Panama

Panama, republic in Central America, located on the narrow strip of land that connects North and South America. Its position between two continents and separating two oceans has played a defining role in Panama’s history and the livelihoods of its people.

Panama is crossed by mountain ranges, covered with large areas of rain forest, and bounded by two long coastlines studded with islands and bays. At several places it spans less than a hundred miles from its Atlantic coastline to its Pacific shores. Most of its people and economic activity are located in the central region surrounding the Panama Canal, the major waterway that has played a decisive role in the country’s history. Panama City, the capital and largest city, is on the Pacific coast in this central zone. The nation’s diverse population is largely of mixed Spanish, black, and Native American descent, but includes indigenous people and immigrants from many parts of the world.

As a land bridge between two continents, Panama developed plant and animal life more diverse than almost anywhere else on Earth. Prehistoric inhabitants of the Americas crossed Panama to reach South America and continued to migrate back and forth, sharing trade goods and culture and using the rich natural resources of the isthmus.

The earliest Europeans to explore Panama recognized its value as a link between the Atlantic and Pacific oceans. For two centuries, Spain used Panama as a major commercial center in its American colonies, shipping trade goods and African slaves to Peru and thousands of tons of silver and gold to Spain. In the 17th century Panama handled a significant share of world trade.

By the 19th century, new technologies and machinery, such as steam-powered shovels and trains, steel, and reinforced concrete, made it possible to attempt to fulfill a longtime European dream of building a canal across Panama. In the 1880s a French company lost a fortune and thousands of lives trying unsuccessfully to dig a sea-level canal. In 1903 the United States government helped Panama, then a province of Colombia, to become an independent nation. The United States then acquired permission from the new republic to build a canal.

The Panama Canal, completed in 1914, represented a great engineering achievement. But a controversial treaty gave the United States control over the canal and important segments of Panama’s territory and economy. This prevented Panamanians from controlling a facility they considered crucial for their well-being and national development. Much of modern Panama’s history centers on the struggle of its people to benefit from the Panama Canal and the lands through which it passed, the Panama Canal Zone.

While pursuing that goal, Panama developed its own unique culture and system of government and built an economy that did not depend solely on the canal. Issues concerning the canal caused tension with the United States through much of the 20th century. In the 1970s new treaties brought Panama's goal of controlling the canal, and its own destiny, within reach. Under these agreements, Panama took possession of the Panama Canal on December 31, 1999. Other conflicts between Panama's government and the United States, however, led to a U.S. invasion in 1989 to overthrow the dictatorship of Manuel Antonio Noriega.

II

LAND AND RESOURCES

Located at the juncture of Central and South America, Panama forms a land bridge between the two continents. Panama lies within the tropics, and about one-third its area is covered with rain forest. The rest has been converted to farmland and pastures or lies in the semiarid Azuero Peninsula. Panama’s climate is warm and humid, moderated by the two oceans that bathe its 2,490 km (1,547 mi) of coastline. Along each coast are low-lying areas, but inland are mountains that divide the country into north- and south-facing slopes.

Seen from above, Panama has the shape of a reclining S and occupies 75,517 sq km (29,157 sq mi) of land. In addition, Panama claims 200 nautical miles (370 km/230 mi) of territorial waters along its shores. The country is bounded on the north by the Caribbean Sea, on the east by Colombia, on the south by the Pacific Ocean, and on the west by Costa Rica. At its widest point it stretches 650 km (400 mi) from west to east, but at its narrowest, near the roughly north-south route of the Panama Canal, it measures only 48 km (30 mi).

A

Natural Regions

A discontinuous backbone of mountains runs east and west almost the full length of Panama. A gap between the eastern and western mountain ranges provided a natural passage for travelers. This gap, located in the central region of the country, eventually allowed construction of a railroad and canal to join the two coasts. The central region, known as the transit zone, consists of narrow coastal plains and a mountainous middle section. Half of Panama’s people, 90 percent of its industry, its largest cities, and its major transportation routes are located in this area.

In the west, the mountain range is called the Cordillera Central, and the highest section, with an average height of about 1,500 m (about 5,000 ft), is called the Serranía de Tabasará. The highest point in the country, the Barú volcano (3,475 m/11,401 ft), is located in this range. The mountains in the country’s eastern half are divided between the Serranía de San Blas and the Serranía del Darién, with an average elevation of about 900 m (about 3,000 ft). Panama is geologically stable and experiences only moderate earthquake activity. None of its volcanoes are active.

West of Panama’s central zone is the Interior, including the province of Coclé, with its capital at Penomoné, and the province of Veraguas, centered on its capital of Santiago. This region produces and processes agricultural commodities and livestock for the urban population. Many of the country’s oldest Hispanic families come from here. In the far south is the Azuero Peninsula, a dry area of rolling hills covered with grasslands and scrub forest. This region is known for its ranching and crafts industries.

Bocas del Toro in the northwest of Panama is a mountainous, densely forested region, centered on the provincial capital of the same name. It is home to the Ngobe-Buglé (formerly known as Guaymí) and several other native peoples, as well as many West Indians and other immigrants. The Bocas region has historically been tied to the banana industry, but a banana disease that appeared in the 1930s led the banana companies to move most operations elsewhere.

In the southwest, centered on the capital city of David, the province of Chiriquí has mountain slopes covered with rich volcanic soils. The region’s rich agricultural industry produces strawberries, coffee, and other temperate crops. On its Pacific coast, extensive banana plantations produce the country’s single largest export commodity.

Eastern Panama contains the country’s most extensive and dense rain forests and is very lightly populated. The eastern province of Darién is home to the indigenous Chocó people and to a sprinkling of immigrants from the rest of Panama and from Colombia. The principal economic activities in Darién are logging and agriculture. Along the northern shore is the San Blas Archipelago, which is inhabited by the indigenous Kuna people.

Both of Panama’s coasts are indented with many lagoons, bays, and gulfs, including the Gulf of Panama on the Pacific side. Major Pacific islands include Coiba Island, used as a penitentiary, and the Pearl Islands (Archipiélago de las Perlas), in the Gulf of Panama, which are being developed for tourism and fishing. The San Blas Archipelago is formed of coral atolls inappropriate for development.

B

Rivers and Lakes

Panama has several important rivers. The Chagres drains a watershed of 326,000 hectares (806,000 acres) north of Panama City and flows into the Caribbean just west of Colón. The Chagres has been dammed in two places: in Gatún, to create a lake for the Panama Canal, and upriver in Alajuela, for water storage and hydroelectric power. Gatún Lake, one of the largest artificial reservoirs in the world, covers 43,000 hectares (106,000 acres) and allows ships to transit the canal at an elevation of 26 m (85 ft) above sea level.

