, including a set of larger locks,
widening key stretches of the Canal, updating its technology and other
projects designed to increase its efficiency and reliability.

***7.1.2. Biodiversity in the Panama Canal Watershed***

The PCW also represents a strategic resource for the conservation of the
environment and biodiversity. Studies of flowering plants carried out
over many years conclude that the traditional watershed (ROR) has
forests and other ecosystems of surprising biodiversity. "The Santa Rita
Ridge and cloud forests within the watershed offer unparalleled
biodiversity, including many species found nowhere else in the world.
The watershed's ecological and economic values cannot be overstated . .
. \[The Chagres National Park\] harbors many species native to Panama
and represents the northernmost range of several South American mammal,
bird, and reptile species, as well. The Chagres is particularly
important to neotropical migratory birds such as raptors, songbirds and
aquatic birds. Endangered species such as the harpy eagle and jaguar
find refuge within the watershed."

These conclusions have been reinforced by international publications
which confirm that the Filo de Santa Rita and the Chagres and Soberanía
National Parks figure among the sites with greatest biological diversity
in the tropics, worldwide (UICN, 1994; WCMC, 1997). In addition, the
Barro Colorado Natural Monument is one of the most important tropical
research sites in the World. The assessments of the PMCC (1999) in the
ROR showed that it harbors a wide variety of woody plants (1,125
species), many of which are considered rare or are included in the lists
of vulnerable species or species in danger of extinction that are issued
by the UICN and CITES. Equally, there are many endemic plants in the
PCW: of 316 species reported in the Filo de Santa Rita, 141 are unique
to that sector. A similar situation characterizes the flora of the
mountains in the Campana and Omar Torrijos National Parks.

In light of its importance, extensive scientific monitoring of the PCW's
natural resources was initiated in the period 1996-1999 through the
USAID-supported Monitoring Project for the Natural Resources of the
Panama Canal Watershed, known by the initials PMCC. The Smithsonian
Tropical Research Institute (STRI) was responsible for the scientific
aspects of the project, in coordination with INRENARE (now ANAM). In
1998, the study found, as noted, that 47% of the traditional watershed
was covered in forests. Of these forests, 69% are within the protected
areas of the Chagres, Altos de Campana, Soberanía, Camino de Cruces
National Parks and the Barro Colorado Natural Monument. These areas form
part of the eco-region of humid forests of Panama's Pacific zone, and
from a Central American regional biodiversity perspective they are
considered significant, threatened, and meriting a high conservation
priority because of the pressure of human activities. The Chagres
National Park alone contains 55% of the forests in the PCW and 80% of
its protected forests.

The PMCC found that from 1974 to 1998 the forested area in the PCW had
decreased by 43%. However, it emphasized that "currently there is no
evidence of extensive \[continuing\] deforestation" and "the greatest
number of deforested parcels were found in the northeast region, between
Lake Alajuela and the Santa Rita Ridge (Filo de Santa Rita); and
conversely the smallest number was found in the southwest, in the
Districts of Chorrera and Capira." Field visits of this design team
found evidence, based on observations of trained persons, that
deforestation has continued in the Filo de Santa Rita, although this
area is known for its richness of biodiversity.[^38]

According to the PMCC study, the majority of mature forests are found in
three National Parks ---Chagres, Altos de Campana, Soberanía--- and the
Barro Colorado Monument. The remaining forests are secondary, mostly
along the banks of the Canal. The mature forests have greater diversity
of species.

The study identified 1,125 plant species in the monitoring sites, of
which 200 may be considered rare. Five species new to Panama were found
in the Filo de Santa Rita, which is not a protected area. In the
watershed there are 112 species of reptiles, representing 50% of the
national total. The watershed also is home to 160 species of mammals,
which is about 70% of the national total (*op. cit*., p. 31). It hosts
650 bird species (68% of the national total) and 93 species of
amphibians (53% of the national total).

As noted, a measure of the ecological value of the PCW is the fact that
many of its species are rare or in danger of extinction. For example, of
81 bird species observed in the headwater zones of the Río Trinidad, as
part of the PMCC, 32 are considered in danger of extinction. Also, of 38
bird species protected by law in Panama, 25 are found in the PCW.

Natural habitats represent 35% of the area of the ROCC. However, they
are highly fragmented and the trend is toward their disappearance, with
the exception of the ecosystems in Omar Torrijos National Park. Studies
carried out between 2001 and 2002 (ACP, 2003) indicate that in spite of
the loss forest cover, the region still contains significant diversity
of flora and fauna: 1,343 species of plants have been identified,
representing about 13% of Panama's estimated total, even though the
region covers less than 3% of the national territory. Of all the species
identified, 173 are under some degree of threat according to the UICN
and CITES lists, and 40 species found in the region had not been
identified previously in Panama. As in the ROR the region contains
profuse birdlife with 406 species identified (42.3% of the country's
total). Of those, 173 are in danger of extinction or under some degree
of threat. Although the mammal population is less varied it still is
quite diverse with 86 species, and there are 75 species of amphibians
and 65 of reptiles. Both regions of the Canal Watershed contain a great
diversity of insect life and aquatic life.

***7.1.3. Threats to Biodiversity in the Panama Canal Watershed***

In general, the overexploitation and/or selective extraction of species
of flora and fauna leads to the loss, and in extreme cases the
extinction, of native species, weakening the biodiversity of a site. In
addition, the introduction of exotic species in many cases decimates
native species. An example has been the introduction of the so-called
"paja canalera" (*Saccharum espontaneum*) in the Panama Canal Watershed,
which impedes natural forest regeneration because it rapidly colonizes
cleared areas. Another example has been the introduction of 54 exotic
species of fish \--among them, carp, tilapia, and sergeant fish
(*Abudefduf saxatilis*)\-- that have affected the local species (ANAM,
1999).[^39] The introduced aquatic species include the manatee
(*Trichechus manatus*), which was introduced into Lake Gatún in 1964
with the aim of controlling the spread of aquatic plants.

Another example of introduction of exotic species is reforestation with
species such as teak (*Tectona grandis*) in some areas of the ROR,
including the Filo of Santa Rita that has been renowned for its richness
of biodiversity. Stands of teak reduce the biodiversity of a habitat and
contribute to soil erosion and an increase of sedimentation in rivers
because they do not allow plant growth on the forest floor.[^40]
Interviews by the present study team with inhabitants of the area of
Boquerón Abajo in the PCW revealed that illegal hunting has almost
eliminated species that were abundant before in that area, such as deer
and the peccary (zaíno), which also has contributed to a reduction of
the number of jaguars in the area.

In Panama's watersheds, deforestation and illegal hunting are the main
threats to terrestrial ecosystems, and contamination is the main threat
to waterways and wetlands. According to the Environmental Report of ANAM
(1999), the loss of forests, principally on the Pacific slope, has
caused the loss of some species and the reduction of populations of
others, and has forced some species to adapt to new habitats. Interviews
with inhabitants of the sub-watersheds of Los Hules, Tinajones and Caño
Quebrado in the ROR, where forests have been converted to agricultural
and livestock uses,[^41] revealed *"...* the disappearance of species
such as turkey-hen (pava), agouti (ñeque), agouti paca (conejo pintado),
peccary (zaíno) and species that lived in the rivers and along their
banks ... and also of timber species such as spiny cedar (cedro espino
or *bombacopsis quinata*), mahogany (caoba), loquat (níspero),
*Hippophae rhamnoides L*. (espino amarillo) and of others that formed
part of the life of native forests" (IRG, 2003).

This is not an isolated situation, and fish, plankton, algae and water
plants, and water insects also have been affected by the severe
contamination of rivers such as the Matasnillo, Juan Díaz, Río Abajo,
Curundu that flow into the Panama Bay, and the Chilibre and Chilibrillo
in the Transisthmus Highway Corridor, that flow eventually into Lake
Gatún (PMCC, 1999).

Rapid population growth, coupled with urbanization in some areas of the
watershed, is one of the main causes of these threats to biodiversity.
In all four decades from 1950s through 1990s, the population of the
Panama Canal Watershed grew more rapidly than the population of the
entire Panama City-Colón metropolitan area. Tables 5 and 6 illustrate
these trends. Historically, many of the migrants to the PCW have come
from the "dry arc" of Azuero, especially Herrera and Los Santos
Provinces, pushed out by the poverty that has and still characterizes
many of the rural areas there. These demographic and social trends have
been documented by Stanley Heckadon-Moreno,[^42] whose work was updated
by ANCON.[^43] These migrants have been major agents of deforestation in
the PCW and also in the Darién. ANCON's study documents several focal
points of settlement of the migrants in the PCW, including the
sub-watersheds of Río Trinidad, Río Gatún and Río Boquerón, areas close
to the southern and southeastern shores of Lake Alajuela; and Donoso in
the ROCC.

Table 5. Population in the Panamá-Colón Metropolitan Area and the Canal
Watershed

+-----------+-----------+-----------+-----------+-----------+----------+
| > Region  | > 1950    | > 1960    | > 1970    | > 1980    | > 1990   |
+-----------+-----------+-----------+-----------+-----------+----------+
| > Met     | > 289,645 | > 431,070 | > 632,353 | > 876,776 | > 1      |
| ropolitan |           |           |           |           | ,148,668 |
+-----------+-----------+-----------+-----------+-----------+----------+
| > Canal   | > 21,987  | > 33,458  | > 52,832  | > 77,211  | >        |
| >         |           |           |           |           |  113,303 |
| watershed |           |           |           |           |          |
+-----------+-----------+-----------+-----------+-----------+----------+
| > \% in   | > 7.6     | > 7.8     | > 8.4     | > 8.8     | > 9.9    |
| >         |           |           |           |           |          |
| watershed |           |           |           |           |          |
+-----------+-----------+-----------+-----------+-----------+----------+

Source: PMCC, Informe Final, 30 junio 1999, p. 367.

Table 6. Population Growth Rates, Panamá-Colón Metropolitan Area and PCW
(%)

+-------------+-------------+-------------+-------------+-------------+
| > Region    | > 1950-1960 | > 1960-1970 | > 1970-1980 | > 1980-1990 |
+-------------+-------------+-------------+-------------+-------------+
| > M         | > 3.9       | > 3.8       | > 3.2       | > 2.7       |
| etropolitan |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| > Canal     | > 4.1       | > 4.5       | > 3.7       | > 3.8       |
| > watershed |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

Source: PMCC, Informe Final, 30 junio 1999, p. 368.

An exercise in ranking the types and degrees of specific threats to the
upper watershed of the Río Chagres has been carried out recently by The
Nature Conservancy. Three ecosystems and two species were chosen as
indicators of the health of the biodiversity in this area, and the
threats to them were classified as shown in Table 7.

It should be noted that the nature of the threats differs from area to
area within the Panama Canal Watershed. However, this table illustrates
threats that are encountered in other sub-watersheds and watersheds as
well. In middle watersheds of the PCW the threat levels are generally
higher than those shown in this table, and in both the middle and upper
watershed of Río La Villa some threats are also at a higher level.

Table 7. Types and Degrees of Threats to Ecosystems in the Upper Chagres
Watershed

  ----------------- -------------- ------------- ------------ --------- ------------ -----------
  **Type of         **Ecosystems                                                     
  threat**          and species**                                                    

                    **Cloud        **Deciduous   **Riverine   **Harpy   **Jaguar**   **Overall
                    forest**       forests**     systems**    eagle**                threat
                                                                                     level**

  Extensive                                      medium       medium    high         medium
  ranching                                                                           

  House             Medium         High                                              medium
  construction                                                                       

  Mineral                          High          low                                 medium
  extraction                                                                         

  Hunting                                                     medium    medium       medium

  Entry of exotic   Medium                                                           low
  species                                                                            

  Poultry           Low                          low                                 low
  production                                                                         

  Uncontrolled      Low            Low                                               low
  extraction of                                                                      
  plants                                                                             

  Operation of dams                              low                                 low

  Subsistence                                    low                                 low
  agriculture                                                                        

  Overall threat    Medium         High          low          medium    medium       medium
  level                                                                              
  ----------------- -------------- ------------- ------------ --------- ------------ -----------

Source: The Nature Conservancy, Alto Chagres: Construyendo un Mecanismo
para Medir el Éxito de la

Conservación, en colaboración con ANAM, USAID y SOMASPA, Panamá, octubre
2005.

Most of the threats listed in Table 7 can be seen in site visits. Forest
clearing for livestock activities is very evident, for example, in areas
like Río Trinidad, Gatuncillo, Boquerón Abajo, parts of the Río Gatún
watershed, and throughout the Río La Villa Watershed. A threat that
cannot easily be witnessed but is exceedingly pernicious for
biodiversity is hunting and capture of wild creatures for sale.[^44] A
study of the ecology of the Panama Canal Watershed reached the following
conclusions about the threat posed by these activities:

> "Hunting \[and capture of wildlife\] is practiced in almost all the
> Canal Watershed, it is most intensive in the zones closest to the
> protected areas, in spite of their legal protection, and in areas of
> brush \[new growth\] and secondary forests.
>
> "The communities that exert the greatest pressure on wildlife are
> Trinidad Arriba, Trinidad Abajo, Nuevo Emperador and Arraiján in the
> western part of the \[traditional\] watershed, and Chilibre, the path
> of the Panamá-Colón train, Frijoles, Santa Rosa, Altos de Pacora,
> Boquerón, and San Juan de Pequení, in the eastern sector.
>
> ***"Illegal hunting is destroying the biological heritage of
> watershed***. However, it is not hunting for subsistence that is
> producing the greatest damage, but rather "sport" hunting and
> "commercial" hunting \[and capture\] that have reduced the populations
> of wild animals. Some species that previously were very common in the
> Canal area today are rare and even have been eliminated from
> watershed. Such is the case of the white-lipped peccary (*Tayassu
> pecari*), the puma (*Puma concolor*), Baird's tapir (*Tapirus
> bairdii*), the great curassow (*Crax rubra*), and the harpy eagle
> (*Harpia harpyja*).[^45][^46]

In the case of the sub-watersheds of the Pequení and Chagres Rivers, a
threat that should be added to the list in Table 7 is the selective
cutting of particular species of plants. This is carried out on an
increasing scale by the indigenous populations of the eastern shore of
Lake Alajuela in order to obtain fiber and natural dyes for the
handicrafts they sell to the tourists that cross the lake in small boats
to visit their home sites. As a result, those species are becoming more
difficult to find in an ever-larger radius around the villages in that
area.

4.  ***Poverty in the Panama Canal Watershed***

The situations of the Eastern and Western Regions of the Panama Canal
Watershed are different in regard to the population density, economic
opportunities and poverty. There are also significant differences with
each region. In much of the ROR there are few settlements. Sparseness of
population typifies the sub-watersheds of the Cirí Grande, Trinidad, Los
Hules, Caño Quebrado, Gatuncillo and Mandinga Rivers and the northern
and eastern part of the Chagres National Park. Other areas of the ROR
are more densely populated, such as the sub-watersheds of the Chilibre
and Chilibrillo Rivers, particularly in the part corresponding to the
Transisthmus Highway Corridor. In the ROCC, the sub-watersheds of the
Indio, Caño Sucio, Coclé del Norte and Toabré Rivers have the main part
of the region's population, but on the whole population density is much
lower that in the ROR.

In terms of welfare indicators, the settlements of the sub-watersheds of
the ROR have basic services such as potable water, electricity,
telecommunications and access roads. The most serious problems are the
inadequate management of solid wastes and the limited capacity of
sewerage systems, with the consequence that a large part of waste water
and solid wastes go directly into the Chilibre and Chilibrillo Rivers,
and their tributaries, without treatment (PMCC, 1999; ANAM, 1999).

The economic activities of these populations along or near the
Transisthmian Highway are concentrated in services, sales, small
industries, commercial agriculture and livestock. The urban poor of the
sub-watersheds of Chilibre and Chilibrillo are small-scale merchants and
manual laborers with low skill levels that work in construction,
industry, mechanical repairs, farms (day laborers on farms belonging to
others), domestic service, and the provision of menial office labor.

The rural populations that inhabit the other sub-watersheds have less
access to basic services. The non-poor, who are the minority, are
involved principally in commercial agriculture and raising cattle, pigs
and poultry. The largest part of the population is dedicated to
subsistence agriculture, small livestock ranches, or agro-forestry work;
or works in day labor jobs or as ambulatory salespersons, artisans; or
owns micro-enterprises such as kiosks and shops. The average income of
these families varies from US\$133 to US\$200/mes, below the cost of the
bundle of basic family necessities.

According to MEF data, on the basis of the 2003 Living Standards Survey,
all the corregimientos of the western part of the ROR, with the
exceptions of Ancón and Nuevo Emperador, are classified as having medium
and high rates of poverty. In corregimientos like Cirí de los Sotos
(sub-watershed of Cirí Grande) the estimated average monthly household
income was only US\$64. In the corregimientos of the eastern zone of the
ROR (those of the Transisthmus Highway Corridor, Puerto Pilón, and
Cristóbal in the Province of Colón), the average household income level
is higher, but on average it does not rise above US\$400/month.

In the ROCC the population is at greater economic disadvantage. On
average the population of the region receives less than US\$100/month,
typically through sporadic sales of products such as coffee, cassava,
plantain, beans, oranges, pigs and barnyard poultry, and through
activities of small kiosks and work as day laborers or domestic
servants. The lack of rural roads and electricity services reduces
possibilities for marketing and processing products and thus reduces
opportunities to develop higher-productivity activities that could
generate higher levels of income.

5.  ***Critical Sub-Watersheds and Areas of the PCW***

The areas of the PCW that are recommended as candidates for
concentration of effort in the new Program are:

1)  The group of sub-watersheds consisting of Río Boquerón, Río Pequení,
    and Río Chagres (the latter above Lake Alajuela). These rivers and
    their drainage areas form an ecological unit and all are
    characterized by low-intensity rural economic activity in their
    lower reaches and mostly intact mature forest in their middle and
    upper reaches. These watersheds all fall within the Chagres National
    Park, and their waters flow into Lake Alajuela.

2)  The middle and upper Río Gatún Watershed, with emphasis on the Filo
    de Santa Rita and the Sierra Llorona. Most of these areas fall
    within the Chagres National Park but the Filo de Santa Rita mostly
    lies in a buffer zone for the Park.

3)  The middle and upper Río Trinidad Watershed plus the Altos de
    Campana National Park, in which the headwaters of the Río Trinidad
    rise.

These sub-watersheds and areas are shown in the map displayed in Map 1
in Annex A, and some of their main physical characteristics are set out
in Table 8 below. Together with the watershed of the Cirí Grande River,
they account for an overwhelming share of the hydrological resources of
the PCW, so this latter river is also included in the table for the sake
of completeness. These three areas selected within the PCW are among the
areas with the most noteworthy endowments of biodiversity.

Table 8. Characteristics of Principal Sub-Watersheds of the PCW

+-----------+-----------+-----------+--------+-------------+-----------+
| >         | > *       | > **      | > **%  | > **Soil    | > **Index |
|  **Sub-** | *Drainage | Average** | > area | > erosion   | > of      |
| >         | > area,   | >         | > in** | > rate,**   | > soil**  |
| > **Wa    | > km^2^** | > **flow, | >      | >           | >         |
| tershed** |           | >         | >      | > **tons/k  | > **pro   |
|           |           |  m^3^/s** |  **for | m^2^/year** | tection** |
|           |           |           | ests** |             |           |
+-----------+-----------+-----------+--------+-------------+-----------+
| Chagres   | 403.1     | 30.8      | 96     | 242.2       | 0.97      |
+-----------+-----------+-----------+--------+-------------+-----------+
| Pequení   | 140.3     | 13.7      | 88     | 405.1       | 0.97      |
+-----------+-----------+-----------+--------+-------------+-----------+
| Boquerón  | 87.7      | 8.0       | 70     | 554.8       | 0.92      |
+-----------+-----------+-----------+--------+-------------+-----------+
| Gatún     | 115.6     | 6.6       | 60     | 306.0       | 0.76      |
+-----------+-----------+-----------+--------+-------------+-----------+
| Trinidad  | 169.0     | 5.9       | 24     | 117.1       | 0.55      |
+-----------+-----------+-----------+--------+-------------+-----------+
| Cirí      | 187.9     | 8.6       | 18     | 190.7       | 0.58      |
| Grande    |           |           |        |             |           |
+-----------+-----------+-----------+--------+-------------+-----------+

> [Source]{.underline}: Sistema de Información Geográfica, *Diagnóstico
> físico conservacionista en los principales sub-cuencas del Canal de
> Panamá,* USAID, ANAM and Louis Berger, mayo 2000.
>
> [Notes]{.underline}: The soil erosion rate refers to measured
> sediments in the rivers. The soil protection index is a function of
> the ground cover; its values are zero for exposed soils and urban
> uses, 0.42 for pastures, 0.65 for brush, and 0.80 for forests. The
> index shown here is a weighted average where the weights are the
> proportions of the sub-watershed with each type of ground cover.

*[The Sub-Watersheds of Ríos Chagres, Pequení and Boquerón]{.underline}*

The upper and middle watersheds of the Boquerón, Pequení and Chagres
Rivers form the heart of the Chagres National Park and are responsible
for much of the richness of biodiversity in the Park associated with
humid tropical forests, very humid tropical forests, and pre-montane
rainforests, principally mature forests. All of the Upper Chagres
Sub-Watershed is located within the Chagres National Park, which is the
most important area of biodiversity within the PCW. It is considered
part of the humid forests hotspot of the Chocó. The pre-montane
rainforests of this area are home to the geological formations
comprising Cerros Brewster, Bruja, Jefe and Azul, which are recognized
worldwide for their extremely high degree of biodiversity and endemism.
The vegetation consists primarily of *bosque perennifolio ombrófilo
tropical latifoliado sub-montano* and *bosque perennifolio ombrófilo
tropical latifoliado nuboso*, which are characterized by greater
endemism than the lowland forests. Riverine systems are well represented
by the Río Chagres and the numerous tributaries that have a substantial
variety of aquatic species.

Cerros Jefe and Azul have been included in the National Biodiversity
Strategy, designed according to the guidelines of the Convention on
Biological Diversity, with a high priority for conservation *in-situ.*
The area of Cerro Jefe is an important center of endemism for epiphytes
(parasitic plants that grow on the trunks of trees), orchids, ferns and
bromeliads: of the 143 endemic plant species identified in the Chagres
National park, 43 species are found only on Cerro Jefe (TNC-ANCON 2003).

In regard to wild fauna, this region is among those with the greatest
diversity, with 88 species. The greatest concentrations are found on
Cerros Azul, Jefe and Brewster, which have been inventoried as recently
as 2003. The four endemic mammal species (*Marmosops invictus*, *Liomys
adspersus*, *Reithrodontomys dariensis* and *Coendou rothschildi*)
reported in the Panama Canal Watershed (Samudio 2002) are found in this
area. There are also records of large animals as the jaguar (*Panthera
onca*) and the puma (*Puma concolor*), as well as other large mammals
like the tapir (*Tapirus bairdii*), the white-lipped peccary (*Tayassu
pecari*), the collared peccary (*Tayassu tajacu*) the red brocket deer
(*Mazama americana*).

The Upper Chagres Watershed is the second most important area in the
Park for bird species, with 155 species recorded. Several of them are
found in the conservation lists of ANAM, CITES and UICN, in particular
the striped-cheeked woodpecker (*Piculus callopterus*) and the Pirre
bush-tanager (*Chlorospingus inornatus*), both species endemic to
Panama, and the harpy eagle (*Harpia harpyja*), the most representative
bird of prey in Central America and the national bird of Panama. Other
species in the area of special biological importance include salamanders
(*Bolitoglossa schirodactyla* and *Bolitoglossa cuna*) and amphibians
that are considered bioindicators of the quality of the forest
ecosystem.

In the area's waters more than 50 species of freshwater fish have been
identified, along with crustaceans and the *Caiman crocodylus*. It is
estimated that at least half of the fish and crustaceans have economic
value.

The sub-watersheds of the Boquerón and Pequení Rivers include ecosystems
of lowland forests, cloud forests, and riverine environments. Their
diversity of flora and fauna is similar to that found in the Río Chagres
sub-watershed, and it is even richer in diversity of bird species.

Table 7 above summarizes the threats to the Upper Chagres Sub-Watershed.
It may be added that the main threat to the area as a whole, including
all segments of the sub-watershed, is urban growth around the boundaries
of the Chagres National Park, particularly in Nuevo Caimitillo on the
southwestern boundary and the residential developments of the Panama
City metropolitan area around Cerro Azul on the eastern boundary, and in
the buffer zone \--principally the corregimientos of Chilibre and Las
Cumbres situated along the Transisthmus Corridor. The rate of population
growth in Las Cumbres was 6.98% and in Chilibre it was 3.15% in the
decade 1990-2000, rates much above that of the country as a whole
(2.0%).

Subsistence agriculture is a low-level but ongoing threat, especially
given the fragility of the soils --it is estimated that 3 ha. of forest
in the sub-watersheds are cut to plant crops each year. A larger risk is
the extensive livestock operations that have been increasing near the
settlements around the Park boundaries, especially Nuevo Caimitillo and
Quebrada Ancha, and also Santa Librada in the Río Gatún Sub-Watershed.

The upper watershed of Río Boquerón faces an additional threat of
settlers moving in from the Portobelo side, to clear land for farming
and ranching, which is part of the more general phenomenon mentioned in
section 6.1 of population intrusions into the northern periphery of the
Chagres National Park, from the Atlantic side.

Another threat has been posed by the extension of the road network from
Nuevo Caimitillo to the port of El Corotú on the shore of Lake Alajuela,
which has the potential to generate soil erosion and sedimentation in an
ecologically sensitive area and also is likely to encourage the arrival
of more settlers in the areas near the existing settlements of
Victoriano Lorenzo, Tranquilla, Quebrada Benítez, and Emberá Drua.

One cause of this migration to the PCW and to these Sub-Watersheds in
particular has been the Regional Land Use Plan for the area, which
proposes to expand the urbanization process along the Transisthmus
Corridor. In addition, the indigenous Emberá communities have been
encouraged by tourism activity, promoted by hotels in Panama City and
Colón, to increase their settlements in the area. Another cause is
poverty, which has been driving subsistence agriculture and some of the
livestock expansion.

In the sub-watersheds of Río Boquerón and Río Pequení, the main threats
to biodiversity are extensive livestock raising, gold mining by
traditional methods, and the expansion of human settlements. Traditional
gold mining uses pressure pumps that severely degrade riverbanks and the
entire riverine ecosystem. It also contaminates water with mercury used
to extract the gold itself. Livestock activities affect natural systems
more in Boquerón and Río Gatún than in any other part of the traditional
Canal Watershed.

Another form of contamination of the waters in the Río Boquerón
sub-watershed is human waste, owing to lack of adequate sanitation
facilities. In addition, cooking with fuel wood is common in the area,
which puts more pressure on trees that can be used for this purpose.

Among the root causes of these problems are the weak management capacity
of the Park administration and the lack of sufficient efforts to educate
local populations on environmental issues. Equally, national authorities
have not invested enough in potable water and sanitation facilities in
the area. These factors combine with the prevailing poverty of the
residents to generate forces that continue to degrade the area's
biodiversity, and prevent it from recovering previous levels.

*[Río Gatún Sub-Watershed and Filo de Santa Rita]{.underline}*

The Filo de Santa Rita in the Río Gatún Watershed "has been recognized
for is high levels of biodiversity and endemism . . . During the PMCC
Project, four of the five reports of plants new to Panama were
registered in the Filo de Santa Rita."[^47] As mentioned earlier in this
report, 316 plant species have been identified in the Filo de Santa
Rita, of which 141 are unique to that area, but the area's biodiversity
probably is still not fully documented. Most of the Filo de Santa Rita
is not part of the Chagres National Park, lying just outside it, but it
is an important buffer zone for the park and it is an integral component
of the ecosystem that includes the Sierra Llorona cloud forest in the
Park. It is a biological corridor between the Chagres and Portobelo
National Parks. The Río Gatún Watershed is one of the main areas of the
Chagres Park where jaguars were sighted in 2003-2004 (Nature
Conservancy, 2005). In regard to hydrological functions, this watershed
is one of the largest sources of water for Canal operations, after the
complex of the Boquerón, Pequení and Chagres Rivers (Table 8). As a
result of land clearing activities, in part for livestock development,
soils in the Río Gatún Watershed are significantly less protected than
the soils of those three rivers. Extensive swaths of land are currently
covered by pasture grasses and with the above-mentioned aggressive grass
called paja canalera, which inhibits regeneration of the natural forest.

A major threat to the Filo de Santa Rita is the clearing of native
forest for teak (*ibid*.), and a recent visit by this study team to the
site confirmed that forest cutting has arrived to the very border of the
park and slightly within it. Areas that five to eight years ago were
covered with native forest now are bare except for native grass and
scattered stands of teak[^48] and some brush. There are reports of
systematic extraction of plants (orchids and others) from the zone also,
and the Filo has been classified as an area of high threat to
biodiversity in a recent participatory workshop held for the purpose of
developing a conservation plan for the Chagres area (*op. cit*., p. 32).
Some landowners in the area appear to be interested in establishing
private nature reserves, which could represent an important option for
recovering native vegetation in the buffer zone.

*[Río Trinidad Sub-Watershed and the Altos de Campana National
Park]{.underline}*

The third area selected as a candidate for the activities of the new
Program is the Río Trinidad Sub-Watershed and the Altos de Campana
National Park, located in the southwestern corner of the traditional
Panama Canal Watershed. This park was created by Executive Decree no. 35
in 1977 and covers 4,816 hectares. About 35 percent of it lies within
the Panama Canal Watershed and that portion includes the headwaters of
the Río Trinidad, which is another main source of water for the Canal.
This area has been less studied than the Chagres National Park and its
buffer zones, but it has been found to be important from a viewpoint of
biodiversity, and it is considered exceptional for its species of
reptiles and amphibians including the endemic and protected golden frog
(*Atelopus zeteki*). Other special values of the Altos de Campana
National Park include cloud forest, petroglyphs and other archeological
resources.

ANCON's 1995 study reported, only in the upper and middle sub-watershed
of Río Trinidad, 245 plant species including 4 that are endemic and 5
that are threatened. However, further investigations increased that
number significantly and according to the latest ANAM information the
Altos de Campana Park alone harbors 566 plant species. In regard to
fauna, the species identified in the watershed include 267 species of
birds (27 threatened and 40 in CITES appendices)[^49] and 39 mammals.
More recent studies have concluded that the park is home to 86 species
of reptiles (9 threatened and 1 protected by law[^50]) and 62 of
amphibians.

It is likely that the number of mammal species is greater than these
estimates suggest, because a fairly recent study of bat populations in
Altos de Campana identified 22 species of bats, and the researcher
reported that probably there are more bat species since the traps were
not set in areas that other bat species would frequent.[^51]

The main threats to the biodiversity of Río Trinidad-Campana have been
extensive ranching and farming, in part carried out by the hundreds of
families who reside within the park's boundaries. There also has been
timber harvesting in the past, facilitated by a large number of timber
concessions. Growth of the residential area of the town of Chicá
represents another a threat to the Altos de Campana National Park. The
suggestion has been made to widen the park's boundaries on the Río
Trinidad side to incorporate remaining fragments of forest and thus
strengthen the park's viability as a natural habitat. Given the park's
proximity to Panama City and the Pan-American Highway, and its unusual
ecosystems and scenic attractions, there is potential to increase the
rate of park visitations to help support strengthened park protection.

**7.2. Río la Villa Watershed**

***7.2.1. Principal Characteristics***

The Río La Villa Watershed serves the most populous and economically
important part of the Azuero Peninsula, in the south-central region of
the country. Its main population centers are Chitré (capital of Herrera
Province), La Villa de los Santos (Los Santos Province), and Pesé
Herrera). Río La Villa provides water to a total population of about
92,925.[^52] This watershed is one of ANAM's highest national priorities
for ameliorating environmental damage.

Río La Villa arises in a Protected Area known as El Montuoso Forest
Reserve, and it is also fed by a large number of small streams
throughout the upper and middle parts of watershed. El Montuoso is also
the headwaters for two other rivers (Tebario and Mariato) that flow in a
different direction and serve thousands of other persons in the
Provinces of Herrera and Veraguas. (See the map of this watershed in
Annex A.) El Montuoso Forest Reserve is one of the last three remaining
patches of native tropical dry forest ecosystem in Panama. This
ecosystem is the most threatened one in Panama, and in Latin America in
general. Although this type of life zone represents 10 percent of
Panama's territory, it represents only 0.09 percent of the coverage of
the System of Protected Areas.[^53] Biological studies of the reserve
have found it to have extraordinarily high concentrations of wildlife,
including a number of endemic plant and animal species.

Decades of traditional land use patterns and deforestation have led to
an alarming degradation of Río La Villa Watershed. When it was created
by enactment of Law no. 12 of 1977, forests covered about 9,000 hectares
of its total area 10,375 hectares.[^54] Now it is estimated that as few
as 1,000 hectares may remain in forest.[^55] Deforestation for expansion
of cattle ranching and subsistence agriculture has severely degraded the
upper and middle watersheds. Overgrazing and an almost complete lack of
trees characterize the pastures. This degradation has had important
impacts on both water supply and the reserve's outstanding biodiversity.
Loss of habitat is severe, both from direct impacts on loss of species
and from indirect effects due to loss of biological corridors and
changes to local climate. Total water flow has been reduced in the lower
watershed where most of the population lives, and now there is more
pronounced seasonality in river flows (most notably, extremely reduced
flows in the dry season).

