By Serge F. Kovaleski
                  Washington Post Foreign Service
                  Tuesday, January 18, 2000; Page A11

                  PANAMA CITY—As far as President Mireya Moscoso is concerned,
                  giving Cartier watches and other expensive jewelry to the Legislative
                  Assembly's 71 members at a Dec. 30 luncheon was nothing more than a
                  gesture in the spirit of Christmas.

                  The president insists she did not use public funds for the gifts--worth an
                  estimated $146,000--although exactly how she paid for them remains
                  unclear. Aides and critics have offered different possibilities--that they
                  were donated by a supporter; that they were bought with Moscoso's own
                  money; or that they were acquired on credit without paying required taxes.

                  Without being specific, Moscoso, who is wealthy, having inherited money
                  from her late husband, has indicated that she spent her own funds. The
                  comptroller general said she also assured him that no government money
                  was spent. What is certain amid the doubt is that the holiday lavishness has
                  given rise to a gnawing controversy that has put Moscoso's four-month-old
                  government on the defensive and precipitated a rift between the governing
                  Arnulfista Party and the Roman Catholic Church.

                  The row over the gifts comes at a time of heightened sensitivity here to any
                  kind of impropriety following the Dec. 31 transfer of control of the Panama
                  Canal from the United States to Panama. This country has a long-standing
                  reputation for corruption, and concerns have been raised that the
                  50-mile-long waterway may be vulnerable under Panamanian jurisdiction,
                  even though steps have been taken to strengthen the autonomy of the canal
                  administration.

                  Critics contend that at the very least Moscoso's gifts were inappropriate
                  and created the appearance of compromising the presidency to curry
                  political favor with the assembly, in which no party holds a majority. The
                  luncheon was held on the same day the legislature was preparing for a final
                  vote on the national budget.

                  "When gifts of this type are given by a president, there is a perception, an
                  implication of bribery . . . that a quid pro quo is expected," said the Rev.
                  Fernando Guardia, a Jesuit priest who runs the church's Radio Hogar. "It
                  was bad judgment and an abuse of power."

                  Guardia added that the extravagant presents--which included Cartier
                  timepieces for male legislators and 18 karat gold Cartier earrings for
                  women representatives--were in bad taste since this nation of 2.8 million
                  continues to grapple with high levels of poverty. "In Panama, we are in a
                  crisis with many poor people, and must do more to better distribute
                  wealth," he said.

                  Earlier remarks by Guardia denouncing the gift-giving prompted a strong
                  rebuke from the Arnulfista Party president, German Vergara. He suggested
                  that the church had no moral right to pass judgment on the president's
                  action because it has supposedly received donations "of doubtful origin."

                  Vergara subsequently apologized, saying in an interview with La Prensa
                  newspaper last week: "My intention has not been to hurt anyone. I want to
                  make clear that I am a militant Christian and that I will never argue with the
                  church."

                  Moscoso herself has said that she "much regrets" Vergara's initial response
                  to Guardia's position on the presents and that she asked the party leader to
                  call Panamanian Archbishop Jose Dimas Cedeno to offer an apology.

                  One legislator, Teresita de Arias, a member of the Christian Democratic
                  Party, is known to have returned her present to Moscoso. "I did what I
                  had to do, which was return a gift that was completely inappropriate due to
                  the cost and the circumstances," she said. "I was not clear about what
                  money was used to pay for the gifts, and I am still not clear."

                  But the legislator stressed that she does not believe Moscoso acted
                  dishonestly or with the intention of swaying votes in the budget debate,
                  which she noted had been going on for three months. De Arias added: "If
                  you want to pay someone for a vote, you do not do it in the open at a
                  luncheon."

                  Panama's comptroller general, Alvin Weeden, said that, according to his
                  records, Moscoso "did not use a penny of public funds" to purchase the
                  gifts and that the president assured him of this during a recent conversation.
                  But Weeden said that Moscoso did not specify how she paid for the
                  presents. One source said a bill from a merchant in the Colon Free Trade
                  Zone was made out in Moscoso's name and has yet to be paid.

                  Presidential spokesman Carlos Arosemena said he has no information
                  about the matter except for Moscoso's public statements.
 

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