BY GLENN GARVIN
 ggarvin@herald.com

 The Clinton administration has quietly decided to throw in $160 million cash when
 it turns over the Panama Canal to the Panamanian government at the end of the
 year, a decision that has led some alarmed political leaders in both countries to
 predict a wild spending spree.

 The money is earmarked for long-term improvements to the canal, but some
 officials fear that Panamanian President Mireya Moscoso's government -- short on
 cash because its populist economic policies have made international loans hard
 to come by -- may divert the money to social programs.

 ``If that money is handed over, unencumbered, to the Panamanian government, it
 will represent a tremendous temptation,'' said Ricardo Arias Calderon, head of
 Panama's Christian Democratic Party.

 The decision to give the Panamanians the money, which is held in a U.S.
 Treasury account intended to fund long-term improvements to the canal, has
 stirred anger on Capitol Hill, where legislators see it as not only a giveaway but a
 violation of congressional authority over spending.

 ``Look, it's one thing if I buy a used car, to give me the gas that's in the tank,''
 said a staff member who works for Sen. Jesse Helms, R-N.C. ``It's another thing
 altogether to let me siphon from the tank of the previous owner's car.''

 Helms hasn't even been able to make the Clinton administration admit it plans to
 hand over the money, staff members said. An Aug. 2 letter from the senator to
 Defense Secretary William Cohen, asking for a list of ``properties, equipment or
 archives which will be turned over to Panama,'' has gone unanswered.

 Nor was it easy for The Herald to find administration officials willing to discuss the
 money. Phone calls to the office of Army Secretary Louis Caldera, the senior
 American official on the Panama Canal Commission, were not returned. Nor were
 calls to the National Security Council, the organization that congressional staffers
 say is behind the decision to give Panama the money.

 But an administration official familiar with U.S. law on the Panama Canal, who
 asked that his name not be used, confirmed to The Herald that the $160 million
 account will be part of the assets delivered to Panama on Dec. 31. The official
 called the decision ``both legally defensible and smart policy.''

 ``The important thing is that this not be misunderstood as some spasm of
 generosity by the United States,'' the official said. ``There are no U.S. taxpayer
 funds involved in this at all.''

 TOLL INCREASE

 The $160 million came from a toll increase levied by the Panama Canal
 Commission in 1997 to pay for modernization and improvements to the canal,
 including widening some narrow portions to permit two-way traffic.

 ``The idea was to show that the United States is aggressively modernizing and
 improving the canal,'' the official said, ``so that at end of the day, should Panama
 have problems, the Panamanians could not come back and say the U.S. just sat
 on its thumbs and let the canal go to pieces.''

 Some of the improvements are already under way, while others have yet to begin,
 the official said. By giving Panama the money to underwrite the projects, he
 added, ``we are locking in an aggressive maintenance and modernization
 program.''

 But, the official admitted, once the Panamanians have the money, they can use it
 for anything they want. Nonetheless, he predicted it would be difficult for them to
 spend it on anything besides canal improvements without triggering a revolt by
 shippers.

 ``The toll increase wasn't popular, because toll increases never are,'' the official
 said. The Panamanian government ``knows the reaction from the shippers will be
 strong if they try to use the money for anything but the canal. . . . It will be in their
 self-interest to do what they basically said they were going to do.''

 LITTLE CASH

 The Panamanians themselves -- including political allies of Moscoso, the new
 president -- are not so sanguine. Moscoso's plans to raise protectionist
 agricultural tariffs and end privatizations have made it nearly impossible for the
 Panamanian government to borrow money from international financial institutions
 like the World Bank, they say, leaving the president with little cash to pursue the
 extensive social programs she has promised.

 The government's financial problems are so acute that Moscoso has already
 proposed changes in Panamanian law to permit her to dip into the capital of a
 $1.3 billion fund endowed by previous privatizations, instead of spending just the
 interest it generates.

 ``They have no funds for regular investments that the government has to make in
 education and health and roads and the like,'' said Arias Calderon, whose
 Christian Democrats are part of Moscoso's ruling coalition in Congress. ``Under
 these circumstances, if the government gets its hands on any money, it will
 probably be spent on social programs.''

                     Copyright 1999 Miami Herald