El Montuoso Reserve and its buffer zone are rather densely populated
with subsistence agricultural producers. About 1,477 persons live within
the reserve's boundaries, in tiny settlements, and about 6,000 persons
live in 100 settlements in the entire upper and middle parts of
watershed. They exert substantial pressure on the already-limited
forest, water and wildlife resources of the region.

Downstream water demand has created additional pressure for the
province. Increased population in urban areas and large-scale expansion
of agriculture have created growing demand for a resource that is
increasingly scarce, and they have led to its serious contamination in
the lower watershed. Furthermore, there has been little effort to
structure or otherwise manage water use. Groundwater extractions exceed
recharge rates for underground resources (ANAM), lowering water tables
and pulling salt water into the freshwater reserves.

External pressures, in particular climate change, will also play an
important role in watershed's future. Scientific models for the region
(including those used by the Government of Panama) assume increased
temperatures and decreased precipitation for the Azuero peninsula for
the coming decades.

The combined effect of these three forces \--environmental degradation
in the upper watershed, lack of water demand management in downstream
areas, and long-term climate trends\-- is a substantial risk of collapse
of the water system in the region and extinction of its biological
diversity. Secondary effects could include perpetuating the extreme
poverty in the region (which includes the second-poorest district in
Panama), and fueling further migration of residents to other parts of
the country, with potentially detrimental environmental and social
effects in their destinations in the Panama Canal Watershed and the
Darién.

***7.2.2. Biodiversity in Río La Villa Watershed***

A recent study of the biodiversity in El Montuoso Forest Reserve
concluded that:

> "In spite of its small size, El Montuoso Forest Reserve exhibits a
> truly surprising biodiversity . . . \[it contains\] between 36 and 63
> plant species per parcel \[of 01.ha.\], a figure higher than that
> reported for parcels in the neotropical humid forests . . ."[^56]

This study and others identified the following numbers of species in El
Montuoso: trees, 4,983; other plants, 255; fish, 13; amphibians, 23;
reptiles, 33; birds, 118; mammals, 41, crustaceans, 4; and mollusks, 2.
Of the mammal species, 23 are included in the UICN and CITES lists of
threatened species; 17 of the plant species are on those lists. Three of
the bird species are in danger of extinction, and 21 are included in the
CITES Appendix 2. One reptile species (*Iguana iguana*) is in danger of
extinction. Another is considered endangered and one is considered
vulnerable by UICN and CITES.[^57]

The study also identified 1,252 species of insects, including fifteen
species of butterflies and moths (*Lepidoptera*), of which some are
rare.[^58] The plant life of El Montuoso contains enormous diversity,
including species of vanilla that are likely to have considerable market
value and more than one hundred plants with potential medicinal value.
At least 15 plant species are included in the UICN-CITES preliminary
lists of threatened species. The plants of the Reserve include the very
rare *Drosera cayennensis*, an insect-eating species, and the Holm oak
or ilex tree (*Quercus corrugata*), also rare.

3.  ***Threats to Biodiversity in Río La Villa Watershed***

The rapid deforestation trend is the major proximate threat to
biodiversity in the Río La Villa Watershed. Forests have been largely
replaced with pastures, even in El Montuoso Forest Reserve, and
deforestation has removed many of the wooded areas that once surrounded
the headwaters and arroyos of the numerous tributary streams for Río La
Villa. Obviously these developments have been driven largely by the
extreme poverty of the families residing in the area, although the
design team was told of cases of persons who live outside the area
grazing their cattle herds within the area.

It still is a practice in the upper watershed to light fires to clear
forested areas in order to subsequently plant crops and claim land
possession rights under the Agrarian Reform Code.[^59] This motivation
is catalogued as one of the main disincentives to maintaining natural
forest cover in Panama in the study of Tracy Parker *et al*. (2004, p.
II-2), which cites the "widely held belief that land must be cleared and
farmed in order to claim title."

In the cases where the forest was removed or fragmented as in Río La
Villa Watershed, the isolated patches of forest do not have the capacity
to preserve the biodiversity of the sites. Species that are endemic,
rare or in danger of extinction are threatened, impoverishing the
natural heritage of the entire watershed and particularly El Montuoso
Forest Reserve. The risk is great that fragmentation and reduction of
the forest in the watershed will result in species loss and a serious
decline in production of water in the medium and long term.

Inhabitants of the upper watershed dispose of their garbage simply by
throwing it in ravines. Wastewater from residential areas,
agro-industries, and pork and cattle operations in the middle and lower
segments of the watershed has raised fecal and other contamination
levels to well above acceptable international norms in the lowest
reaches of the river, especially in periods of low flows. This poses a
threat to the mangrove resources and other marine environments of the
Gulf of Parita and to human health, as well as raising the cost of water
treatment operations.[^60]

***7.2.4. Poverty in Río La Villa Watershed***

In the districts of Las Minas and Los Pozos, which include the upper and
middle watersheds of Río La Villa, the average monthly family income is
about US\$82 and US\$91, respectively. In these districts, the provision
of basic services also is highly deficient: 32.1% of the inhabitants in
Las Minas and 13% in Los Pozos do not have potable water; 70.4% in Las
Minas and 45.5% in Los Pozos do not have electricity; and 69% in Los
Pozos and 77% in Las Minas cook with firewood. At the level of
corregimientos, the results are still more dramatic: less than 50% of
them have piped potable water, and only three of the corregimientos
(Chepo, El Toro and Quebrada de la Rosario) have partial electricity
services (the rest use kerosene for illumination in the home).

In the upper watershed of Río La Villa, located in El Montuoso Forest
Reserve, the most important economic activity is subsistence agriculture
carried out in large part on lands that once had forests and have little
capacity to sustain annual cropping. In parallel with the destruction of
forests in the Reserve, the land area in subsistence crops has been
increasing, for example from 7,638 has. in 2000 to 10,226 only three
years later (ICAP). In the middle and lower watershed, the main economic
activities are livestock, some services, industrial activities, and
commercial agriculture, and the standard of living is higher than in the
upper watershed. However, forests have been almost completed eliminated
from the middle and lower parts of watershed.

The opportunities of the populations in the upper watershed to raise
their income levels are extremely low (CODESA, 2004), unless significant
changes are made in methods of crop production or new activities such as
the provision of environmental services are introduced.

**8. Key Aspects of The Policy Framework**

**8.1. Institutional Responsibilities for Biodiversity, Water and
Watersheds**

***8.1.1. Biodiversity***

The entity responsible for the protection, conservation, administration
and management of biodiversity and natural resources is the Autoridad
Nacional del Ambiente (ANAM), created by Law 41 of July 1, 1998 (Ley
General del Ambiente). That Law also mandates that environmental
management should concentrate on achieving sustainable development,
which implies integrating social and economic considerations into
environmental management. To support the work of ANAM, Law 41 created
the Inter-institutional System for the Environment (SIA), consisting of
the entities linked to the use, management and exploitation of natural
resources, which are MIDA, MOP, IPAT, MICI, ACP, and AMP. The SIA is
presided over by ANAM. For environmental management at a local level,
Consultative Commissions were created for Provinces, Comarcas and
Districts. They were intended to be organs of consultation with civil
society, to analyze environmental issues and development recommendations
for environmental protection. To date, all the Provincial Consultative
Commissions have been created, plus all those for the districts that
contain provincial capitals and one for a Comarca.

Law 41 contains specific provisions (Articles 66 to 72) for the
conservation of the biological values, both in protected and
non-protected areas, with the aim of conserving original habitats for
biodiversity, especially in the case of species that are rare, endemic,
or in danger of extinction. These provisions also provide for creation
and administration of the National System of Protected Areas (SINAP),
regulating and controlling access to and use of genetic resources,
charging fees for the use of environmental resources in the protected
areas; and also regulating the activities of other entities that manage
protected areas, as in the case of municipal protected areas. ANAM
coordinates with ACP all actions for the management and use of
biological values in the Panama Canal Watershed. Within the PCW, ACP
carries out monitoring of water quality and research on biodiversity,
and it sponsors reforestation programs.

To fulfill its functions related to biodiversity, ANAM created the
Bureau of Protected Areas and Wildlife,[^61] which raised the
institutional priority accorded to the topic. However, administering the
32% of the national territory that is devoted to the Protected Areas and
serving as steward of the country's natural and biological values
exceeds the administrative and financial capacity of the institution. It
is estimated that ANAM has been chronically short of the funding needed
to carry out its responsibilities, and that this continuing deficit is
reaching critical levels, a situation that is obliging the Government to
review funding allocations and increase the resources available to ANAM.
Between 1999 and 2004, the budget assigned to the Protected Areas fell
from US\$9.24 million (46.04% of the budget of the institution) to
US\$3.91 million (16.7% of its budget). This Bureau now depends mainly
on external resources provided by projects and donor organizations.[^62]

FIDECO provides support for the administrative and operational expenses
of the Bureau of Protected Areas and Wildlife. In year 2005, the SINAP
personnel consisted of 193 officers, including technical specialists,
heads of Protected Areas, park rangers, and environmental educators. Of
this total, 18 work at the central level in technical and regulatory
aspects of the Departments of Biodiversity and Protected Areas, and the
remaining 175 are assigned to the field in Regional ANAM offices and the
Protected Areas.

From these figures it can be seen that ANAM's personnel management is
not derived from a policy of strategic management of the SINAP, but
rather corresponds to purely administrative considerations. This implies
that the personnel assignments do not bear much relation to the
biological importance or conservation priorities of the Protected Areas
and, second, that staffing is insufficient to effectively manage those
areas. According to international norms for acreage protected per park
ranger, it can be seen that the staffing for some Protected Areas in
Panama is extremely low. In addition, at least 15 of the 50 Protected
Areas administered by ANAM have no personnel, and for the great majority
of those that do have personnel, it is insufficient in relation to the
size of area that should be protected.

This characterization of the management of Protected Areas is consistent
with the results of a study called Monitoring of the Effectiveness of
the Protected Areas Management (ANAM-TNC/NATURA/USAID) carried out in
2003. The study evaluated 5 spheres of management: social,
administrative, management of natural and cultural resources, political,
and economic-financial. In 36 Protected Areas the study indicated a
slight improvement in the general level of management since 2001 (on
average, from 418 to 485 points out of a maximum of 1000), but still the
scores fall within the *"*regular" range (between 401 and 600 points).
In the evaluation, one of the management spheres that scored lowest was
the economic-financial one, which indicates that the resources assigned
to the Protected Areas are not sufficient to guarantee their adequate
management.

Some protected areas are under municipal jurisdiction, but the capacity
of municipalities to adequately manage them is weaker than that of ANAM.
To date, community participation in management of biodiversity has been
generally absent.

A shared area of management and conservation is that of mangroves, for
which ANAM carries out its functions in coordination with the AMP.
Mangroves constitute one of the coastal systems of greatest ecological
and economic value by virtue of being the site of reproduction and
growth of juveniles of many species of fish, crustaceans and mollusks.
Panama possesses 170,687 has. of mangroves, which contribute to the
sustainability of commercial seafood products that are the main category
of traditional exports with earnings above US\$150 million/year.
However, the mangrove systems are threatened by aquaculture farms and
the sedimentation and contamination of rivers caused agriculture,
livestock operations and forest cutting, as well as by coastal dredging
and landfills, dam construction, urban growth, and toxic industrial
wastes. The country's ability to protect its mangroves is barely in a
nascent stage.

***8.1.2. Water Resources and Watersheds***

The management and administration of the country's water resources
involves a complex legal and administrative framework dispersed
throughout several institutions. In many cases this situation has
created overlapping responsibilities and functions, and at the same time
other responsibilities that are essential for the preservation of water
resources have been given little attention. According to the role they
play in the management of water resources, the institutions of the
sector can be classified into two groups: those that use water and those
that administer water.

*[Entities That Use Water]{.underline}*

This group includes entities such as IDAAN (Instituto de Acueductos y
Alcantarillados Nacionales), MINSA (Ministry of Health), and MIDA
(Ministerio de Desarrollo Agropecuario), whose institutional and legal
frameworks give them the authority to provide water services to their
clients.

About 87% of the population of the country is supplied with water from
water mains: 63% from IDAAN, 22% from rural water systems administered
by MINSA and communities, and 2% from private water systems. The
remaining 13% receives water from wells and tanker trucks. In regard to
sewerage, 27% of the population has access to sewage systems, 21% uses
septic tanks, and the majority, the remaining 51%, uses latrines or
completely lacks sanitary facilities.

**IDAAN**. This is the institution responsible by law for supplying
water for human use and the disposition of wastewater in urban centers,
and it is in charge of maintaining wastewater treatment systems, once
the construction companies have delivered the newly built systems to the
homeowners in residential developments. This policy means that the
pressure for provision of potable water and sewerage services in the
growing urban and peri-urban centers falls entirely on IDAAN. This
implies a considerable social burden and investment outlay for the
Government.

IDAAN supplies water to urban centers of the country with 47 water
systems that produce 207,684 million gallons daily, serving 63% of the
country's population of the country.[^63] Surface water flows are the
main source of potable water, and they are purchased in blocks at the
Miraflores water treatment plant of Miraflores, under administration of
ACP. IDAAN invests annually approximately US\$12 million in the
monitoring of water quality, to guarantee that water consumed in Panama
will be of high quality.[^64] Of 340,4 Mm^3^ (89.9 billion gallons)
produced in 2004, about 76% was consumed, indicating a loss of 24%
through leaks and filtration in the distribution network.

Although there are losses between production and consumption of potable
water, some urban and peri-urban areas supplied by IDAAN face problems
on the supply side. IDAAN's expansion projects will help ameliorate this
situation. Because the urban water systems were basically built to serve
the population that existed 50 years ago, IDAAN has developed an
aggressive plan for investments in reconstruction and new construction
of 13 potable water systems, some already finished, others in process of
being finished, and others yet to be started. In addition to the
rehabilitation and capacity increase of the Chilibre water treatment
plant for Panama City, to double its capacity to 250 million gallons
daily (cost, US\$48.77 million), IDAAN is undertaking several other
water supply projects in the Panama City metropolitan area, Las Tablas,
and Changuinola.

IDAAN also has scheduled sewerage projects in the cities of Aguadulce
and Pocrí (Coclé), Panama (2), San Miguelito, and Pedasí. The
institution also is committed to the mega project of cleaning up Panama
Bay, which will be initiated in the coming months with initial financing
from the IDB of US\$50 million. This project has the objectives of
improving the sewerage network of Panama City and constructing sewage
treatment plants.

These and other projects underway and yet to be initiated are increasing
the potable water supply throughout the country and improving sewerage
systems. This will mean a greater demand for water resources in the
short and medium term. It is presumed that some sources of water will
not face problems in supplying the new systems, particularly those in
Panama Province (although that is not necessarily guaranteed). However,
in other localities like Las Tablas, the demand for water for human use
competes strongly with other uses since water resources are scarce, and
they place great pressure on Río La Villa, the principal source of water
in that region.

To guarantee a sufficient supply of untreated water for the Panama
City-Colón metropolitan area, IDAAN and ACP have signed an Agreement of
Cooperation and Institutional Coordination whose principal measure
consists of the formalization of an IDAAN-ACP Contract for the Supply of
Potable Water, which will be registered with the Public Services
Regulatory Entity (ERSP). The Agreement also commits both institutions
to exchange information related to planning for the collection and
treatment of wastewater, and to evaluate the possibility of signing a
working agreement in that area also.

**MINSA**. This is the entity responsible for rural water supply, with
the administration, operation and maintenance of the systems carried out
by the communities, in accordance with Article 112 of the Constitution.
The rural water systems of MINSA cover 22% of the country's population.
The construction of the systems is financed by MINSA, social assistance
organizations like civic clubs (Rotarians, 20-30, Lions), the FIS (Fondo
de Inversión Social), and numerous local investment projects. In all
cases, MINSA is responsible for the quality and maintenance of these
water systems, an undertaking that it carries out with the support of
the local Juntas de Agua that often are active in the better organized
communities.

The Ministry of Health, according to the responsibilities assigned to it
by the Sanitary Code (1946), has control of the treatment and final
disposition final of wastewater, from both households and industries.
This responsibility has been exercised through approval of construction
plans and inspection of the implementation and operation of the
treatment systems in residential and commercial developments.

**MIDA**. Legal Decree No. 35 of September 22, 1996, through which water
use was regulated, created the National Water Commission of the Ministry
of Agriculture, Commerce and Industries (now the Ministry of
Agricultural Development, MIDA), as the organism responsible for
coordinating and supervising directly and indirectly the institutions
involved in the use of water. This law gave MIDA the authority to
approve permits for access to water for farmers and ranchers. Water
users did not pay any fee for water used. Then, in 1998, the General Law
of the Environment (Law 41), in its article 65, established that water
use fees would be proposed by ANAM and approved by the Executive Branch.
To date, the question of water fees is still an unresolved issue.

MIDA administers public irrigation projects and facilitates access to
water for private agricultural producers. For ranchers the access is
directly to the sources of water by means of small diversion structures
in the shallow part of watercourses. In 1990, with the development of
130 small projects, the total area under irrigation reached 41,000 ha.,
benefiting 1,000 families. Nevertheless, around 7,000 has. of irrigated
land were abandoned between 1990 and 1995, the majority in public
irrigation systems. This was consequence of the economic recession at
the beginning of the decade and the subsequent deterioration and
abandonment of government agricultural lands.

In 1992 and 1993 the producers of Azuero and Coclé pushed for the fuller
utilization of irrigation as a consequence of the drought that afflicted
the country in that period. In 1997, the land area equipped for
irrigation was 34,626 has. of which 27,886 ha. were actually irrigated.
The principal areas of irrigation are located in the Provinces of
Chiriquí, Veraguas, Coclé, Herrera and Los Santos, mainly for the crops
of rice, vegetables, and cantaloupe and watermelons, in medium-sized and
small plots of land.

The projections of MIDA to expand the area under irrigation are
ambitious, which increases the importance of evaluating water demands in
any project for watershed management. Some of the public irrigation
projects scheduled to be carried out during the present Presidential
administration, through the Fondo Fiduciario that MIDA administers in
the amount of US\$100 million, are:

*Rehabilitation of the Irrigation System of Azuero*. In 1998 an
agreement was signed with the enterprise Biwater International Limited,
in the amount of US\$9.42 million, for the rehabilitation of the public
irrigation systems in Azuero (El Caño, la Herradura, las Lajas and the
construction of the Margarías system), and construction of a dam in the
Río Guararé. This project was intended to put 2,900 ha. under
irrigation, but the infrastructure was not completed and by 2004 part of
that which was constructed was lost through deterioration. Resources of
the Fondo Fiduciario in the amount of US\$3.20 million were allocated
for rehabilitation of that infrastructure.

*Rehabilitation of the Remigio Rojas Irrigation System*. This project is
located in Alanje (Chiriquí), for irrigating 3,600 has. Its cost has
been estimated at US\$35.30 million, and at present the technical
preparatory studies are being concluded.

*Small-scale irrigation for socially vulnerable areas*. This consists of
small projects of mini-irrigation for family and community plots up to
150 has. It is planned to develop about 120 of these small projects to
benefit 2,000 families. The regions selected are Guarumo, los Valles and
Carita in the District of Cañazas (Veraguas), one of the poorest in the
country. The total cost of the project is US\$1.50 million, and it will
lead to the irrigation of some 1,200 has.

*Construction of small earthen dams for water storage.* It is planned to
build 75 small earthen dams in Azuero with a maximum capacity 2.25m^3^
of retained water. These projects will benefit about 200 producers. The
cost total of all the dams is estimated at US\$1.5 million.

*[Entities Administering Water Resources]{.underline}*

The topic of water administration refers basically to the processes of
planning, resource protection and conservation, and the production of
water. The entities that have the institutional mandate to exercise
these functions are ANAM, ACP and the AMP.

**ANAM**. The promulgation of Law 44 of 2002, that established the
Special Administrative Regime for the Management, Protection and
Conservation of Watersheds of the Republic of Panama, introduced the
concept of watershed in the administration of water resources outside
the Panama Canal Watershed.[^65] Since 1986, when the Institute of
Renewable Natural Resources (INRENARE) was created by Law No. 21, the
institution has had the authority to issue permits and concessions for
the beneficial use of water.

Law 44 also extended the mandate of ANAM to administer, manage and
conserve the country's watersheds, a responsibility that it is required
to exercise in coordination with other institutions that participate in
water management. Law 44 created Watershed Committees, whose principal
function is to help decentralize the responsibilities for environmental
management and for sustainable management of watershed resources. ANAM
has the legal mandate to authorize permits and concessions for the
exploitation and use of all natural resources in watersheds, not only
water, for which purpose it is required to work in coordination with the
Watershed Committees. To manage these responsibilities ANAM has created
a National Bureau of Watersheds and has developed a draft of an
Executive Decree that would constitute the regulations for Law 44.

In order to prevent damage to watershed environments, all projects to be
developed, including permits or concessions for water use, should be
accompanied by environmental impact assessments (EIAs). In the case of
private users, both persons and companies or organizations, that develop
activities for which an EIA is not an explicit requirement, they should
present an environmental plan or a management plan for ANAM's review and
approval. Law 44 also created the Special Fund for Watershed Management,
the resources for which are expected to be provided by the Government,
donors, municipalities via 2% of their revenues generated by permits for
using natural resources, plus other sources.

Some comments may be made about how Law 44 functions in practice.
Although the figure of Watershed Committees appears to be representative
of the social actors in a watershed, they mainly represent public sector
entities with a very weak representation of local inhabitants and their
organizations. Second, the Watershed Committees are more in the nature
of consultative organs and are not set up to make decisions for managing
the resources of watersheds. Third, the financing capacity of the
Special Fund is practically nil because it was not established with its
own capital but rather on the basis of expectations of future resources.
Something similar occurred with the Forestry Law's Fund, which never has
been implemented.

**ACP**. Law 19 of June 11, 1997, established the functions of the
Panama Canal Authority (ACP). The entity was accorded complete
responsibility for the administration, maintenance, use and conservation
of the water resources for the operation of the Canal and the provision
of potable water to the populations of Panama City, Colón, Arraiján and
La Chorrera. The functions of administration and conservation of the
watershed are coordinated with other entities through the Comisión
Interinstitucional de la Cuenca Hidrográfica del Canal (CICH), as
mentioned earlier in this report.

The mandate conferred on ACP for administering the watershed made it
necessary to have a new vision of integrated management of water
resources, focused on a concept of sustainable development that implies
interaction with the other social actors in the watershed, public and
private, and the establishment of the technical and administrative
structures necessary to fulfill this function. This role is assigned to
the Department of Security and the Environment, in the Environmental
Administration Division. The latter, beginning in 2000, augmented its
activities to deal with the following areas of management:

-   Selective reforestation with native species, directly by ACP and in
    coordination with ANAM when it deals with protected areas;

-   Environmental education and awareness building, with support of
    USAID;

-   Updating of information about forest cover, through the Geographical
    Information System and remote sensors;

-   Developing a data base on projects underway;

-   Environmental evaluations carried out in coordination with other
    institutions, particularly ANAM;

-   Strengthening the records of hydrometereological indicators by means
    of a network of

monitoring stations throughout the watershed.

The ACP, through its Watershed Management Section, monitors 10
hydrometric stations located on the principal rivers of the PCW, to
record flow volumes and sediment loads and to carry out laboratory
analyses of water quality.

The ACP sells water to IDAAN and other users, and ACP itself sets the
rates at which the water is sold. In support of this activity it
provides maintenance to Lakes Gatún and Alajuela as reservoirs for
meeting the demands for water from both the Canal and the metropolitan
region. The ACP has developed a Master Plan for the Canal[^66] which not
only envisages technological improvements in the Canal's operations and
the expansion of its capacity to receive post-panamax ships, but also to
increase the volume of water available in these two reservoirs. As part
of the modernization of the Canal, it plans to introduce technologies of
water re-utilization that will save at least 7 percent of the water
currently used in the operations of the locks.

**AMP**. The National Maritime Authority (AMP), was created by Legal
Decree No. 7 of February 10, 1998, to unify in one entity of the
Government the country's maritime responsibilities, within the framework
of the 1982 United Nations Convention on the Law of the Sea.[^67] Its
relationship with water management arises out of its functions, among
many others, to administer and conserve the marine, coastal and
lacustrine resources. Specifically the AMP is responsible for
implementing, supervising, overseeing and evaluating integrated coastal
management programs; setting fees and royalties for the use of coastal
and marine resources; and processing the applications for use and
exploitation of those resources, among other responsibilities.

Coastal, marine and lacustrine resources include salt marshes, mangroves
and mouths of rivers. In carrying out its mandate for conservation,
recuperation and sustainable exploitation of these resources the AMP is
required to work in coordination with ANAM, IPAT, ACP, and all other
institutions linked to maritime and coastal resources in the country.

Another function of the AMP consists of safeguarding national interests
in the oceans and inland waters. From this it also follows that it has
the responsibility for dealing with problems of contamination arising
from spills of mineral products and chemicals in the nation's ports. Law
21 of July 9, 1980, prohibits the discharge of any contaminating
substance in navigable waters and territorial parts of the oceans,
excepting discharges made in accordance with the situations of exception
foreseen in international conventions.

***8.2. Panama's Principal International Agreements for Watersheds and
Biodiversity***

Panama is signatory to six international agreements about biodiversity
and one concerning forest management of forests; some of them have been
converted into Laws of the Republic. In regard to management of water
resources, the country forms part of the agreements of CATHALAC and
participates actively in programs and projects developed by this
organism.

In 1978 Panama ratified the *Convention on Trade in Threatened Species
of Flora and Fauna (CITES)*, promulgated in 1973. Through ratification
of this treaty the country committed itself to develop annual reports
about internal transactions in flora and fauna that lead to their
export, to maintain records, to protect species in danger of extinction
and threatened, and to carry out studies for listing species of flora
and fauna so that their trends in the country can be monitored. As a
result, various reports have been made and research activities carried
out, and classifications have been made of endangered, threatened and
rare species. Also protection measures have been undertaken, including
absolute protection for some species such as iguanas, turtles, large
felines, some birds, reptiles and amphibians and the harpy eagle,
adopted as the national bird. The ratification of this convention
stimulated the creation of the National Wildlife Fund, as a financial
instrument to support the protection of important species. In practice,
the resources channeled to this Fund have been relatively modest
(US\$226,741 in 2004), and the main part has been used for operational
expenses of ANAM.

In 1989 the country ratified the *Convention on the Conservation of
Migratory Species and Wild Animals (CMS)*, promulgated in 1979. This
Convention operates on the basis of five regions in the world; Panama
forms part of the Latin America and Caribbean Region and is a permanent
representative to the Permanent Committee of the CMS. The principal
objectives of the convention are to promote, support and cooperate in
research programs concerning migratory species, give immediate
protection to the species included in Appendix I of the Convention, and
promote agreement for care and management of migratory species included
in Appendix II.

In 1995 Panama ratified the 1992 *Convention on Biodiversity (CBM)*, and
the *Action Program for Sustainable Development* known as Agenda 21. The
country committed itself to develop actions consistent with the
guidelines of the convention related to the conservation and the
sustainable use of biodiversity, and also to adopt a systems approach,
emphasizing the importance of connectivity, and support the
strengthening of local capacities and democratic governance.

The actions undertaken since then include developing the National
Biodiversity Strategy (2000), the Action Plan for the Biodiversity of
Panama (2000) and the National Environmental Reports of 1999 and 2004,
the establishment of the National Commission on Biodiversity, and active
participation in the Regional Network of Commissions on Biodiversity.
Other actions include: attaining GEF financing (Global Environmental
Facility) for conservation projects such as the Mesoamerican Biological
Corridor the Panamanian Atlantic (CBMAP; ANAM with the World Bank),
Management and Conservation of the Sherman-San Lorenzo Park (ANAM with
CEASPA), a project for helping resolve conflicts between agriculture and
the maintenance of the biodiversity of tropical ecosystems (with
SENACYT), and the Conservation of Biodiversity in the Darién (ANAM),
among others.

To support its commitment to the CBM, the country approved new laws for
biodiversity conservation: Law 24 of June 1995, which establishes the
legislative framework relevant to wildlife; Law 1 of February 1994,
dealing with the management of forest resources; and Law 30 of December
1990 setting out the framework for environmental impact assessments,
which was modified by the General Law of the Environment (Law 41 of July
1998) and that established, through Executive Decree No. 59 of March 16,
2000, the process of environmental impact assessments (currently under
review). In addition, as part of the commitment to the CBM, Resolution
No. 09.94 of the INRENARE Board of Directors created the SINAP; that
decision was elevated to the level of law with the passage of Law 41.

In May of 1995, Panama ratified the *Convention for the Conservation of
Biodiversity and Protection of Priority Natural Areas in Central
America*, whose purpose is to raise the level of protection of
biodiversity, both terrestrial and coastal-marine, and which was
promulgated in 1992. This Convention created the Consejo Centromericano
de Areas Protegidas (CCAP) for coordinating the regional efforts for
protection of species of flora and fauna. Under the aegis of this
Convention, with the support of the CCAD (Comisión Centroamericana para
el Ambiente y Desarrollo), the UNDP, GEF and the Governments of Central
America designed and put into effect the Project for the Mesoamerican
Biological Corridor (CBM) that came to an end in 2005. A second phase of
this project is being evaluated in the GEF. The impulse provided by this
Convention also has helped consolidate Panama's SINAP and establish
special protection zones and identify species that need special
protection. Examples include the Binational Panama-Costa Rica Convention
for the Protection of La Amistad Biosphere Reserve, the
Gandoca-Manzanillo project, and the trinational project for the
protection of sea turtles.

In 1996 the *Convention on Wetlands of International Importance
(RAMSAR)*, which had been developed in 1971, was ratified by Panama.
This Convention is aimed at protecting wetlands ecosystems (swamps, salt
marshes, peat bogs, mangroves, etc.) that shelter native and migratory
species, especially of birds. Since the signing of this Convention
Panama has delimited the five Ramsar sites mentioned in section 4.3
above.

The country also signed the *Framework Convention of the United Nations
on Climate Change (CMC*) in 1995, which had been promulgated in 1992.
This agreement motivated the establishment of the National Commission on
Environmental Services (now the Environmental Services Unit in ANAM) for
the purpose of administering, supervising and implementing environmental
services projects, and also the creation of the Foundation for Clean
Development Mechanisms that includes participation from the sector
private and NGOs. ANAM has created a Climate Change Unit whose principal
function is to undertake actions that contribute to the slowing of
global warming and to sustainable development.

Panama participates in the project *Development of Capacities for Stage
I and Adaptation to Climate Change in Central America, Mexico and Cuba*,
whose objective is strengthening the institutional capacity for reducing
the vulnerability to climate change and supporting adaptation to the
impacts of it. Operationally in this area, ANAM is carrying forward
studies, with support of international organisms (UNDP, CATHALAC), in
the middle watershed of the Río Santa María to prepare a climate change
project that will help to reduce the impacts that the region is already
feeling in its productive systems as a result of climate change.

***8.3. Current Approaches and Experiences for Ecotourism***

Ecotourism has rapidly become an alternative for the use of natural
resources and the environment, with less impact on them when properly
managed. Experiences in the Central American region are extensive and
the countries make great efforts to promote their offerings in this
area. In Panama the field is still relatively underdeveloped. In 2004,
IPAT and ANAM approved a *Strategy for Tourism Investment Products* that
includes goals and defines tourism circuits. Another project in process
is that of EcoParks for managing sustainable and recreational tourism in
Rodman, promoted by the Pan-American Conservation Association. The
approval in 2005 of the regulations for ecotourism concessions in
protected areas could open new options for the intensification of these
activities.

Among the more recognized experiences are the concessions for tourists
visits in Punta Cana (Parque Nacional Darién) and Canopy Tower (Parque
Nacional Soberanía), plus the future project for tourism development in
the Parque Nacional Soberanía (AED-USAID), the scientific tourism that
is managed in the Barro Colorado Natural Monument, and the bird watching
on Pipeline Road. In 2003, through ARI, ANAM authorized a concession for
ecotourism in the Protected Landscape of Punta Bruja and another one in
the Sherman-San Lorenzo Protected Area. Currently both projects are in
operation. Other ecotourism experiences are not well organized and their
economic returns do not even cover the economic costs of administering
the Protected Areas in which they take place. Examples include visits to
the Bastimento and Coiba Marine Parks and to the Omar Torrijos, Chagres,
PILA and Volcán Barú National Parks.

In the last three years tourism as a whole has risen to third place
among income-generators in Panama, after the Panama Canal and the Colón
Free Zone. However, the portion of that attributable to ecotourism is
not known.[^68]

The model of the ecotourism projects of Punta Cana and Canopy Tower is
of private administration of sites within a national park, under
agreement with ANAM and under ANAM's monitoring. In practice the
monitoring is weak and there is very little statistical record of
tourist visits, which creates difficulties for evaluating the benefits
and limitations of operating in this way. By the same token, the income
received by ANAM from both concessions is insignificant. Perhaps the
most important benefit of the concession for Punta Cana is a special
provision that was not included in the agreement for the concession of
Canopy Tower; it requires the tourism operator to be responsible for the
care and protection of a area of 1,000 has., three times larger than the
area allocated for operations under the concession (300 ha). In other
cases, apart from the concession lease fee there are no other
contractual commitments for the operator.

