Wish You Were Here.

Panama vies to be Central America's top tourist spot. But vacationers aren't coming.

IT ISA CLASSIC LESSON IN SUPPLY AND DEMAND. HOTELS ARE rising up all over Panama as investors respond to the governments call to make the country the biggest tourist destination in Central America.

But so far, visitors aren't heeding the call--and hotel prices and occupancy rates are heading for the floor. Some five-star hotels in Panama City have been forced to halve room rates as the occupancy rate hovers near 40%. "We have been in a price war for months," says one manager with an international chain. "It's very hard to make any money."

The government sees tourism as its biggest weapon in combating the revenue loss--estimated between US$177 million and $350 million annually--resulting from the pullout of U.S. military operations at the end of 1999. The canal zone area that was once home to U.S. Army Southern Command now has been earmarked for tourism projects, with the Panamanian government encouraging big investments with 20-year tax breaks and even wage subsidies outside the capital. "[Tourism] is one of the pillars of our economic plan," says Ricardo Quijano, economy vice minister.

Last year was decent for tourism in Panama, with a 5% increase in visitors to 555,026 and a 9% jump in revenues to $538 million, according to the Panamanian Institute of Tourism (IPAT), a governmental agency. But during the 12 months ending in March, Panam's hotel occupancy rate fell more than a tenth to just over 41% as more than 600 beds were added. And that's just the beginning: Some $235 million worth of investment in 21 resort and hotel projects with more than 1,500 rooms was approved last year under the incentive programs.

Two giants have opened this year: The Gran Hotel Las Americas, a $20 million conversion of the U.S. military's School of the Americas into a 200-room resort run by Sol Melia of Spain. and the Gamboa Rainforest Resort, a $25 million complex with 108 rooms on the edge of a protected nature area at the Chagres River.

Miguel Cortes, head of the Panamanian Chamber of Tourism, says the hotel construction surge threatens established businesses. "Many hotels are just breaking even," he says. "The problem is that the people building the new ones are constructors, not hote-liers. They hand them over to international chains as a franchise and are not worried about the consequences." If veteran hotels are forced to begin layoffs because of the blast of competition, government job-creation goals will be foiled. The hospitality sector now employs 70,000 workers--directly and indirectly. That's 13,000 jobs more than in 1998.

Cortes, also thinks the Panamanian government is emphasizing the wrong things. "The mentality of the tourist industry is still geared toward business tourism and still concentrated in the city, not on the beaches or the interior," he says. "The incentives need to encourage development there."

Others blame the tourism institute for not promoting the country as a whole. The institute had predicted a 12% rise in visitors last year, in line with an ambitious plan to become Central America's most popular tourist destination by 2012. (Costa Rica, current holder of the title, attracted 1 million people in 1999.) Although the number of visitors to Panama rose last year, its overall slice of the Central American pie shrank as the influx of tourism to the region swelled 16.2%.

The tourism institute's spending also seems misdirected, Only around 20% of it's $15 million annual budget goes toward promotion; the bulk pays for salaries for its 368 employees. Eric Paz, president of the Panamanian Hotel Association, believes $20 million a year is needed for marketing. But Costa Rica's tourist bureau, which has just launched a $6 million marketing campaign in Europe, employs only 64 people.

The hotels posting success are those with big advertising dollars pitching to a niche market. The Canopy Tower, a converted radar station in a rainforest area near the canal, receives visitors from around the world. The lure is rich bird-and monkey watching. Philippe de Vizcaya, manager of the Gamboa resort, says it has invested heavily in promotion. "We do not rely on [tourism institute] IPAT. We market directly in the u.s.," he says. "The interest is there."

