Work on the ambitious Panama Canal expansion project has stopped after talks broke down on how to settle a dispute over US$1.6 billion in cost over-runs.
Panama Canal Authority administrator Jorge Quijano said the stoppage would give authorities time to analyse how to proceed on the project to widen the canal.
"I don't even want to suggest that the next steps will be easy or risk-free," Quijano said in Panama on Wednesday. "What I do want to make clear is that we will not yield to blackmail."
The Panama Canal Authority and the Spanish-led construction consortium leading the expansion blame each other for the over-runs. They were negotiating how to pay for the unplanned extra costs when talks broke down.
An agreement "is now no longer possible", Quijano said, adding that the consortium had ordered its employees to stop work.
Other foreign contractors and project managers had expressed an interest in completing the 30 per cent of work that remained on the third canal lock, according to canal officials, but Quijano declined to provide details, except to say that under no circumstances would a 2015 deadline to complete construction be pushed back.
"They are leaving and we are staying. The project is going to be finished. It must go ahead with or without them," Quijano said.
The consortium, led by Spain's Sacyr and including firms from Italy and Belgium, said that 10,000 jobs were immediately at risk. In a strongly worded statement on Wednesday, it said Panama's failure to resolve the impasse threatened to overshadow a summit of 34 regional leaders, including US President Barack Obama, which the Central American nation planned to host next year.
"Instead of celebrating Panama's vital role in global commerce, leaders will be regretting that the ACP and Panama have abandoned negotiations," the statement said, referring to the canal authority by its Spanish initials.
The EU's industry commissioner, Antonio Tajani, said news of the work stoppage was "unexpected" after Panama's president Ricardo Martinelli had said on Tuesday that the parties were close to an agreement.
"I trust and hope that the parties reconsider their positions in the coming days," said Tajani, an Italian whom the European members of the consortium had asked to intervene in the dispute. "Interruption of the work would be bad news for employment, for the worldwide economy, for the expansion of the canal and for the parties themselves."
Martinelli called on Panamanians to close ranks behind the canal authority, whose autonomy is guaranteed by the constitution, accusing the consortium of acting irresponsibly.
"We're going to finish the canal whether it rains, thunders or there's lightning," the billionaire president said.
The project, already nine months behind schedule, would double the capacity of the 80km canal, which carries about 6 per cent of world commerce.