The experience of the ecotourism project in the Parque Nacional
Soberanía (AED-USAID) offers a different perspective. The strategic
position of the Park in the vicinity of the Panama Canal, its biological
and cultural richness, and its world recognition as one of the best
sites for bird watching, all have helped convert it into the ideal
destination of the visitor that does not have much time in the country.
In addition, its nearness to local communities and the metropolis of
Panama City offers opportunities to generate income for local residents
through provision of tourism services, projects for the development of
infrastructure and capacity for tourism services. To assist in
developing these kinds of projects and to improve the efficiency of the
administration of this protected area, an incentive fund of US\$550,000
(US\$400,000 contributed by USAID and US\$150,000 by the Government of
Panama) was created. The aim is that this fund will provide counterpart
financing for private entities that invest in facilities within the
protected area or in its buffer zone. In each case, at least 50% of the
resources necessary for development of the projects would be expected
from the interested private entities.

In addition to reinforcing the potential of Soberanía National Park as a
tourism destination, the ecotourism project in Soberanía will help
strengthen ANAM as the lead agency for the management of natural
resources, it will reinforce public-private alliances for developing
initiatives with lower impacts on natural resources, it will foster
financial sustainability for the park, and it will represent an
opportunity for the generation of income and employment for local
inhabitants.

Tourist visits to Soberanía will be strongly promoted by the new Museum
of Biodiversity, being built on the banks of the Canal under the design
and guidance of the internationally known architect Frank O. Gehry,
which will be a facility for learning, discovery, and appreciation of
the rich natural heritage of the country.

Panama offers multiple options for national and international ecotourism
and adventure tourism. The country's biological richness, the nearness
of a good part of the system of protected areas along with facilities
for access to them, and Panama's international transport links and
telecommunications system together make Panama an attractive destination
for ecotourism. The country has potential in terms of landscapes,
ecosystems and biological endowments for excursions along interpretive
trails in protected areas, diving and snorkeling in areas of coral reefs
(Bocas del Toro, Veraguas, Kuna Yala, Coiba, Isla Iguana); ocean sport
fishing (Puerto Piña, Punta Patino, Parque Bastimento, Coiba); bird
watching in almost all the protected areas of the central and western
parts of the country; eco-adventures and extreme sports; and visits for
biological research (Isla Cañas, Taboga, Panama Bay, Barro Colorado
Monument, Isla Galeta, etc.).

However, the concerns about the objectives and management of ecotourism
activities mentioned in section 10 below need to be addressed, in order
to make ecotourism compatible with conservation of biodiversity. Clear
distinctions between different types of tourism and their objectives
need to be made in order to develop appropriate strategies for each
type.

Once a decision has been made to move forward with an ecotourism plan
for a given area, it World be important to take into account the lessons
learned from the ecotourism Project in Soberanía Park. The most
important of those lessons are the following:[^69]

-   Promoting tourism of international importance requires a product
    that is recognized internationally, for example, bird watching in
    Soberanía Park, and the facilitating activities have to be centered
    on that product. This means that visitors could lose interest if
    their attention is distracted by objectives that are of lesser
    importance. The lesson is that for Panama to take off in ecotourism
    it needs a product focus and a niche focus, since the competition in
    the region is very strong.

-   Security of contracts and property rights is an essential condition
    for attracting risk capital investments. This means that the
    regulations for the concessions must constitute a legal instrument
    solid enough to give investors the confidence that the rules of the
    game will not change. Juridical security in this sense is a key
    element in the decision to invest or not in protected areas.

-   The approach in which investors are required to develop the
    infrastructure is not attractive to them. They prefer that the
    Government build the infrastructure and let it out in concessions to
    the private sector. Alternatively, the Government can facilitate
    financing for the development of private infrastructure in buffer
    zones, in a manner in which the investments are secure, thus
    reducing the pressure to build infrastructure within the national
    parks.

-   It is necessary to improve the system for controlling entry into
    national parks, using entry gates with booths for collecting fees.
    In the case of Soberanía Park, there are 18 legal and illegal entry
    points and no effective control over access.

Through the field visits of this team and previous studies, some sites
with ecotourism potential in the near term have been identified in the
Canal Watershed, Azuero, Chiriquí and Bocas del Toro. They are:

-   The Chagres National Park is a well-positioned product
    (biodiversity, ethnic groups, close to Panama City) with a very
    unusual and important endowment of biodiversity by world standards,
    much of it rare or threatened. However, illegal hunting threatens
    its jaguars and other mammals and the trapping for sale of birds
    also is uncontrolled.

-   The Campana National Park, part of which lies within the borders of
    the Canal Watershed, offers visitors an opportunity to combine
    mountain hiking with visits to beaches. This park contains one of
    the few remaining reserves of pre-montane cloud forest, and the
    rivers that rise within its boundaries are important sources of
    water for Canal operations. Agricultural inholdings are one of the
    main threats to this area, along with increasing residential
    development on its western side.

-   In Azuero there are fewer opportunities in general, but the
    shrinking El Montuoso Forest Reserve contains a unique and
    attractive stock of biodiversity, including mammals and rare
    butterflies, and it is rich in rare flora. Sarigua National Park in
    Herrera contains an unusual semi-desert ecosystem and other natural
    reserves of interest include Isla Iguana Wildlife Refuge and Isla
    Cañas Wildlife Refuge. In addition, along the Santa María River
    crocodiles and tropical birds can be sighted.

-   The Isla Bastimento Marine Park presents excellent biological
    conditions (on land and in the sea) and it is a very suitable site
    for developing infrastructure in the buffer zone.

-   In Chiriquí, the watersheds of the Caldera and Chiriquí Viejo
    Rivers, especially the Volcán Barú National Park and the Parque
    Internacional de la Amistad, have high potential. Among other
    attractions for visitors, quetzal birds may be sighted there.
    However, these areas are not well protected, and the accelerating
    process of land sales for residences also the Caldera River may pose
    another kind of threat to the areas' natural assets.

Currently AED is undertaking, jointly with ACP, actions toward
development of a sustainable tourism product called "the ecological
route between two oceans." The route has multiple options that take in
parts of Chagres National Park, the Metropolitan Park, the Camino de
Cruces National Park, Fort San Lorenzo, Barro Colorado Island, and
Achiote. Its attractions are biodiversity, historical riches from the
early colonial period in the continent, and the Canal itself. IPAT also
is interested in developing this route, but funding is needed to develop
the potential circuits (infrastructure, basic services, service areas,
informational material, etc.)

***8.4. Current Approaches and Experiences for Cleaner Production***

The recently approved policy of financing sustainable livestock
operations in the Panama Canal Watershed is a positive step toward
conservation of the watershed since livestock occupies by far the
largest amount of land among agricultural activities. It holds out the
promise of reducing soil degradation and water contamination. The
implementation of this policy is made possible by a fund of US\$10
million provided by the Government of Panama, administered by the
Agricultural Development Bank (BDA) as a guarantee fund.

The resources of this fund can be used for loans of up to 20 years with
an interest rate of 5% in cases of titled property as collateral and 6%
when the land title is weaker ("derechos posesorios") or moveable assets
are used as collateral. In both cases the collateral should cover a
minimum of 60% of the obligation. These provisions will help a larger
number of producers gain access to the financing. Other prerequisites
for access to it include the development of a farm management plan that
sets out the technological improvements to be introduced, including the
environmental management activities. Examples of the latter include (i)
use of higher-quality genetic material to improve the herd and
techniques of improved pasture management such as protein banks, silage,
and cutting hay; (ii) the protection and planting of gallery forests,
living fences, and forage trees; (iii) natural regeneration of
vegetation on hillsides and planting windbreaks; (iv) improved
infrastructure such as watering points, structures that isolate pastures
from riverbanks, or protect natural vegetation; and (v) better
management of animal wastes and chemical products. One of the most
promising innovations, promoted by AED, is the introduction of an
improved pasture grass that holds up better in the dry season, thereby
improving animal feed conditions at the same time that it reduces the
soil erosion caused by the herds.

It is estimated that about 24% of the soils of the ROR (82,046 has. of
the 126,934 has. under agricultural and livestock use) is devoted to
extensive livestock, with a ratio of about 0.9 animal per hectare. Wider
dissemination of sustainable livestock practices can contribute to
conserving soils, improving water quality, and increasing forested
areas. Through recovery of gallery forests and their growth,
biodiversity also may be enhanced. However, in some especially
vulnerable areas biodiversity and the watershed may be better served by
outright purchase of livestock lands, to allow them to revert to natural
vegetative cover.

Shifting productive activities toward sustainable modalities also is
being promoted through the complementary USAID-ACP Fund.[^70] This Fund
is financing pilot projects for clean agricultural practices in the
sub-watersheds of Los Hules, Tinajones, Caño Quebrada, Trinidad, and
Gatuncillo. Those projects include *silvopastoril* techniques in 15
pilot exploitations which incorporate protein banks, corridor pastures,
gallery forests, the planting of dispersed trees and bushes in pastures,
and seeding and managing improved pastures; *good agricultural
practices* in 7 pilot farms to help build model infrastructure for the
storage of agrochemicals according to the EurepGAP protocol and to
design a model for measuring the potential for absorption in soils of
dangerous pesticides; a program of *good agricultural practices for
pineapple* aimed a training farmers, through demonstrations, in
techniques for soil management on the slopes that characterize the areas
where this crop is grown; and training in *sustainable agricultural
practices for 30 subsistence farmers* in 10 communities in Los Hules,
Tinajones y Caño Quebrado.

The Project also includes the training of community extension agents and
the strengthening of local organizations; the improvement of sanitary
infrastructure for 6 pilot pig farms in the Gatuncillo Sub-Watershed,
for which financing is provided for technical assistance, construction
materials, design of ponds, excavation for the different aeration sites,
training, and other support activities; selective reforestation in the
Gatuncillo and Hules, Tinajones and Caño Quebrado Sub-Watersheds, to
reforest parts of farms in upper and middle reaches of both
sub-watersheds through a program that includes training, financing of
inputs, demonstration activities, and the establishment of nurseries for
seedlings; and the validation and replication of sustainable
agricultural practices in 5 communities in Capira, for which 10 producer
families receive technical assistance and training for developing
techniques appropriate to their localities.

The results of these experiences are still preliminary since the
implementation of the projects began only about a year ago. The
expectation is that the process of demonstration and learning will
stimulate replication of these experiences in other sub-watersheds of
the PCW and in other watersheds in the country. However, the
dissemination of these experiences on a wider scale runs up against a
number of obstacles.

There is a need to improve the availability of financing so that a
greater number of farmers and ranchers can transform their agricultural
practices. In practice, the majority of farmers lack assets which could
serve as collateral for accessing finance, including finance from the
BDA. Perhaps the exceptions to this statement are the medium-scale and
large commercial pineapple producers in the PCW, producers of watermelon
and cantaloupe in the Río La Villa Watershed, coffee and vegetable
growers in the watersheds of the Caldera and Chiriquí Viejo Rivers,
banana producers in the watersheds of the Changuinola and Sixaola
Rivers, and rice growers in the watersheds of the Chico, Grande,
Santamaría Rivers.

Adequate technical assistance and technologies and access to information
on the part of producers together constitute the second factor that is
vital for fostering changes in the direction of appropriate watershed
management. Interviews with producers in Azuero during the preparation
of the second phase of the MIDA-ANAM-World Bank project for rural
poverty and natural resource management revealed that technical
assistance as usually offered does not emphasize clean production or
appropriate environmental management. An example of this orientation is
the implementation of the Law for Productive Reconversion heralded by
MIDA since 2000. It subsidizes up to 60% of the resources invested in
technological improvements on farms, genetic improvement, and
infrastructure investments, and 100% of the cost of investment
feasibility studies, subject to a study of environmental impacts.
However, those studies concentrate on avoidance of further environmental
damage and they do not indicate how to improve a farm's environmental
management. Thus a major question for replicability of the pilot
experiences is what institution, and under what guidelines, will provide
the kind of technical assistance that the USAID-AED has been supplying
recently.

Producers need better information, and better access to it, regarding
techniques of clean production, indicators of soil and water quality,
sustainable cultivation techniques, the productive capacity of soils,
and other topics. A document that should be disseminated to all
producers is the *Manual de Buenas Prácticas para el Manejo de Cuencas
Hidrográficas /USAID-ACP-CICH,*[^71] which offers easy-to-understand
guidelines for simple for increasing yields while improving soil
conservation, organic pest control, maintaining vegetative cover on
farmlands, sustainable livestock practices, and the like. A plan for
disseminating similar materials should be developed for the new
Watersheds Program.

Very importantly, a continuation of this work should incorporate simple
techniques of monitoring biodiversity in the project areas. Currently it
is not possible to assess the impact of project activities on
biodiversity.

***8.5. Policies for Forestry and Forest Management***

The principal instrument of forest policy is Law 3 of February 1994. It
establishes the framework for management, administration, exploitation
and authorization of use of the forest resources of the country,
although it is ambiguous with respect to the adjudication of forests in
State-owned lands. [^72] In 1992, Law 25 for Reforestation Incentives
was promulgated with the aim of reversing the trend toward deforestation
and to promote sustainable uses of degraded soils. This law created
income tax exemptions for entrepreneurs, agricultural and
non-agricultural, which undertake reforestation projects. By 1999 it had
stimulated the reforestation of 30,200 hectares by some 1,000 persons
and entities registered in ANAM's Forest Registry, which was set up to
monitor the persons and companies involved in reforestation projects.
The species planted were largely exotic, principally teak (*Tectona
grandis*), Caribbean pine (*Pinus caribbea*), and African mahogany
(*Khaya senegalensis*), and some native species such as spiny cedar
(*Bombacopsis quinata*), a type of oak (*Tabebuia pentaphylla*) and
laurel (*Cordia alliodora*).

In 2003, after carrying out economic and environmental evaluations of
Law 25, the Government took the decision to repeal it since it did not
succeed in alleviating the problem of deforestation. On the one hand, it
had been a unilateral initiative of the environmental sector without
taking into account a broader perspective that could have led to
policies directed at the real causes of deforestation, such as rural
poverty, the lack of monitoring of timber concessions, increasing
urbanization, and other causes. On the other hand, there were gaps in
the law that gave rise to undesirable and unforeseen situations: (i) the
fact that the law utilized tax exemptions excluded from its potential
beneficiaries the smallest producers who, because of their low income
levels, are not required to file tax returns; (ii) it did not include
upper limits on the sizes of investments eligible for benefits, and so
in practice it became a means of evading taxes by declaring exaggerated
levels of costs; (iii) the use of exotic species without appropriate
management contributed in many cases to worsening soil deterioration
(PMCC, 1999), as can be seen in many of the reforested landholdings in
the PCW: (iv) the law did not foster development of knowledge about the
management of native species, since the supply of information about
exotic species was more accessible and it was assumed that planting them
assured healthy returns to the investments.

ACP has developed a recent plan to reforest 250 ha./year in the Panama
Canal Watershed with native species and with its own financing. This
program is coordinated in protected areas with ANAM, and it commences in
2006 with the reforestation of 50 hectares invaded by the aggressive
weed called paja canalera (*saccarum spontaneum*) in the Chagres
National Park.

***8.6. Policy Issues in Water, Watersheds and Biodiversity***

A number of the policy issues concerning management of water and
watersheds have been alluded to in the foregoing discussion. They are
summarized briefly here, with the comment that the Panamanian Government
is aware of most of them and in some cases is already working on
revisions of the relevant sections of policy framework.

*Funding for Biodiversity Protection*. It is acknowledged that the
Protected Areas System (SINAP) does not have sufficient funding to
properly protect these areas and their biodiversity, as indicated by the
foregoing illustration of the case of numbers of park rangers. Park
infrastructure also needs rehabilitation. For example, this study team
walked the trail in El Montuoso Forest Reserve and found it in a badly
deteriorated state. Most importantly, funding for involving communities
in protection of biodiversity is lacking. The underlying issue here is a
need to find ways to recognize the inherent economic value of Panama's
rich endowment of biodiversity, and to translate that value into
effective support for conservation of that biodiversity. A start was
made with debt-swap agreements for the Chagres and the Darién, but much
more needs to be done.

*Administration of National Park Fees.* At present the entrance fees and
concession charges for national parks go into a central fund, and the
expenditures on park protection and maintenance bear little relation to
the fees collected. One of the justifications for promoting tourism in
national parks is to raise revenues for their management, and therefore
it is important to explore mechanisms by which fees collected can remain
under local administration. Seeing fee revenues put to work in park
management, and having a fund for which local interests have a
management voice, also is important for promoting community involvement
in park management.

*National Park Concessions*. At present the legal basis for park
concessions is an administrative decree of ANAM, but in order to
encourage long-term investments in concession infrastructure it is
necessary to base the concessions in regulations to laws. The inadequate
state of maintenance of park facilities and the insufficiency of park
rangers argue for exploration of ways to devolve park management to
NGOs, foundations, or other entities, with accompanying fund-raising
rights. An outstanding example of an NGO managing a national park on a
long-term basis is the experience of Salvanatura in El Salvador, in
managing the El Imposible Park.

*Sustainable Forest Management Policy.* After the repeal of the
reforestation incentives provision of Law 25, the country does not have
a policy framework for reforestation, or for halting deforestation. ACP
is committed to a modest degree of reforestation each year in the Panama
Canal Watershed, but this is a program initiative, not a policy. One of
the main issues how to enable low-income rural families to shift their
agricultural production patterns in a direction more compatible with
sustainable management of the environment. In part this is an economic
and financial issue, because some of those new patterns offer high
returns, provided that mechanisms are available to allow these families
to receive income during the gestation period of trees. USAID has
provided funds for Rainforest Alliance to begin work on reforestation
with mixed native species, and their experience may be useful for
developing a policy framework in this area.

*Participatory Management of Watersheds*. Watershed management also
involves biodiversity management. As mentioned earlier in the report,
although the legal figure of local Watershed Committees exists, it has
not been put into effect in a way that can encourage genuine local
participation in decisions about watershed management and in
implementing those decisions. The committees are gatherings of
representatives of government institutions more than bodies that reflect
local interests and opinion. The legal basis for these Committees is
insufficient to promote true local participation because it does not
confer decision-making powers on bodies that have strong local
representation, and it does not allow for water use fees to be managed
at a local level. Internationally there are many examples of active user
participation in watershed management, for example in France, Spain,
Senegal and Mexico. The question of the role of local users of watershed
services in the management of watersheds is one that merits careful
review and re-thinking. Integrated watershed management plans that
emerge from users' deliberations and joint decisions are more likely to
be effective than those that are imposed by central authorities.

*Water Law.* The country's water law is now 40 years old and it would be
important to update it. ANAM already is working on a revision. One of
the areas of weakness of water is lack of clarity regarding long-term
water use rights, and also clauses relevant to the transfer of those
rights.

*Water Use Concessions.* A principal issue here is how the concessions
are administered. It is inefficient to require that each application for
a new water concession be accompanied by a new evaluation of the total
water supply in watershed, and in addition that procedure cannot ensure
that such evaluations would be objective. ANAM should develop, and
update at regular intervals, a definitive technical evaluation of water
resources in each watershed and sub-watershed, including the seasonality
of their flows. New concession applications should be evaluated on the
basis of that evaluation and the existing concessions. A related issue
is that the agency appears not to have compiled a list of existing water
use concessions for each major watershed, with the sum of water use
rights granted under those concessions. Such a compilation should be
complemented by an assessment of water use levels in unauthorized
extractions. In brief, up-to-date water supply and demand balances are
needed as a management tool for critical watersheds. Another need is
rules for allocating water among concessionaires in periods of drought
or abnormally low flows.

*Regulation of Groundwater Extractions*. At present there are no limits
on well construction or groundwater extractions, and in areas like
Azuero where water tables are dropping government agencies (MIDA, IDAAN)
as well as private individuals continue to dig wells.

*Water Pricing Policy*. There do not exist clear guidelines for water
pricing. Annual fixed fees are charged for water concessions but they
are minimal and do not appear to reflect the scarcity value of water in
each locality. Irrigation users do not pay fees in addition to the
concession fee, and so their (low) payments are not related to the
volumes of water used, and hence there is no price incentive for
conserving scarce water resources. Run-of-the--river hydroelectric
plants also do not pay fees related to amounts of water used; the owners
of those plants justify this on the basis that they are not net users of
water, but their operations have an impact on watercourses and instream
biodiversity. What is missing is application of the concept of the
opportunity cost of water. Water pricing policy to date appears to have
been founded on the assumption that water supplies are, in effect,
limitless in relation to demands for water, but that assumption is
demonstrably no longer valid, so water demand management (through
pricing and other mechanisms) should be a central part of national water
policy.

*Decentralized Water Management.* If water is to be priced to
agricultural users, it is important to define the State's obligations to
deliver water to the users and the administrative arrangements through
which users may allocate water among themselves and maintain their part
of water delivery systems. Water users associations need to be created
and given legal status. Many different models exist throughout the
developing world in regard to the division of responsibilities between
the Government and water users associations,[^73] but the central need
is to define the role of each party clearly, whatever the model may be.
An equally important need is to define mechanisms through which fees
collected can remain under the administration of water users
associations, i. e., at the local level. So far, Panama's rather
centralized system of governmental administration does not provide for
such mechanisms.

*Water Quality Measurement*. For most watersheds in the country, regular
systems of monitoring water quality do not exist. Where it has been
measured, it has been through special studies, as in the case of Río La
Villa. In the Panama Canal Watershed regular monitoring takes place but
it does not appear to capture all the relevant variables, such as
changes in the amount of dissolved oxygen that give rise to rapid growth
of aquatic plants in part of Lake Alajuela and downstream in the Chagres
River. Local contamination is very high in areas such as the Panama Bay
watersheds and Chilibre and Chilibrillo in the Canal Watershed, and yet
not all the forms of contamination appear to be measured on a regular
basis. Well water quality is not regularly monitored, and there are
reports of significant contamination of wells in some areas.
Contamination of groundwater supplies is in some ways a more serious
problem than contamination of surface waters. "Groundwater quality
deterioration, whatever its cause, is insidious and expensive: insidious
because it takes many years to show its full effect in the quality of
water pumped from deep wells, expensive because by this time the cost of
remediation of polluted aquifers will be extremely high."[^74]

**Part III. Alternative Interventions for Managing Biodiversity and
Watersheds**

**9. Overview and Points of Entry**

In concise form, principal conclusions emerging from this study are
that:

-   Panama's biodiversity is rich and varied, but it is under threat in
    a number of areas of the country. A number of threatened species and
    ecosystems are not receiving adequate protection.

-   Deforestation and habitat destruction are extensive and continuing
    in some areas, and extensive and decelerating in others, but
    sustainable forest management is still in its infancy.

-   Poverty is at the root of deforestation and reduction of
    biodiversity in Azuero and in some parts of the Panama Canal
    Watershed.

-   Protection of water supplies and conservation of biodiversity are
    intimately interrelated in Panama.

-   Panama's capacity to protect its biodiversity and water sources
    needs to be strengthened substantially.

-   Water supplies and biodiversity are severely threatened by human
    activity in Río La Villa Watershed.

-   There are indications that poor watershed management in the past has
    reduced water flows in some sub-watersheds of the Panama Canal
    Watershed.

-   Water quality appears still generally acceptable in the country but
    contamination levels are greater than acceptable limits in sections
    of Río la Villa and there are foci of severe contamination in parts
    of the Panama Canal Watershed.

-   The country does not yet have a functioning example of integrated
    watershed and biodiversity management.

-   The policy framework for biodiversity management, water management
    and watershed management has some important weaknesses.

-   National and local institutions for managing biodiversity and water
    are generally weak, except in the Panama Canal Watershed, where
    national institutions are strongest.

-   Local participation in decisions affecting biodiversity and water
    supply has insufficient support from the national level.

-   Technologies of sustainable watershed management also need
    improvement.

In light of these conclusions, this report recommends adoption of the
following broad approaches in a new watershed management project:

-   Strengthening of environmental governance for management of
    biodiversity and watersheds. This requires better institutional
    coordination and watershed planning and, above all, promotion of
    effective decentralization and local participation in
    decision-making on watersheds and biodiversity, and not only
    mechanisms for consulting local populations.

-   Strengthening of conservation practices in order to protect
    biodiversity, such as setting aside land for gallery forests along
    watersheds and planting mixed forests for soil conservation and
    biodiversity protection.

-   Strengthening environmental monitoring and the use of mechanisms
    such as environmental impact assessments to help ensure compliance
    with proposed environmental mitigations.

-   Adoption of economically and financially sound approaches for
    natural resource management in watersheds, as one of the keys to
    ensuring sustainability of the approaches.

-   Adopting market mechanisms where applicable and to the extent
    possible, including certification procedures for enhancing market
    access and payment for environmental services on the part of users
    of those services.

-   Pursuing financial sustainability and self-financing mechanisms for
    conservation programs.

-   Reducing localized poverty as part of the approach: the solutions
    must improve the standard of living of inhabitants of watersheds and
    protected areas, or they will not be viable.

These and related approaches are developed and discussed in the
following sections.

**10. Economic Approaches for Watershed and Biodiversity Management**

***10.1. Goal and Methodology***

The goal of this part of the analysis is to examine the economic and
financial aspects of biodiversity protection. Specifically, the
objectives entail gaining a more detailed understanding of how markets
and economics-based approaches might be applied to create lasting
mechanisms to achieve goals of biological diversity conservation and
related aspects.

The overall project focuses on watersheds as the unit of analysis,
which, for a variety of reasons turns out to be an useful scale for
understanding and applying the economics of biodiversity, as well as
land use patterns, conditions of poverty, and relationships between
users of a variety of natural resources within watershed.

Economic and financial instruments are most effective for natural
resource management where there are situations that approximate markets
(or potential markets) that can be harnessed to generate benefits and
cash flow toward activities that manage or protect resources more
effectively. In practical terms, where might there be business
opportunities, or other economically sound approaches to achieve
biodiversity conservation and meet the needs of the broader community?
The most likely areas and those on which the team focused were the
following:

-   Environmental services, in particular water production

-   Forestry

-   Alternative agricultural technology

-   Sustainable-seal agriculture

-   Biodiversity-based business

-   Ecotourism

Within each of these areas, this report poses a series of questions to
identify mechanisms that could allow financial resources to flow in
desired directions and towards target priorities:

-   Are there identifiable opportunities within the studied watersheds
    to generate income

> based on more sound management of biodiversity or related natural
> resources?

-   Are there existing markets? How much effort/cost will it require for
    markets to permit

> benefits to be commercially viable for the study areas?

-   Do markets or enabling mechanisms have to be created?

-   What can reasonably be achieved using the different economic
    activities?

-   Does the maximum expected impact take the form of major improvements
    in land use and life quality? Or simply palliative responses to
    extreme poverty? Or somewhere in between? Combinations of both?

-   Are there ongoing efforts (or plans) that support or complement the
    development of market-based opportunities?

***10.2. Environmental Services***

***10.2.1. Background: Environmental Services and Economics***

The natural environment provides a wide variety of services that are
useful and value to humans. At the most general level, these services
include our atmosphere, oxygen and climate regulation, soil, water, the
vast variety of species that maintain natural balances and provide value
in agriculture and industry, along with many others. The traditional
view has held that these services are limitless. In basic college
courses in economics we are even taught that air and water are "free"
goods that cannot be priced. However, there is ample evidence that
mankind is pushing the limits of many natural systems at local and
global levels, and there is an accompanying awareness of what scarcity
of these resources means in economic terms.

We are learning that there is scarcity of many critical resources, and
that there might be logic in investing in them to ensure their continued
existence and availability for future use. In practice, countries do
this every day through policy interventions, such as laws and
regulations. For example, we set aside national parks to protect
wildlife, we regulate where development can and cannot take place to
protect rivers and critical ecosystems, we establish effluent limits to
protect the quality of air and water used by the population for drinking
and breathing, and a wide variety of other activities. All of these
policy interventions assign specific, and sometimes explicitly
calculated, economic values for protecting or managing these
resources.[^75]

While it is now common in almost every country for governments to invest
taxpayer funds to ensure the continuing availability and quality of
natural resources (usually through the mechanisms discussed above),
recent efforts in a number of countries have sought to allow or require
beneficiaries of certain environmental services to play a more direct
role in ensuring their future availability by paying directly for their
provision. Environmental services payments (ESP) are being used in an
increasing number of applications, primarily due to the clear economic
logic of transferring part of the economic burden of protecting
ecosystems that provide the services to those individuals, companies
(and even countries) that directly benefit from them.

It is important to note that environmental services payments are not
subsidies. They are fee-for-service arrangements. Beneficiaries of
specific services compensate the providers of those services in a
mutually beneficial exchange. The fact that the markets frequently must
be created, and that one side of the transaction may be the government,
does not mean that these transactions are not market-based.

The opportunities for "gains from trade" can create interesting
opportunities for providers of services (such as climate control,
biodiversity conservation, and most commonly watershed management). A
recent study conducted for the North American Commission on
Environmental Cooperation (CEC) identified more than 300 Payment for
Environmental Service (ESP) schemes operating in the world. The various
systems are finding innovative ways to transfer payment for benefits
accrued at the local, national and international levels to the specific
providers of those benefits.

The two most relevant services categories for Panama (and particularly
for this project) are water provision services and biodiversity. As
discussed below, ESP approaches for biodiversity conservation are still
at an early stage of development, but water approaches are quite
sophisticated. In watersheds examined in Panama, water-based systems are
the more promising option, and they have the added benefit of protecting
biodiversity values as well.

***10.2.2. ESP Systems for Biodiversity and Water***

*[ESP Systems for Biodiversity]{.underline}*

Demand for biodiversity conservation is sometimes local but more often
global. International organizations, foundations and conservation NGOs
are major buyers of biodiversity conservation services. Pharmaceutical
companies are also involved in markets for biodiversity services. The
value of biodiversity conservation services is difficult to establish.
For example, certain biodiversity services ---such as those arising from
bioprospecting--- are sometimes based on the option value of future
discoveries. Recent work has advanced valuation techniques
considerably.[^76]

Table 9. Distribution and scope of ESP schemes surveyed[^77]

  ------------------------------------ ----------------------------------
  **Services**                         **Scope**

  Water, 15                            Local, 21

  Carbon, 6                            National, 3

  Biodiversity, 9                      International, 4

  Landscape beauty, 2                  

  Bundled, 1                           
  ------------------------------------ ----------------------------------

Landell-Mills and Porras (2002) surveyed 72 payments schemes for
biodiversity services and showed that these markets are nascent and in
many cases experimental. For example:

• In Brazil, rubber tappers receive payments for forest conservation
services they provide

through their management of forest resources.[^78]

• In Guyana, Conservation International signed an agreement with the
government for a

conservation concession in 200,000 acres of forest.[^79]

• In the United States, the Conservation Reserves Program (CRP) consists
of 10--15 year contracts with farmers to remove sensitive land from
production and prevent land degradation, thereby preserving future
biodiversity.

*[ESP Approaches for Water]{.underline}*

Markets for watershed services are usually local with most transactions
occurring at the watershed level. Markets for watershed protection
usually do not involve trading commodities such as water quantity or
quality, but rather financing land uses that generate watershed
benefits.[^80] Demand for water services mostly originates from
downstream water users, including farmers, hydroelectric producers, and
domestic water users in urban areas.[^81] Given the local nature of
demand and the presence of a limited number of well-organized
beneficiaries (e.g., water or hydroelectric utilities, irrigation
commissions), it is relatively easy to mobilize downstream beneficiaries
and involve them in ESP schemes.

Watershed-based services are usually funded through user fees to finance
improved management of the protected area upstream.[^82] A survey of 61
watershed-based payment schemes conducted by Landell-Mills and Porras
(2002) found that these markets are more institutionalized and rely on a
cooperative relationship between demand and supply and found an
increased willingness on the part of beneficiaries to pay for services,
as awareness is growing about the importance of conservation in upper
watersheds for the maintenance of water services.

