Panama

The republic dates from 1903, when a junta in Panama City declared independence from Colombia with American warships standing offshore. Three weeks later a French engineer who had not lived in Panama for seventeen years signed a treaty in a New York hotel that granted the United States a strip of territory ten miles wide "in perpetuity" and the right to act as if it were sovereign there. The Canal Zone that treaty created cut the new republic in two for three quarters of a century, and the campaign to get it back became the central fact of Panamanian politics.

Panama matters out of proportion to its size — 4.5 million people, an economy of about $87 billion — because it operates one of the two or three chokepoints on which global shipping depends. The canal carries around 5 per cent of world maritime trade by volume and its tolls fund a large share of the state. Since 1999 Panamanians have run it themselves, and since 2016 they have run a bigger version of it. The questions that dominate the country now — water, Chinese port concessions, an American president who says he wants the canal back — are the old questions of sovereignty and transit.

At a glance

Why did the isthmus matter before there was a canal?

The isthmus was a corridor long before it was a country. The peoples the Spanish found there — the Cuna on the Caribbean coast and in the San Blas islands, the Guaymí in the western highlands, the Chocó in Darién — farmed communally, traded along the rivers in dugout canoes, and worked gold into breastplates and earrings that helped convince Europeans there was a city of gold somewhere inland. Estimates of how many people lived there range from tens of thousands to the better part of a million; what is certain is that the conquest destroyed most of them within two generations.

Rodrigo de Bastidas reached the coast in 1501, and Columbus touched it a year later on his fourth voyage. The decisive arrival was Vasco Núñez de Balboa's crossing in 1513: he set out from Darién on 1 September with 190 Spaniards, a pack of dogs and about a thousand Indian bearers, and after twenty-five days of cutting through jungle came out on a height from which he saw the Pacific. Among his officers was Francisco Pizarro. Balboa waded into the water in full armour and claimed the ocean and every shore it washed for the crown of Castile — a claim that eventually took in Chile, Peru and the Philippines.

The colony's first capital, Santa María la Antigua del Darién, was a malarial failure, and in 1519 the governor, Pedro Arias de Ávila — known as Pedrarias the Cruel, and responsible for Balboa's execution two years earlier — moved the capital to a fishing village on the Pacific shore whose name, Panama, is usually glossed as "abundance of fish". Nombre de Dios, resettled the same year, became the Caribbean terminus of a mule road called the Camino Real. Gold from the Inca empire, and then, for a century and a half, silver from Potosí, came up the Pacific coast to Panama City, crossed the isthmus on muleback, and was loaded onto the treasure fleets at Nombre de Dios.

That traffic made the isthmus one of the richest and most contested places in the Spanish empire, and it also made it a target. Francis Drake raided the coast repeatedly between 1572 and his death off Portobelo in 1596; the open roadstead at Nombre de Dios proved indefensible, and in 1597 the Atlantic terminus moved to Portobelo, one of the finest natural harbours in the Americas. Panama City, rebuilt in stone after a fire in 1644, was reckoned the third city of Spanish America after Mexico and Lima. Its prosperity depended entirely on being a place where things were carried through, which is the oldest theme in Panamanian history: the isthmus has never made much of anything, but it has always been worth owning because of where it is.

How did Spain govern the isthmus, and what did the arrangement cost?

Government followed the treasure. A royal audiencia sat in Panama from 1538, was suppressed five years later because the jurisdiction was absurdly large, and was re-established in 1563 with roughly the boundaries of the modern republic. After 1567 the province was attached to the Viceroyalty of Peru while keeping its own court, which meant that its governors answered to Lima and its merchants to Seville. Only three ports in Spanish America were licensed to trade with Spain — Nombre de Dios, Veracruz and Cartagena — and the whole licensing system was designed to concentrate the bullion trade in official hands.

The society that grew up around it was small, urban and rigidly ranked. Peninsulares born in Spain held the profitable offices; criollos of Spanish descent born in the Americas held the second tier; mestizos farmed and kept shops; Africans and Indians, enslaved or not, did the work. The 1610 census of Panama City counted 548 citizens, 303 women, 156 children, 146 mulattoes, 148 Antillean blacks and 3,500 African slaves — a city in which the enslaved outnumbered the free by a wide margin. Panama was a distribution point for slaves bound for the rest of the mainland, and many of those who stayed ran away; the cimarrones who held the jungle along the Camino Real were a standing tax on the treasure route, and the Spanish never suppressed them.