Panama’s largest river, the Tuira, flows south into the Gulf of San Miguel, draining much of the Darién region. The San Pablo River in the south central portion of the country drains into the Montijo Gulf. The Chepo River, which flows southwest into the Pacific near Panama City, has been dammed to create Lake Bayano, an important hydroelectric power source. None of Panama’s rivers are navigable by deep-draft ships.

C

Climate

Most of Panama has a hot and humid tropical climate, with cooler temperatures in higher elevations. Prevailing winds carry moisture from the Caribbean Sea to the northern coast, making it wetter than the Pacific side. The northern slopes of the mountains receive an average of 2,970 mm (117 in) of rain a year, most during the wet season from May to December. Pacific winds bring drier air to the southern coast, which receives up to 1,650 mm (65 in) a year. The Azuero Peninsula is the driest region. Panama lies outside the paths of Caribbean and Eastern Pacific hurricanes. The average temperatures in coastal areas are 23° to 27°C (73° to 81°F); in higher elevations they average about 19°C (66°F).

D

Plant and Animal Life

Panama’s Darién jungle is the largest tropical rain forest in the Western Hemisphere outside the Amazon Basin. The entire north coast of Panama is densely forested and contains more than 2,000 species of tropical plants. This habitat also supports a wide array of animals common to Central and South America, including ocelots, sloths, armadillos, pumas, anteaters, spider and howler monkeys, deer, caimans, crocodiles, and many snakes. It has one of the most diverse populations of birds in the world, ranging from colorful tropical species to long-distance migrating birds. Due to its unique location, Panama has several animal species found nowhere else, such as the golden tree frog and giant tree sloth. In populated areas, however, most of the native animals have been hunted or driven out.

E

Natural Resources

Panamanians regard their country’s location and narrow geography as its most valuable asset, making it appropriate for rail, road, pipeline, and canal crossings. Other natural resources include arable land (7 percent of the territory is regularly farmed), grazing lands, and forests (57 percent of land area). Forested lands yield significant exports of hardwood logs. Panama has manganese and iron-ore deposits, the world’s ninth largest reserves of copper ore, and working gold mines. Its rich fish catch in the Pacific (especially for prawn and shrimp) is being supplemented with shrimp farming in ponds.

F

Environmental Issues

Serious deforestation began with the arrival of the Spaniards in the 16th century. European settlers preferred the coastal lands in the south, because once cleared they did not quickly return to jungle. Today the southern watershed has been mostly stripped of trees for agriculture and cattle. This has not been seen as a problem until recently, and modest efforts have begun to reforest endangered hillsides. Environmental experts also point out dangers from growing settlement in the Darién jungle, which cannot support intensive agriculture, and from selective logging of the most valuable trees in that region. A number of organizations actively seek to reduce these ecological threats, and public awareness is growing.

Soil erosion in the Chagres River Basin constitutes a more immediate ecological threat in Panama. Penetrated by the Transístmica Highway, this area has been occupied by about 25,000 families. Clearing and planting has led to soil runoff into the rivers and eventually into the Panama Canal. Stepped-up dredging operations have kept the canal open, but continued clearing could jeopardize its operations. The Chagres National Park was established to protect the fragile lands near the headwaters of the river. Another conservation effort, Soberanía National Park, encompasses 22,000 hectares (54,000 acres) of forested land along the east bank of the Panama Canal.

Long-term environmental hazards are expected from disposal of hazardous materials and unexploded ammunition on U.S. military bases in areas the United States controlled as part of the Panama Canal Zone.

III

PEOPLE

Panama has a population of 3,292,693 (2008 estimate), up from 2.4 million in 1990. The population is concentrated heavily along the Panama Canal and in the cities on either end of the passage. It is a highly diverse society, descended from native people and immigrants over thousands of years.

For several centuries after the arrival of the Spanish, the population size remained stable. The indigenous people declined steadily because of disease and dislocation, as a growing number of Europeans settled in the region, bringing with them African slaves. Beginning with construction of the Panama Railroad between 1850 and 1855, however, Panama’s population grew rapidly. The railroad and then the French and U.S. canal projects, from 1881 to 1914, attracted huge numbers of immigrants, mostly from the West Indies, seeking jobs and economic opportunities. Throughout the 20th century, immigrants arrived from all parts of the world, especially the Americas, Europe, and Asia. Today Panama’s cities, where most newcomers settle, are melting pots of many nationalities and ethnic groups.

Panama’s population is still growing, at a rate of 1.5 percent, with about 21 births and 6 deaths per 1,000 population (2008). In addition, Panamanians are concentrated more and more in cities, driven by desire for better jobs, education, government services, and urban amenities. The transit zone contains well over 1 million people, living in Panama City, Colón, and their burgeoning suburbs. In 2005 the urban population was estimated to be 58 percent of the total, and it is projected to rise to 60 percent by 2010. Overall, Panama has 43 inhabitants per sq km (112 per sq mi), but density is nearly three times higher in the transit zone and drops to fewer than 3 persons per sq km (8 per sq mi) in the province of Darién, the least populated region.

The largest cities are Panama City, with a population of 813,097 (2005 estimate), and its suburb of San Miguelito. The Panama City metropolitan area also includes the cities of Tocumen, Arraiján, and La Chorrera. Other major cities, with 2005 populations, are Colón (198,551) and David (138,241). Other regional cities include Santiago, Penonomé, and Chitré.

Panama City has grown so rapidly that it has outstripped its urban services, especially transportation. New toll roads were begun in the mid-1990s to alleviate traffic problems, and the government began privatizing major utilities in the hope of attracting new investments. Colón, which has been in an economic depression since the 1960s, shows high rates of unemployment, crime, and social disorder. The other cities have not experienced major problems.

A

Ethnic Groups

About 70 percent of Panamanians are mestizos, people of mixed European and Native American descent, or mulattoes, those of European and African heritage. Exact percentages are impossible to assign because of extensive racial mixing, but these groups form the majority in most rural regions and in cities. Blacks, mostly from the West Indies, make up about 14 percent of the population, whites are about 10 percent, and Native Americans about 6 percent.

Panama’s cities contain sizeable minorities of whites from Europe and North America, Asians, Jews, Caribbean blacks, and people of Middle Eastern descent. In Colón and along the northeast coast, Panamanians of African descent form the majority.

In some regions Native Americans predominate. The largest group, the Ngobe-Buglé, live in the mountains of the Bocas del Toro region, while the Chocó people live in the Darién jungle on both sides of the Colombian border. The Kuna people live in the San Blas Archipelago and the coast east of Colón, in an autonomous territory known as the Comarca of San Blas.

Most of the indigenous peoples live apart from the majority of Panamanians, and relations between the two groups are often hostile. The Kuna have the most interaction but preserve their culture, even when living away from their ancestral region. The native peoples, especially the Ngobe-Buglé, tend to be taken advantage of by farmers and ranchers who encroach on their lands. Most indigenous groups farm, hunt, collect hardwood and other forest products, and sometimes produce crafts, such as the Kuna textiles known as molas. But they are generally very poor compared to the rest of Panama’s population.