*[Examples]{.underline}*

One of the most famous examples is the system established by the city of
New York to protect its drinking water sources. In the late 1990s, the
city of New York increased water fees by nine percent to invest in the
protection of the Catskill/Delaware and Croton Watersheds. This was done
primarily through a land acquisition program and conservation easements
that expanded the protected area within the watershed to 121,500 ha. In
addition, farmers and forest producers received compensation under new
programs to remove environmentally sensitive lands from production or to
improve forest and land management practices.[^83]

The *Fondo Nacional del Água* (Fonag) in Ecuador collects contributions
from water users, including the water utility of the city of Quito and a
hydroelectric power utility, to fund conservation practices in the upper
watershed that provides drinking water for the city of Quito.[^84] Also
in Ecuador, the municipality of San Pedro de Pimampiro, in the province
of Imbabura, is developing a pilot project aiming to protect drinking
water sources by paying land users in the upper basin to improve forest
management in the watershed.[^85]

In the Cauca Valley in Colombia, farmer associations initiated an ESP
system to address concerns regarding the sustainable supply of water for
irrigation.[^86] Since its inception, this scheme has led to the
adoption of conservation measures in over one million hectares of land.
The system annually raises US\$600,000 in revenues from water user
fees.[^87] Similarly, farmers in the Guabas River watershed in Colombia
have negotiated an agreement with upstream land users to improve land
use practices in order to maintain dry-season water flows. The system is
financed through additional charges for water use.[^88]

In the states of Paraná and Minas Gerais in Brazil, municipalities
receive five percent of the state sales tax to finance upper watershed
conservation programs to protect drinking water sources. This program
has led to the conservation of one million hectares of land in the state
of Paraná and over one million hectares in Minas Gerais.[^89] Also in
Brazil, São Paulo's water utility has agreed to contribute one percent
of its revenues to fund conservation and forest restoration activities
in the Corumbatai watershed.[^90]

In Mexico, the *Secretaría de Medio Ambiente y Recursos Naturales* has
initiated ESP pilot projects in six watersheds.[^91] The first pilot
project in Mexico was initiated in the Lerma Chapala Basin in 1995.[^92]
Another pilot ESP scheme for watershed protection is currently being
developed in the Triunfo Biosphere Reserve in Chiapas.

In Honduras, a ESP scheme has been established in the El Escondido
watershed to protect the drinking water source for the city of Santa
Barbara, the second largest in the country.[^93]

In Costa Rica, there are a great number of programs, including direct
participation by firms. Through the Forestry Finance Fund (FONAFIFO),
businesses that need to ensure long-term water quantity and quality pay
for watershed protection (Costa Rica's main brewery is one of the
firms), and several operators of hydroelectric plants pay to ensure that
their capture areas remain forested, which permits water flow in dry
season when they are paid higher prices for the electricity they
generate.

# 

# *[Applications in Priority Watersheds in Panama]{.underline}*

There are outstanding opportunities in Panama to implement ESP programs.
Well-designed programs could simultaneously protect biodiversity,
encourage more rational land-use decisions, raise the quality of life of
specific communities in extreme poverty, and enhance the business
climate of geographic areas (see Appendices), and help ensure the
continued viability of critical business enterprises (such as the Panama
Canal).

Water ESP systems offer distinct advantages for implementation over
biodiversity ESP programs, and also over publicly funded activities.

*[Viability of Market Mechanisms]{.underline}*

In each of the studied watersheds, the beneficiaries are numerous,
identified, concentrated (a handful of organizations), and have a high
willingness to pay (marginal utility) for improved water services. The
upstream actors are few in number (though geographically dispersed),
poor (making it relatively cheap to provide them incentives to change
practices or activities), and in two specific cases they are well
organized, with experience in planning and financial management.

#### *[Adaptability of Water Payments to Broader Benefits]{.underline}*

The most logical approach for the watersheds studied for this project is
to focus on the provision of environmental services for water. There are
directly identifiable beneficiaries of improved water services
(quantity, seasonality and quality), and the mechanisms to provide these
benefits are directly linked to land-use and water management in the
middle and upper watersheds of several critical rivers. A structure
under which funds flow from downstream beneficiaries upstream would be
targeted to:

-   improve forest cover in hydrological recharge areas,

-   improve forest cover to protect springs,

-   plant forest buffers alongside streams and rivers,

-   improve sanitation and rationalize water use,

-   reduce erosion, and

-   prevent the contamination of water from animal and chemical sources.

All of these activities are (or can be made to be)
biodiversity-enhancing. For example, nearly all reforestation reduces
erosion and enhances water recharge. But designing reforestation
programs with an emphasis on native species provides additional benefits
for hosting local biodiversity. Reforestation programs can also be
structured to use native species with commercial potential, adding
community economic benefits to the possible outcomes.

#### *[Sustainability of Funding Sources]{.underline}*

Linking payments by beneficiaries directly to the producers of the
benefits is a sustainable structure in the medium to long term. Except
under very dramatic changes in circumstances, beneficiaries will
continue to require the services provided, and the best economic option
for the providers will be to continue to provide the required services.
This financial sustainability is one of the strongest points of such a
scheme.

***10.2.3. Implementing and Costing an ESP System***

#### *[Transaction Costs and Complexity]{.underline}*

The limited number of downstream actors and the quantifiable benefits of
the service permit transactions to be direct, and require limited
government involvement. Funds do not need to pass through central
government control, and may not even require express government
authorization. The parties to the transaction could be water user groups
and organization(s) of residents in the watershed. In the case of Río La
Villa, the Herrera Office of MIDA has proposed the creation of a
watershed corporation, along the lines of Colombia's watershed
corporations.

## [Potential Role for USAID]{.underline}

There are outstanding opportunities for USAID. A relatively small
investment would provide the capstone on the work of many organizations.
The purpose of support from USAID would be to help get the scheme up and
running. The main activities undertaken in this phase would concern
scientific research, planning, stakeholder consultation and consensus
building, organization, and training. Legal advisory services would be
provided to establish the local institutional framework needed. A
reserve fund for operations would be needed for a year or two, to be
sure that suppliers of environmental services were paid while the
mechanisms for revenue collection and disbursement were being
established, tested and put into operation. (See below.)

*[Mechanisms and Design Issues]{.underline}*

While ESPs are conceptually simple, the reality of implementation can be
rather complex. The key pieces are:

a)  Defining the market players.

b)  Determining the correct pricing to beneficiaries.

c)  Determining specific goals for land-use change that correlate
    reasonably to the desired benefits and establishing them in
    contracts or other agreements.

d)  Establishing a reliable and transparent commercial structure to
    manage the financial flows.

e)  Ensuring that the organization working in the field on land-use
    change has the appropriate administrative, human resource and
    technical capacity to implement the contract.

f)  Monitoring.

# *[Start-up Funding]{.underline}*

[]{.mark}

The development of an appropriate financing platform is key in the
establishment of a successful ESP system. The objective is to generate a
continuous flow of financial resources into the system to fund payments
over the long term. ESP systems have three types of financing needs:

-   The cost of establishing the system (e.g., scientific research,
    creation of institutions, stakeholder consultations, training).

-   Payments to land users.

-   Ongoing management costs of the system (management, monitoring,
    technical assistance).[^94]

However, the flows from the beneficiaries do not come in lump sum, but
rather in a regular flow, and significant costs are incurred at the
start-up. This means that additional funds will be needed to start the
system and provide it the necessary liquidity to begin operations upon
the signing of agreements. As mentioned, USAID could be a lead partner
in this start-up process and make the crucial contributions to putting
the system into operation.

*[Approximate Costs of an ESP Program in Río La Villa]{.underline}*

Preliminary estimates show that in the Río La Villa watershed, \$250,000
could lead to a substantial amount of reforestation, and that this same
amount represents a relatively small payment from water users in the
lower watershed.

A USAID investment of \$1 million over a period of three years would be
sufficient to put a permanent, stable and financially self-sustaining
program in place to help protect existing water quantity and quality,
and perhaps recover some additional dry-season flow, and expand habitat
and its related biodiversity in this extremely threatened ecosystem.

In cost terms, the project components would be:

1)  Program design and implementation downstream. \$250,000 would be
    allocated to setting up the downstream side of the ESP program. This
    would support the design of the payment scheme (who pays, and how
    much, assist the water authority (or other implementing agency, such
    as a watershed corporation) in consolidating a payment collection
    system, public information campaign to explain why an additional
    component is being added to water bills, administrative costs for
    the first two years until the program is stable.

2)  Program design and implementation upstream. \$250,000 would be
    allocated to efforts in the upper watershed to prioritize
    reforestation areas, work with local associations[^95] to convince
    community members to support and participate in the program, master
    reforestation plan (natural forest, versus native species
    plantations, versus fruit trees and other perennials, etc),
    establish monitoring and financial systems.

3)  Liquidity to start program. \$500,000 would be advanced for upstream
    ESPs to get the program off to an immediate start. There would be a
    lag in the implementation of the downstream payment system, and it
    will take a while for funds to arrive in significant quantities
    since the charges will almost certainly be linked to water
    consumption.

After the three-year startup period, all costs would be paid by water
surcharges for users in the watershed. If residential users alone
shouldered the costs, additional water costs would be about \$13 per
year per household.[^96] If some of the burden were shifted to
businesses and irrigators, the additional amount per household would be
reduced.[^97]

***10.3. Forestry and Reforestation***

*10.3.1. Background: Links to Biodiversity and Commercial Opportunities*

The loss of natural forest cover on a large scale is the single largest
contributor to loss of biological diversity at a local, national and
global scale. Concern over loss of forest habitat and its related
diversity has been the primary factor motivating the creation of
protected areas systems across the countries of the tropics. Other
policy tools are also used to halt loss of forest cover, including
land-use requirements, land purchasing programs, incentives to maintain
and enhance forest cover, and legal tools to permit property owners to
place property in long-term protection mechanisms. All of these
mechanisms have played a part in slowing forest loss, and in some cases
have played a role in expanding forest cover.

Protecting and enhancing forest cover has become an established policy
objective of most tropical countries, and appears as one of the
principal targets and measures of international organizations (such as
World Bank, UNDP, FAO) in evaluating advances in rural development,
environment and biodiversity conservation.

Traditionally, efforts to enhance or recover lost forest cover have
focused on natural regeneration of forests (leaving the land alone to
regenerate), or re-introduction of natural tree species to simulate the
previous habitat.

Commercial reforestation (planting trees for future harvest) has been
seen as a business activity with only minimal links to habitat
restoration and biodiversity conservation. Forest plantations have
generally been developed in monoculture using exotic species, and with
only minimum consideration for broader biological values. These
plantation monocultures provide some of the benefits of natural forest,
in particular water and CO2 capture, but little of their biological
function.

Four advances have changed this panorama:

-   Research advances on native species in Central America that permit
    combinations of more naturally acclimated species to be used in
    commercial plantation operations.

-   Greater professionalism of the region's forestry sector, in
    particular an increase in the number of forestry engineers with
    experience in designing and managing commercial species in the
    neo-tropics.[^98]

-   Certification programs that codify best practices in supporting
    biodiversity in natural forest-based and plantation operations. The
    standards have been developed under the auspices of the Forest
    Stewardship Council ([www.fsc.org](http://www.fsc.org/) ), which now
    serves as the accreditation body for the certification of most
    sustainable forestry operations on a global scale.

-   An increased recognition by investors that "planting trees" is not
    the same as engaging in commercial forestry.[^99]

With these changes, there has been an increasing recognition of the role
commercial forestry can play in environmental stewardship. An increasing
number of commercial timber landowners have begun to use internationally
accepted standards to certify their wood as "sustainable" -- in both
natural forest and plantations. This advance means that there are now
mechanisms to link commercial forestry directly with sustainability and
biological diversity goals. The direct involvement of influential
international non-governmental organizations, such as the Worldwide Fund
for Nature (WWF), The Nature Conservancy (TNC), Greenpeace and others in
promoting sustainable forestry has given additional credibility to
promoting biodiversity protection.

Most encouragingly, the international marketplace is beginning to
respond, with an increasing number of companies seeking
sustainably-certified wood products, and major retailers expressing
preferences in their purchasing policies. For example, Home Depot
established a policy in 1999 where the "company pledged to give
preference to wood that has come from forests managed in a responsible
way and to eliminate wood purchases from endangered regions of the
world." [^100] The company reports sales of FSC certified wood products
have increased from \$16 million to \$350 million since 1999.[^101]
Other important retailers in the U.S. and Europe have similar
policies.[^102]

*10.3.2. Forestry and Reforestation Needs in the Selected Watersheds*

Increases in forestry cover in the watersheds could come in the form of:

1.  natural **regeneration** of deforested land,

2.  **re-creation or simulation of native forest habitat** through
    planting of natural species,

3.  **targeted reforestation** of certain areas (such as river banks) to
    achieve specific goals (such as erosion protection and pollution
    barriers),

4.  increasing forest cover for **agroforestry** models,

5.  **reforestation for commercial purposes** with timber, non-timber or
    perennial products (such as cacao or fruit trees), or

6.  **combinations** of all of the above.

Most of these activities will be substantial improvements in the
degraded areas of studied watersheds in terms of biological diversity
protection and improved water management. Specific guidelines would need
to be established to optimize biodiversity conservation through
selection of priority areas, choice of species and other variables
related to the land's natural function and its current use and
ownership. This knowledge exists and is readily accessible.

The first three items provide benefits primarily for biodiversity and
downstream users of water, but relatively little benefit to those
engaging in the activities. These activities would likely need to be
financed directly by government, conservation programs, or the ESP
programs discussed in the previous section.

The third (agroforestry models) and fourth (commercial reforestation)
offer the potential for landowners to benefit from practices that
contribute to biodiversity conservation and improved watershed
management. In this sense, they should be more inherently sustainable
from an economic, social and environmental perspective.

# *10.3.3. Profitability for Landowners*

The financial viability of the agroforestry and commercial models for
landowners depends on a number of variables. Among the most important
are:

-   soil, water and climate characteristics

-   crop/product selection (as a function of the soil, water and
    climate)

-   availability of technical assistance to ensure that time, energy and
    funds are used wisely

-   financial support for the transition (technical assistance, inputs,
    seed, saplings, change of genetic stock in cattle, etc), and

-   in the case of commercial reforestation, financing to support
    farmers until their crops yield financial returns (three to 15
    years, depending on the crop).

Determining the viability of commercial reforestation will require
additional investigation to determine which forest and perennial crops
are appropriate given the soil, water and climate conditions. The
traditional notion of dividing land by "vocación forestal" versus
"vocación agrícola" (which is usually done by slope, or very general
soil conditions) is not a precise enough division for determining
commercial timber viability.

For commercial timber purposes, it is important to note that good
agricultural land quality usually means good forest growth potential and
profitability. Commercial forestry does provide particularly good
advantages to landowners over annual products where land quality is
high, but steeper than optimum for effective agronomic practices.

Under the right soil and climatic conditions, and with appropriate
technical and financial support, planting of commercial timber species
is a viable economic alternative for many landowners in the Central
American region.

At the farm level, this investment is not only convenient from social
and environmental viewpoints, but also the financial returns and cash
flow patterns are very reasonable from the viewpoint of the farmers. The
financial returns to production of high quality wood (in terms of
returns/ha./year) are superior to almost all the existing options in the
rural environment of the region. The problem is that the profits are
realized over the long run, sometimes as late as 15 or 20 years alter
the initial investments. Therefore, the problem of converting land use
patterns is not a problem of profitability but rather a problem of
developing the appropriate financial instruments.[^103]

Commercial timber offers other important advantages over annual
agricultural products: [^104]

-   The demand for wood is highly correlated with population growth and
    the state of economies. In spite of the presence of wood substitutes
    in many applications, the demand for wood continues to follow a
    stable trend related to economic growth trends in the relevant
    markets.

-   The investment requirements are stable and predictable over the very
    long run. Maturation periods of 20 to 30 years that are typical of
    the tropics permit a long planning horizon and offer interesting
    possibilities for financial engineering such as "securitization."

-   In contrast to agricultural products, when wood is ready to be
    harvested it can remain uncut while waiting for optimal market
    conditions. The product does not lose value as standing timber but
    instead it increases in value, albeit at a decreasing rate at the
    margin.

-   Wood has local markets and there are possibilities of exporting
    various products with different degrees of value added. This
    situation creates the option of considering sales to multiple
    markets to take advantage of the most favorable conditions, subject
    always to the restriction that the wood and its processed products
    fulfill the quality requirements of international markets.

In addition to trees for timber, reforestation with fruit trees is an
activity that the Banco de Desarrollo Agropecuario is willing to
finance. The technical opinion in that bank is that Panama has a
comparative advantage in a number of kinds of fruit and nut trees,
ranging from cashew and almonds to avocadoes, soursop mamey, papaya,
citrus and mangoes, depending on the part of the country. Costa Rica's
mango exports are increasing, and a recent quantitative evaluation of
comparative advantage in El Salvador[^105] showed that fruit trees were
among the very most competitive crops, so it would not be surprising if
the same conclusion applied to at least the less humid parts of Panama.

***10.3.4. Options for Reforestation in Panama***

Rainforest Alliance estimates about 50,000 hectares of plantation
reforesting in Panama, with approximately 40,000 of those being teak
plantations.[^106] Approximately 12,000 hectares are FSC certified, but
Panama lags behind all other Central American countries in terms of
certified hectareage of forests. See Tables 10 and 11. This may indicate
that there are important opportunities for Panama in this field.

There is clear potential for reforestation in the Río La Villa Watershed
and the selected sub-watersheds of the PCW, and for forest certification
as well. It is likely that reforestation represents the most profitable
use of most of the land in those areas. A full reforestation plan

> **Table 10. Certified Forests in Panama**

  --------------------------------- ----------------- ----------------- ------------
  **Client**                        **Certification   **Certification   **Has.**
                                    Number**          Body**            

  ECOFOREST (PANAMA), S. A.         SGS-FM/COC-0649   SGS               7,120

  Futuro Forestal, S. A.            SW-FM/COC-037     Rainforest        411
                                                      Alliance          

  Inversiones Agroforestales, S. A. SGS-FM/COC-0564   SGS               1,156

  NORDIC MANAGEMENT GROUP, S. A.    SGS-FM/COC-1811   SGS               551

  Prime Forestry Panama, S. A.      SW-FM/COC-239     Rainforest        2481
                                                      Alliance          

  VALLEVERDE DESARROLLO FORESTAL,   SW-FM/COC-1227    Rainforest        521
  S. A.                                               Alliance          

  **Total**                                                             **12,240**
  --------------------------------- ----------------- ----------------- ------------

Notes: All are private, plantation forests. Data as of January 2006.

Source: Forest Stewardship Council.

**Table 11. Hectareage in Certified Forests in Central America**

(January 2006)

  ----------------------------------- -----------------------------------
  **Country**                         **Hectares**

  Guatemala                           522,870

  Costa Rica                          52,300

  Honduras                            37,281

  Nicaragua                           13,157

  Panama                              12,240

  El Salvador                         0
  ----------------------------------- -----------------------------------

Source: Forest Stewardship Council.

must be developed for each watershed in Panama, but the logical
components of the plan would include:

-   Biodiversity-based reforestation (natural forest regeneration) for
    areas surrounding the last remaining hectares of standing forest to
    grow the total nucleus of forest patch.

-   targeted reforestation along riverbanks to reduce erosion and
    evaporation, and filter contaminants.

-   targeted reforestation along steep hillsides to reduce erosion,
    prevent structural collapse, slow rain runoff, and increase water
    capture potential.

-   Increased use of agroforestry models to increase economic returns
    per hectare.

-   Introduction of timber and tree crops to increase biodiversity,
    improve water capture, slow rain run-off and provide a financial
    return to the owners.

The commercial forestry component would focus on the last point,
complementing the previous ones. Modest increases in cash flow to
producers will greatly influence land-use decisions and practices.
However, the residents of these watersheds will need high levels of
support, as they have no prior experience in forestry. They must be
guided and assisted correctly. For purposes of establishing commercially
viable timber operations, support must include:

-   **Legal and operational studies.**

-   **Incorporation and permits:** Logistical and legal steps need to be
    carried out and

landowners need to be supported in the process of applying for permits.

-   **Forestry management plan:** The forestry management plan has to be
    developed for new

clients. This plan contains a guide for the steps to be carried out for
planting, by species,

topography and environmental characteristics of the farm (soils,
temperatures, availability

of water, among other factors).

-   **Structuring and facilitating the financing:** develop a financial
    plan for the farm and

assure its fulfillment.

-   **Certification:** Guide the process of FSC certification for each
    farm, under the approach of

grouping farms for certification.

-   **Development of nurseries**: identification of appropriate genetic
    material and assuring

that it is obtained in sufficient quantities.

-   **Administrative and logistical support:** carry out audits for
    evaluating and guiding the

evolution of the plantations, as well as drafting and implementing
requirements for

corrective measures in cases where they are necessary.

-   **Technical support, supervision and monitoring:** supplying the
    varied services needed to ensure adequate management of the
    plantations. A forestry expert and other technical experts will
    advise the landowner about best practices for forest management and
    confirm that the plantation is progressing in a manner consistent
    with the plan and the expectations of tree growth.

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-   **Training**: emphatic and continuous efforts to train landowners
    and their assistants during

all the stages of the transformation.

-   **Marketing**: providing support to maximize the prices obtained for
    the products of

thinning operations and the final harvest.

As the local community without support could carry none of the
activities out effectively, an executing organization would need to be
identified. PRORENA is the logical choice, as discussed below. It
currently has all the needed technical capacity and institutional
structure.

When a high level of support is provided, commercial forest operations
may be a viable economic alternative for a substantial number of
residents of the El Montuoso Reserve and its surrounding areas, and for
residents of the selected Panama Canal sub-watersheds (subject to the
caveat of soil quality and climate conditions).

One of the annexes presents a simple cash flow based analysis of a
typical reforestation project from the perspective of the landowner. As
the model shows, profitability is quite high, with an internal rate of
return projected to around 15% per year. This number approximates the
financial return to farmers, but overstates the true economic return due
to some of the assumptions of the model:

-   The purchase price of the land is not factored into the analysis.
    This assumes that the owner will simply use existing land, without
    assigning an opportunity cost to it. However, when the analysis is
    modified by assigning a market value to the land, the rate of return
    still turns out to be acceptable.

-   The farmer provides Labor. External (hired) labor is assumed only
    for planting and thinning. A 7 ha. forestry plot will occupy one
    person approximately halftime on average throughout the life of the
    plantation.

In addition, reforestation requires upfront and ongoing investment to
carry out the needed silvicultural practices; and landowners require
cash flow during the life of the project to meet day-to-day needs.
Although intercropping while the trees are young can generate some
income, additional mechanisms will be needed. A combination of the
proposed ESP program, and financing from pre-selling wood and
capitalizing an annual revenue stream would be sufficient.[^107]
Interest expenses would reduce total return, but it still would permit a
significant increase in the standard of living for the farmers in these
watersheds.[^108]

Other critical assumptions include:

-   Use of a well-selected combination of species to be forested on each
    farm that conforms to the potential of the land, optimizes potential
    market value, and hedges potential risks from disease and market
    fluctuations.

-   Farmers follow the recommended silvicultural practices for which
    they have received training.

-   High quality technical assistance is provided at a reasonable cost.

-   Growth rates permit harvesting of 200 m^3^ in an approximately
    15-year time horizon.

    5.  ***Costing a Reforestation Program and USAID Options***

> *[Cost Parameters]{.underline}*

The best way to address the reforestation program is break it down into
three components. The first is the costs of the on-farm costs of
reforestation -- clearing, preparing the land, planting, tending to
saplings, replanting, weeding and fertilizing. In general, these efforts
require focused efforts from the landowner, with training and under the
guidance of forestry professionals.

The second component is for technical support, including: training,
species selection and planting plan, nurseries, forestry management
services, technical reviews and oversight, assistance in marketing, etc.

The third component is a financial component that links the two. It
takes a rather large amount of liquidity to create and operate a
large-scale forestry program for small landholders. The principal
outflows are: 1) to finance farmers for the first component, 2) to pay
the costs of technical support, and 3) to create a modest income stream
for farmers to compensate for their labor tending to the trees, which
also helps substitute for lost income for land put into trees that was
previously in other crops. This is referred to as the up-front
capitalization of the program.

The financing for this capitalization can come from different sources.
Depending on land quality, other agronomic variables, and species
selection, the value of the wood harvested may likely be high enough to
pay all three of the outflows and still provide a decent financial
return to the landholder. Under this situation, financial strategies
could even include capitalization of future wood harvests to provide the
necessary liquidity. Additionally, environmental service payments (for
downstream water services) could also provide a substantial portion of
the needed cash inflow. Thus the potential start-up contributions of a
donor organization could be reduced to a small fraction of the total
requirement.

A project recently designed for the Banco Multisectorial de Inversiones
(BMI) in El Salvador attempted to project the costs and financial
structure required. In the simplest terms, reforestation costs (for
commercial purposes) can be estimated at approximately \$3,000 per
hectare (net present value, or NPV), with about \$2,000 of that amount
spent in the first 4 years.

The payments to farmers or landowners would be set at the minimum price
required to maintain the stability these persons and their families
during the forest gestation stage. These amounts can range from \$10 to
\$50 per hectare.

The technical services component is a complex one, but it has
significant economies of scale. The following table presents the
estimated costs of a complete technical services organization designed
to make the small-scale farmer approach viable. The table shows that a
10,000- hectare effort requires an annual budget of approximately
900,000. An upfront capitalization of \$5 million dollars (from sales of
wood futures or other sources) and fee for services payments can ensure
the necessary cash flow. The last column estimates an implicit cost of
technical services per cubic meter of wood harvested. While the
capitalization appears large, the reality is that at a 10,000-hectare
scale, the entire cost of all technical services is only 1.5% to 2% of
expected revenue.

**Table 12. Cost of the Forestry Development Effort at Different Scales
of Operation**

  ------------- ------------- ----------- -------------------- ------------------ -----------
  **Size of     **Approx.     **Budget    **Capitalization**   **Capitalization   **Cost in
  Operation**   annual        per                              per ha.**          \$/m3 of
                budget**      ha./yr/**                                           wood**

  2,500 ha      \$765,000     \$306       \$17 million         \$6,800            \$34-\$57 /
                                                                                  m3

  10,000 ha     \$900,000     \$90        \$5 million          \$500              \$3-\$4 /
                                                                                  m3

  50,000 ha     \$2,500,000   \$50        \$12.5 million \*    \$250              \$1-\$2 /
                \*                                                                m3

  100,000 ha    \$3,500,000   \$35        \$18 million \*      \$180              \$1-\$2 /
                \*                                                                m3
  ------------- ------------- ----------- -------------------- ------------------ -----------

*Assumptions:* There are economies of scale in the operations, wood
production is at 120-200 m^3^/ha., capitalization ensures a positive
cash flow.\* Extrapolation based on limited data.

*[Recommended Approach for USAID]{.underline}*

An organization that is supporting reforestation would make the
following contributions to ensure the take-off and sustained growth of
the program:

1)  Design of financial mechanisms. The project is viable if there are
    financial actors willing to help solve (profitably) the long-term
    liquidity problem. The first effort is involve various actors in the
    financial sector and determine the recommended financial strategies
    to securitize future wood harvests. (Estimated cost: \$150,000 for
    financial expertise, financial design and investment banking
    operations.)

2)  Assuring commercial viability of high-value species. The second
    component is agronomic and silvicultural research to investigate the
    soil and climate conditions in order to ensure that growth rates
    will permit commercially viable harvests. (Estimated cost:
    \$100,000.)

3)  Capitalization of the technical assistance programs. If the first
    two project components show encouraging viability, a logical
    strategy would be for USAID to provide, or leverage or obtain
    through advanced wood sales, the initial capitalization of the
    technical services organization. This would be between \$2 and \$5
    million depending on the initial scale. It is important to note that
    much (if not all) of this amount could be reimbursable if the
    silvicultural potential is high. A likely strategy would be to make
    part of the capitalization a technical assistance grant, and the
    remaining portion a no interest (or very low interest) loan.

***10.3.6. Related Initiatives***

*[PRORENA]{.underline}*

The most relevant efforts currently under way in Panama are directed by
the Proyecto de Reforestación con Especies Nativas (PRORENA, or Native
Species Reforestation Project, at <http://research.yale.edu/prorena/>).
PRORENA is a program of the Center for Tropical Forest Science at the
Smithsonian Tropical Research Institute and the Yale School of Forestry
and Environmental Studies. The mission of the program is:

*"\... the development of viable strategies for restoring diverse forest
cover to degraded tropical landscapes, the dissemination of this
information to the widest possible range of interested parties, and the
training of future natural resource managers and scientists able to
utilize and build upon these efforts."*

Their efforts for the past few years have focused on the science and
technology of reforestation of degraded land using native species. The
primary focus of this research has been non-commercial ecosystem
recovery. However, over the past three years they have been exploring in
greater detail the role commercial forestry should play in reforestation
and habitat recovery.

PRORENA possesses nearly all of the technical knowledge and experience
required to support reforestation programs (commercial and
non-commercial) in the Río La Villa and Panama Canal Watersheds. Their
offices are in Panama City, and they have small field offices in the
Coclé and Los Santos.

*[Rainforest Alliance]{.underline}*

Rainforest Alliance is working on a USAID-funded project to attempt to
reach a sales target of 80,000 board feet of certified timber from
natural forests and plantation. They are currently focusing their
efforts on Donoso and the Comarca Wargundí.

Although this project is in its very early stages, it is consistent with
the goals of biological diversity conservation and could be an extremely
valuable complement to enhancing commercial reforestation efforts.
Additional components of the project could be added to include Panama
Canal and Rio La Villa Watersheds.

*[Proposed Canal Watershed Management Outsourcing Program]{.underline}*

A group of private investors in association with PRORENA are currently
exploring with the ACP the possibility of providing a comprehensive
program to manage water flow, quality and seasonality.

The proposal calls for the ACP to pay fees to a new, dedicated
for-profit company based on various water parameters across the Canal
Watershed. The company will engage in a number of activities throughout
the watershed designed to reduce sedimentation, increase total annual
water flow, reduce pollution, enhance dry season flow, and control
eutrophication, among other variables. Activities would include land
leasing and purchase, commercial and non-commercial reforestation,
recovery of river banks, erosion control projects, nutrient control
programs, livestock waste management, and a variety of other activities
to achieve the targets established in the contract with the ACP.

The proposal is still in the early stages of discussion with ACP and the
GOP, but at very high levels. The total value of the arrangement would
likely be in the hundreds of millions of dollars. Major freight
companies and U.S. commercial companies have expressed support for the
project and are reportedly interested in investment opportunities.[^109]
We do not know how much of the watershed would be covered by this
project.

*[The Banco Multisectorial de Inversiones (BMI) of El
Salvador]{.underline}*

BMI is a state-owned second-story bank that provides liquidity to the
country's financial sector to enhance development opportunities. They,
in collaboration with the Ministerio de Agricultura y Ganadería, are
developing a program to convert thousands of failed coffee producers
into forestry producers. They have a feasibility study and a recommended
plan that is currently under consideration at BMI's board and at the
Cabinet level. Much of the research and strategies and parts of the plan
are relevant for Panama. "Piggy-backing" on this research could be a
cost-effective way to advance a plan.

***10.3.7. Conclusions for Forestry in the Canal Watershed and Río La
Villa***

Commercial forestry can and should play a vital role in the essential
reforestation efforts in the Río La Villa and Panama Canal Watersheds.
Modern forestry techniques permit commercial forestry in natural forest
and in plantations to be biodiversity positive, while simultaneously
improving the hydrological value of watersheds and increasing the
quality of life of small, medium and large-scale landholders.

Well-designed forestry programs oriented toward smaller land holders
using native species could lead to major changes in land use across
critical watersheds in many areas of the country. It is conceivable for
tens of thousands of hectares to be reforested on a commercial basis in
biodiversity friendly ways in the coming years with moderate levels of
technical support and specifically designed financial mechanisms.

The potential roles for USAID could include:

-   Design and implementation of a pilot program to promote commercial
    forestry in critical watershed.

-   Seed funding to provide liquidity for a forestry oriented ESP
    program and to underwrite the start of an advance wood payments
    program and the required technical support services.

-   Ensuring that commercial forestry is included in national plans for
    watershed and biodiversity recovery, and further ensure that
    biodiversity variables are a critical part of all commercial
    forestry operations.

-   Support and technical assistance for a new forestry law oriented
    toward more sustainable and commercially viable reforestation.

***10.4. Sustainable-Seal Agriculture***

### *10.4.1. Sustainable Seals and What They Do*

###  

Sustainable-seal agriculture refers to products that are produced
according to standards defined by different international organizations
that seek to improve the environmental or social aspects of the product
or its production process. Through adherence to the standards and
independent certification by accredited organizations, producers may be
able to differentiate their products at a final consumer or intermediate
level (wholesaler, packer, retailer) based on their environmental or
social attributes.

**There are different types of certification**. Some standards are
referred to as "management standards", where what is required of the
producers or processors is to establish management systems to address
environmental or social issues. These standards do not generally specify
environmental or social results, but rather ensure that the certified
entity has procedures in place to effectively manage these issues. The
most recognized management standards in the agricultural field are:

-   ISO 14001 (see <http://www.iso.org/iso/en/iso9000-14000/index.html>)
    ,

-   Hazard Analysis and Critical Control Point (HACCP) (see the U.S.
    program at

<http://www.cfsan.fda.gov/~lrd/haccp.html>), and

-   EurepGAP (at [www.eurep.org](http://www.eurep.org/)). This standard
    was established by major European

retailers as a mechanism to ensure that their supply chains were clearly
defined, and

provide reasonable assurance of sound environmental and labor practices.

Other standards are referred to as "performance standards." These
require certified companies (or farms) to follow specified (or narrowly
defined) procedures. In the agricultural field, there are a number of
different standards systems. The most prominent ones relevant to Latin
America are:

-   **"Organic**." This certification ensures that the producers of
    agricultural products do not use synthetic organic chemicals in
    their production process. The level of stringency and breadth of
    requirements varies somewhat by certification agency, and frequently
    include requirements for transition periods, post-harvest handling
    and processing, shipping and other aspects. Various countries have
    national laws or regulations. The international umbrella
    organization is IFOAM (at [www.ifoam.org](http://www.ifoam.org/)),
    and the U.S.'s National Organic Program (NOP) represents one of the
    more important national sources of regulations (at the website
    <http://www.ams.usda.gov/nop/indexIE.htm>). Organic foods are a
    significant part of total consumption, primarily in wealthy
    countries. Just over 1% of total U.S. food consumption is certified
    organic.