Indeed, the resort, in a stunning location on the Panama Canal, combines five-star luxury with a jungle experience. Toucans and rarer birds provide the dawn chorus as guests wander through an orchid nursery and butterfly garden. Gamboa runs boat trips, arranges hikes and bird-watching expeditions and boasts the world's second cable car through a forest canopy. (The first is in Costa Rica.) The waterfront lodge also sits close to Isla Colorado, a tropical reserve run by the U.S. Smithsonian Institution. But some touches at the resort are jarring: there are snakes confined behind glass displays at Gamboa's serpentarium and alligators sit in display pits.

The tourism institute has shown signs of responding to the criticism. A new welcome desk at Tocumen airport in Panama City is usually staffed, which was not the case with the old desk. Also, the institute recently won $3.8 million from the government to develop some of the country's forgotten sights. Those include Portobelo, near the Atlantic entrance to the canal, which Spanish galleons used in the 16th century and where Francis Drake, the English buccaneer, is buried. A facelift has also been slated for Panama City's historic--but down-at-the-heels--Casco Antiguo neighborhood, a Unesco World Heritage Site.

Around one-third of Panama is protected wildlife and nature areas. The canal zone, easily accessible, contains some of the greatest biodiversity in the world, with more bird species than all of North America combined. Frank Gebry, the U.S. architect responsible for the Guggenheim in Bilbao, is developing a project in a former base at the Pacific end of the canal.

Things may pick up in October after a terminal for cruise ships opens at the port of Colon on the Caribbean side. Right now, about 325 ships pass through the canal, but don't stop. Persuading the passengers aboard those vessels to take overland excursions, wander into duty-free shops or book overnights at five-star hotels is part of the tourism challenge.

Panamanians long have taken the stance that their home turf's charms need no advertising despite the bad name the country earned during the government of strougman Manuel Noriega in the 1980s. "We have miles of clean beaches and huge rain forests," says Carlos Gonzalez de la Lastra, until recently editor of the daily newspaper El Universal. "What do they have in Costa Rica? Nothing. But they are good salesmen. If an egg hatches in Costa Rica, you hear it here."

Panama will be making some noise of its own later this year when The Tailor of Panama, based on John Le Can's bestseller and filmed in the country, hits the screens with actors Pierce Brosnan and Jamie Lee Curtis. Perhaps celebrity appeal will do for Panama what the tourism institute has been unable to accomplish.

Pana-mania

A CENTURY AGO, MASSES OF PEOPLE PUMPED THEIR SAVINGS INTO STOCK in a ballyhooed canal project in Panama. Its French engineers ran the project--and the investors--into bankruptcy, opening the door for the United States to tackle the engineering challenge.

However, Panamanians apparently believe if it happened once, it won't happen again. Last year, more than 500 people bought stock in another controversial project--a US$25 million resort overlooking the Chagres River where it feeds the Panama Canal. Business investors were skeptical and the government raised a doubtful eyebrow before granting builder Herman Bern permission for the resort on a protected area within the former canal zone.

"My friends thought I was crazy. We placed a public offering of stock at $12 per share. The minimum was 10 shares," explains Bern, who also owns an Inter-Continental Hotel and a Holiday Inn in Panama City." We had families where the father, mother and children pooled resources to buy their 10 shares, They didn't do it to make money, they did it because they had faith in Panama."

Gamboa Rainforest Resort markets itself as a nature destination, but capitalizes on the area's canal history; the resort's villas are the same wooden homes where canal administrators lived.

"The canal is our icon. There has been much movement to realign the canal zone for tourism," says Panama's tourism director, Liriola Pitti, who's hyping the Gamboa resort as the catalyst for a new era of tourism.

Pitti predicts Panama's numbers will grow 18% this year, in part due to increased cruise ship traffic through the canal. One cruise line, Radisson Seven Seas, is offering passengers an excursion to Gamboa Rainforest Resort.

Still, Bern. who inaugurated the resort in June, acknowledges his country's battle for tourists will be an uphill fight.,, Panama is 10 to 15 years behind other countries," he says. "It's not known as a vacation destination."

Mary A. Dempsey