B

Language and Religion

Spanish, the official language of Panama, is spoken by all but a few Native Americans. About a quarter of the population also speaks English, the language of the West Indian minority and the international business community. Many other languages can be found in immigrant communities.

Seventy-seven percent of Panamanians are Catholic, although the proportion that practices is smaller. Protestant denominations account for 12 percent of the people. The constitution does not specifically separate church and state but guarantees freedom of worship. Religious faith and practice have not created conflict in Panama.

C

Education

Education is compulsory for 6 years and is provided free by the government through the university level. The government spent 16.6 percent of its budget on education in 2000. Wealthier families usually send their children to the numerous private schools in the cities. In 2000, 400,400 elementary and 234,200 high school students were enrolled in the country. School attendance by elementary-age children is nearly universal. Panama has one of the highest literacy rates in the region, 93 percent.

In the early 1990s about 60,000 people attended the national University of Panama (founded in 1935), its associated Technological University, and the University of Santa María la Antigua (1965), a Roman Catholic institution. Many others enroll at the private colleges and trade schools that have sprung up in recent years.

D

Way of Life

Panamanians work hard and take part in public affairs, but they also enjoy leisure activities. Traditionally, Panamanians have preferred to work in commerce, finance, brokerages, and services in general. Government employment, teaching, journalism, and careers in law, medicine, religion, and the arts also attract many who are able to secure appointments or the necessary training. To work in the upper echelons of government and business, study in Europe or the United States is essential. The military has rarely been a popular calling.

Leisure time is spent in family outings to the beaches, at country homes (often where the family originated), or in social clubs in the cities. Family gatherings provide frequent opportunities for parties, with music, dancing, food, and conversation.

The biggest festivities in Panama occur at Christmas—usually within the family—and during Carnival, the celebration analogous to Mardi Gras and Brazil’s Carnival that occurs before the Christian season of Lent. Carnival includes parades, street dancing, parties at private clubs, and special religious services. Other important holidays include independence day on November 3 and Firemen’s Day on May 5.

Participatory sports draw fewer people than do spectator ones, and Panamanians support fellow citizens who have successful careers abroad. U.S. sports, especially baseball and basketball, can be followed on local cable television stations.

Typical meals include sancocho (a chicken soup with native cereals and tubers), tamales (made with mashed corn), plantains, and native fruits. In addition, meals usually include rice, beans, broiled meat, potatoes, and fried bananas.

E

Social Issues

Panama’s society became complex in the 20th century, due to the influx of foreigners, the global reach of its commerce and services, and its strategic political importance. The oldest elite families, descended from colonial times, control wealth, power, and prestige to a far greater degree than those in most Latin American countries. These people, mostly light-skinned and of European descent, are called the rabiblancos (Spanish for “white-tails”). Most presidents, cabinet officials, and governors have come from this class. Since the 19th century, foreigners, especially educated immigrants, have become part of this class through marriage or business partnerships. The upper-class population is small and concentrated in several cities, so members all know each other and keep abreast of one another’s activities. Membership in the exclusive Union Club is roughly the same as this elite class.

About a quarter of Panama’s society enjoys a middle-class standard of living, which includes owning a home or apartment, one or two automobiles, and modern appliances. These people usually live in Panama City, are mostly of European descent, and work for the government, the canal, or major foreign corporations. Middle-class families send their children for university training, usually in Panama. Some middle-class families operate rural businesses and are well off, although they lack access to urban amenities. They produce food and raw materials for urban markets and for export.

Wealth is highly concentrated in the hands of the elite, so the majority of working-class people have very little property and income. Some families managed to acquire land or homes and are fairly comfortable. But millions of Panamanians live in severe poverty, working as day laborers, domestics, and menial employees. The government has subsidized construction of thousands of modest homes on the outskirts of the leading cities. The working classes tend to come from mixed racial background, either mestizo or mulatto.

Panama has low rates of violent crime, yet families with substantial property take great pains to protect it, often hiring private security. Businesses also employ thousands of guards, especially since the army was dismantled in 1989.

F

Culture

Panamanian culture derives fundamentally from European musical, artistic, and literary traditions brought by the Spanish. Important African and Native American influences have been added to these, however, creating hybrid forms unique to Panama. The traditional dance, tamborito, for example, is descended from Spanish folkways, yet it also incorporates native rhythms, themes, and dance steps. Popular music, while influenced by international recordings, draws heavily on Afro-Caribbean music. Verse and prose are composed and published in Spanish but incorporate themes, characters, and plots that arise out of Panama’s complex experience. Generally speaking, art for the elite stays closer to European models, while that for the lower classes contains strong African and Native American overtones.

The best overview of Panamanian culture is found in the Museum of the Panamanian, in downtown Panama City. Its collection documents the evolution of human life on the isthmus from the earliest native settlements to the present. Other cultural institutions (all in Panama City) include the Museum of Panamanian History, the Museum of Natural Sciences, the Museum of Religious Colonial Art, the Museum of Contemporary Art, the Museum of the Interoceanic Canal, and the national institutes of culture and music.

IV

ECONOMY

Since colonial times, Panama’s location has made it a crossroads for trade and transit. This role assumed worldwide significance in the 20th century with the completion of the Panama Canal, which dominated Panama’s economy for decades and tied it closely to the United States.

Panama’s gross domestic product (GDP) was $17.10 billion in 2006, equal to $5,200.60 per person. Commerce, finance, and business services constituted the core of Panama’s economy, contributing 73 percent of the GDP. Most economic activity was concentrated in the urban area of central Panama surrounding the canal. In the 1990s the rural economy accounted for 10 percent of the GDP and was primarily agricultural, producing farm and ranch commodities. Spending by the United States on military bases added another 5 percent, or $366 million, to the GDP, but that ended when Panama assumed control of the canal in 1999.

Business related to the Panama Canal plays a major role in this sector, but its importance has declined as the economy has become more diverse. International banking, maritime services, manufacturing, and shipping combine to provide more jobs and tax revenue than the canal. Economic growth planned in the late 1990s was expected to further reduce the country’s dependence on canal-related business.

The economy suffered a serious decline in the late 1980s, when the United States imposed a series of restrictions on trade and financial dealings with Panama and eventually invaded the country to overthrow the government of Manuel Noriega. The embargo caused a sharp drop in the GDP and higher unemployment. It also hurt tourism, manufacturing, and commerce, and made it difficult to maintain roads, power utilities, and communication equipment. Since the 1989 invasion the GDP has grown substantially, fueled by U.S. reconstruction funds, an end to the embargo, restored international credit, and the return of investor confidence.