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-   **"Fair Trade"** is an international seal coordinated by the Fair
    Trade Labeling Organization International (FLO, at
    [www.fairtrade.net](http://www.fairtrade.net/)). This seal validates
    that the farm (or group of farms) carrying the certification
    provides fair wages, a safe working environment, and other basic
    "quality of life" benefits to its workers. This program established
    international fame in the coffee sector, but has standards for a
    broad range of products. It is discussed further in section 10
    below.

-   Rainforest Alliance Certified. This program is directed by the
    Rainforest Alliance (at
    [www.rainforest-alliance.org](http://www.rainforest-alliance.org/))
    and is designed as a more "holistic" certification focusing on the
    farm and its interaction with the larger ecosystem in which is
    operates, with the goal of finding a positive balance between
    biological conservation and farm management. It includes a broader
    set of environmental variables than organic certification, and
    includes a number of labor and community aspects as well. This
    program currently has standards in place to certify coffee, banana
    and pineapples (expected in mid-2006).

-   **Forest Stewardship Council (FSC)** is the predominant
    international system for sustainable forest products (timber and
    non-timber); its site is: <http://www.fsc.org/>. This seal was
    discussed in detail in the previous section.

*[Scope of World Markets]{.underline}*

Sustainable seal agriculture has experienced growth rates of nearly 20%
per year over the past 10 years, primarily in the U.S. and Europe. This
growth has been led by organic certification. In the U.S. approximately
1% of all food products are now certified organic. The number is similar
in Canada, Germany and the Netherlands, slightly higher in Great
Britain, and considerably higher in Switzerland and Denmark.[^110] The
demand growth rate appears to be decreasing in some markets,
particularly Germany, but is still projected to be more than 10% per
year for the coming decade, and approaching 15% in the U.S.

Fair Trade and Rainforest Alliance Certified are more limited in scope
but have potential. Fair Trade has traditionally focused its attention
on coffee and cocoa (and to a lesser extent banana), although it is
expanding into a number of other products. Rainforest Alliance Certified
has focused on banana and coffee, and is now entering into pineapple
certification. They recently published a general standard that will
permit certification of a broader number of products. Between 2003 and
2004 Fair Trade labeled sales grew by 56% worldwide, to a total of more
than 125,000 tons of product, so clearly this is a seal with potential.
Rainforest Alliance is strong in forest certification. USAID has
supported Rainforest Alliance certification in Central America.

On the supply side, much less than 1% of Latin America's agricultural
exports are certified with a sustainability seal.[^111] For many
commentators, this percentage appears low, given the potential
comparative advantages of labor rates, favorable ecosystems, natural
resource base and awareness of rural poverty.[^112] This circumstance
may be an indicator of the potential for greater use of sustainability
seals.

*[Under what conditions do seals create value?]{.underline}*

Recent research conducted by the Sustainable Markets Intelligence Center
(CIMS, at [www.cim-la.com](http://www.cim-la.com/)) on the Latin
American coffee sector is illustrative.[^113] Coffee is a mature product
market, traded in large and sophisticated markets, and has a relatively
long history with sustainable seals. This research has confirmed that
the various certification systems (organic, fair trade, Rainforest
Alliance and Utz Kapeh) do create additional revenue for producers.

However, the research also indicates that "on-farm" profits are related
to a number of on-farm factors (quality, input use and farm management,
in particular) and off-farm factors (market prices and price premiums
for certification). The most important finding has been that price
premiums from certification are important for farm profitability, but
frequently not as important as on-farm factors.[^114] Many farmers would
do much better by being better farmers (better knowledge and management
of soils and plants, and greater attention to coffee quality) than
simply "getting certified." And further, the combination of better farm
management **and** certification appears to be optimum. While not yet
evaluated in detail, similar findings appear likely for most tropical
agricultural products sold in wealthy country market.

Another critical aspect is that there is virtually no domestic market in
Panama for sustainable seal products. This means that, for the short and
medium term, the likely benefits are available exclusively to producers
who have the product, quality, volumes (or organizational capacity), and
cost structures for export markets. In real terms for Latin American
producers, these conditions exist almost exclusively in medium to large
sized companies, extremely sophisticated small companies, and
well-organized and informed cooperatives/producer associations.

In practical terms, the best strategy for a farmer is to have a more
sophisticated understanding of potential target markets, and ensure a
farm-management strategy that will optimize his or her chances of
success. Since certification requires a substantial investment (like
other farm improvements), a farmer needs to be relatively certain that
the cost-benefit relationship is favorable.

***10.4.2. Certification and Biodiversity and Watersheds in Panama***

Participation in any one of the standards programs discussed above
offers potential eco-system benefits directly and indirectly.
Significant numbers of farms following the procedures established in the
organic or Rainforest Alliance certification schemes would provide
substantial biodiversity benefits in the watersheds. Organic production
treads more lightly on soils and reduces the impact of chemicals on soil
structure, insects, birds and aquatic biota. Rainforest Alliance
provides some of the benefits of organic (it permits chemical use, but
requires better management of more benign substances) and additional
ones --particularly regarding soil management (erosion prevention) and
use and relationship with natural forest cover. Potential indirect
benefits relate to income effects for producers. In those cases where
producers are able to achieve better opportunities (such as higher
price, more favorable terms, etc) they may reduce their overall
footprint on the environment (less need to deforest, investments in
soil, water and forest, etc).

The design team did not find evidence of programs or other efforts to
encourage sustainable-seal agriculture in either the Canal or La Villa
watersheds, except for the pineapple-related initiative being directed
by Rainforest Alliance. Increased use of seals could provide positive
impacts on farmers' livelihoods and on biodiversity conservation in the
Canal Watersheds and the Rio La Villa watershed.

At the level of policy design, programs to promote certification
represent primarily a poverty mitigation strategy, and not a
transformative land-use strategy for the region. Massive certification
and optimistic scenarios for benefits would, at most, provide better
market opportunities for producers \-- perhaps generating 10 to 20%
price premium above current prices. These benefits would only be
available to producers who could participate in the value chains of
export markets, at least until local markets begin to value these
attributes and the related certifications.

However, it is important to note that most of the farmers in these
watersheds likely would be better served by much more basic services --
such as improved farm management practices, and increased access to
markets (through marketing cooperatives, coordinated transport, etc).

Biodiversity benefits could be substantial if a critical mass of
landowners adopted organic or Rainforest Alliance practices. To the
extent that USAID is supporting productive initiatives, sustainable seal
certification represents a "no-regrets" policy, however the risks are
substantial to producers if they do not have the support necessary to
increase their chances for success. Support to cover this risk would be
a logical policy response.

Selection of certification schemes is a highly complex task that
requires detailed knowledge of product markets. The right seal will
depend on the product, species, quality, volume, proximity to port,
level of processing and then the connection of each of these variables
with the appropriate market in order to determine the preferred seal for
**that** market opportunity. Failure to make these connections in
advance of selecting a certification scheme risks a failed investment.

# *Costing Parameters for Certification Programs*

A blanket organic certification program for Reserva Forestal El Montuoso
is one of the most promising options. The analysis recommends organic
certification as the most potentially beneficial in the El Montuoso
Reserve. Organic certification typically implies four cost components.

1)  Initial assessment to assess readiness and recommend changes
    required to establish the required conditions.

2)  Various investments in practices, procedures, documentation
    procedures, perimeter controls, monitoring mechanism.

3)  Certification by an accredited agency.

4)  Periodic re-inspection to maintain certification.

Today in Central America, small farms (from less than 5 up to 10
hectares) are being certified for between \$250 and \$1000 dollars. The
differences in cost relate to the complexity of the farm, the number of
crops and processes being used, and other factors. A very rough estimate
would be about \$2,000 per farm to put in place components 1 through 3,
and perhaps \$250 every two years to maintain the certification. An
assumption of 200 farms (farm by farm) would imply a budget of \$400,000
up front. In addition, substantial training would be required (perhaps
another 50,000 to 75,000).

A "blanket" certification program covering the entire Reserve should be
viable due to the local conditions and the feasibility of delimiting the
area. Under this approach, the average per farm cost should be slightly
lower. However, the approach only works if every member of the community
agrees to go completely organic. This requires a consensus among the
members of the local producers associations, complete buy-in from the
residents, and a substantial effort by the associations to monitor
implementation and compliance.

These considerations suggest that such a program could be set into
action in El Montuoso with external support of \$500,000 spread over the
first two years, plus \$100,000 in auditing and follow-up support in
year 3.

# *10.4.4. Potential Roles for USAID*

# 

There are three potential areas of action for USAID in the area of
sustainable seals:

**1) "Damage Control."** A number of agricultural activities in the
watersheds are potentially harmful to biodiversity in sound watershed
management. In particular, the rapid expansion of pineapple production
in the Canal Watersheds presents a significant threat to terrestrial and
aquatic biodiversity. Plantation-style pineapple production is extremely
chemical intensive. Broad and intensive use of pesticides presents risks
for workers, and long-term soil structure and leads to runoff that
disrupts aquatic ecosystems. Intensive fertilizer use has long-term soil
biodiversity implications and its runoff leads to eutrophication, algae
blooms and related downstream issues. Common practices also lead to
significant erosion problems on land even with a small slope.

USAID could become more actively involved in assisting farmers to
understand the medium and long-term benefits associated with improved
farm practices, and where possible assist in identifying opportunities
for sustainable seals to create additional market value. For the former
point, much of the value of improved practices would accrue to the
society in general rather than the farmer, so ESPs or other mechanisms
might be appropriate to change practices. For the latter point, under
the right conditions, certification could provide some advantage in
market access, price or other terms with potential buyers --making this
option more financially sustainable with lower public sector investment.

[]{.mark}

**2) Future Competitive Platform.** USAID could consider investing in
efforts that offer the potential for products to be certified in a
constructive way in the future. A leading example would be to make the
El Montuoso Forest Reserve a "Certified Organic Zone." El Montuoso
presents an interesting situation to position itself for future benefit
in sustainable seal agriculture:

-   It is a "hot-spot" for biological diversity, which is sensitive to
    chemical use.

-   Farmers in the Reserve are so cash-strapped that few (if any) use
    any agricultural

> chemicals, nor have they in the recent past. This means they would not
> have to alter
>
> practices to "un-learn" chemical use, and the land could be certified
> without lengthy
>
> transition periods.

-   Future products to be brought to market based on the local
    conditions could benefit

> from being certified organic. Fruits, vegetables, cacao, medicinal
> plants and other
>
> likely alternative crops for this zone currently benefit (in price and
> terms) in many
>
> markets from organic certification.

-   The relatively high level of organization of the Reserve's farmers
    could permit more

> sophisticated crop and market planning, technical support, and
> approaches to "blanket
>
> certification" of the entire zone.

In this particular situation, organic certification appears to be by far
the best option. First, it is the best known and most widely accepted
(across markets and across crops). For medicinal plants and other
extractive products (such as honey and vanilla) it is perhaps the only
relevant certification in the market place. Second, based on the
experience of other countries, organic is likely to be the first
certification system recognized widely in the Panamanian marketplace.
Third, there may be significant "image value" for the reserve it if were
to become a completely organic zone. This designation could potentially
assist with tourism development, and it sends a very strong signal to
potential donors regarding the commitment of the residents.

Consequently, if the residents of the reserve (or their sponsors) are to
invest in one certification, organic appears to be a good strategy.
Under a worst-case scenario, the farmers would continue to produce with
environmentally sound practices with little market benefit, but at
minimum additional cost.

[]{.mark}

3\) Education on Sustainable Markets. Markets for sustainable seal
products are complex and dynamic. A critical error for many farmers and
numerous organizations across the Latin American region has been to
invest in certification processes without possessing a clear
understanding about market preferences, and the relationships between
product, markets and certification system.

International assistance organizations have been at least partly to
blame for this phenomenon, as well-intentioned projects have promoted
certification as a strategy to alleviate the frequently desperate
situation in which many farmers in the region find themselves.
Unfortunately, the results of investing in certification as a poverty
alleviation strategy have been mixed. Many firms simply do not have the
product quality, sanitary controls or logistics to reach markets where
their certification would be valuable.

USAID could support farmers across numerous areas by ensuring that they
are informed of their options and the market implications of those
options. This information would need to be updated periodically (at
least once per year) to reflect changes in market situations and
certification rules. Perhaps the most valuable role this effort can play
is to prevent farmers (and their support organizations) from investing
in mistaken or sub-optimal certification strategies.

For the Panama Canal Watershed, the education and information approach
offers the best potential to realize benefits from sustainable markets.
The organized producers of the Lago Alajuela clearly have substantial
organizational capabilities. Detailed work with that group could reveal
potentially beneficial opportunities related to sustainable-seal
products. The Río Boquerón sub-watershed will present significant
challenges. The lack of producers organizations there means that
isolated efforts will need to be linked with other organizations, or
specialized buyers and traders.

5.  ***. Bio-Trade***

***10.5.1. Background and Examples***

"Biotrade refers to those activities of collection, production,
transformation, and commercialization of goods and services derived from
native biodiversity under the criteria of environmental, social and
economic sustainability."[^115]

In practical terms, this refers to a wide variety of products, ranging
from extracted non- timber forest products (NTFPs), to specialized
production of native biodiversity (value-added and more intensive
methods), and under some definitions includes genetic information on
native species for potential use in a variety of industries. The
underlying logic is that eco-systems produce and sustain a wide variety
of products. Mechanisms to sell the "interest" from the natural
"capital" could allow significant financial returns for standing forest
to compete against cutting the forest --or more simply, allow local
residents to earn a living on limited forest space in a sustainable way.

The approach has been touted as a potentially important one for linking
biodiversity conservation with markets. A variety of NTFPs have proven
to be interesting for local communities, in particular nuts and seeds,
but also gums and resins.

Representative examples in Latin America include NTFP extraction:

*Forest exploitation---*

-   Many Honduran Forestry Ejido dwellers in pine forests earn a
    substantial part of their

total income from extraction of saps and resins for turpentine and
spirit gum production.

-   Brazil established "Extractive Reserves" as a formal legal
    structure[^116] to permit organized

communities to use communal forestry lands in a restricted way to
produce income

without destroying forest, and establish communal title to land without
having to clear it

of forest to demonstrate "use." The principal products from the
Amazonian reserves are

brazil nuts and rubber.

*Intensive production---*

-   Iguana farming for commercial meat production has been developed in
    Panama, Costa

Rica, and El Salvador.

-   In Costa Rica, native butterfly species are farmed and sold to
    botanical gardens, museums

and collectors around the world. It is currently a multi-million dollar
export business for

Costa Rica.

-   Several businesses are selling concentrated extracts of medicinal
    tropical plants.

*Bioprospecting---*

-   The Costa Rican National Biodiversity Institute (InBio) is a world
    leader in identifying

Naturally occurring compounds for potential use in agriculture,
pharmaceuticals,

cosmetics, fragrances and others,

-   Natura, a Brazilian cosmetics company is founded on the principal of
    bringing

biodiversity products to market. It has been a huge financial
success.[^117]

# *10.5.2. Potential in Panama and the Selected Watersheds*

[]{.mark}

The development of business potential from native diversity is a new
area. Most of the potentially lucrative areas in Panama have yet to be
identified, and will require substantial research to bring them to
fruition. Panama could pursue certain untapped business areas with
interesting potential. Panama's biodiversity is broad and interesting.
There is even research that shows that there are endemic species whose
market potential has not been explored.

Few countries have engaged in systematic efforts to connect their
taxonomic base with potential markets. Costa Rica's INBIO is the only
significant effort in this regard in Central America. It has made some
advances in the area of developing business potential, but has focused
primarily on its scientific mission (taxonomy), educational mission
(educating school children) and some contracts with pharmaceutical and
agricultural companies (as discussed above).

Panama could develop expertise in linking biodiversity with market
opportunities and "incubating" businesses to take advantage of trade of
biodiversity-based products available at the country that could be a
significant source of income, particularly for less-developed areas. In
this regard, CBI (2003b) has identified the following opportunities for
developing countries that could export this kind of natural goods to the
EU market:

**Oils:** Species sensitive to environmental factors, such as tropical
plants (spices, ginger, cananga, vetiver); Trees in the wild (cinnamon,
camphor, sandalwood); Wild plants that could be easily cultivated in
industrialized countries, but for which wild harvesting remains more
profitable than the cultivation (*Artemisia sp*., rosemary); Crops for
which the cultivation and harvest is more profitable in developing
countries (jasmine, tuberose, basil, *Mentha arvensis*).

**Natural colors:** In general, natural colors provide opportunities for
exporters in developing countries. This is particularly the case for
indigo, which is one of the most ancient blue dyestuffs used for
textiles, but is also used in the cosmetic industry. Other interesting
natural colors include cochineal, carmine, curcuma/turmeric, marigold
and henna.

**Botanical ingredients:** Besides being used by the botanical medicine
industry, plant extracts are also increasingly used in cosmetic
products. The research trend for skin care products is moving toward the
development of highly refined raw materials of natural origin with
defined constituents imparting a specific biological effect to benefit
healthy skin.

**Organic cosmetic ingredients:** To add more value to commodities such
as essential or fatty oils, they could be marketed as organic products.
Marketing ingredients as organic may also be interesting in the case
that producers can only supply small quantities of natural ingredients.

Other opportunities could be found in:

**Marine products**: While less is known about these markets, and
Panama's potential in them, there are a number of interesting
opportunities and known business models in certain marine algae and
muds, sustainably harvested tropical fish, and others.

**Plants, flowers and foliage:** Global trade in "traditional"
ornamental plants is an interesting market to explore. If additional
value is added with sustainable practices, certification of "natural
origin," and the commercialization of exotic and non-traditional
species, the possibilities increase.

[]{.mark}

The UNCTAD Biotrade program is currently the leading international
effort to assist countries in developing competitive potential in these
areas. They currently have country programs in Bolivia, Brazil,
Colombia, Costa Rica, Ecuador, Peru, Uganda, Venezuela and Vietnam.

In Panama, the Smithsonian Tropical Research Institute has decades of
research that provides an unparalleled knowledge base from which to
evaluate potential opportunities.

[]{.mark}

***10.5.3. Potential Role for USAID and Cost Considerations***

[]{.mark}

1\) USAID support probably would be best dedicated to linking existing
knowledge of Panama's biodiversity with current market opportunities.
This effort would be dedicated to reviewing the taxonomic studies of
Panama and related analysis to identify those products that are
currently demanded by international markets, and those with similar
properties that could be substitutes. Opportunities in the following
categories would be compiled, and passed to a second stage of analysis
to determine strategies and feasibility of bringing those products to
market.

-   Oils

-   Natural colors

-   Botanical ingredients

-   Organic cosmetic ingredients

-   Marine products

-   Plants, flowers and foliage

2\) Bioprospecting is a numbers game. The more species, and unique
species a country has the greater the possibility of identifying active
ingredients with medicinal or agricultural potential, or with other
commercially interesting properties. While the economies of scale do not
exist for Panama to replicate Costa Rica's InBio, there are undoubtedly
a great number of interesting opportunities.

USAID could initiate a scoping project to identify potential strategies
for tapping systematically into its base of local species. Brazil, for
example, created a Foundation to invest in projects that bring forward
scientific and commercially valuable opportunities. This model may be
appropriate for Panama.[^118]

Gathering together these threads, a systematic project in this area
would be a three stage one:

The first stage would be a scoping exercise to determine which local
species or their derivatives (or very close substitutes) are currently
in demand in local or international markets. These include plants,
seeds, nuts, resins, oils, insects, funguses, etc. The historic research
carried out in the Canal Watershed for decades should provide a good
database of species. This stage of project would be primarily a desk
exercise focusing on broad product niches.

This first stage could cost \$100,000 to \$150,000 depending on the
breadth (different classes of products) and depth of research within a
given field. The output would be list of products that Panama "could"
produce based on its biodiversity for which there is an existing market.

The second stage would be to narrow the list down to a shorter list of
20 most promising products based on ease of growth (particularly by
relatively unskilled or under-funded farmers) and first cut look at
market size and dynamism. This would imply an effort of around \$50,000
to \$70,000.

The third stage would be a market intelligence effort to better
understand Panama's potential competitiveness for each of the short list
products. These studies would be product-specific and address
competitive factors, such as demand, price trends, sales and
distribution channels, technology, product requirements, logistics,
production costs, scale, and other factors. These studies would cost
approximately \$5,000 each. It would be appropriate to budget for 20
studies, for a cost of approximately 100,000.

***10.6. Ecotourism***

***10.6.1. Definitions***

Nature-based tourism is a very large market. The upper bound estimate
for the total size of the market for **nature-based tourism**[^119] is
estimated at 40-60% and wildlife-related at 20-40% of all international
tourist arrivals in the world.[^120] Total revenues from this segment
represent tens of billions of dollars of spending across dozens of
countries. The overall segment is broad, representing tourists seeking a
variety of experiences that relate to nature, as shown in Table 13.

Table 13. Categories of Ecotourism Experiences

![](media/image2.pct)

Within the broader category nature-based tourism, eco-tourism is a
specific segment. The International Ecotourism Society (TIES, at
[www.ecotourism.org](http://www.ecotourism.org/)) defines ecotourism as
"R*esponsible travel to natural areas that conserves the environment and
improves the well-being of local people.\"*

There are no exact statistics on this particular segment due to the
difficulties associated with categorizing destinations. However,
conservative estimates place tourism that has the ***primary***
objective of experiencing undisturbed nature in the billions of dollars
per year. An interesting aspect of ecotourism has been a trend in more
mainstream tourists to enjoy both ecotourism and soft adventure
activities (rafting, hiking, zip-lines, etc) for portions of their
overall vacation stay.

***10.6.2. Local Wealth Creation***

Improving living standards in rural communities and engaging local
populations in protection of their biodiversity are two of the main
motives for promoting the ecotourism sector. Ecotourism (nature-based
tourism), cultural tourism including agro/rural tourism, tourism towards
learning and studying, and pilgrimage travel are particularly suitable
for community-based tourism since they are open to community ownership,
partnership and control.[^121] The principal reasons for this relate to:

**Scale** -- tourism business such as lodges and inns, outfitters, etc
can operate successfully at small scale. Frequently the financial
returns on these operations are satisfactory for a family business, but
not enough to interest large-scale investors.

**Tourist preferences** -- tourists that seek experiences in these
segments tend to prefer more direct contact with nature and local
communities, this is best achieved when operations are relatively small
and owned or run by locals.

**Specialized knowledge** -- making many of these tourism experiences
meaningful for visitors requires specialized, and frequently local,
knowledge of the ecosystem and local agricultural activities. Value is
created through providing this local knowledge as part of the tourism
package.

Spending patterns within the ecotourism sector also favor local wealth
creation. First, the segment can be a high-priced one. Contrary to
popular conceptions, ecotourism is capable of commanding high room rates
when nature's offerings are of high quality, guide services are first
rate, and hospitality is comfortable and consistent with the
environment. The segment that is most attracted to ecotourism tends to
be well educated, which correlates closely to high incomes. Second, the
focus of visitors tends to be to stay in a variety of relatively remote
locations favors distributing spending *around* more rural areas. Third,
tourist spending in this segment tends to go well beyond hospitality and
food, and includes activities and tours usually through companies based
in the local area. And fourth, the emphasis on small, locally run hotels
means revenues tend to circulate in the local economy and earnings are
more likely to be invested locally.

Costa Rica is among the countries that have pioneered building a tourism
sector around a natural resource base. The country now competes directly
with top world tourism destinations, such as Australia, France (for
North American tourists), Thailand, and South Africa on a product and
quality basis -- not a price one. Daily tourism revenues in the country
are now nearly \$200 per person per day.[^122] In addition, a study by
INCAE found that an extraordinarily high percentage (43%) of total
tourist spending remains within the country. This compares favorably to
sun-and-sand destinations, which are generally in the 10% range.[^123]

"Global tourism trends stress local identities and characteristics,
which increases opportunities for tourism development in local
communities and societies even in remote areas. Local characteristics
and individualized tourism products endeavor to meet the needs of
today's tourists who are looking for alternative tourism and highlight
the experience."[^124]

In the context of ecotourism, the ability of a given destination to
generate significant amounts of wealth for the local community is
determined in the medium to long term by the overall quality and
authenticity of the visitors' experience. The key factors are the
quality of the natural resources, the level of locals who are
knowledgeable in providing services, the overall quality of the
hospitality (comfort, perception of safety), and the extent that the
visitors believe their experience was a rather unique one.

For ecotourism to be a successful vehicle for improving the quality of
life of a community, all of these value-creation factors must be taken
into consideration in the early stages of planning and product
development.

# *10.6.3. Current Ecotourism Plans in Panama*

A review of ecotourism development plans and activities in Panama points
to some potential issues at the national level and at the level of
protected areas.

At the national level, IPAT's National Ecotourism Development Plan sets
out an ambitious plan for making ecotourism a very significant part of
Panama's tourism sector. While the plan is logical and well structured
in terms of "how" to develop the sector, it is not as strong on the
underlying reasons as to "why" the sector should be developed.

The justifications for the efforts to develop the sector are not clearly
articulated, nor do the specific tourism objectives point to any common
or consistent set of policy-oriented objectives. There are a number of
reasons why Panama would be interested in developing ecotourism in (or
related to) protected areas. These include:

-   Generation of income for the conservation and management of the
    protected areas

-   Creation of increased opportunities and wealth in local communities

-   Job creation for specific populations

-   To offer investors business opportunities based on increased use of
    state assets

The various implementation plans do not draw the connections between the
tourism projects and the development objectives. In fact, some of the
plans may run counter to the conservation objectives. For example, the
proposed large-scale development of Coiba will likely lead to
substantial degradation of the natural resources of the island, or very
high costs for protecting them (water and water treatment
infrastructure, visitation infrastructure such as trails and toilets,
towns/settlements for workers and their related infrastructure and
impact, etc). As there is no local population on the island seeking
improved economic opportunities, conservation objectives may be best
achieved by restricting infrastructure development. An alternate
strategy would be to encourage tourism development on the mainland
coast, and charge large admission fees for entry into the park. This
could create needed job opportunities on the mainland, provide increased
income for park protection, and lower the investment and maintenance
costs required for the park.

Current plans for developing tourism at other protected areas also
present some conceptual challenges. For example, plans to increase
tourism in Soberanía National Park and Chagres National Park, mentioned
earlier in this report, may not generate enough income from tourism
visitation to finance conservation activities, or enough employment for
local communities.

Effective management of tourist impact requires substantial investment
in infrastructure, repairs and maintenance and protection. Excess
revenues beyond these capital investments and annual expenses can only
be generated by high levels of visitation. Few protected areas are
actually profitable from their gate revenues. Few U.S. National Parks
have revenues exceeding operating expenses. In Costa Rica, only three
parks are able to achieve revenues in excess of operating expenses[^125]
--Volcán Poás National Park, with over 100,000 visitors per year and
Volcán Irazu National Park with just under 100,000. Both of these parks
are close to San Jose, had their infrastructure donated, have on-site
concessions that generate substantial revenue streams, and prohibit
visitors from straying from designated high-traffic areas and their
supporting infrastructure.[^126] A third park, Manuel Antonio National
Park, with nearly 100,000 annual visitors is also profitable, but it is
experiencing a substantial degradation of biological diversity and
visitor experience. If the necessary investments were made to maintain
the park's quality, the costs would exceed any perceived
"profits."[^127]

If the objectives of the Soberanía and Chagres efforts are revenue
generation --"cash cows"\-- the infrastructure will need to be
substantial and well planned in order to sustain the levels of
visitation necessary to create profits to channel to conservation
activities. The proximity of these two parks to Panama City and Colón
suggest that overnight stays will be limited. This means that job and
business creation opportunities from tourism will be oriented toward
excursions or other short-duration visits. These activities tend to be
fairly low-revenue activities, and a substantial portion of the total
tourist expenditure goes to tour agent and the transportation
company.[^128] Income to local communities is limited, and revenues
collected for park maintenance are far short of what is necessary for
that task.

The most important and relevant initiative in Panama is the IPAT
National Ecotourism Strategy. As discussed above, it presents a great
deal of sound work on the potential areas for development of
nature-based tourism. However, the conceptual underpinnings are not
clear regarding what the objectives of promoting ecotourism are, nor
regarding what could be the role of international support for
management, public use and business plans of protected areas.

***10.6.4. Possible USAID Roles***

*[Ensure that ecotourism development is oriented toward priority policy
objectives]{.underline}*

The overall goal of tourism development for Panama should be to
**increase the quality of life** of a significant and increasing number
of Panamanians. There is ample evidence that protection of biodiversity
and related efforts in protected areas increase the potential of the
country to attract tourists of high value in the long term. Tourism
development should be measured and evaluated in the medium to long term
on its ability to advance the wellbeing of the Panamanian people.

More tourism does not mean necessarily more development or more income.
The type of tourism a country chooses to develop is the primary
determinant of the contribution to the wellbeing of its people. USAID
efforts could play an important role in making sure that tourism
planning, particularly that related to natural areas, incorporates the
latest and best thinking on how tourism relates to long-term development
goals.

Specifically, USAID should provide additional structured analytical
support to entities considering tourism development strategies. This
support would include efforts in the areas of Strategic Environmental
Assessment (macro-planning techniques to anticipate resource use and
social effects), Social Benefit-Cost Analysis of specific projects or
initiatives, and analysis of financial and contractual models for
management of services in protected areas in order to anticipate
potential long-term viability.

#### *[Focused Project to Support Tourism in El Montuoso Reserve]{.underline}*

Investments to improve visitor experiences in El Montuoso could provide
good social returns to the region, as discussed below. The highest
priority investments in the visitation areas of the reserve are:

-   Trail improvements, particularly repair of two bridges, construction
    of a third, and

> replacement of handrails on steep sections.

-   Chairs and tables for student and visitor activities.

-   Development of high quality informative material for distribution to
    visitors.

-   Design of a fee structure and collection system in the reserve.

-   Training of Reserve staff on tourism management in protected areas.

-   Emergency response capabilities (in case of injury or illness of
    visitor), in particular:

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-   Development of procedures and contingency plans for providing first
    response and evacuation.

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-   First aid training for all reserve personnel.

-   Snake anti-venom and training in its use.

-   Communications equipment for emergency response coordination.

> *[Focused Project to Support Tourism in and Protect Altos de Campana
> National Park]{.underline}*

As discussed above, in key areas of the PCW such as Soberanía National
Park, Chagres National Park and Fort San Lorenzo, promising tourism
initiatives are well underway or in the planning stage. The study team
feels these initiatives should be continued, with the qualifications
noted earlier (regarding the nature of contractual relationships for
concessions, etc.). The area in the PCW that would appear to warrant
more emphasis than it presently receives is the Altos de Campana
National Park. Possible activities in this area are described below.

The project for Altos de Campana would be similar to the eco-tourism
project for El Montuoso, but it would start from a base of better
infrastructure. It would be distinguished by containing components to:

-   Convert inholdings to sustainable agriculture, and

-   Initiate a process of buyouts for the holdings that are deepest
    within the Park, to allow natural re-generation of vegetation on
    those lands.

Other important components for this Park would include:

-   Training of park rangers to serve as guides, and increasing the
    number of rangers available for this purpose.

-   Provision of 24-hour vigilance of the Park.

-   Work with the nearby communities on education regarding the value of
    the Park as a national and local asset.

-   Providing financing for small lodging facilities (such as
    bed-and-breakfast operations) in nearby communities, for visitors
    who wish to stay overnight.

-   Provide better information for nationals and for foreign visitors
    regarding the unique attractions of this Park.

**11. Elements of an Integrated Watershed Management Strategy**

1.  ***. Objectives and Action Areas for an Integrated Strategy***

The new institutional framework, in which decision-making about access
to and use of natural resources remains at a local level, carries with
it some conditions that must be fulfilled for it to function
successfully. In brief, those conditions are:

a)  The existence of sufficient social capital at a local level. This
    means local capacity for resource management, legitimate local
    leadership, a shared vision, and sufficient education.

b)  Sufficient opportunities for local participation and access to the
    necessary information.

c)  Active presence of the government.

d)  Appropriate institutional architecture that empowers local decision
    makers.

Many opportunities exist to build local capacity, strengthen public
institutions and civil society, and improve the approaches for working
on policies in order to foster improvements in ecosystems. These systems
can be managed properly through application of environmental norms with
the knowledge and agreement of local communities.

A first major result to achieve in order to promote better watershed
management is: ***improvement in local environmental governance along
with that of the national entities responsible for watershed planning,
monitoring and management*.** To achieve this result it is necessary to
attain the following "outputs," or intermediate results:

-   Strengthen the local capacity for watershed management:

    -   Develop community plans with local organizations.

    -   Provide education in environmental justice at a community level.

    -   Develop watershed management programs with rural youth.

    -   Strengthen rural communities in carrying out research at the
        same time they undertake actions to protect the watershed.

        -   Strengthen inter-institutional coordination:

            -   Facilitate linkages with other actors.

                -   Facilitate watershed-level planning:

                    -   Develop a baseline with indicators of integral
                        watershed management.

