By Regional analyst Nick Caistor

Former American President Jimmy Carter signed over control of the Panama canal and the 10-mile-wide enclave surrounding it at a ceremony on the banks of the waterway on 14 December.

With this ceremonial handover, Panama finally recovered control of the canal linking the Pacific and Atlantic oceans after more than 80 years.

The handover was set in motion by the treaty signed in September 1977 by Jimmy Carter and his Panamanian counterpart Omar Torrijos.

For many of the three million inhabitants of Panama, December's handover is the moment of true independence.

Until 1903, Panama was a province of Colombia. When the idea of building the canal became a reality, the United States encouraged local politicians to break away on their own.

Panama did secede from Colombia, but in return for US backing it surrendered territory to Washington's control for the construction of the canal.

Nationalists insulted

After its completion in 1914, the US kept territorial rights over the Canal Zone area, a strip of land on both sides of the canal.

This was seen by many Panamanian nationalists as an insult and there were frequent periods of tension between the two countries, as in 1964 when 22 Panamanians were killed while trying to raise a Panamanian flag over a US school in the Canal Zone.

This potentially explosive situation was one of the reasons that led President Carter to sign the treaty in 1977.

Now, almost 100 years after formal independence, Panamanians will recover all their territory, and be in charge of their own economic destiny.

Not everyone in Panama is happy with this idea. Some economists argue that if the North Americans are no longer running the canal's operations, there will be a drop in use of the waterway.

They regret the loss to the economy of the spending power of the US troops, canal administrators and their families, and worry that the Panamanian government will be tempted to use revenues from the canal for other purposes than maintaining and modernising the facilities.

Security fears

Others say that now the North Americans have pulled out of their bases in the Canal Zone, the security of Panama could be at risk.

On the one hand, they fear that the war being fought in Colombia between the state, left-wing guerrillas and paramilitary groups could spill over into Panama.

There have already been several cases of the Colombian army pursuing guerrillas into the jungles of southern Panama. Also, several thousand peasant farmers fleeing the conflict have crossed the border into Panama.

There are also fears that the illegal drug trade from Colombia and other South American countries could undermine Panama's new-found independence.

Drug wars

In 1989 Panama suffered an invasion by more than 20,000 US troops aimed at capturing the de facto ruler, General Manuel Noriega, who was suspected and subsequently convicted of aiding and abetting the Colombian drugs cartels.

Some observers argue that without a continued US presence in the country, Panama could once again become prey to the corrupting influence of the drug traffickers, especially as its army was dissolved in the wake of the 1989 invasion.

Now the country relies solely on a police force.

On a more general level, some international observers are concerned that any instability following the transfer of the canal could affect Panama's position as an offshore banking centre.

Panama presents itself as the "Switzerland of Latin America", offering secrecy and excellent financial terms for investors from other countries in the region.

Next to the canal, the banking sector is Panama's most important source of revenue and employment.

It was badly hit by the US invasion 10 years ago, and any sign of uncertainty in the future could adversely affect the sector once more.

Smooth handover

But the Panamanian government under President Mireya Moscoso is confident these fears are unfounded.

They point to the fact that there has been a 20-year transition period since the signing of the Carter-Torrijos treaty, which should ensure that the handover and the future operating of the canal go smoothly.

They say that the empty US bases can be used for many things: to set up new hi-tech industries, specialised institutes and facilities for more tourism.

US officials have gone out of their way to stress they are sure the Panamanians will administer the canal efficiently.

And in case of any threat to the canal, they have in reserve another treaty which allows them to intervene if its operations are at risk.