A major factor in Panama’s industry and foreign commerce is the Colón Free Zone, an international trade facility that allows businesses to operate without paying import duties or taxes. Established in 1948 near the northern terminus of the canal, this zone is the largest of its kind in the Western Hemisphere and second only to Hong Kong in the world. In 1995 its 1,600 businesses generated $11 billion in sales and employed 14,000 people. Companies in the zone import raw materials and other components for manufacturing, or operate warehouses that break down large shipments from Asia and distribute them in nations bordering the Atlantic. In the 1990s the free zone doubled its area and has benefited from new container ports at Manzanillo and Coco Solo.

Since the 1970s, when it borrowed large sums for social and economic programs, Panama has had one of the highest levels of debt per capita in the world. In 1995 the nation’s foreign debt was $7 billion, or $2,600 per person, much of it overdue. In 1996 the government settled outstanding commercial debt claims against Panama through negotiations, reducing pressure on the government and allowing it to seek new credit. However, payments on the debt were the largest government expenditure in 1995, taking 28 percent of the $1.9 billion budget.

Since taking office in 1994, President Ernesto Pérez Balladares has relaxed labor controls, reduced government regulation of business, and sold off major public enterprises. These actions aimed to reduce spending on state-run industries and payrolls, curb the power of unions, and encourage private enterprise and investment, in hopes of revitalizing the economy.

A

Panama Canal

The Panama Canal continues to generate more jobs, contracts, and government revenues than any other single source in the nation. It contributes more than 10 percent of the nation’s GDP.

From 1979 to 1999 the canal was operated jointly by the United States and Panama, with four Panamanians serving on the nine-member board of directors of the Panama Canal Commission. After 1990 the canal administrator was also Panamanian. After Panama assumed control of the canal in 1999, the commission became the Panama Canal Authority, a public Panamanian corporation, and took over the operation of the canal.

B

Labor

Panama’s labor force includes about 1.5 million people. The largest group, 67 percent, works in services, including government, finance, and trade. Agriculture, forestry, and fishing employs 16 percent. Industry, including manufacturing, mining, and construction, employs 17 percent. Unemployment was 12.3 percent in 2004, and underemployment has also reduced the earning power of workers.

The leading labor federations are the National Council of Organized Workers (CONATO) and the Workers Confederation of the Republic of Panama (CTRP).

C

Agriculture

Agriculture employs one in four Panamanians, but much of that labor is absorbed in subsistence farming. Panama’s productivity is too low to export many agricultural goods. The only crops sold abroad are bananas, coffee, and sugar, which is protected by a U.S. quota system. Among the more important products are fruit, corn, rice, timber, some vegetables, and livestock. A large percentage of these goods are processed in towns and cities outside the transit zone. Panama imports cereal and fresh vegetables.

In 1994 agriculture grew at a rate of 3.9 percent, more slowly than industry and services. Principal problems facing the rural sector are concentration of land ownership in the hands of few farmers, high labor costs, and low levels of mechanization on all but the largest farms. Some 7 percent of the land is cultivated, with another 20 percent used for grazing.

D

Forestry and Fishing

Logging and fishing are significant activities in some parts of the country. The Darién area produces a large amount of mahogany for export, and teak is grown in plantations in other regions. Most construction lumber used in Panama, however, is imported from temperate-zone producers.

Panama’s fishing fleet works the rich grounds in the Pacific Ocean, using refrigerated ships. Most of the large shrimp and prawn catch is frozen and exported to the United States. A wide variety of other fish are harvested in the rich currents offshore.

E

Mining

Panama has a small mining industry, which contributes only 0.2 percent to the GDP and employs about 2,000 people. Activities include some gold mining, silver mining, and quarrying. Major copper reserves have been identified at Cerro Colorado in western Panama and could be developed by international firms if world prices warranted. Panama imports crude oil for processing and electric generation near Colón, and it exports some refined petroleum products.

F

Manufacturing

Manufacturing, amounting to 9 percent of the GDP, is mostly light and destined for construction and domestic markets. Products include fabricated metal, petroleum products, building materials, cement, chemicals, paper and paper products, printing, household consumer goods, processed food and beverages, furniture, and clothing. Virtually all the products manufactured in the Colón Free Zone are exported.

G

Energy

Hydroelectric power is generated from dams on Lake Bayano, Lake Alajuela, and a few smaller dams, and supplies 51.78 percent of Panama’s electricity requirements. The remainder is generated from imported petroleum.

H

Foreign Trade

Panama’s foreign trade in 2004 included exports worth $890 million. Some 84 percent of exports were food products such as bananas, shrimp, sugar, and coffee. The major buyers were the United States, Germany, Costa Rica, Sweden, and Belgium.

Panama imported $3.1 billion in goods in 2003. Manufactured goods accounted for 72 percent percent of imports, fuels were 12 percent, and food 14 percent. Sellers were the United States, Ecuador, Japan, and Mexico.

Panama traditionally resisted joining tariff-reducing organizations, in particular the Central American Common Market. In 1995, however, the new government decided to subscribe to the General Agreement on Tariffs and Trade (GATT) so it could join the World Trade Organization (WTO). This required pledging to reduce duties on a wide range of protected items. Panama is one of the founding members of the Union of Banana Exporting Countries and belongs to the Inter-American Tropical Tuna Commission.

I

Currency and Banking

Panama’s financial sector has more than 100 banks, with combined assets of more than $30 billion. This sector arose after a 1970 law permitted secret bank accounts and advantageous tax terms. Over the years, the banks have been alleged to handle illegal cash operations, a practice called laundering, on behalf of narcotics organizations in South America. The United States has pressured Panama into tightening rules regulating bank accounts and transfers. Panama has not given full access, arguing that the money would simply be moved to other protected havens, such as The Bahamas and Grand Cayman.

Panama’s official monetary unit is the balboa, whose value is fixed at one U.S. dollar. Panama has no paper currency of its own; the only paper money is the dollar. Fractional coins, based on 100 centesimos per balboa, are almost identical in denomination to U.S. coinage.

J

Transportation

Panama has a reasonably good transportation system, especially in the transit zone. Some 11,643 km (7,235 mi) of roads exist, and about 35 percent are paved; the remainder are finished in gravel and graded earth. Main thoroughfares include the Pan-American Highway and the Transístmica (Trans-Isthmian) Highway; the latter was built by U.S. troops during World War II (1939-1945). Other highways include the Corredor Sur, a 19-km (12-mi) toll road completed in 2000 to provide an alternate and less congested route between downtown Panama City and Tocumen International Airport.

The Panama Railroad, whose route parallels the canal, was run by the government from 1979 to 1996, but it lost money, and the government curtailed service. In 1996 it was leased to a private company, which planned to restore freight and passenger operations. Two longer narrow-gauge lines in the western provinces of Chiriquí and Bocas del Toro mostly serve the banana industry.