                    -   Identify the areas that are most sensitive
                        socially and environmentally.

                    -   Promote the development of farm-level plans for
                        environmental management.

                    -   Promote participatory monitoring and evaluation.

A second major result that needs to be achieved in order to promote
better watershed management is: ***the environmentally and socially
sensitive areas in the watershed (or sub-watershed) are restored and the
biodiversity is improved --including improvements in the quantity and
quality of water through soil conservation efforts, reforestation,
etc.---and clean production techniques that can improve community
incomes are firmly established***. To achieve this result it is
necessary to attain the following "outputs," or intermediate results:

-   Strengthen conservation practices aimed at increasing biodiversity:

    -   Reforest riverbanks with native species and multi-storey plants,
        to establish connected biological corridors.

    -   Protect or rehabilitate sources of water.

    -   Analyze the capacity for water storage in the upper watershed.

        -   Strengthen soil and water conservation practices:

            -   Establish pilot demonstration sites under the approach
                of providing a supermarket of technical options.

            -   Carry out with the community a plan for cleaner crop and
                livestock production that is based on soil fertility and
                slopes.

                -   Strengthen linkages between environmentally
                    acceptable products and the markets for them:

                    -   Identify and evaluate market opportunities for
                        small producers (IDOP).

                    -   Facilitate production according to standards of
                        fair trade and sustainable certification.

***11.2. Strengthening Environmental Governance at the Watershed
Level***

***11.2.1. Local Capacity for Biodiversity and Watershed Management***

Although considerable institutional effort has been directed at
strengthening the communities in the sub-watersheds of the Gatuncillo
River and the Eastern Bank of Lake Alajuela (sub-watersheds of the
Boquerón, Pequení and Chagres Rivers), the level of community
organization in those areas is still low.

The community organizations in these areas have little participation in
decision-making, in part because of lack of sufficient and timely
information that would enable them to act on an informed basis. They
also are limited in capacity to carry out participatory planning and
lack a culture of developing and applying strategies for the short,
medium and longer run that respond to the real needs of people.

Community organizations should be guided by the principles of equity,
coordination and cooperation, citizen participation, recognition of
complementary roles of other organizations, seeking consensus,
sustainability, and solidarity with their membership. An effort to
strengthen a community organization should be based on the premise that
it cannot be built up by higher-level entities with the traditional
approach of defining groups for particular purposes such as
consultations. A dynamic organization with strong local roots arises out
of more complex social and cultural processes in which local residents
have voice and the ability to choose the best alternatives.

Table 14 shows in general form the principal steps of a process of
strengthening a local organization:

Table 14. Steps in the Process of Strengthening Local Organizations

+---------------------+------------------------+-----------------------+
| **Steps in the      | **Instruments used**   | **Local experiences   |
| process of          |                        | and possible partners |
| organizational      |                        | for the new Program** |
| strengthening**     |                        |                       |
+---------------------+------------------------+-----------------------+
| Identification of   | Rapid surveys and      | Management plans for  |
| local interest      | local focus groups to  | the Gatuncillo and    |
| groups and leaders  | identify interest      | Boq                   |
|                     | groups                 | uerón-Pequení-Chagres |
|                     |                        | sub-watersheds        |
+---------------------+------------------------+-----------------------+
| Participatory       | Participatory planning | UCLA                  |
| planning            | based on objectives    |                       |
| (identifying        |                        |                       |
| objectives,         |                        |                       |
| strategies and      |                        |                       |
| results)            |                        |                       |
+---------------------+------------------------+-----------------------+
| Strengthening       | Formalizing            | Juntas de Agua (Water |
| existing            | organizations          | Boards),              |
| organizational      | (developing internal   |                       |
| forms               | regulations)           | farmers associations  |
+---------------------+------------------------+-----------------------+
| Facilitate the      | Identification of      | IDIAP, MIDA           |
| development of new  | interest groups that   |                       |
| organizational      | could be the basis of  |                       |
| forms               | formal organizations;  |                       |
|                     | promotion of the model |                       |
|                     | of Local Agricultural  |                       |
|                     | Research Committees    |                       |
|                     | (CIALES)               |                       |
+---------------------+------------------------+-----------------------+
| Promote linkages    | Associations and       |                       |
| among community     | networks               |                       |
| organizations       |                        |                       |
+---------------------+------------------------+-----------------------+
| Monitoring and      | Ex ante evaluation     |                       |
| evaluation          |                        |                       |
|                     | Ex post evaluation     |                       |
+---------------------+------------------------+-----------------------+

***To achieve a strengthening of local capacities for the selected
watersheds, the following Program components are proposed:***

> *[Develop community plans with local organizations]{.underline}*

This study found that in many areas the rural population is dispersed
and local organizations are weak. These factors make it all the more
important to undertake efforts to strengthen those organizations and
establish institutional arrangements that facilitate communication and
the incorporation of local residents in decision-making processes that
can improve watershed management.

Among the more illustrative experiences in the region is the process
developed by the Campesino Union of Lake Alajuela (UCLA). Its members
have formulated a strategic development plan to the year 2011, and the
noteworthy benefits of the process include: a) improved marketing of
their products, b) a higher level of awareness among members concerning
water and forest resources, c) better management of information for
members, d) linking the Union's programs with those of diverse entities
such as ACP, Fundación Natura, and ANAM.

Another worthwhile experience has been that of the agro-tourism
association, which comprises 14 producers devoted to the cultivation of
vegetables, corn, rice, beans, and pigeon peas (*guandú*) and which
receives support from Fundación Natura.

These kinds of experiences should be replicated with other local
organizations in order to strengthen them, including the Juntas de Agua
(Water Boards) and producers associations, in the sub-watersheds of
Gatuncillo River and the Boquerón, Pequení and Chagres Rivers. In
general terms, the process of formulating community development plans
has the following phases: participatory diagnoses, strategic planning,
and development of the action plan.

*UCLA is, according to its members, "an organization of campesinos,
formed in 1986, with 48 active members who acquired concrete knowledge
regarding different activities such as the struggle to achieve
environmental stability in the area of the Lake and the Chagres Park;
the pursuit of sustainable development; production of organic honey;
marketing agricultural products; water transport for products and
persons. It is a campesino organization following Christian principles
that aims for sustainable development and promoting and improving
production." Its members state that UCLA has the objective of
"supporting the communities of the area in economic, technical and
educational terms, utilizing the material, economic and institutional
strengths of the organization."*

> *[Education in Environmental Justice at a Community
> Level]{.underline}*

AED has been undertaking an important effort in the area of
environmental justice, through which it has been imparting training in
the civil and penal spheres to judicial officials and Executive Branch
officials charged with carrying out administrative justice, with
*corregidores* included among the latter.

Another step is to deliver environmental education to the communities.
Key findings concerning environmental justice at the community level
underscore the need for a program in this area:

-   Citizen participation in environmental topics is limited,
    superficial, and characterized by a lack of interest.

-   There tends to be an incorrect use of the right of citizen
    participation in environmental issues, in the sense that often it is
    employed as a political tool and not as a mechanism to assure the
    protection and conservation of the environment and to foster respect
    for the right to a healthy environment free of contamination.

-   Both authorities and communities subject to environmental regulation
    lack knowledge of and interest in the mechanisms of citizen
    participation.

Accordingly, it is necessary to strengthen local administration of
environmental justice, since the capacity of local authorities is weak
and incipient. The environmental consultative commissions at provincial,
tribal (*comarcal*) and district levels have barely begun to obtain
regulations and the majority of them still are not functioning. There
are insufficient human resources and materials at the local level, and
the physical and technological infrastructure is very limited. ANAM has
only a few local agencies staffed basically with personnel trained in
natural resources and park rangers.

Education in environmental justice should be delivered from the most
local level of government (*corregidurías*), schools (through the
Ministry of Education), health centers (through the Ministry of Health),
and the national police, who together represent the levels of authority
closest to the population. The work with local governments, both
municipalities and *corregidurías*, is very important. They are closest
to the communities and are the first levels of government that receive
citizen complaints about environmental malpractices.

In order for community organizations to play the necessary roles and
participate in decision making, it is essential to carry out a program
of dissemination and training with respect to environmental norms, the
rights and obligations that these norms confer upon residents of each
area, mechanisms for acting in defense of the environment.

*[Develop Watershed Management Actions with Rural Youth]{.underline}*

Rural youth is affected as much as any other age group by the typical
problems present in rural communities, such as: a) deterioration of the
natural resource base, a problem especially pronounced in the areas
where the Program will work particularly regarding a lowering of water
quality and quantities and loss of soils and biodiversity; b) education
that is not necessarily consistent with current needs; c) low
agricultural prices and poor access to markets; d) infrastructure of
poor quality; e) low rates of adoption of improved technologies and weak
access to credit; f) low prestige of agricultural occupations; and g)
low participation rates in community activities.

Unless corrected, in a few years' time this situation will mean that
levels of wellbeing of rural populations will dramatically worsen,
especially since studies show that 46% of the population is less than 20
years old. Therefore actions in these areas are urgently needed.

*Currently ACP is developing a program with the Junior Achievement
Foundation of Panama (young entrepreneurs) whose purpose is to deepen
the knowledge of teachers and students about the functioning and
operation of the Canal as an enterprise and its direct relationship with
the use of natural resources and the protection of the watershed. For
2006 sixty courses have been designed for fulfilling the social
responsibility of ACP as an enterprise.*

The effort of ACP described in the above box has tried to respond to the
problem but the situation warrants still further actions, especially
those aimed at reinforcing the involvement of rural youth groups in
integrated watershed management, development of environmental management
skills in micro-enterprises, and the promotion of greater community
roles in watershed management.

For the design of this Program, it is proposed to utilize some of the
themes in the integrated strategy shown in Figure 2. In the first
instance, it is important to identify young leaders and develop for them
a training program that will give them the necessary elements to play an
active role in the development of their community. The training should
emphasize the positive relationship that is possible between production
and watershed protection through an integrated approach. Other themes in
the training would be the environment (water management), food security
(intensive kitchen gardens), the learning process (handling information
tools and computers and carrying out data analysis), and the creation of
income-generating opportunities.

Figure 2. Role of Youth in Integrated Watershed Management

The anticipated impacts of the project are manifold but the main focus
is on:

-   Creating awareness about the importance of protecting watersheds,
    and their effect on food security.

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-   Teaching youths how they can take actions to collect and evaluate
    key data on water resources.

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-   Involving youths in action based research to protect and
    rehabilitate water resources and to manage them for food production
    in kitchen gardens.

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-   Teaching youths how to evaluate the collected data and to
    communicate their experiences to the local community and to the
    world, using computer-based communication tools.

##### Experiences in Bolivia, Colombia and Honduras have demonstrated the direct involvement of around 800 youths in integral watershed management, especially in the themes of: monitoring water quality and quantity, use of water, management of wetlands, management of wastes, water harvesting, the efficient use of intensive kitchen gardens with high-value products, and monitoring and follow-up of their actions (CIAT, Annual Report 2004, Communities & Watersheds, Cali, Colombia).

In all the cases mentioned in the above box, the following methodology
has been applied: formation of youth groups according to their
interests; participatory evaluation of their needs; participation in
activities related to biodiversity; demonstrating the efficient use of
water and indicators of water quality and quantity; rehabilitation of
riverine zones; establishment of systems for monitoring and follow-up
that are applied by the youths themselves; training in the development
of data bases; analysis of data; documentation of the best experiences;
developing links with other youth groups at the local, national and
international levels; and dissemination of information by means of the
web, posters, CDs and other media.

An important component of the Program would be strengthening the
relation with the Ministry of Education (MEDUC) with the aim of
incorporating into the curriculum of schools in the area the themes of
natural resource conservation, management of protected areas, and
environmental education. Equally, it would be important to offer
technical-level education consistent with the potentials of each region,
so that the students could have employment options in their own regions.

> *[Strengthening Joint Research and Action Efforts in Rural
> Communities]{.underline}*

The presence of some 34 communities in the sub-watersheds of the PCW
represents an important challenge for the maintenance of the area's
ecological integrity, since the necessities for survival and the
precarious living conditions of the residents oblige them to exert
pressure on the natural resources of protected areas and their zones of
influence. Adding to the difficulty is the low level of community
organization, which makes it difficult to project to other zones the
results obtained with individual families or small groups.

This situation could be propitious for facilitating new forms of local
organization through the Local Agricultural Research Committees (CIALs)
--campesino experimentation. A CIAL is a research activity based on the
farmer and links his efforts to the local community. The community puts
together a committee of producers chosen for their interest in research
and for their readiness to participate. The CIAL does research on
priority topics that have been identified through a diagnostic process
in which all community members are invited to participate. After each
experiment, the CIAL presents the results to the community. Each
committee has a small fund to offset the costs and risks of research,
and it is supported by a trained facilitator up to the time when the
CIAL has matured enough that it can manage the research process
independently. In Panama this kind of leadership should be exercised by
IDIAP and MIDA, for it would extend the outreach of technical assistance
to more producer groups and generate near-term results.

*Since 1982 CIAT has been developing a strategy in which participatory
research with the farmer facilitates the growth of research capacity at
the community level and catalyzes the creation of new social
institutions (Okali, et al., 1994). As a result of carrying out this
strategy in eight Latin American countries, there now exist 249 groups
of farmer-researchers (CIALs). CIAT calculates that the return to this
investment in the development and application of the CIAL approach is
78% (Ashby et al., 2001). See:
[www.ciat.cgiar.org/ipra](http://www.ciat.cgiar.org/ipra). Currently in
Colombia, the national research institution CORPOICA and the Ministry of
Agriculture are applying the method in several regions of the country.
In Nicaragua the Socio-Environmental and Forestry Program of the
Ministry of Agriculture has set up about 50 groups for campesino
experimentation in 5 sub-watersheds.*

According to the CIAL approach, the community organizes itself to carry
out joint research and actions. This is a cyclical process illustrated
as a staircase in Figure 11-2, with the following steps:

Figure 3. The Staircase of Watershed Research and Action

![](media/image3.png){width="6.295833333333333in"
height="0.11944444444444445in"}

![](media/image3.png){width="6.295833333333333in"
height="0.11944444444444445in"}

***11.2.2. Strengthening Inter-institutional Coordination***

The experience of the Inter-institutional Committee for the Panama Canal
Watershed (CICH), which facilitates efforts at integration and important
initiatives, and channels to worthwhile activities resources from the
government and private sector organizations that have roles in the
management and conservation of the watershed, has demonstrated that
links among different institutions and entities are complex and do not
develop automatically. Stimulating and strengthening these links
requires the use of institutional mechanisms and the establishment of
permanent forums for the getting together of watershed institutions,
local governments, NGOs, and local associations and organizations, where
dialogues can be carried out.

A true inter-institutional coordination should promote and include:

-   Better awareness of the objectives and activities that each of the
    entities carries out in the same area, to avoid duplication of
    efforts --a phenomenon that unfortunately is quite common.

-   The putting into effect of joint work plans aimed at integrated
    development in watersheds.

-   Better identification of key topics and faster implementation of
    programs to respond to local needs.

To arrive at this level of coordination, it is important that ACP/CICH:

i\) *[Facilitate Linkages with Other Actors]{.underline}*

It is necessary to broaden the areas of coordination among the various
governmental institutions such as MIDA, MOP, MINSA, MEDUC, IPAT and the
NGOs such as ANCON, Fundación Natura, Cosecha Sostenible Internacional,
IBP, TNC, Fundación Panamá, Wuecha, FIA, SONDEAR and CEASPA, so that the
different kinds of support can be channeled in a mutually consistent way
to communities and linked to common objectives. This will help avoid
duplication of effort and overkill in some communities, and hence it
will help maintain the communities' confidence in the support agencies.

ii) *[Create Strategic Learning Alliances]{.underline}*

The work of inter-institutional coordination should be accompanied by a
process of creating learning alliances which will allow CICH to:

-   Identify the relevant questions for research and development. This
    is very important since it helps all the participating organizations
    to jointly identify which are the most important questions for which
    we are seeking answers as a group.

-   Identify the participants for each topic, and their respective roles
    and responsibilities. In our experience, not all the organizations
    or partners want to or can participate in all the activities.

-   Compile current approaches for each topic.

-   Make improvements over the current approaches, through design and
    testing of prototypes of tools, methods, strategies and policies.

-   Improve the prototypes on the basis of the testing.

-   Reflect on the processes in search of continuous improvements.

***11.2.3. Planning for Biodiversity and Watershed Management***

Important lessons have been learned in the different programs and
projects in the Canal sub-watersheds. However, the question remains of
what should be the best approach in order to obtain the biggest
improvement in biodiversity, water quality and quantity, and wellbeing
of communities? To address this fundamental question some other
strategic questions should be reviewed:

-   What is the approach now used or planned for bringing together the
    biophysical and socio-economic facets of the watershed?

-   What is the approach currently used or proposed for guaranteeing
    that the integrated management of the watershed continues to be
    solidified and becomes reflected in increases in biodiversity and
    improvement of water supplies?

-   What is the approach used or proposed to transfer the results
    obtained at one site to other places?

-   Regarding community-based resource management, how can communities
    become involved in research that is relevant for development and
    protection of the natural heritage?

> *[Organizing a baseline with indicators of integrated watershed
> management]{.underline}*

Recently AED, with USAID funding, has facilitated the establishment of
protocols for the indicators in an environmental monitoring system for
the PCW. Twenty-two indicators for the topics of water, forests, soils
and environmental education have been identified through consensus among
ACP, ANAM, FIS, MICI, MIDA, MEF, MEDUCA, MINGOB, MOP, and Fundación
Natura, among other entities.

In general it can be said that the various projects implemented to date
have developed an abundance of indicators with the aim of monitoring
their actions and determining the effects. By the same token, it can be
pointed out that all of these indicators are project-specific and once
the projects have ended the monitoring of the indicators is
discontinued. Through these projects local governments tend to receive a
lot of information, both qualitative and quantitative, that the various
development institutions generate, but it is not used very much for
planning and decision making because of inconsistencies in the
information, lack of timeliness in the supply of the information, and
***lack of analysis of the interactions among trends in sectors such as
health, education, environment, and production in the same
sub-watershed.***

For this reason, it is proposed that the new Program utilize a baseline
with a minimum of indicators that include biophysical and socio-economic
characteristics, and within these parameters such as water quality and
quantity, soil fertility, agro-chemical inputs, population density and
presence of septic tanks. Elements of such a baseline are illustrated in
Figure 11-3, along with the level at which they would be applicable.

Figure 11-3.

![](media/image4.pct){width="5.35in" height="2.8020833333333335in"}

Share indicators of this kind would allow the Program to monitor changes
over time and carry out comparisons among watersheds and sub-watersheds.
The horizontal comparisons would be very valuable for sharing
information and exchanging ideas on approaches and techniques that are
contributing to improvements in biodiversity, water quality and
quantity, environmental justice, local community organization, and the
wellbeing of the population, in addition to making production cleaner.

*In Nicaragua in 2005, a strategic alliance among INTA, UNA, CARE and
CIAT worked to strengthen the institutional capacity of INTA and its
local partners in integrated watershed management. Through the synergies
gained from integration of various activities including extension, INTA
developed a baseline with indicators concerning integrated watershed
management for its 11 priority areas. The baselines developed in the
sub-watersheds of the Viejo, Ochomogo and Tecomapa Rivers, presented by
INTA to the III Foro Nacional de Cuencas Hidrográficas (RENOC), received
prizes for the best methodological efforts for municipal strengthening.*

*[Identification of Socially and Environmentally Sensitive
Areas]{.underline}*

The Environmental and Socially Sensitive Area Assessment (ESSA)
methodology will be implemented in each watershed to identify
environmental "hot spots" and provide a pro-active approach to watershed
planning. The ESSA method spatially combines abiotic, biotic and
cultural (social) criteria (*e.g.*, water sources, water quality,
riparian forest, land tenure), ranking (*e.g*., 0 coliforms = high water
quality) to define ESSA types (high, moderate, low sensitivity). ESSA is
a useful tool for watershed planning as it focuses on prevention, and
provides a comprehensive and transparent assessment of environmental
issues in an integrated manner. The method utilizes Geographic
Information Systems as a base for the interpretation and analysis of
maps. Stakeholder participation is critical in establishing criteria and
ranking, as the approach is specific to relevant local or regional
issues.

Using the baseline and ESSA assessments as a platform, the project and
project partners will provide input to sub-watershed management and
municipal water resource plans, and will implement action-based research
at the local level related to soil conservation, efficient use of water
resources, improved water quality, waste management,
agro-forestry/riparian buffer zone management, and alternative
production methods. Local co-researchers and youth co-researchers will
be active in establishing on-site best management practices and in the
monitoring of those practices. Schools, farmer organizations, water user
associations, and other relevant local groups will be directly involved.
Activities will combine techniques and technologies to address locally
relevant issues. For example, rooftop water harvesting combined with
drip irrigation for bio-intensive kitchen gardens for household food
security and/or income. Best management practices (BMPs) will be
monitored to assess the effectiveness of local adaptations prior to
replication, and to demonstrate impact at the sub-watershed scale.

For example, monitoring of a constructed wetland designed to filter
grey/black water prior to entering the stream, to determine the
effectives on improving water quality and implications for downstream
water users. Project and research organization staff will backstop local
co-investigators, providing technical assistance in the design,
implementation, monitoring and assessment of initiatives. Local
participation is key to ensuring relevance; the involvement municipal
technical staff, particularly environmental and health technicians, will
provide continuity; and watershed promoters training and replication.
The ESSA/watershed approaches are particularly relevant with respect to
site-based activities to ensure integration and impact. For example,
riparian buffer zone rehabilitation would be implemented in "hot spots"
identified as part of the ESSA process, and impact would be assessed at
the sub-watershed and watershed scales linking upper, mid and lower
watershed issues.

The project will consider alternative agricultural strategies to
diversify farming while considering appropriate environmental
constraints, and aiming to improve farm incomes. It is useful to combine
soil fertility and slope classes, and work upward in scale from farm to
watershed. Under low fertility conditions and on steep slopes for
example, soil conservation measures and ecological restoration are
undertaken, while on flatter slopes and higher soil fertility conditions
more intensive and commercial agriculture uses considered. Farming
system alternatives however, will be considered within the watershed
context with particular attention to upstream -- downstream impacts such
as degraded water quality and/or quantity.

Capacity building will be based on action amalgamated with specific
skills workshops. Watershed promoters, local co-investigators and
municipal technical staff will work parallel to staff from the project
and research partner organizations. Working together on baseline data
collection, developing and ranking ESSA criteria, environmental needs
assessment, implementation and monitoring of BMPs and action/research
initiatives will on its own develop capacity. Skills workshops will
provide a foundation, and specific training needs will be determined
using the indicators developed during the baseline exercise.

> *[Farm-Level Planning]{.underline}*

In the populated portions of the sub-watersheds of the Boquerón, Pequení
and Chagres Rivers, land use is primarily devoted to extensive
livestock, migratory cropping, and urban development, all of which
represent serious threats for the conservation of biodiversity and the
maintenance of the hydrological regime of the area.

Because of these threats it is essential to carry out a study of land
tenure, a cadastre in effect, of this area, which would identify the
land users in the Chagres National Park, the extent of areas occupied,
the official records of tenure and current tenure in practice, and the
status of payment of property tax obligations.

On the basis of participatory planning methods, it would be important to
formulate land use plans in the area studied, accompanied by individual
farm management plans that would help foster:

-   Conservation and protection of natural resources, especially the
    forests with their biodiversidad and waters.

-   Improvements in the efficiency of existing production systems, not
    simply for greater competitiveness but going beyond that to include
    social equity and environmental sustainability.

-   Development of local management capacity through processes of
    community strengthening and transfer of knowledge and technologies,
    so that the communities can continue to manage resources without
    becoming dependent on outside institutions.

-   Identification of mechanisms by which farmers appropriate and value
    the natural resource base, along with potential institutional
    incentives (e.g., full property rights, long-term financing) for
    protection and recovery of that base and for sustainable development
    of productive capacity.

The proposed approach is that of participatory planning. Consensus would
be sought with producers concerning the riverine areas of their farms
that could be devoted to regeneration of natural vegetation or other
activities that increase biodiversity. To achieve this the approach
would include the following actions:

-   Development of management plans for each of the farms that indicate
    how to conserve and help recover the protected area and at the same
    time improve the economic competitiveness of the principal
    production systems.

-   ***Reaching a consensus on a package of incentives and economic
    compensation for the producers who agree to take steps to foster
    recovery and protection of the ecosystem.***

-   Development of a system of monitoring, follow-up and evaluation of
    the programs and projects that are included in the planes, for the
    short, medium and long term.

As part of this activity, it will be necessary to work with ANAM, TNC,
and Fundación Natura to complement the information on the status of land
tenure (private property and de facto tenure or *derecho posesorio*),
along with information on the agricultural, livestock and forestry uses
of land within the Chagres National Park, in order to help guide
effective management of the area.

> *[Participatory Monitoring and Evaluation]{.underline}*

Generally all programs and projects establish conventional monitoring
and evaluation systems that are implemented by entities external to the
projects, and their results are used for purposes of evaluating project
performance, research, and policy formulation. However, today the trend
is toward facilitating participatory processes of monitoring and
evaluation in the realms of different stakeholder groups in local
institutions or organizations. Participatory monitoring and evaluation
is linked to decision making, since it allows the community to redefine
its objectives and make adjustments to activities whenever it becomes
necessary. When implemented jointly, participatory monitoring and
evaluation opens opportunities for ensuring the group's satisfaction
with the performance of the program.

To implement participatory monitoring and evaluation the following steps
are suggested:

-   Identification of the group's overall objective --or even its
    dreams.

-   Identification of indicators or benchmarks.

-   Identification of the activities necessary to achieve the objective.

-   Development of the formats for information collection that will be
    used by the community organizations.

-   Establishment of a committee within each community organization that
    will be responsible for monitoring and evaluation.

-   Reaching agreement on how the information collected will be used.

**12. Strengthening Conservation Practices in Watersheds**

As noted above, a second major result that needs to be achieved in order
to promote better watershed management is: ***the environmentally and
socially sensitive areas in the watershed (or sub-watershed) are
restored and the biodiversity is improved --including improvements in
the quantity and quality of water through soil conservation efforts,
reforestation, etc.---and clean production techniques that can improve
community incomes are firmly established***. To achieve this result it
is necessary to attain the following "outputs," or intermediate results:

***11.3.1. Practices for Conserving Biodiversity***

*[Strengthen the conservation practices for increasing
biodiversity]{.underline}*

The Management Plan for the Chagres National Park (2005) indicates that
the park's ecosystem, especially its biodiversity, is being degraded by
land uses that are incompatible with conservation, water contamination,
poaching, the introduction of exotic forest species, traditional
cropping and livestock activities that are incompatible with the natural
resource base, sales and purchase of land, and deforestation. To
mitigate this situation the Program would include actions such as the
following:

i)  *Reforest riparian areas with native species and multi-storey
    growths, to develop and connect biological corridors.*

Rehabilitation: In already degraded areas, rehabilitation efforts will
be initiated, with a special focus on riparian (streamside) buffer zones
that are most effective in filtering pollutants and protecting water
quality and promoting greater biodiversity.

The loss of connectivity in forested landscapes constitutes one of the
greatest threats to the conservation of biodiversity and the ecological
functions of the forests. The fragmentation and isolation of forest
habitat blocks migration from one point to another (in both the upper
and lower watersheds) of species native to these areas, to the point
where their survival can be threatened. In the sub-watersheds
recommended for the Program it will be important to take into account
connectivity in planning for natural resource conservation, but
practical procedures for incorporating it into decision-making have been
lacking.

One of the objectives of the new Program should be the development and
application of an operational approach for analysis of connectivity in
forested landscapes and for identifying and prioritizing critical zones
for the maintenance and improvement of corridors of connectivity. *For
this purpose, a series of habitats and species will be identified that
are representative of behavior and radii of dispersion of the flora and
fauna of the area. On the basis of existing maps of forested areas,
geographical information systems, and the farm-level plans agreed with
producers, priority zones will be established and agreements will be
developed with communities and national institutions to convert these
zones into biological corridors that are of interest from a country-wide
viewpoint.*

> *[Conserve or rehabilitate sources of water]{.underline}*

According to the information in the Management Plan for the
Sub-Watershed of the Gatuncillo River, the principal sources of water
are highly deforested, and that has given rise to losses of biodiversity
and forest connectivity as well as water contamination. To remedy this
situation, it is proposed that the new Program complement efforts
underway by the residents of the area in regard to water sources with
the following actions:

-   Georeference and evaluate the current status of all water sources
    and their recharge zones in order to identify the areas that must be
    protected.

-   Identify the predominant threats to these zones at a technical level
    and community level, through participatory mapping and using local
    indicators.

-   Identify the principal forest species native to the area.

> *[Analyze the capacity for water storage in the upper
> sub-watersheds]{.underline}*

The capacity for retention of water in the higher areas plays a very
important role in the natural hydrological regulation of watersheds.
This capacity depends on various natural factors such as topography,
soil types, native vegetation, and also on socio-economic factors such
as land use patterns, prevailing resource management practices and
productive systems. Depending on the best potential use of each
sub-watershed and its strategic importance in the entire system of
hydrological management for the Panama Canal, it is proposed to carry
out an analysis of the selected sub-watersheds to retain water and
regulate its flows:

-   Identifying the role of the sub-watershed's own ecosystem, taking
    into account soils, marshes, forests and other natural factors as
    well as current land uses.

-   Analyzing how well the sub-watershed is retaining water in relation
    to its potential capacity for that.

The purpose of this kind of analysis is to review the differences among
the Canal's sub-watersheds and identify the potential for water storage
and regulation in the zone along with the opportunities for improving
that potential.

It is suggested that participatory research be carried out with local
students, to install an environmental monitoring network that would use
the following indicators:

-   At the level of ecosystems: water storage capacity by season,
    hydrological properties of soils, water flows from one type of
    landform or vegetation to another, and accumulation of organic
    material in marshy areas.

-   At the level of sub-watersheds: inventory of key water storage
    zones, actual water storage amounts, calculations of water balances,
    length of time water is retained in the sub-watershed.

***11.3.2. Practices for Water and Soil Conservation***

> *[Establish Pilot Demonstration Sites (Supermarket of Technological
> Options)]{.underline}*

Agricultural producers in the sub-watersheds visited for this study face
many problems and challenges such as poverty, climate change, lack of
markets and lack of participation in decisions that affect their
livelihood. Uncertainty also affects their own decisions and reduces
their capacity to adopt new technologies. ***This program confronts the
great challenge of improving the living conditions of rural farm
families by: a) increasing their food security, b) improving their
competitiveness, and c) intensifying their production in a way that is
sustainable and consistent with the natural resources in their
environment.***

How, then, can the producers be assisted to improve their productivity?

-   Improving and diversifying the seed quality and genetic base in
    general of their annual and perennial crops with an eye to cleaner
    production.

-   Improve the efficiency of production practices for systems in which
    new seeds and genetic materials are used.

-   Help the producers shift their cropping patterns toward crops that
    are higher-value and at the same time more environmentally friendly,
    through technical assistance and advice on marketing.

On the basis of these principles, it is proposed that the concept of the
Supermarket of Technological Options (SOL) be applied through the work
of IDIAP, MIDA and other institutions. It is a methodology that
functions within a specific agro-ecosystem (soils, other biophysical
characteristics, and socio-economic characteristics) and in which
agricultural researchers, development institutions, and farmers
--through their local organizations---work together.

This collaborative mode is utilized for a joint identification of
agricultural problems and continues to be used for formulation of
research agendas to the research process itself in the SOL sites and the
participatory evaluation of each technological option that emerges from
the process and the systematization and dissemination of research
results. The aim of the dissemination is to ensure that all participants
in the process, and others as well, can have access to the results in
the future so that economic resources are used more efficiently.

*This collaborative network links not only institutions and farmers but
also different sites within a watershed so that all the research carried
out in a given type of agro-ecosystem can be known and disseminated
through the participation of those who are interested in it. The final
benefits will be attributed to a multi-level process (farm, production
system, and agro-ecosystem and micro-watershed).*

These comments illustrate that the SOL concept is based on: 1) the
participatory approach (for design, planning, decision-making,
monitoring and evaluation of the projects), bringing together all
stakeholders in the process; 2) alliances of multiple institutions; and
3) a network of experimental sites where the work spans the spectrum
from research to development. In logical order, the steps used to
establish the SOL sites and set up the process are illustrated in Figure
3:

> *In Nicaragua and Honduras from 2002 a process of outreach has been
> carried out through different institutional partners and local
> organizations. The main topics of interest to the partners were:
> germoplasm, silvopastoral systems, marketing options, the SOL
> approach, CIALs, the watershed approach, approaches for joint actions,
> and training. These topics were replicated in other watersheds of
> Jinotega, Matagalpa, Boaco, Chontales, Estelí and Nueva Segovia. This
> methodology is scheduled to be applied by the Nicaragua Watershed
> Project, to be carried out with financing from the Canadian
> International Development Agency in several watersheds of the country
> (Annual Report, CIAT, 2003).*
>
> ***Conclusion: stakeholder participation in decision-making + research
> and development***
>
> ***activities that are demand-driven = Relevant solutions.***

**Figure 11-3.**

*[With the community, implement cleaner agricultural production
strategies that are]{.underline}*

*[based on soil fertility and slope]{.underline}*

The majority of the residents of the watersheds and sub-watersheds
selected produce on a small scale crops such as maize, rice, beans,
watermelon, sweet peppers, okra, sugarcane, cassava, yams, squash,
vegetables and a few permanent crops such as soursop, cocoa, annatto
(*achiote*), coffee, lulo (*Solanum quitoense;* *naranjilla* in Spanish
and in some English usage), papaya, hot peppers, and plantain, among
others, but the income levels obtained from them are very poor. In light
of the urgent necessity of improving their standards of living, it is
necessary to undertake some interventions that allow them to reap
economic and environmental benefits from the different technologies
utilized.