The cost to the indigenous population was total. Pedrarias's governorship killed Spaniards as well as Indians — men in brocaded silk died of disease and hunger — but the disproportion was enormous, and by the middle of the sixteenth century the isthmus had run out of labour. Bartolomé de las Casas, outraged by the persecution of the Indians, made the suggestion he later regretted: that Africans be imported to replace them. Charles V licensed the export of 4,000 African slaves to the Antilles in 1517, and the trade that followed reshaped every colony on the mainland.

The crown ordered canal surveys in the 1520s and 1530s, and Philip II is said to have ended the discussion by observing that if God had wanted a canal there he would have built one — a remark the Library of Congress study repeats as the end of the matter. Philip III revived the idea, and the Council of the Indies talked him out of it on the grounds that a canal would draw every rival navy in Europe. That objection was the sound one: Spain's problem was never the isthmus's geography, but that it could not defend what it already had.

Why did the isthmus decline, and how did it end up inside Colombia?

The trans-isthmian system broke down in the eighteenth century, and it broke down commercially before it broke down politically. Cheaper English, French and Dutch goods, smuggled or sold through Jamaica with the connivance of Panamanian merchants, undercut the official trade; the Portobelo fairs, where European merchandise was exchanged for the commerce of the whole Pacific coast, grew smaller and less frequent. Only five of the annual fleets that were supposed to sail for Spanish America between 1715 and 1736 actually sailed. The isthmus's weakness was visible to others too. In 1698 William Paterson, a founder of the Bank of England, organised a company to plant a colony at Darién on the theory that whoever held the isthmus would hold the trade of both oceans. About 1,200 settlers landed that year; the Indians, who disliked the Spanish, received them well, but they had brought European cloth, wigs and Bibles to trade with people who wanted none of them, and they were not provisioned for the tropics. The survivors abandoned the site in 1700. The Company of Scotland lost its capital, and the disaster is usually counted among the pressures that pushed Scotland into union with England in 1707.

In 1739, in the War of Jenkins' Ear, a British force under Edward Vernon took and destroyed Portobelo. The fair was never held again; after 1740 Pacific ports were allowed to trade directly by ships rounding Cape Horn, and Panama's reason for existing evaporated.

What followed was a century and a half of quiet. The audiencia was suppressed in 1751 and the province became an appendage of the Viceroyalty of New Granada — the arrangement that would eventually decide its nationality. The 1793 census, incomplete and probably missing most Indians and cimarrones, counted 71,888 inhabitants, of whom 7,857 lived in Panama City. There was little export agriculture, no manufacturing, and no reason for anyone outside the isthmus to take an interest.

Independence came late and without fighting. Spain's colonies on the mainland had been in revolt since 1810, but Panama, dependent on sea communications that Spain controlled, stayed out of it. When Bolívar's victory at Boyacá in 1819 settled the fate of New Granada, the last Spanish viceroy fled to Panama and ruled there harshly until his death; his replacement was a liberal who allowed a free press and then left for Ecuador, handing the governorship to a Panamanian colonel. Los Santos declared independence on 10 November 1821, and Panama City followed on 28 November. The question of the moment was whether to join Colombia, join Peru, or join Mexico; the bishop argued for Peru and was outvoted, and Panama became a department of the new Colombian state.

It was a bad marriage from the start. Panama was joined to Gran Colombia and then, after that federation dissolved in 1831, to Colombia proper, and it seceded or tried to secede repeatedly — in 1830, and again in 1840, when it briefly ran itself as the Estado del Istmo under Tomás Herrera. Between 1863 and 1886 the isthmus had twenty-six presidents. One estimate counts forty administrations, fifty riots and rebellions, five attempted secessions and thirteen interventions by the United States in the second half of the century alone.

The American connection began as a commercial convenience and became a strategic assumption. The United States signed the Bidlack–Mallarino treaty with New Granada in 1846, which gave American citizens free transit across the isthmus and, in return, a guarantee of Colombian sovereignty over it. When the gold rush began two years later, that clause became the legal basis for landing marines whenever transit was threatened. A New York company opened the Panama Railroad in 1855, and between 1848 and 1869 some 375,000 people crossed from the Atlantic to the Pacific and 225,000 the other way. The traffic made Colón a city and made the isthmus, briefly, prosperous again.