Three of Panama’s busiest ports are located in Colón to serve the free zone: Cristóbal, Manzanillo, and Coco Solo. Balboa is the port at the Pacific end of the canal. Puerto Armuelles and Almirante handle banana exports. Shallow-draft vessels can navigate 800 km (500 mi) of inland rivers, not including the 82 km (50 mi) of the Panama Canal.

Tocumen International Airport, located on the outskirts of Panama City, serves as the country’s principal gateway for airline passengers and air freight. Many smaller airstrips exist, most built by the U.S. military for defense purposes. The largest national airline, COPA, provides international flights.

Panama has the largest merchant marine registry in the world, with 7,605 ships with a capacity of 168 million gross registered tons. Shipping firms from other countries prefer to register as Panamanian because Panama charges low fees, has lax regulation, and offers access to maritime services.

K

Communications

As a financial and transport nerve center, Panama has a well-developed system of communications. Its telephone company, INTEL, operates ground lines for hundreds of thousands of telephones and satellite connections to the rest of the world, including the Internet. Cellular telephone service is also available; some 418 of every 1,000 persons subscribed to this service in 2005.

The electronic media include four television broadcast stations and 18 cable stations. Virtually every urban household has a radio and a television, but phones are scarcer. In the capital, most businesses have become automated. The use of personal computers and Internet connections is becoming more common in middle- and upper-class homes and through schools, universities, and businesses.

The print media are dominated by daily newspapers, which have large circulations in the major cities. The largest are Panama America, Critica, La Prensa, La Estrella, and El Siglo, all published in Panama City, with combined daily circulations of more than 150,000.

L

Tourism

The nationalist and dictatorial regimes of the 1970s and 1980s made Panama unattractive to U.S. citizens and Europeans who could afford to travel there. More recently, however, the country has actively promoted tourism. The number of tourist arrivals more than doubled in the 1990s. In 2003, 566,000 tourists (not including stopover arrivals) visited Panama, generating $960 million in revenue. The construction of new hotels, tourist villas, and resorts has coincided with the growing tourism industry. The Panama Canal is the major tourist attraction within Panama, and many major cruise lines include a trip through the canal as part of their itinerary. In October 2000 the country inaugurated its first cruise-ship terminals, one at either end of the Panama Canal, to promote more stopover tourism.

V

GOVERNMENT

Panama has well-rooted democratic traditions dating back to independence from Spain in 1821. Panama adopted constitutions in 1903, 1946, and 1972. These have been amended to fit changing times, and major revisions were made in 1983. All citizens 18 years of age and above are required to vote in elections.

Despite Panama’s democratic traditions, the military has been heavily involved in politics since the 1930s and controlled government from 1968 to 1989. Panama officially had no army after granting the United States defense powers in 1903, but it has maintained a military police force called the National Police (1903-1953), the National Guard (1953-1983), the Panama Defense Forces (1983-1989), and the Public Forces (1990- ). By the late 1940s, the commander of the police, José Antonio Remón, effectively selected and removed presidents, and in 1952 Remón himself became president. Only after he was assassinated in 1955 did the police pull back from active involvement in government.

In 1968, however, two colonels led a coup that overthrew the president and initiated a 22-year dictatorship. The dominant figures were Omar Torrijos Herrera (1969-1981) and Manuel Noriega (1984-1989). A U.S. invasion in 1989 removed Noriega, disbanded the military, and restored civilian government.

A

Executive

The president is the single most powerful figure in government, running the executive branch and wielding influence over the legislative and judicial branches and the many autonomous agencies of government. The president governs with the help of two elected vice presidents and an appointed cabinet. Presidents are elected by popular vote, serve five-year terms, and may not be reelected.

B

Legislature

The Legislative Assembly is made up of 72 members elected for five years. The legislature writes and passes laws, ratifies presidential appointments, amends the constitution as necessary, and generally shares power with the president.

C

Judiciary

An autonomous judicial branch is headed by the nine-member Supreme Court of Justice. The president nominates and the legislature ratifies appointees to the court, who serve for ten-year terms. The Supreme Court oversees five superior courts, three courts of appeal, and all other tribunals, including municipal courts. An independent Electoral Tribunal supervises voter registration, the election process, and the activities of political parties.

D

Local Government

Panama’s nine provinces are administered by governors appointed by the president. Local government is organized around 65 districts and 505 subdistricts. Voters in these jurisdictions choose mayors and councilors to administer local business. In the cities, mayors wield significant power, but in rural areas their influence is strictly limited by lack of funds. Most local government depends on securing help from provincial and national authorities.

Leaders of Native American groups, especially the Kuna and Ngobe-Buglé, negotiate directly with the national government. The Kuna enjoy special authority to conduct affairs in their own reservation, the Comarca of San Blas.

E

Political Parties

Panama’s parties traditionally revolve around the personalities of their leaders, rather than philosophies or organizations. As such, they operate in an unpredictable, discontinuous fashion. During the last 50 years, about half a dozen parties have achieved real prominence, while a dozen more have come and gone. As elections approach, peripheral parties usually fold into coalitions with stronger ones in order to win favors. Many parties were not founded until the 1990s, because the military leaders who took power in 1968 banned politics for more than a decade.

The Democratic Revolutionary Party (PRD) won the 1994 presidential election, with its candidate, Pérez Balladares, and the 2004 election, with its candidate Martín Torrijos Espino, the son of Omar Torrijos. The PRD was founded in 1978 by civilian collaborators of Omar Torrijos to give his rule political legitimacy. It selected candidates for all major offices and easily dominated elections while the military was in power. The PRD was removed from power by the 1989 U.S. invasion and was thought to be destroyed, but it made a surprising recovery. An urban party, it draws its strongest support from government employees, labor unions, and the educational system.

The Arnulfista Party was founded in 1936 as the Panamenista Party by . As the name suggests, it took its direction from its longtime leader. Although its policies varied, it usually emphasized nationalism, an independent foreign policy, and help for Panama’s working classes. The party was centrist and drew its strongest support from provinces outside the metropolitan area. Arias’s widow, Mireya Moscoso de Gruber, took over the party and ran for president in 1994, coming in second. In 1999 Moscoso was elected president, the first woman to win that office in Panama's history.

The Christian Democratic Party (PDC) led the opposition to the military in the 1980s, under the leadership of Ricardo Arias Calderón. It is regarded as the closest Panama has to a European-style party, with a defined ideology, a membership base, support from international Christian Democratic parties, and elections for party leaders. It is generally concerned with social programs, health, and education, and is nationalistic but favors close ties with the United States.

Other noted parties include Papa Egoró, a reform group founded by well-known Panamanian singer and actor Rubén Blades, and the National Liberal Republic Movement (MOLIRENA). Blades ran for president in 1994 and finished third, gaining support among young people and the urban poor by promising to improve conditions for the poor, clean up corrupt politics, protect the environment, and encourage the common people to participate in government. MOLIRENA, made up of traditional politicians, represents wealthy families who wish to exert political influence, and most members are government employees favored by these families. Its proposals are generally pro-business.