*This strategy of cleaner agricultural and livestock production based on
soil fertility and slope will allow the producers, in the majority of
the cases, to liberate areas for greater forest cover. The strategy
should be closely linked to market studies.*

It will be recalled that early sections of this report mentioned that
Panama's watersheds generally have considerable amounts of sloping land,
sometimes steeply sloping. Figure 11-4 illustrates how soil fertility
and slope characteristics would be used to design plans to convert
farms, plots within farms, micro-watersheds and entire watersheds to
more environmentally friendly and remunerative cropping patterns and
vegetative cover.

*Ranchers in Central America are suffering seasonal feed shortages
combined with a lack of high-quality forage. Low productivity, constant
degradation of natural resources, and migration are the consequences.
Since 2000, CIAT has been working with producer groups in Central
America (in a project financed by GTZ of Germany) to develop a basket of
forage options, including gramineas, bushes y leguminous herbs. The
choices from the basket by producers and the validation on farms have
resulted in a series of changes in their livestock production systems
and in the community itself. Oscar Núñez is one of these producers:*

***His current situation**: 12 cows, 35 liters of milk/day, Low-quality
pastures that include wooded areas and watercourses.*

***The road to improvement:** Seeding*

*Brachiaria brizantha cv. Toledo; Brachiaria híbrido cv. Mulato; and
Cratylia argentea. Recommended systems: Paddock rotation, cut and carry,
silage.*

***Today two years later:** A tripling of forage production in less than
one year, a doubling of milk production in less than half the area (from
35 to 75 l/day with 12 cows), weight gains and improvement in calving
rates, 47 ha liberated for reforestation, construction of a brick silo,
increase in income and creation of additional employment.*

*(Poster presented at the III Foro Nacional de Cuencas, Managua,
Nicaragua.*

**Figure 11-4.**

+------+---------+-----------+-----------+-------------+------------+
|      | **SLOPE |           |           |             |            |
|      | (%)**   |           |           |             |            |
|      |         |           |           |             |            |
|      | **PE    |           |           |             |            |
|      | NDIENTE |           |           |             |            |
|      | (%)**   |           |           |             |            |
+------+---------+-----------+-----------+-------------+------------+
| **   | **Very  | **Highly  | **R       | *           | **Un       |
| Soil | highly  | r         | estricted | *Moderately | restricted |
| fer  | res     | estricted | use**     | restricted  | use**      |
| tili | tricted | use**     |           | use**       |            |
| ty** | use**   |           |           |             |            |
+------+---------+-----------+-----------+-------------+------------+
|      | *       | **45-30** | **30-15** | **15-5**    | **\<5**    |
|      | *\>45** |           |           |             |            |
+------+---------+-----------+-----------+-------------+------------+
| **Hi | Natural | Natural   | Natural   | Natural     | Natural    |
| gh** | veg     | v         | v         | vegetation  | vegetation |
|      | etation | egetation | egetation |             |            |
|      |         |           |           | Native      | Native     |
|      | Native  | Native    | Native    | pastures    | pastures   |
|      | p       | pastures  | pastures  |             |            |
|      | astures |           |           | Plantain    | Plantain   |
|      |         | Plantain  | Plantain  |             |            |
|      | P       |           |           | Coffee      | Coffee     |
|      | lantain | Coffee    | Coffee    |             |            |
|      |         |           |           | Annual      | Annual     |
|      | Coffee  | Agr       | Agr       | crops with  | crops      |
|      |         | oforestry | oforestry | soil        |            |
|      | Agrof   |           |           | c           | Vegetables |
|      | orestry | Fruit     | Fruit     | onservation |            |
|      |         | trees in  | trees in  |             | Flowers    |
|      |         | pastures  | pastures  | Fruit trees |            |
|      |         |           |           | in pastures |            |
+------+---------+-----------+-----------+-------------+------------+
| **   | Natural | Natural   | Natural   | Natural     | Natural    |
| Medi | veg     | v         | v         | vegetation  | vegetation |
| um** | etation | egetation | egetation |             |            |
|      |         |           |           | Improved    | Improved   |
|      | Native  | Native    | Improved  | pastures    | pastures   |
|      | p       | pastures  | pastures  |             |            |
|      | astures |           |           | Plantain    | Plantain   |
|      |         | Plantain  | Plantain  |             |            |
|      | P       |           |           | Coffee      | Coffee     |
|      | lantain | Coffee    | Coffee    |             |            |
|      |         |           |           | Improved    | Fruit      |
|      | Coffee  | Agr       | Agr       | fallowing   | trees      |
|      |         | oforestry | oforestry |             |            |
|      | Agrof   |           |           | Fruit trees | Annual     |
|      | orestry | Improved  | Improved  |             | crops      |
|      |         | fallowing | fallowing | Annual      |            |
|      | I       |           |           | crops with  | Vegetables |
|      | mproved | Fruit     | Fruit     | soil        |            |
|      | fa      | trees in  | trees     | c           | Flowers    |
|      | llowing |           |           | onservation |            |
|      |         | low       | High      |             |            |
|      |         | density   | fertility | High        |            |
|      |         | in        | ditches   | fertility   |            |
|      |         | pastures  |           | ditches     |            |
|      |         |           |           |             |            |
|      |         |           |           | R           |            |
|      |         |           |           | egeneration |            |
|      |         |           |           | practices   |            |
+------+---------+-----------+-----------+-------------+------------+
| **L  | Natural | Natural   | Natural   | Natural     | Natural    |
| ow** | veg     | v         | v         | vegetation  | vegetation |
|      | etation | egetation | egetation |             |            |
|      |         |           |           | Improved    | Improved   |
|      | Native  | Native    | Native    | fallowing   | pastures   |
|      | p       | pastures  | pastures  |             |            |
|      | astures |           |           | Improved    | High       |
|      |         | Improved  | Improved  | pastures    | fertility  |
|      | I       | fallowing | fallowing |             | ditches +  |
|      | mproved |           |           | High        | fert       |
|      | fa      | High      | Improved  | fertility   | irrigation |
|      | llowing | fertility | pastures  | ditches +   |            |
|      |         | ditches   |           | fer         | Fruit      |
|      | Regen   |           | High      | tirrigation | trees      |
|      | eration |           | fertility |             |            |
|      | pr      |           | ditches   | Fruit trees | Vegetables |
|      | actices |           |           |             |            |
|      |         |           | Fruit     | R           | Plantain,  |
|      |         |           | trees     | egeneration | Coffee     |
|      |         |           |           | practices   |            |
+------+---------+-----------+-----------+-------------+------------+

*[Strengthen Linkages between Environmentally Acceptable
Products]{.underline}*

*[and Markets in order to Increase Incomes]{.underline}*

In spite of the varied cropping patterns in the sub-watersheds studied,
in general the small-scale producers have traditional concentrated on
growing basic food crops. Initially they sought to satisfy their own
food needs and some of them succeeded in producing marketable surpluses
and diversified their production patterns. This sector is quite
heterogeneous, differentiated by varying levels of wellbeing and
orientation to the market. In the current context it is necessary to
foster closer linkages between small producers and markets. This has
become a necessity because:

-   Globalization and the opening of the world economy make it ever more
    necessary to strengthen the links between rural producers and
    markets, both for the producers and for their clients.

-   It is important as a strategy for development and reduction of the
    high level of poverty that characterizes the rural families in the
    region.

-   It is important in order to take advantage of the growing interest
    in developed-country markets in biodiversity, campesino products
    perceived as reflecting fair trade practices, the demand for exotic
    products, and the trend toward organic and natural products.

-   It is a key part of a strategy to stimulate better natural resource
    management on the part of rural producers.

-   This sector has a competitive advantage in the production of some
    crops that have growing demand.

Traditional approaches to rural development have lacked an
entrepreneurial focus. Priority has been given to finding ways to market
what has been produced, without studying market needs in order to
identify additional production alternatives for farmers.

The IDOP strategy (Identification and Evaluation of Market Opportunities
for Small Rural Producers) provides a market orientation for small-scale
producers located in a given micro-region. The methodology allows for
identification and evaluation of market opportunities and for
capitalizing on them. Figure 11-5 illustrates the steps in it. For more
details, please go to the website www.CIAT.cgiar.org /Agroempresas.

**Figure 11-5.**

*In Colombia, Ecuador, Honduras and Nicaragua several producer-level
efforts of this nature have been carried out in alliance with CARE,
PRODESSA and the Ministry of Agriculture. In addition, in the Calico
River sub-watershed a market study of this type was carried out with the
Unión de Campesinos Organizados de San Dionisio. Recently the approach
was applied with rural youths in Yorito, Honduras, to determine
municipio-level (Morazán) amounts of agricultural products purchased and
to estimate vegetable demand in the market. Information on this study is
available at
[www.agroemprendedor.org](http://www.agroemprendedor.org/).*

*[Fair Trade and Certification Seals]{.underline}*

Quality seals are discussed in section 10 above. The following
paragraphs add another dimension to that review by widening the
discussion of a certification program that has been found to be useful
for small-scale producers in the tropics. The concept of what is called
fair trade attempts to put into practice the following objectives
(Johnson, 2001):

i)  Establish a direct relationship between producers and consumers,
    avoiding to the degree possible intermediaries and speculators.

ii) Set fair prices that permit producers and their families to live
    with dignity.

iii) For salaried workers, respect the norms established by the
     International Labor Office (ILO), or those of the country if they
     are stricter than those of the ILO. Respect the right of free
     association and prohibit forced labor.

iv) Extend partial financing to the producer before the harvest (around
    60 percent), if it is requested, using the harvest as collateral.

v)  Establish long-term contractual relationships based on mutual
    respect and ethical values. These relationships aim not only to
    establish a fair price but also to establish sustainable conditions
    for producers and hired laborers.

According to the Fair Trade Labeling Organization International (FLO),
to initiate the process of certification the producer must state what
kind of legal organizational status he/she has, following FLO's criteria
--association, cooperative, enterprise, contractor, among others---and
capacity, taking into account the following variables:

i)  Number of members or workers in the organization and how they
    participate in decision-making.

ii) Market positioning of the products; in the case of exports, state
    where and how.

iii) Type and variety of product in each case; quantity and quality
     available for export.

iv) Organic certification: whether part or all of the production is
    certified by a licensed certifying organism for organics.

After reviewing these questions, the next step is to go to the website
of FLO-Cert **(<certification@fairtrade.net>),** indicating interest in
obtaining certification and sending the responses for the above
variables about organization characteristics and products. If FLO
considers that the producer has potential in the Fair Trade market, it
will sent a standard questionnaire and if the evaluation of it is
positive, will carry out the first inspection visit.

It can be worthwhile to go through this certification process because in
some cases sales of FLO-certified products offer consumers assurances
that they are obtaining quality goods produced according to social,
economic and environmental criteria, and they offer producers higher
returns (a price premium) which translate into higher levels of
wellbeing for their communities. According to FLO International (2003),
the products for which certification standards currently exist include
coffee, rice, fresh fruit, cacao, sugarcane, and plantain, among others.

4.  ***Costing an Integrated Management Strategy***

The costs of an integrated management strategy for biodiversity and
watersheds will depend on the area to be covered and the number of
inhabitants of that area. Based on CIAT's international experiences a
rule of thumb can be a cost of \$1.0 to 1.5 million for an area of 100
km^2^.[^129] The basic elements of this cost can be broken down
according to the six fundamental categories of activity described in
this section of the report, in very approximate guidelines as follows,
simply to suggest appropriate orders of magnitude:

[A. Strengthening Environmental Governance at the Watershed
Level]{.underline}

Local Capacity for Biodiversity and Watershed Management \$300,000

Inter-institutional Coordination \$30,000

Planning for Watershed and Biodiversity Management \$100,000

[B. Strengthening Conservation Practices in Watersheds]{.underline}

Practices for Conserving Biodiversity \$300,000

Practices for Water and Soil Conservation \$100,000

Marketing Environmentally Friendly Products \$150,000

C.  [Additional Costs]{.underline}

Developing the base line \$30,000

Identification of environmentally and socially sensitive areas \$20,000

Farm-level planning \$50,000

If an environmental services payment or reforestation program would be
undertaken, most elements of this integrated approach would be needed
also, and therefore most of these costs would be subsumed into the costs
of the other program.

**Part IV. Options for Critical Watersheds**

The principal options for interventions, or Program activities, have
been set out in sections 10 through 12 above. In the selected critical
areas or watersheds it is envisaged that multiple activities would be
carried out, and that wherever possible an integrated approach along the
lines of sections 10 and 11 would be adopted, as a basis for moving
forward at the same time with the more specific interventions proposed
in section 10. For example, if the Program were to support an
environmental services payments (ESP) system for the Río La Villa
Watershed (a key proposal in section 10), then much of its
community-level and farm-level activities would be carried out according
to the guidelines for an integrated approach that are described in
sections 11 and 12.

The objective of this section is to indicate some of the possible
priorities for interventions in each critical area, and to provide
additional information to facilitate implementation to the extent
required, without understating the importance and feasibility of other
possible interventions in those same areas.

**13. Río La Villa Watershed**

***13.1. Application of an Environmental Services Payment Program to
Support***

> ***Biodiversity and Watershed Improvement***

The particular situation of Herrera and Los Santos, described earlier in
this report, creates a nearly unique opportunity for linking downstream
demand for water and upstream needs for biodiversity conservation and
improving the quality of life of the marginalized communities in the
upper and middle watersheds. Linking watershed protection and water use
provide the potential for mutual benefit among downstream water users
and upstream providers of water services. A well-designed program could
protect critical biological resources in the upper watershed, reduce
water scarcity, increase water quality, and improve the competitiveness
of the region.

*[Supply side]{.underline}*

Large scale and nearly complete deforestation of the middle and upper
watersheds of the river have reduced stream flow to the river due to
reduced recharge capacity and increased evaporation (due to deforested
stream heads and river banks).

The upper watershed is El Montuoso Forest Reserve, which has been
identified and designated as such due to its importance for water
production and biological diversity. Only about 1,000 hectares of old
growth forest remains inside 18,000-hectare reserve.

Approximately 1,700 residents live inside the Reserve, all in poverty,
most in extreme poverty, tied to subsistence agriculture on relatively
small land plots (untitled, but usually with de facto rights or
"*derechos posesorios*").

The middle watershed has been completely deforested, primarily for
extensive cattle grazing.

Water and biological diversity services provided (or could be provided)
by the upper and middle watersheds are of very high value to downstream
users. Appendix II presents a summary.

*[On the demand side]{.underline}*

92,000 consumers depend on water from the Rio La Villa, as does nearly
the entire industrial economy and most of the agricultural economy.
Substantial agricultural lands depend on irrigation water from the river
and underground sources. Underground sources are drying up. According to
MIDA and ANAM regional offices, existing wells have reduced capacity,
new wells dug as deep as 150 meters are coming up dry, and wells as far
as 3 km. inland are pulling up salty water.

Coastal shrimp capture and local fishing depend heavily on the health of
the mangroves at the river's mouth. Changes in water and sediment flow
and increases in toxic substances could threaten coastal biodiversity
and the economic activities dependent on it.

There is no excess water capacity for new business expansion, which
presents significant constraints on economic development potential for
Herrera and Los Santos.

Putting the Río La Villa Watershed in condition to sustain the quality
of life of the population, fulfill the expectations of the present
users, and support the future resource needs for economic development
presents one of the more important challenges faced by the region.

From the perspective of water, a comprehensive plan would include three
key elements:

i\) Protect and improve the flow of the river, by means of actions of
restore the upper and

middle watershed.

ii\) Improve the quality of water for the multiple users.

iii\) Rationalize the use of water of the river to ensure that it is
devoted to its highest value

uses.

The first two points offer the potential to be mutually reinforcing with
biodiversity conservation, in that they require increased forest cover
in critical locations and better management of waste and water usage
upstream. The third relates more to prioritizing uses in the lower
watershed and establishing planning or pricing mechanisms to assign
water to its most valuable uses.

*[General Strategy: ESP for the Montuoso]{.underline}*

The basis for a proposed ESP system would be a business transaction
between the lower and upper watershed. Downstream residents need to
ensure that they have sufficient year-round water to sustain businesses
and their communities. Upstream residents, who are generally living in
poverty, are in a position to enter into the business of being water
suppliers and biological diversity protectors for the benefit of
downstream users, and the country in general. The primary target of the
ESP program will be El Montuoso Forest Reserve, and its approximately
1,700 inhabitants.

**The goal is to create a sustainable, self-financing, system to support
changes in land use that protect and enhance biodiversity and water
production and capture within El Montuoso Reserve.**

This mechanism will seek to provide the funding necessary to:

• finance conservation and reforestation activities;

• provide incentives to residents of the reserve to alter land use
practices, particularly to

increase forest cover;

• train local populations in more effective use of natural resources,
such as agroforestry

models with greater potential to generate income and improve quality of
life while also

> protecting biodiversity and enhancing water production;

• improve educational programs to create greater opportunities for
children to prepare

themselves for a future outside of the Reserve;

• Develop opportunities for improved access to markets for products from
the reserve; and

• Provide basic financial services (crop insurance, loan guarantees, and
potentially

securitization of water service payment cash flows to support capital
investment).

The economic rationale works in this situation if:

• There is sufficient willingness to pay from downstream beneficiaries.

• This willingness to pay can be harnessed into actual payments that can
reach the upper

watershed.

• The amounts harnessed are sufficient to pay upstream residents who
have control over

the resources to change their land-use patterns or practices.

• There are mechanisms to manage the funds and monitor the activities
that provide the

benefit.

*[Willingness to Pay]{.underline}*

While no studies have been conducted for willingness to pay for water,
in the limit (no availability of water), the willingness to pay in the
downstream communities in Herrera and Los Santos is very high. The
alternative is to close businesses, or with sufficient notice and
investment to pipe water from other parts of the country, with the
nearest abundant source apparently being the Caribbean slopes of
Chiriquí and Veraguas.

It is important to note that there are many beneficiaries of improved
upper and middle watersheds. Water supply, quality and seasonality are
valuable to residents, businesses, agriculture, and fisheries. However,
other services provided by a well-conserved and improved watershed are
also valuable. (See Appendix 2)

*[Harnessing of Payments]{.underline}*

As noted in the background section, water users tend to be grouped
through water services companies (such as IDAAN, in the case of Panama)
who charge for services. Surcharges or other additional payments could
be charged through them and transferred to the producer organization or
an intermediary (such as a trust established for this purpose). Also,
water service fees could be added to the annual permit/concession
mechanism used for well water and irrigation extraction.

*[Capacity to Change Land Use and Practices]{.underline}*

Inhabitants of the upper and middle watershed utilize the resources of
watershed in a sub-optimal manner, owing to various factors -- in
particular:

• poverty (from marginal to extreme);

• lack of viable economic options outside of the upper watershed; and

• lack of property title limits access to capital.

For most inhabitants of the Reserve annual cash income (beyond
subsistence crops) by year appears to be between zero and \$200 per
family. With relatively modest amounts of funds, the inhabitants of the
zone could be motivated to make changes in their land use that would
give rise to important benefits for the inhabitants of the lower
watershed. Increases in net income for the residents of the zone (or
investments in the community in general) could be very effective in
bringing about change.

*[Organization and Monitoring]{.underline}*

The residents of the El Montuoso Forest Reserve have experience with
community organizations. They have even managed international funds
successfully in the past. This situation appears to be sufficient for
the organizational needs of this proposed program.

*[Intermediary Organization]{.underline}*

A key part of the program would be the establishment of a local
organization that would be responsible for administering the ongoing
ESP, financially, managerially and technically. The idea of forming a
corporation, whose shareholders would represent both lower watershed
water users and upper watershed groups, has been discussed with local
authorities. The program would research the legal requirements for this
form of organization and other alternatives.

*[The Finances of the Program]{.underline}*

A more detailed study will be required to determine which beneficiaries
should participate, the appropriate amounts to be charged of
beneficiaries, as well as watershed and biodiversity goals and targets
to be achieved. However, rough calculations indicate that it should be
easily feasible.

As mentioned earlier in this report, a preliminary analysis was
conducted assuming the entire burden of financing the desired activities
in the Reserve was placed exclusively on residential water users. The
hypothetical target was to generate \$400 per year per family living in
the reserve. This is consistent with the amount observed in other
countries in the region for changing land use patterns on marginal land
(\$25 to \$50 per hectare), with the assumption that the average family
in the reserves controls or lives off approximately 10ha. Program
management costs were assumed to be 50% to be conservative, making total
annual costs of the program approximately \$240,000.

Residential water use is approximately 9 million gallons per day (34,100
m3), based on the amount taken in by the drinking water plants (source:
ANAM). In order to generate \$240,000 per year, the program would need
to collect approximately 1.9 cents per m3 of drinking water delivered.
This translates into less than \$15 per household per year to support
the ESP program for the Montuoso, which could make substantial advances
in water supply, biodiversity protection, and improvement of the quality
of life of the upstream residents.

Annex D presents the model used for these calculations.

At this time, efforts in Río La Villa Watershed are the most advanced.
MIDA-Herrera Sub-director Oscar Batista has prepared a project concept
document the basis of which has been shared at the municipal and
provincial levels with mayors, governors and some business leaders.
There is apparently a great deal of support and enthusiasm. The proposal
is to place a surcharge on water services (or an equivalent approach) to
finance recovery of the middle and upper watersheds.

***13.2. Reforestation in Río la Villa***

According to ANAM-Herrera, the Rio La Villa watershed is approximately
122,000 hectares. Of these 122,000 hectares, only 1,000 remain as dense
intact forest cover, and these are located inside the roughly 12,000 has
of the Montuoso Reserve. Most of the rest of watershed has been
completely deforested.

ANAM reports (Ing. Lao) that of 122,000 acres, 85,000 have "vocation
forestal" and 37,000 have "vocation agricultural." More detailed
analysis is required to determine what percentage of the 85,000 hectares
of potential forestland offers commercial potential for timber of fruit
species. Also, much of the agricultural land in watershed may simply be
more profitable in forestry

**Table 16A. Summary of Relevant Environmental Services Provided by
Upper and Middle Watersheds of Rio La Villa: Local Services**

+------+------------+----------------+--------------+-----------------+
| **L  | **Service  | **Source**     | **Ben        | **Basis for     |
| ocal | provided** |                | eficiaries** | Valuation**     |
| Se   |            |                |              |                 |
| rvic |            |                |              |                 |
| es** |            |                |              |                 |
+------+------------+----------------+--------------+-----------------+
| W    | Supply of  | Improved       | Agriculture, | Cost of         |
| ater | surface    | forest cover   |              | substituting    |
| quan | water.     | in upper,      | industry,    | water sources,  |
| tity |            | middle         |              |                 |
|      | In         | watersheds and | res-idences, | cost of losing  |
|      | filtration | along          |              | businesses for  |
|      | of ground  | riverbanks.    | shrimp       | lack of water,  |
|      | water.     | More rational  | grounds and  |                 |
|      |            | water          | fisheries.   | opportunity     |
|      |            | extraction     |              | costs (lost     |
|      |            | from rivers.   |              | investment)     |
+------+------------+----------------+--------------+-----------------+
| W    | Quality of | Reduction of   | Residences   | Costs of        |
| ater | water      | erosion        | via IDAAN,   | additional      |
| qua  | (turbi     | through        | through      | water cleaning  |
| lity | dity/Total | reforestation  | lower costs  | and             |
|      | suspended  | of degraded    | of           | purification    |
|      | solids,    | land and       | treatment,   | for residential |
|      | BOD,       | riverbanks.    | or safer     | and industrial  |
|      | biological |                | drinking     | customers.      |
|      | cont       | Improved       | water;       |                 |
|      | aminants). | cattle lands.  |              |                 |
|      |            |                | industries   |                 |
|      |            |                | who would    |                 |
|      |            |                | have to      |                 |
|      |            |                | pre-treat    |                 |
|      |            |                | water.       |                 |
+------+------------+----------------+--------------+-----------------+
| W    | Water flow | Improved       | Agriculture, | Cost of         |
| ater | through    | forest cover   |              | substituting    |
| sea  | dry        | in upper,      | industry,    | water sources,  |
| sona | season.    | middle         | residents,   |                 |
| lity |            | watersheds.    |              | cost of losing  |
|      |            |                | shrimp       | businesses for  |
|      |            | More rational  | grounds and  | lack of water,  |
|      |            | water          | fisheries    |                 |
|      |            | extraction     |              | opportunity     |
|      |            | from rivers.   |              | costs (lost     |
|      |            |                |              | investment)     |
+------+------------+----------------+--------------+-----------------+
| Coa  | Water flow | Water flow     | Shrimpers    | Not determined. |
| stal | and        | from           | and coastal  | Could be based  |
| ec   | quality to | successful     | fishermen.   | on cost of lost |
| o-sy | sustain    | management of  | Coastal      | harvests, or    |
| stem | mangroves  | upper and      | residents    | relocation of   |
| he   | and        | middle         | who benefit  | operations.     |
| alth | maintain   | watersheds.    | from         |                 |
|      | wetlands.  |                | v            |                 |
|      |            | Reduced        | ulnerability |                 |
|      |            | sedimentation  | reduction    |                 |
|      |            | from erosion.  | from intact  |                 |
|      |            |                | wetlands and |                 |
|      |            |                | mangroves.   |                 |
+------+------------+----------------+--------------+-----------------+
| E    | Opp        | Availability   | Educational  | Alternatives to |
| duca | ortunities | of a viable    | system, the  | experience and  |
| tion | for        | natural forest | local        | teach nature,   |
|      | children   | at a           | community in | could include   |
|      | (and       | reasonable     | general.     | traveling to    |
|      | adults) to | driving        |              | more distant    |
|      | learn      | distance.      |              | forests.        |
|      | about      |                |              |                 |
|      | nature,    |                |              |                 |
|      | bio        |                |              |                 |
|      | diversity, |                |              |                 |
|      | and water  |                |              |                 |
|      | cycle      |                |              |                 |
+------+------------+----------------+--------------+-----------------+
| C    | Pleasant   | Availability   | Quality of   | Alternatives to |
| ommu | place to   | of a viable    | life issue   | experience and  |
| nity | visit for  | natural forest | for local    | learn about     |
| Re   | families   | at a           | residents.   | nature, could   |
| crea | and teach  | reasonable     |              | include         |
| tion | children   | driving        |              | traveling to    |
|      | about      | distance.      |              | more distant    |
|      | nature     |                |              | forests, and    |
|      |            |                |              | expenditures    |
|      |            |                |              | that would      |
|      |            |                |              | accrue to other |
|      |            |                |              | communities     |
|      |            |                |              | that do not     |
|      |            |                |              | have            |
|      |            |                |              | recreational    |
|      |            |                |              | forest.         |
+------+------------+----------------+--------------+-----------------+
| Tou  | Important  | Availability   | Local        | Person-days of  |
| rism | complement | of an          | tourism      | additional      |
|      | to         | increasingly   | businesses,  | stays in        |
|      | regional   | rare high      | local        | Azuero,         |
|      | tourism    | quality        | economy in   | multiplied by   |
|      | de         | natural forest | general.     | the average     |
|      | velopment. | at a           |              | daily tourist   |
|      |            | reasonable     | Providers of | expenditure     |
|      |            | driving        | supporting   | times the local |
|      |            | distance from  | services in  | multiplier      |
|      |            | other tourist  | El Montuoso  | effect.         |
|      |            | attractions in | area.        |                 |
|      |            | the region.    |              |                 |
+------+------------+----------------+--------------+-----------------+
| Cli  | Cooling    | Maintenance    | Ranchers,    | Value of        |
| mate | and rain   | and increase   | farmers,     | substituting    |
| con  | effect of  | of forest      | tourists and | water lost by   |
| trol | intact     | cover in       | residents of | evaporation.    |
|      | forest.    | uplands.       | the middle   | Decrease in     |
|      |            |                | and upper    | cattle          |
|      |            |                | watersheds.  | fattening rates |
|      |            |                |              | due to caloric  |
|      |            |                |              | loss from heat. |
+------+------------+----------------+--------------+-----------------+
| B    | 1\)        | 1\) Tropical   | 1\) Farmers  | 1\) ND          |
| iodi | M          | forest plays a | and ranchers |                 |
| ver- | aintenance | critical role  | in a large   | 2\) same as     |
| sity | of natural | in natural     | radius       | tourism above.  |
|      | biological | control of     | around the   |                 |
|      | balances   | insets,        | reserve.     |                 |
|      |            | funguses, etc. |              |                 |
|      | 2\)        |                | 2\) Same as  |                 |
|      | Tourism    | 2\) Linked to  | tourism      |                 |
|      | potential  | tourism        | above        |                 |
|      |            | benefits --    |              |                 |
|      |            | wildlife,      |              |                 |
|      |            | medicinal      |              |                 |
|      |            | plants.        |              |                 |
+------+------------+----------------+--------------+-----------------+

**Table 16B. Summary of Relevant Environmental Services Provided by
Upper and Middle Watersheds of Rio La Villa: International Services**

  ----------------- -------------- ------------- ------------------- -------------------
  **International   **Service      **Source**    **Beneficiaries**   **Basis for
  Services**        provided**                                       Valuation**

  Biodiversity      Hosting of     Maintenance   Global patrimony    Complex.
                    species that   and expansion                     
                    will otherwise of natural                        
                    be extirpated  habitat.                          
                    from the                                         
                    region.                                          

  Climate           Fixation of    Maintenance   Global.             In theory,
                    carbon in      and expansion                     international
                    forest and     of forest                         market price for
                    understorey.   cover and                         carbon offsets
                                   related                           multiplied by tons
                                   habitat.                          of carbon fixed,
                                                                     less a discount
                                                                     factor for
                                                                     non-market
                                                                     participation
  ----------------- -------------- ------------- ------------------- -------------------

For biodiversity and water supply objectives, the logical target for
reforestation efforts would be the currently deforested land within El
Montuoso reserve and its surrounding areas (as discussed in the
preceding section). Nearly 100% of the reserve would fall into the
classification of "vocation forestal," but most of it is currently
deforested. Reforestation along watercourses and around water sources
plus bridging areas could form and linked system of forests throughout
much of watershed and would help increase the population of flora and
fauna.

***13.3.* *Ecotourism in El Montuoso Forest Reserve***

The presence of expanded ecotourism in El Montuoso Reserve will not play
an important role in protecting biodiversity, changing land use, or in
improving the well-being of a significant number of residents, but its
broader role in development of the Azuero region will likely justify
investment.

The Reserve is the logical place to invest in ecotourism. It is already
a protected area (though not sufficiently protected) and has potentially
attractive natural assets, which have been well documented:

-   It is one of the last remnants of intact forest in Azuero.

-   High concentration of biodiversity, including species attractive to
    tourists (rare butterflies, birds, reptiles and primates, in
    particular).

-   Documented presence of over 100 medicinal plants. Some with economic
    potential for extraction in the reserve or cultivation in
    surrounding areas.

-   Outstanding climate for visitors.

-   Scenic views of forest and surrounding area

It also has some tourism infrastructure and a permanent staff with
significant local knowledge, including:

-   A good road and trail access from main road.

-   A building for the manager's office, storage and educational
    programs.

-   More than 2km of trail (passable, but in disrepair), well designed
    and connecting appropriate habitat and features (notably
    waterfalls).

-   Permanent staff including park rangers and an expert naturalist.

From a financial perspective, tourism in the Reserve would be, at best,
a breakeven proposition based on entrance fees, due to relatively low
visitor volume and relatively low willingness to pay of Panamanian
visitors. However, since the fixed costs of protection (ANAM) are
already required, tourism revenues could be of benefit for providing
valuable marginal income for improved services.

However, investment in eco-tourism in the Reserve appears justified
based on the broader social good of its availability for the local
community and its role in potential business opportunities. The tourism
sector of Herrera and Los Santos needs to find additional activities to
expand the products it offers to the marketplace as part of its overall
effort to increase visitation and lengthen tourist stays in the region.
A high-quality park experience would be a very valuable addition, and
may even be capable of generating enough revenue to justify the
increased wear and tear on the Reserve's assets (if visitors were
restricted to existing infrastructure). It is even conceivable that a
more viable park could be a critical decision factor influencing
potential tourism investors in the area.

The Reserve would also benefit the quality of life of the region's
residents, providing needed contact with nature and a place to "escape."
It is also a valuable asset for educating the region's school children
about nature, the importance of biodiversity conservation and the
difficult relationship between poverty and natural resource management.

**14. The Sub-Watersheds in the Panama Canal Watershed**

***14.1. General Approach***

The general approach proposed for the sub-watersheds in the Panama Canal
Watershed is that presented in sections 11 and 12 above: an integrated
management strategy for each sub-watershed, emphasizing the
strengthening of environmental governance at a local level and the
improvement of conservation practices. The approach described in those
sections is highly participatory, and this characteristic helps ensure
its sustainability.

This general approach may be complemented by an additional program in
the area of environmental services payments. Considerations relevant to
this additional option are described in the remainder of this section.

2.  ***Environmental Services Payments in the PCW***

These three sub-watersheds of the Panama Canal present a similar but
larger and slightly more complex situation than that seen in Rio La
Villa. In two watersheds studied, natural resource deterioration is high
due to a large number of people living inside watershed, including
inside the Chagres National Park. Historic (and some ongoing)
deforestation is having negative consequences on biodiversity, driven by
encroachment on the park borders for homesteading and vacation homes,
and some apparent expansion of land use inside the park.

In addition, water flows to the Canal from these sub-watersheds are
decreasing, while sediment and biological and chemical pollution appear
to be increasing. These factors are critical to several downstream water
users.

*[Willingness to Pay]{.underline}*

Decreased water flow and increased sedimentation flowing to the Canal
are critical problems for ACP's core business of moving cargo ships.
Lower water flow, particularly in dry season, means fewer ships or fewer
containers per ship. Increased sediment flow means more frequent
dredging and greater wear and tear on pumps.

In addition, ACP produces electricity in hydroelectric plants. Reduced
flow decreases generating capacity in dry season, and increased
sedimentation imposes costs due to more frequent cleaning and
replacement of turbines.

The Canal watershed also provides drinking water to most of the
population of Colon and Panama City. Lower flow could lead to shortages.
Increased sedimentation and higher pollution levels increases treatment
costs.

ANAM is currently conducting a detailed study to determine potential
values and prices for water in ESP systems. The preliminary numbers
shared with the consulting team point to an easily feasible situation,
with marginal utilities of water for cargo ships translating into as
much as \$800 per hectare per year, and \$30 per hectare per year for
electrical generation.

> *[Harnessing Payments]{.underline}*

Since virtually all of the benefits of watershed management accrue to or
pass through ACP, it is the client.

*[Capacity to Change Land Use and Practices]{.underline}*

As in the case of the Río La Villa, the residents of the sub-watersheds
utilize the resources of watershed in a sub-optimal manner. Due to
slightly higher incomes, proximity to markets, and greater land
speculation, landowners (both titled and with de facto rights) in these
watersheds appear to value their land at a higher price than in Río La
Villa Watershed. Nonetheless, the activities in which most residents of
these sub-watersheds are engaged remain substantially oriented toward
subsistence agriculture, with sales of excess production, and in some
cases small quantities of crops grown for commercial purposes. Compared
to the El Montuoso Forest Reserve case, we would expect to need slightly
higher amounts in these watersheds to change land use. Preliminary
estimates suggest marginal land use change at \$50 to \$80 per hectare
per year, and \$100 to 150 per hectare per year for reforestation.

The other potential provider of watershed services is ANAM. Nearly all
of the land in the eastern watershed (and all of the highlands) is in
the Chagres National Park and its buffer areas. In theory, park
activities to manage land use and maintain perimeter integrity benefit
both biodiversity and watershed management.

In the case of these sub-watersheds, there appears to be a substantial
margin for mutual gains from trade in environmental services.

*[Organization and Monitoring]{.underline}*

The two sub-watersheds studied present very different capacities for
organization and management of a project of this type. The Association
of Campesinos of Lake Alajuela has demonstrated capacity sufficient to
manage a program of this type. Residents of the Río Gatún and Río
Boquerón Watersheds do not have a successful history of organization and
there is no evidence of any locally based organization with the needed
capacity. For the Chagres National Park, both ANAM and TNC (which has
been delegated some management responsibilities) have the needed
capacity.

*[Complementary and Supporting Efforts]{.underline}*

ESPs as a mechanism for protecting biodiversity and improved watershed
management have been under discussion for several years in Panama. A
number of studies have been conducted and others are underway. All
studies point strongly to economic viability for programs. However, the
studies to establish the specific mechanisms and potential pricing
schemes are only beginning. USAID and JICA[^130] are among the
international organizations that have supported studies on or related to
the viability of the mechanism.

ANAM has a new Environmental Economics Department, and roughly half of
its activities (primarily consulting projects) are focused on ESPs and
water production services. They are focusing their research efforts on
the Canal Watershed, Río La Villa Watershed and the Río Caldera -- Río
Chiriquí Watershed in Chiriquí. ANAM's watersheds office has also
conducted feasibility studies. ANAM now has a preliminary draft of a
national ESP program that is still internal (and confidential) within
the organization.

[^1]: Development Alternatives, Inc., *Evaluation of USAID's Strategic
    Objective for the Panama Canal Watershed, 2000-2005,* Final Report,
    2005, pp. 1-3.

[^2]: For example, it was commented to the team that the Gatuncillo
    River in the PCW was navigable in a longer stretch upriver when the
    area was more forested a generation ago.

[^3]: The species counts mentioned in this and other sections of the
    report should be regarded as approximate. They vary among published
    sources and scientific research updates them from time to time. An
    effort has been made to seek out the most reliable counts, but the
    numbers are subject to a margin of error.

[^4]: See: ANAM, "P*rimer Informe* *de la Riqueza y Estado de la
    Biodiversidad de Panamá,"* Panamá, 1998.

[^5]: ANAM, "Riqueza biológica de Panamá, Análisis de la situación
    actual," vol. técnico 5 de la *Estrategia Nacional del Ambiente*,
    Panamá, 1999.

[^6]: These six centers are (*op. cit*., p. 40):

    I*.* Chocó-Panamá-Costa Rica

    II\. Tropical Eastern Andes

    III\. Brazilian Atlantic

    IV\. Eastern Himalayas-Yunnan

    V. Northern Borneo

    VI\. New Guinea

[^7]: The concept of "critical biodiversity places" was articulated in
    1988 by the British ecologist Norman Myers, who recognized that
    although the ecosystems of the critical places (most often in
    tropical forests) cover a relatively small area of the planet they
    contain a very high percentage of the world's biodiversity. Myers
    and Conservation International refined the concept just five years
    ago.

[^8]: According to BirdLife International this Hotspot contains six
    areas of endemism for birds (EBAs).

[^9]: Studies carried out by WWF Colombia, the Fundación Ecotrópico, and
    the Center for Indigenous Cooperation (CECOIN) helped identify areas
    of biodiversity conservation that are ecological functional and are
    under threat from human activities, that could complement the
    already existing conservation areas in the Chocó.

[^10]: ANAM, The Nature Conservancy and USAID, *Plan de Manejo, Chagres
    National Park*, Documento Técnico, Panamá, abril 2005, p. 9.

[^11]: In the entire (multi-country) hotspot, 521 species of mammals
    have been identified, of which 210 are endemic (40%). This is at
    least 50 more than the number of endemic species in any other
    biodiversity hotspot in the world. This hotspot is also one of the
    main priorities of BirdLife International, which has recognized 17
    Endemic Bird Areas within it. Three of the four migratory bird
    routes of the Western Hemisphere converge in Mesoamerica, flight
    routes for at least 225 migratory species. See *Región Sur de
    Hotspot de Biodiversidad en Mesoamérica: Nicaragua, Costa Rica,
    Panamá*, Perfil de Ecosistemas, Critical/Ecosystem Partnership
    Foundation, Final Version, December 11 2001.

[^12]: The PGF program is being developed with the collaboration of the
    Smithsonian Tropical Research Institute and includes four areas of
    concentration: education, field research, preservation in captivity,
    and economic support for its management. Recently a fatal fungal
    infection has been discovered that is affecting frog populations
    worldwide and that represents a new risk for the survival of this
    and other frog species in their natural habitat.

[^13]: The Coiba Marine Park, located in the southern end of the
    Province of Veraguas, has an area of 270,125 ha., 216,543 belong to
    the ocean part, making it one of the largest marine reserves in the
    world (Velayos, *et al*., 1997). In addition to the main island of
    Coiba the park contains 38 other islands and islets that constitute
    an archipelago.

[^14]: Capa, M., San Martín, G., and López, E., "Syllinae (Syllindae:
    Polychaeta) del Parque Nacional Coiba, Panamá," Universidad Autónoma
    de Madrid, España, 1999.

[^15]: *Amblyosyllis cf. granosa* (Ehlers, 1897; sensu Westheide 1974),
    *Amblyosyllis speciosa* (Izuka, 1912), *Autolytus multidenticulatus*
    (Westheide, 1974), *Exogone naidinoides* (Westheide, 1974),
    *Grubeosyllis concinna* (Westheide, 1974), *Odontosyllis fulgurans*
    (Audouin & Milne Edwars, 1833), *Opisthodonta mitcheli* (Kudenov &
    Harris, 1995), *Pionosyllis articulata* (Kudenov and Harris, 1995),
    *Sphaerosyllis (S.) californiensis* (Hartman, 1966), *Syllides cf.
    reishi* (Dorsey, 1978).

[^16]: For comparability, data on both the global and Panamanian numbers
    of endangered species are taken from *Earth Trends* of the World
    Resource Institute (they refer to the year 2002).

[^17]: More studies are required to determine if the following three
    species also are endemic to Panama: brown-backed dove (*Leptotila
    battyí*), and the hummingbird species Veragua mango (*Anthracothurax
    veraguensis*) and shield of Veraguas (*Amazilia handleyi*).

[^18]: This paragraph is adapted from: Tracey Parker, Julieta Carrión
    and Rafael Samudio, *Section 118/119: Biodiversity and Tropical
    Forestry Assessment of the USAID/Panama Program*, Chemonics
    International, Inc., prepared for USAID/Panama, April 2004.

[^19]: *Ibid.*

[^20]: ANAM, Estrategia Nacional del Ambiente: Riqueza Biológica,
    Análisis de la Situación Actual, Panamá, 1999, p. 25. This document
    reports the existence of 232 mammal species as of 1998, but the
    figure has since been updated.

[^21]: ANAM, 1999, op. cit., p. 24.

[^22]: They include 50 areas declared protected by the Central
    Government through laws and executive decrees, resolutions of the
    boards of directors of INRENARE and ANAM and through the
    Torrijos-Carter Treaty, and 15 through municipal resolutions and
    agreements (as of December 2005).

[^23]: Panama still has not adopted the UICN management categories,
    which are: I a) strict nature reserves and b) wild areas; II
    national parks; III natural monuments; IV management areas for
    habitat/species; V protected landscapes and seascapes; and VI
    protected areas with managed resources.

[^24]: The Indigenous Comarcas Indígenas are established by the laws of
    the Republic for the use of indigenous populations and as their
    dwelling places if they so choose. Special legal provisions grant
    them the right to their own governance norms through traditional
    authorities and also adjudicate to them the socio-economic benefits
    of the lands they occupy. The Indigeous Comarcas legally constituted
    in Panama are: Comarca Kuna Yala, Comarca Ngöbe-Buglé, Comarca
    Emberá-Wounnan, Comarca Madugandi and Comarca de Wargandi. In
    addition, the Naso-Teribe Territory has been recognized and a
    proposal to give it the status of Comarca is under evaluation in the
    national legislature.

[^25]: Contrary to the El Niño phenomenon that causes droughts as a
    result of the warming of the air masses over the Pacific, the
    phenomenon of La Niña arises from an abnormal cooling of the waters
    of the tropical Pacific resulting from variations in ocean and
    atmospheric circulation patterns that also produce climatic changes
    throughout the World. It is important to bear in mind that not all
    La Niña events come in the same form. They vary in intensity and
    duration and their effects on local climate depend on the time of
    year and the region of the world in which they develop and their
    interaction with other climatic variables. See:
    [www.hidromet.com.pa](http://www.hidromet.com.pa/)

[^26]: See
    [www.hidromet.com.pa/sp/hidrologia](http://www.hidromet.com.pa/sp/hidrologia),
    part of the website of the Hydrometeorology Office of ETESA.

[^27]: In the dry season some Pacific-slope rivers can deliver as little
    as 10% of their total annual flow. That season typically lasts about
    4 months and in the central parts of the country as much as 7
    months.

[^28]: The rivers whose watersheds have the largest drainage areas on
    the Atlantic slope are: Changuinola (3,202 km^2^), Guariviara (2,364
    km^2^), Cricamola (2,121 km^2^) and Chagres (3,338 km^2^). On the
    Pacific slope they are: San Pablo (2,453 ), Cartí (2,267 km^2^),
    Quebro (2,467 km^2^), Guararé (2,170 km^2^), Santa María (3,326
    km^2^ ), Río Grande (2,493 km^2^), Bayano (4,984 km^2^), Chucunaque
    (4,937 km^2^) and Tuira (3,017 km^2^). See:
    [www.hidromet.com.pa](http://www.hidromet.com.pa/), Cuencas
    Hidrográficas y Estaciones Hidrológicas (as of January 2006).

[^29]: Communications from the Herrera Office of ANAM.

[^30]: Through Resolution No. J.D. 04-97 of INRENARE the Hydrological
    Reserve of Filo del Tallo was declared a protected area covering
    18,816 ha. Subsequently, in 2005 through the Sustainable Development
    Program for the Darién, plans were made to improve the levels of
    protection of this Reserve by adding to it the areas of Canglón and
    Laguna de Matusagaratí, which will represent an addition of 14,980
    ha.

[^31]: Although the annual population growth rate of these areas
    decreased slightly between 1996 and 2000, from 7.56% to 6.85%, it
    still remained far above the national population growth rate, which
    was measured at 2% between 1990 and 2000.

[^32]: The Intertropical Convergence Zone (ITCZ) creates the climatic
    conditions assoiciated with the tropical rainy and dry seasons
    because of the variations of intensity of the trade winds and the
    activity of tropical atmospheric convergence. The periods of maximum
    rainfall in Panama are associated with the passage of the ITCZ
    weather system in a northerly direction (June) and in a southerly
    direction (October), in its movements that follow the annual
    north-south track of the sun. See:
    [www.cathalac.org](http://www.cathalac.org/) and
    [www.hidromet.com.pa](http://www.hidromet.com.pa/).

[^33]: ANAM, USAID and TNC, *Parque Nacional Chagres: Plan de Manejo*,
    Documento Técnico, Panamá, abril de 2005; and AED and USAID,
    *Estudio Exploratorio para el Diseño de un Programa de Pago por
    Servicios Ambientales para el Manejo Sostenible de los Recursos
    Naturales en Áreas de Laderas con Ganadería, en el Parque Nacional
    Chagres, Cuenca del Canal*, Panamá, abril de 2005.

[^34]: See: Departamento de Seguridad y Ambiente, División de
    Administración Ambiental, Sección de Manejo de Cuencas, Unidad de
    Operaciones. ACP, República de Panamá, *Anuario de Sedimentos
    Suspendidos 1998-2004*, octubre 2005.

[^35]: The garbage dumps in the districts of Chitré (Herrera) and La
    Chorrera (Panamá) are located in mangrove areas. There is no
    management of the wastes deposited there, and the effects are
    devastating for the flora and fauna of those mangroves.

[^36]: In 2004 and 2005, floods caused by torrential rains affected 32
    communities in Yavisa and El Real (Darién), 80 settlements in
    Changuinola, Guabito and banana plantations (Bocas del Toro) and 59
    settlements in Panama Province. These events caused a number of
    deaths and left 3,000 persons without a home and several thousand
    more affected to a lesser degree. In addition to destruction of
    homes, there was extensive damage to cultivated fields and livestock
    (Sistema Nacional de Protección Civil*, Resultados de Impacto,
    Primer Año de Gestión,* Panamá, septiembre 2005).

[^37]: As this report was being completed, this expansion of the Panama
    Canal Watershed was repealed.

[^38]: Conversations with Martín Mitre of CICH and Yolanta Villareal of
    Rainforest Alliance, both of whom visited the area in past years
    (independently) and who accompanied the design team.

[^39]: A number of these exotic species have been introduced to
    Panamanian waters by the route of households dumping their family
    aquariums in ravines and rivers when they undertake a move.

[^40]: It is estimated that topsoil erosion in teak plantations more
    than 10 years old is 2 cm/year from the impact of raindrops on
    denuded soil. In humid and very humid tropical forests the impact is
    considerable because of the frequency of rains.

[^41]: According to the *Plan General de Uso de Suelos del Área del
    Canal*, in the sub-watershed of the Hules, Tinajones and Caño
    Quebrado Rivers, only 20% are appropriate for cropping and livestock
    activities, and most of them for forests and agroforestry
    activities, since their slopes are greater than 45%. In practice,
    cropping and livestock activities occupy around 60% of the area,
    which signals a clear conflict of uses and significant deforestation
    of the site. In that sub-watershed, only 8.7% of the land remains in
    forests and 30% is covered with brush. See: *Plan de Acción para las
    Subcucencas de los Ríos Hules, Tinajones y Caño Quebrado*,
    *Diagnóstico Consolidado*, International Resources Group,
    Ltd./USAID, Panamá, enero 2003.

[^42]: Stanley Heckadon-Moreno, *Panama's Expanding Cattle Frontier: The
    Santeño Campesinos and the Colonization of Forests*, Ph.D.
    Dissertation, University of Essex, UK, 1984.

[^43]: ANCON, *Evaluación Ecológica de la Cuenca Hidrográfica del Canal
    de Panamá*, in collaboration with Fundación Natura, INRENARE, and
    the program "Parques en Peligro," Panamá, marzo 1995, pp. 32-35.

[^44]: It has been pointed out that hunting mammals in the Upper Chagres
    can also affect the species composition of the forest, by reducing
    the presence of those species that depend on mammals for seed
    dispersion. (See: Indra Candanedo, Ernesto Ponce and Lenín Riquelme,
    *Plan de Conservación de Alto Chagres*, The Nature Conservancy,
    Panamá, octubre 2003, p. 40.)

[^45]: ANCON, 1995, p. 36 \[emphasis added\].

[^46]: Sometimes ranchers in buffer zones claim jaguars kill livestock
    and hunt them for that reason (Nature Conservancy, 2005).

[^47]: Candanedo, Ponce y Riquelme, 2003, pp. 18-19.

[^48]: Ironically, this area is a poor location for teak growth since it
    does not have the extended annual dry spell that teak requires in
    order to prosper.

[^49]: 66% of the bird species protected by Panamanian laws are found in
    this area.

[^50]: The boa constrictor.

[^51]: Jacobo Araúz G., "Los Murciélagos del Sendero Panamá, Parque
    Nacional Altos de Campana, Panamá," *Tecnociencia,* vol. 4, no. 2,
    2002.

[^52]: According to the Censo de Población y Vivienda, 2000.

[^53]: T. Parker *et al*., 2004, p. II-8.

[^54]: Some sources put the Reserve's area at 12,505 hectares.

[^55]: Conversations of the design team with staff members of the
    Herrera Offices of ANAM and MIDA, February 2006. However, the JICA
    study of C. Garibali and others, cited below, reported that mature
    forests covered 2,833 ha. of the reserve, on the basis of fieldwork
    carried out in 2001-2004. The difference in these estimates may
    reflect a continuing process of deforestation.

[^56]: Cristina Garibaldi, "Valoración de la diversidad biológica y
    servicios ambientales en los fragmentos de bosques secundarios en la
    Reserva Forestal El Montuoso, Herrera, Panamá," in: Instituto de
    Ciencias Ambientales y Biodiversidad, Universidad de Panamá,
    *Diversidad biológica y servicios ambientales en los fragmentos de
    bosques secundarios en la Reserva Forestal El Montuoso, Herrera,
    Panamá*, C. Garibaldi, ed., supported by JICA, Panama, 2004, pp.
    14-15.

[^57]: Víctor Martínez-Cortés, Abdiel Rodríguez and Cristina Garibali,
    "Inventario de reptiles en los bosques secundarios de la Reserva
    Forestal El Montuoso, Herrera, Panamá," in: C. Garibaldi, ed., 2004.

[^58]: Aydeé B. Cornejo-Remice, "Entomofauna terrestre y acuática en la
    Reserva Forestal El Montuoso, Herrera, Panamá," in: C. Garibaldi,
    ed., 2004.

[^59]: Cristina Garibaldi, Salomón Aguilar, Dimas Arcia y Nilka Torres,
    "La vegetación arbórea en los bosques fragmentados de la Reserva
    Forestal El Montuoso, Herrera, Panamá," in: C. Garibaldi, ed., 2004,
    p. 60.

[^60]: Arden and Price Consulting, Proyecto Piloto de Monitoreo de la
    Calidad del Agua de Cuenca del Río La Villa, Provincia de Herrera y
    Los Santos, y Su Aplicación a las Principales Cuencas Hidrográficas
    de Panamá, Informe Final, prepared para ANAM, Panamá, abril de 2003.

[^61]: Prior to 2005 both this Bureau and the National Watersheds Bureau
    were departments of the National Bureau of Natural Heritage
    (Dirección Nacional de Patrimonio Natural).

[^62]: See: Plan de Apoyo al País del Proyecto, Financial Sustainability
    for National Systems of Protected Areas, The Nature Conservancy and
    GEF, Panamá, 2005.

[^63]: IDAAN is in the process of expanding the capacity of Panama
    City's water system to add another 125 millon gallons daily.

[^64]: According to the Director of Water and Sewerage of the Regulatory
    Entity, Abilio Pitty, "the frequency and quantity of simples talen
    to monitor water are too high, and so new guidelines will be
    promulgated that adjusts this kind of expenditure and that is more
    in keeping with our circumstances," III Encuentro Nacional de
    Consumidores y Usuarios del IDAAN, Panamá, julio 2005.

[^65]: Before this law was passed, the concept of watershed had a legal
    basis only for the Panama Canal Watershed, in Law 19 of June 11,
    1997.

[^66]: See: [www.pancanal.com/](http://www.pancanal.com/) Plan Maestro
    Visión del Futuro.

[^67]: The AMP brought together in one institution the functions of the
    National Maritime Authority, the Bureau of Consular and Naval
    Affairs of the former Ministry of Finance and Treasury, the Bureau
    of Marine Resources of the Ministry of Commerce and Industry, and
    the Nautical School of Panama (of the Ministry of Education).

[^68]: With the inclusion of Panama among cruise ship destinations, the
    number of tourists increased from 555,026 in 1999 to 865,142 en
    2003. Income generated by tourism increased in the same period from
    US\$538.1 million to US\$790 million. See
    [www.ipat.gob.pa](http://www.ipat.gob.pa/), "datos estadísticos de
    turismo hasta el año 2003," Departamento de Estadísticas, IPAT,
    Panamá, 2004.

[^69]: These lessons were suggested by Lic. Gina Castro, AED Coordinator
    of the Ecotourism Project for the Parque Nacional Soberanía.

[^70]: This fund was created in 2003 to finance pilot projects that
    promote integrated management of water resources in the Panama Canal
    Watershed, with contributions from USAID and ACP of US\$2.5 million
    each. Fundación Natura administers the ACP resources in the Fund.

[^71]: See the *Manual de Buenas Prácticas para el Manejo de Cuencas
    Hidrográficas*, written by Naira Camacho for USAID, ACP, and CICH.

[^72]: In one of its articles Law 3 says ownership rights of national
    forest lands cannot be transferred to private persons or entities,
    but its regulations leave open the possibility of titling those
    lands.

[^73]: See the discussion in: Ruth Meinzen-Dick, Meyra Mendoza, Loic
    Sadoulet, Ghada Abiad-Shields and Ashok Subramanian, "Sustainable
    Water User Associations: Lessons from a Literature Review," in A.
    Subramanian, N. V. Jagannathan and R. Meinzen-Dick, eds., *User
    Organizations for Sustainable Water Services,* World Bank Technical
    Paper No. 354, The World Bank, Washington, D. C., 1997.

[^74]: Stephen Foster, "Essential Concepts for Groundwater Regulators,"
    in: Salman M. A. Salman, ed., *Groundwater, Legal and Policy
    Perspectives, Proceedings of a World Bank Seminar,* World Bank
    Technical Paper No. 456, The World Bank, Washington, D. C., 1999, p.
    28.

[^75]: For example, U.S. regulatory agencies must conduct specific
    cost-benefit analyses to justify regulations and other policy
    interventions. These analyses generate explicit and implicit values
    per acre of habit, statistical life saved, cost of illnesses
    avoided, etc.

[^76]: *Op. cit*., p. 2.

[^77]: Mayrand, Karel and Marc Paquin, "Payments for Environmental
    Services: A Survey and Assessment of Current Schemes," Montreal,
    September 2004.

[^78]: See Rosa, H., and S. Kandel, *Payments for Environmental
    Services: Brazil*. Ford Foundation and Fundation PRISMA, 2002.

[^79]: Landell-Mills, N., *op. cit.,* 2002, p. 5.

[^80]: Pagiola, S., *et al.,* "Making Market-based Mechanisms Work for
    Forests and People," in S. Pagiola, 2002.

[^81]: FAO. *Land-Water Linkages in Rural Watersheds, Electronic
    Workshop, Synthesis Report,* 2000, p. 16

    \<http://www.fao.org/ag/agl/watershed/watershed/papers/paperewk/pewrken/synthesis.pdf\>
    consulted on 22 June 2004.

[^82]: Pagiola, S., *et al*., Paying for the Environmental Services of
    Protected Areas: Involving the Private

    Sector, Durban, South Africa, 8--17 September 2003: Fifth World
    Parks Congress: Sustainable Finance

    Stream, 2003, p. 2.

[^83]: For a detailed description of the New York City case, see
    *Running Pure: The Importance of Forest Protected Areas to Drinking
    Water*, Washington, D. C.: World Bank and WWF, pp. 20--21. See also:
    Landell-Mills, N., and L. Porras, *Silver Bullet or Fools' Gold? A
    Global Review of Markets for Forest Environmental Services and Their
    Impact on the Poor,* London: International Institute for Environment
    and Development, 2002, pp. 134--35.

[^84]: See Echevarría, M. 2002, "Financing Watershed Conservation: The
    Fonag Water Fund in Quito,

    Ecuador" in S. Pagiola, *et al., op. cit.,* 2002, pp. 91--101.

[^85]: See World Wildlife Fund and Danida, *From Goodwill to Payment for
    Environmental Services. A*

    *Survey of Financing Alternatives for Sustainable Natural Resource
    Management in Developing Countries,*

    2003, pp. 107--9.

[^86]: Tsen, W. *et al.,* *Payments for Environmental Services in
    Mexico*, Berkeley, University of California

    at Berkeley, Goldman School of Public Policy, 2002, p. 26.

[^87]: Landell-Mills, N., *Marketing Forest Environmental Services--Who
    benefits?* London: Gatekeeper Series no. 104, International
    Institute for Environmental and Development (IIED), 2002, p. 9.

[^88]: Bishop, J., *Pro-poor Markets for Environmental Services: A New
    Source of Finance for Sustainable Development?* Presentation made at
    the World Summit on Sustainable Development, Johannesburg, August
    28, 2002.

[^89]: May, P. H. *et al.,* "Using Fiscal Instruments to Encourage
    Conservation: Municipal Responses to the 'Ecological' Value--added
    Tax in Parana and Minas Gerais, Brazil," in S. Pagiola, *et al.,*
    2002, *op. cit.,* p. 177.

[^90]: Bishop, J., *op. cit.,* 2002.

[^91]: Tsen, W., *et al.,* *op. cit.,* 2002, p. 1.

[^92]: *Ibid*., p. 8.

[^93]: Ibid.

[^94]: FAO, Land-Water Linkages in Rural Watersheds Electronic
    Workshop---Synthesis Report, Rome: FAO, 18 September--27 October
    2000, p. 21.

[^95]: Local associations in this watershed already have experience in
    managing internationally funded projects.

[^96]: See Annex D on the calculation of the parameters of this scheme.

[^97]: A preliminary proposal for an ESP system in the Río La Villa
    Watershed has been developed by Oscar Batista, Head of MIDA's
    Herrera Office. It includes the proposal to establish a corporation,
    and it has been reviewed favorably by the Governors of the two
    provinces involved, other local officials, and the Minister of
    Agriculture. The proposal is entitled: "Reforestación, Manejo y
    Conservación de suelos y agua en la La Cuenca Media y Alta de Río La
    Villa," Chitré, febrero 2006. The ideas discussed in this report
    would strengthen the proposal in the area of biodiversity
    protection.

[^98]: Much of this research has been developed in Costa Rica in areas
    of similar climatic conditions to those of Panama. Field trials and
    full-scale operations of native species in plantation have been led
    primarily by FUNDECOR
    ([www.fundecor.or.cr](http://www.fundecor.or.cr/)).

[^99]: Early forestry incentive programs such as those in Panama and
    Guatemala and many other Latin America countries provided tax breaks
    for people to plant trees. Few of the areas planted under these
    systems have realized commercial potential due to lack of continued
    investment and application of good silvicultural practices.

[^100]: [www.corporate.homedepot,com]() referenced on February 24, 2006.

[^101]: Ibid.

[^102]: See for example Lowe´s
    <http://www.lowes.com/lowes/lkn?action=pg&p=PressReleases/wood_policy.html>
    (February 24, 2006) and
    <http://www.paradiseforest.org/consumer_solutions/procurement_policies.php>
    for a summary of relevant policies compiled by Greenpeace (February
    24, 2006).

[^103]: Econconsulta Pratt --Mauri, S.A., "Plan para el Desarrollo de un
    Programa Nacional Forestal Empresarial para El Salvador,"
    Unpublished report for Banco Multisectorial de Inversiones, San
    Salvador, El Salvador, August 2005.

[^104]: ibid.

[^105]: Roger D. Norton and Amy Angel, "Ventajas Comparativas en la
    Agricultura Salvadoreña," Departamento de Estudios Económicos y
    Sociales, FUSADES, San Salvador, September 2004.

[^106]: José Román, Rainforest Alliance TREES program, Personal
    communication, February 15, 2006.

[^107]: The viability of Advanced Wood Payments mechanisms has been
    demonstrated in Costa Rica, see Pago de Madera por Adelantado at
    http://www.fundecor.org/. The mechanism is also the basis for a new
    large-scale commercial forestry investment fund in Chile, "Fondo
    Forestal Lignum."

[^108]: El Salvador's Banco Multisectorial de Inversiones, discussed in
    this section, is developing a program that includes this financial
    component.

[^109]: Personal communication with John M. Forgach, one of principals
    in the proposed watershed management company, February 15, 2006.

[^110]: Kilian, B., and CIMS, 2004.

[^111]: CIMS, 2004.

[^112]: See for example CLACDS and HIID, "The Environment and Central
    America's Competitiveness", INCAE, 1992, available at
    [www.incae.edu/clacds](http://www.incae.edu/clacds).

[^113]: The Sustainable Markets Intelligence Center (CIMS, at
    [www.cims-la.com](http://www.cims-la.com/) ) is a non-profit
    organization whose "...mission is to promote and facilitate exports
    and trade of environmentally superior and socially responsible
    products and services within Latin America and from Latin American
    countries to industrialized countries.\" CIMS accomplishes this
    mission by providing market information and other services, which
    will allow Latin American firms to orient their products and
    processes toward high value markets for environmentally and socially
    preferred products.

[^114]: Kilian, B., *et al*., "Can the private sector be competitive and
    contribute to development through sustainable agricultural business?
    A case study of coffee in Latin America," Journal of Business
    Research, London, 2005.

[^115]: [www.biotrade.org](http://www.biotrade.org/).

[^116]: See for example, Environmental Law Institute, "Brazil\'s
    Extractive Reserves: Fundamental Aspects of Their Implementation,"
    English Edition, Washington, D.C., 1995, for the history and legal
    mechanisms.

[^117]: See [www.natura.net](http://www.natura.net/).

[^118]: See [www.funbio.org.br](http://www.funbio.org.br/).

[^119]: WTO defines nature tourists as those visiting a destination to
    experience and enjoy nature, and wildlife-related visitors as
    tourists visiting a destination to observe wildlife, e.g. bird
    watching.

[^120]: World Tourism Organization.

[^121]: Ibid.

[^122]: Instituto Costarricense de Turismo, 2004 estimates.

[^123]: Inman, *et al*., United Nations Development Program, New York,
    1999.

[^124]: World Tourism Organization, Unpublished Diagnostic Document,
    UNDP-Tirana, Albania, 2005.

[^125]: It is important to note that all revenues accruing to the
    national parks are directed to the national treasury, as commented
    in the policy discussion in this report.

[^126]: Personal communication with Franz Tattenback, Executive
    Director, FUNDECOR, San Jose, Costa Rica, November 2003.

[^127]: Sistema Nacional de Areas de Conservación, 2002.

[^128]: Seidl, *et al*., "The Local Economic Impacts of Cruise Ship
    Visitation: A case study of Costa Rica," CLACDS Working Paper,
    INCAE, 2006; available at
    [www.incae.edu/clacds](http://www.incae.edu/clacds).

[^129]: For comparison, the entire Río Trinidad Watershed covers 174
    km^2^ but it is unlikely a program would have to deal with the
    entire watershed.

[^130]: Instituto de Ciencias Ambientales y Biodiversidad, Universidad
    de Panamá, *Diversidad biológica y servicios ambientales en los
    fragmentos de bosques secundarios en la Reserva Forestal El
    Montuoso, Herrera, Panamá*, C. Garibaldi, ed., supported by JICA,
    Panama, 2004.