F

Social Services

Most of Panama’s social services are administered by the Social Security system, founded in 1941. It provides retirement and disability pensions for most workers, lifelong health care, and payments for dependents. The hospital system works well, and Panama has relatively good health statistics: life expectancy of 75 years, 1 physician per 595 inhabitants, and infant mortality of 16 per 1,000 live births. A number of private charities also provide assistance to the poor.

G

Defense

The country’s defense is entrusted to the Public Force, a police organization that is subordinate to civilian government officials. This agency was created after the 1989 U.S. invasion to replace the Panama Defense Force, the military force that had repressed political opposition and violated human rights under the Noriega dictatorship. Personnel strength has been cut from 16,000 to about 13,000, and service is voluntary. The Public Force consists of four independent units: the national police, the national maritime service (coast guard), the national air service, and the institutional protective service (security for important officials). The Public Force absorbs 0.9 percent of Panama’s GDP.

H

International Organizations

Panama is a member of the United Nations (UN) and most major UN agencies, and it has served three terms as a member of the UN Security Council. It maintains membership in several international financial institutions, including the World Bank, the Inter-American Development Bank, and the International Monetary Fund. Panama is a member of the Organization of American States, and was a founding member of the Latin American Economic System (known informally both as the Group of Eight and the Rio Group). Panama was suspended from the Rio Group in 1988, due to its internal political system under Noriega, but was readmitted in September 1994.

Panama often participates in Central American regional meetings and is a member of the Central American Parliament and the Central American Integration System (SICA). The government is also taking steps to join the Central American Development Bank.

VI

HISTORY

The first humans entered Panama at least 10,000 years ago. They were descendants of migrants who had crossed a land bridge from Asia to North America. Some of these first people remained in Panama, while others continued to South America. After the beginning of agriculture and stone toolmaking, Panama’s native population grew and developed an impressive culture. The early indigenous people are best known for their beautiful gold jewelry, beads, and multicolored pottery, left behind in huacas, or burial mounds. In addition to farming, they hunted and fished for food, and traded goods among villages. Most lived in thatched-roof huts, similar to those in which many of their descendants live today.

A

Spanish Colony

In 1501 Spanish explorer Rodrigo de Bastidas, sailing west from Venezuela, was the first European to reach the Isthmus of Panama. A year later explorer Christopher Columbus visited the isthmus. In 1508 the king of Spain, Ferdinand V, awarded settlement rights in Panama to explorer Diego de Nicuesa, and within a few years colonies were established along the Atlantic coast. Panama became important to the Spanish Empire in 1513 when explorer Vasco Núñez de Balboa led an expedition across the isthmus from the Atlantic and became the first European to see the Pacific Ocean from the Americas. He named it the South Sea and claimed it, and all the territories it touched, for Spain. In 1519 Pedrarias Dávila, the Spanish governor of the area, founded Panama City on the Pacific coast. Many of the region’s native peoples were killed by Spanish colonists or by diseases brought by the Europeans, while others fled to remote areas.

Panama quickly became a crossroads and marketplace of Spain’s empire in the Americas. From Panama, soldier Francisco Pizarro sailed south to conquer the great empire of the Inca in Peru in the 1530s. The silver and gold of the Inca, spices, and other commodities were shipped from South America to Panama City, carried across the isthmus, and loaded onto fleets of treasure ships bound for Spain. The route to the Caribbean harbor of Portobelo became known as the Camino Real, or Royal Road. The riches stored in Panama made it a frequent target of pirate attacks, while its importance in trade led to development of a wealthy merchant class. Panama also became a major shipment point in the slave trade, sending most African captives on to other colonies. But slaves who remained in Panama formed the beginning of its black population.

Because of its close trade ties with Peru, Panama was originally part of the , the Spanish government unit for most of its South American colonies. After 1718, however, Panama was put under the newly created , which covered present-day Colombia, Venezuela, and Ecuador. The viceregal capital in Bogotá was distant, and its authority was weak. As a result, Panama largely governed itself. The treasure fleet, meanwhile, sailed less frequently and then stopped altogether as other routes were used, so that Panama no longer enjoyed the riches of the empire.

B

Colombian Rule

In the early 1800s Spain’s American empire broke apart as the movement for Latin American independence swept through the colonies. Panama declared independence from Spain in 1821 and decided to become part of the newly independent Republic of Colombia. For the next 82 years the Panamanians lived in uneasy isolation from the central government, often making their own laws, frequently staging revolts, and occasionally declaring their independence. They grew apart culturally and materially from the rest of Colombia, becoming less religious, more liberal in politics, and more open to outside influences than Colombians.

By the mid-1800s events from beyond the region began to affect Panama. The dominant maritime power of the age, Britain, and the rising power in the hemisphere, the United States, began to compete for the rights to control transit across Central America. The preferred route for a canal was in either Panama or Nicaragua. American businessmen took the lead in 1848 when they gained rights to build a railroad across Panama, which was completed in 1855. The discovery of gold in California brought a flood of prospectors seeking quick access, and for years the Panama Railroad was the most profitable in the world. Businesses to serve travelers flourished, providing a boom for Panamanian merchants.

With the railroad came U.S. intervention. Rebellions against Colombian rule and violence between local factions occurred frequently. In addition, an increase in the number of U.S. citizens and businesses created tensions with Panamanians. During this period the United States frequently sent its Marines to Panama to preserve law and order and to protect U.S. lives and property. Although still a province of Colombia, Panama was on its way to becoming a U.S. protectorate.

C

Independence and the Canal

In the late 1870s, French diplomat Ferdinand de Lesseps, who had built the Suez Canal in Egypt, called a conference in Paris to design and raise money for a Central American canal. Deciding on a sea-level canal in Panama, he began to raise money privately, and started work in 1882. But the project was dogged by equipment delays, tropical diseases, financial problems, and poor planning. The canal design turned out to be impossible to build with the technology available at the time. The enterprise went bankrupt in 1888 and was replaced with a holding company to protect the interests of investors. The project, however, had brought Panama a more diverse population, including many Caribbean blacks who came to work on it.

During the 1890s some U.S. leaders urged their government to take over the effort to build a Central American canal. The United States had for some time wanted a shorter sea route between the Atlantic and Pacific for trade and military purposes. It also stood to benefit from a canal more than any other country. Several land surveys were conducted, and some construction even began in Nicaragua. In 1902, however, a complex set of developments led the U.S. president and Congress to favor buying and rehabilitating the French route in Panama.

The United States negotiated a treaty with Colombia for rights to build the canal, but the Colombian senate refused to ratify it. Representatives of French and U.S. investors, the railroad, and the U.S. government then conspired with Panamanians to declare the isthmus independent from Colombia. President Theodore Roosevelt, who wanted to make the Panama Canal the centerpiece of his administration, made sure the conspiracy succeeded. When the Panamanians rebelled, U.S. troops prevented Colombian forces from moving in to suppress the revolt. The Republic of Panama became independent on November 3, 1903.

Two weeks later a treaty was signed giving the United States the rights to build a canal on terms that made Panama a virtual U.S. protectorate. The United States received a perpetual lease for a section of central Panama 16 km (10 mi) wide, stretching from ocean to ocean, for the canal. Within this zone, the United States would exercise complete control, as if it owned the land. It also was granted the right to military intervention in Panama to maintain order, and the right to take over more Panamanian land if necessary. In exchange, the United States guaranteed Panama’s independence and paid $10 million, plus an annual payment of $250,000. On Panama’s side, the treaty was negotiated and signed not by Panamanians but by Philippe Bunau-Varilla, a French citizen who represented the French canal company. The treaty terms were resented by Panamanian nationalists and became a source of continuing controversy in Panama’s history.

From 1903 on, Panama had two governments, one for the republic and another for the canal zone. The republic was subordinate to the government of the U.S. zone in every way—financially, militarily, and administratively. Panama adopted a constitution and elected its first president, Manuel Amador Guerrero, in 1904. But in fact, the chief engineer of the canal construction works and then the governors of the canal zone oversaw affairs in Panama. They made sure that nothing impeded the maintenance, security, and operation of the canal.

Panama’s independence was strictly limited: With no military, it was vulnerable to intervention by U.S. troops from the canal zone. It had limited resources and had to borrow money from banks, using the canal annuity as guarantee. Virtually all the country’s trade and immigration came through the zone and was therefore subject to U.S. control. Panama depended on the zone for water, jobs, revenues, imports, transportation, and even security. Panama’s relationship was both unequal and subservient to the United States. See also Panama Canal; Panama Canal Zone.

Construction of the canal, from 1904 to 1914, brought more than 150,000 people to Panama. These immigrants changed the country’s ethnic and cultural composition. They included a large number of black West Indian laborers, some European workers, and some Americans.

During Panama’s early years, President Belisario Porras led efforts to build the nation, constructing roads, hospitals, schools, and other facilities. Porras, leader of the Liberal Party, achieved a working relationship with the U.S. authorities and dominated the country’s government until the late 1920s. However, resentment of U.S. domination grew among some Panamanians.

D

The Arias Years

In 1931 a secret nationalist organization, Acción Comunal (Common Action), carried out a coup and held new elections for president. A group of reformers, headed by Harmodio Arias Madrid, took control of the government and sought to make it more effective. In contrast to the elite families that had always ruled Panama, Arias and his family came from a modest rural background, and their success marked the rise of middle-class Panamanians into government leadership. Under Arias’s presidency (1932-1936) and those of his successors, the police force became stronger, the economy began to diversify, the university was established, and Panama took on a new sense of national pride. In 1936 the United States and Panama negotiated treaty changes that ended the U.S. right to intervene in Panama’s affairs and its right to appropriate more land. The treaty also increased the annual payments the United States made to Panama.

Arias’s younger brother, Arnulfo Arias, became president in 1940 and intensified policies to strengthen the nation and oppose U.S. power. He fostered a greater sense of nationalism among Panamanians, stating that Panama was more than a canal and had a national destiny beyond serving the United States. Arias insisted that the United States negotiate as an equal with Panama for new treaty concessions and resisted U.S. efforts to establish new military bases in Panama during World War II (1939-1945). Arias was sympathetic to some European fascist governments of that time. He also introduced a new constitution that gave him a longer term in office and revoked the citizenship of non-Hispanic immigrants.

Arias’s initial term in power was brief, however. Under his presidency, the National Police were given more weapons and a bigger role in politics. Ironically, the police deposed him in a coup in 1941, and in later years would overthrow him twice more and rig elections to defeat him. By the mid-1940s, the commander of the police had the power to choose and depose presidents as he wished.

E

Increasing Unrest

The culmination of increased police involvement in politics came in 1952. Police commander José Antonio Remón, after years of deciding who would hold the presidency, became convinced he could do a better job than the civilians. He ran for office and was elected honestly. Remón continued many of the policies of the Acción Comunal reformers. He pushed to diversify the economy, developing industry and agriculture to reduce Panama’s dependence on the canal. He further strengthened the police, making it more like a military force and renaming it the National Guard. New treaties were negotiated to give Panama more benefits from the canal. Remón also built a strong coalition of political parties. He was assassinated in 1955.

Relations with the United States deteriorated in the late 1950s. Panamanians grew increasingly frustrated over U.S. control of the canal zone and their country’s lagging development. They were inspired by the successful revolution in Cuba and events in 1956 in Egypt, where the government seized and nationalized the Suez Canal. Anti-American demonstrations increased, during which U.S. flags were torn down, U.S. agencies were stoned, and Panamanians clashed with canal zone troops. These protests led to a more serious confrontation in 1964 known as the flag riots, in which violence broke out over attempts to fly the Panamanian flag in the canal zone as a symbolic gesture. More than 20 people were killed, most of them Panamanians, and the United States and Panama temporarily broke off relations. The confrontation persuaded the United States to begin negotiations to replace the unpopular 1903 treaty, but the effort took 13 years to complete.

Public order declined during the mid-1960s, as the economy stagnated and government seemed incapable of administering the nation. Public frustration with the situation helped Arnulfo Arias win the 1968 election. When he threatened to dismiss some leading officers of the National Guard, they overthrew him after ten days in office. Two officers, Boris Martínez and Omar Torrijos Herrera, led the coup and formed a ruling council, or junta. By early 1969 Torrijos assumed full control of government and announced a revolutionary program.

F

The Torrijos Regime

The Torrijos era brought Panama a mixture of military rule, social and economic reforms, and a more vigorous, left-wing foreign policy. Torrijos suspended the constitution and eventually replaced it with one that gave him full powers as head of state for six years. Disbanding the National Assembly, he governed by decree, outlawed political parties, and used the National Guard to repress opposition. However, he won popularity for his social and economic policies and, more importantly, for confronting the United States over control of the canal. He also established ties with Cuban leader Fidel Castro and the rebel Sandinistas, who were fighting the dictator of Nicaragua.

Under Torrijos, the government intervened more strongly in the economy, introducing land reform and prolabor policies, and encouraging international banking to establish a base in Panama. Openly attacking the wealthy upper class of Panama, Torrijos recruited middle- and lower-middle-class citizens to staff the upper ranks of government. Because foreign banks were eager to lend money and Panama’s international banking industry was growing, Panama was able to borrow a great deal of money during the 1970s. Torrijos used it to create state-run industries and utilities; to expand social services, building schools, clinics, and housing; and to aid farmers. These measures, while popular, contributed to a large national debt, and economic growth slowed.

The hallmark of the Torrijos years was the negotiation of new treaties with the United States to replace the controversial 1903 canal agreement. The new treaties, signed by Torrijos and U.S. president Jimmy Carter in 1977, provided that the canal would be turned over to Panama on December 31, 1999. More than 60 percent of the canal zone was to be turned over to Panamanian control in 1979 under the treaty, but it allowed the United States to retain some military bases until 2000. The treaty also provided that more money from canal tolls would go to Panama. The agreements provoked opposition in both countries; some Panamanians objected that the treaties did not go far enough, while many Americans felt the canal was U.S. property that was being given away. However, both nations ratified the treaties, which took effect in 1979.

Once the treaties were signed, Torrijos stepped down as head of government and began to reinstate civilian rule in Panama. He formed the Democratic Revolutionary Party (PRD), which provided backing for his civilian figurehead president. But Torrijos retained control of the National Guard and remained the dominant figure in Panama’s politics until he died in a plane crash in 1981.

G

Noriega Dictatorship

In the years after Torrijos’s death, civilian and National Guard leaders maneuvered for power. In 1983 a winner emerged: Manuel Antonio Noriega, former head of the intelligence service, became head of the National Guard and took power. Although he did not hold a political office, as commander of the military he controlled the government. Astute and ruthless, Noriega built up the size of the military, which he renamed the Panama Defense Forces, and greatly increased its power over the nation’s political life and its economy.

The Noriega years witnessed widespread corruption, repression of political opposition, and a troubled economy. Noriega made little pretense of following the constitution and rigged elections. Noriega was accused of ordering the torture and murder of a popular figure, Hugo Spadaforas, in 1985, but when Panama’s president promised to investigate, Noriega replaced him with another civilian. Noriega used the military to imprison, torture, and sometimes kill his opponents. Noriega also was linked to the international narcotics trade. He was accused of helping smuggle drugs and launder money for Colombian drug cartels.

Relations with the United States deteriorated. Noriega had been a longtime informant for the U.S. Central Intelligence Agency, and he helped U.S. officials supply arms to conservative forces in Nicaragua. But by the late 1980s, Noriega’s dictatorship and his alleged links to the international drug trade caused the United States to withdraw its support for his government. At the same time, street demonstrations began to occur regularly in Panama City.

H

U.S. Invasion

The U.S. government gradually increased pressure on Noriega, trying to make him give up power. The United States imposed a trade embargo, vetoed international loans to Panama, and finally withheld its annual canal payments. In 1988 a U.S. court in Miami, Florida, indicted Noriega on drug-related charges. Panamanian president Eric Delvalle tried to dismiss Noriega but instead was removed from office. A presidential election was held in 1989, but Noriega nullified the results when the vote count showed that the opposition candidate, Guillermo Endara, was winning. Tensions rose between Noriega’s forces and U.S. troops based in Panama.

Finally, President George Bush decided to invade Panama, with the stated goals of arresting Noriega to face drug charges, of restoring democracy, and of protecting American lives. On December 20, 1989, U.S. troops invaded in the largest U.S. military operation since the Vietnam War (1959-1975). More than 27,000 troops took part, including 13,000 already stationed in Panama. With an overwhelming force of tanks, aircraft, and high-technology weapons, the U.S. forces defeated Panamanian troops within days and eventually captured Noriega, who was taken to the United States for trial.

The Panama invasion proved traumatic and controversial. It violated both international law and U.S. government policy against intervening in another nation’s internal affairs. Yet it was welcomed by many Panamanians as the only way to rid the country of a dictator that the United States had supported for many years. Noriega’s headquarters in Panama City was destroyed, but the surrounding poor neighborhood of El Chorillo caught fire and burned to the ground, leaving thousands homeless. Several hundred Panamanians, many of them civilians, died in the fighting. It was the low point in 86 years of rocky relations between Panama and the United States.

I

Gaining Control of the Canal

On the day of the invasion, U.S. forces swore a caretaker government into office. The new president was Guillermo Endara, the leading Arnulfista Party candidate in the election that had been annulled by Noriega. Behind the scenes, U.S. advisers wielded real power, arresting police officers and reestablishing order. A large U.S. aid program, amounting to nearly $1 billion, was assembled to help Panama recover from the invasion and years of economic sanctions. However, Endara never achieved much authority as president. The economy made a strong recovery, and the conversion of Panama’s military into a civilian police force restored public confidence and safety.

The 1994 presidential election brought a surprising victory to Ernesto Pérez Balladares, the candidate of Noriega’s former party. Pérez Balladares, a U.S.-trained banker, received a third of the popular vote. The new president embraced a program of economic reforms, including measures to reduce the size of government, sell public enterprises, create more jobs, and reduce some labor protections. He also sought to attract foreign investment, end protectionism so Panama could carry on more global trade, and renegotiate the large national debt.

Meanwhile, Panama created the Interoceanic Regional Authority to administer lands and buildings turned over by the United States. Designed to be nonpolitical and efficient, the agency is seen as an indicator of Panama’s ability to manage a major facility like the canal. In the mid-1990s, the Panama Canal Authority was formed to actually take over duties of managing the canal in 1999. Beginning in 1990, a Panamanian citizen served as chief administrator of the canal, and some 97 percent of the canal labor force was Panamanian. Both countries strove to achieve a smooth, trouble-free transition.

Pérez Balladares pushed hard to attract foreign, especially Asian, investment to develop the lands and military bases being turned over to Panama. His greatest challenges were to maintain public order and confidence, create new jobs while privatizing the economy, reduce corruption in his government, and maintain friendly relations with the United States.

In August 1998 Panamanian voters rejected a proposed constitutional amendment to allow Pérez Balladares to serve a second term in office. In May 1999 Mireya Moscoso de Gruber, widow of former president Arnulfo Arias, won the country's presidential election. On December 31, 1999, Panama completed the takeover of the canal, military bases, and all adjacent facilities, giving it control of all its territory for the first time in the nation’s history.

J

The 21st Century

The 2004 presidential election was the first one held after Panama had gained control of the canal and the United States had withdrawn its troops. In that election, Martín Torrijos Espino of the Democratic Revolutionary Party (PRD) won with almost 50 percent of the vote. Torrijos is the son of Omar Torrijos, the military general who ruled Panama from 1969 to 1981. During the campaign, Martin Torrijos pledged to fight government corruption, lower the country’s unemployment rate, increase trade with the United States, and improve the Panama Canal.

Torrijos followed through on his pledge to improve the Panama Canal, and in October 2006 voters approved a referendum to expand the canal by adding a new channel and more locks. The $5.2-billion expansion project was expected to create thousands of jobs. The current canal cannot accommodate many of the large new container ships, and heavy traffic has caused costly delays for many ships waiting to enter the existing locks. Construction on the expansion was expected to begin in 2008 and to be completed in 2014.