Why did Panama break with Colombia in 1903?

By the end of the century the canal was no longer a speculative venture but an American strategic requirement. The Spanish–American War convinced Roosevelt that a fleet had to be able to move between oceans without rounding Cape Horn, and the Hay–Pauncefote treaty of 1901 cleared the way by getting Britain to abandon its claim to joint control. Congress then had to choose between Nicaragua and Panama. The French company that had already failed on the isthmus dropped its asking price to $40 million, and its lobbyist, Philippe Bunau-Varilla, lobbied Congress for the Panama route. The choice went to Panama.

The Colombian route had one obvious drawback: Colombia had to agree. John Hay, the secretary of state, signed a treaty with Colombia's foreign minister, Tomás Herrán, in January 1903 granting a hundred-year lease on a strip ten kilometres wide for $10 million and an annuity. The Colombian senate rejected it in August, on the grounds that the price was low, the sovereignty concession large, and that a French company's concession, which expired in 1904, would soon revert to Colombia and could then be sold at a better price. That calculation was reasonable and, in the event, catastrophic.

What happened next was not a spontaneous uprising. A junta had been forming in Panama since the spring, led by José Agustín Arango, a lawyer for the Panama Railroad, and Manuel Amador Guerrero, a doctor from one of the leading families. It had the sympathy of the railroad's American management, which controlled the only way across the isthmus, and it had reason to believe the American navy would not let Colombian troops use that way. On 2 November the gunboat USS Nashville anchored off Colón, where a Colombian battalion had just landed. The battalion was not carried across: the railroad refused, and the American commander made clear that no armed force would move while he was there.

Independence was proclaimed in Panama City on 3 November 1903 by the municipal council, before a crowd assembled by the junta. A Colombian gunboat in the bay fired a few shells into the city and killed a civilian; that was the extent of the fighting. Colombian reinforcements could not cross the Darién, and Washington recognised the new government within three days. The United States had not written the declaration — Panamanians had been trying to leave Colombia for seventy years — but it had removed the one obstacle that had always defeated them.

The new republic's first act was to appoint an ambassador, and the ambassador was Philippe Bunau-Varilla, a French engineer who had been the French canal company's lobbyist in Washington, had never been a Panamanian citizen, and had last set foot in Panama seventeen years earlier. He was appointed because the junta needed someone in Washington immediately and because he had offered to pay the expenses. He wrote the declaration of independence, drafted the constitution, designed the flag, and then negotiated the treaty.

What did the Hay–Bunau-Varilla treaty actually hand over?

The convention signed on 18 November 1903 is short and unusually frank. Panama granted the United States "in perpetuity the use, occupation and control" of a zone ten miles wide, five on each side of the canal, extending three marine miles into each sea, excluding the cities of Panama and Colón. Article III granted "all the rights, power and authority within the zone … which the United States would possess and exercise if it were the sovereign of the territory", to the entire exclusion of Panama. Article I guaranteed Panama's independence. Article V gave the United States a monopoly on any canal or railway across the isthmus. Article VII gave it the right to enforce sanitary ordinances in Panama City and Colón and to "maintain public order" there if Panama could not. Article XXIII allowed it to use armed forces for the protection of the canal at its own discretion.

The price was $10 million in cash and an annuity of $250,000, beginning in the ninth year after ratification — that is, in 1913 — which is why the annuity is often described as having started late. The American Senate advised ratification in February 1904 and ratifications were exchanged on 26 February. Panama's own ratification came in December 1903, from an assembly that had been given three weeks to consider a document its own envoy had signed in a hotel in New York, with a Panamanian delegation on its way north and no time to read it.

Three things about the treaty mattered for the next seventy-six years. It granted sovereignty in function while denying it in form: the Zone had its own courts, police, post office, schools and a governor appointed by the American president, and the United States behaved there as a state. It divided the country, so that travelling from the capital to Chiriquí meant crossing a foreign jurisdiction. And it made Washington a permanent party to Panamanian politics, because the treaty that guaranteed Panama's independence also gave the United States a reason to intervene whenever that independence looked disorderly.

Panama's 1904 constitution was modelled on the American one, with a directly elected president and assembly and a unitary rather than federal structure. It also contained the provision that the United States had the right to intervene "to guarantee Panamanian sovereignty and to preserve order" — a clause that made the republic's independence conditional in its own founding document. The army was disbanded in 1904 at American suggestion after a general threatened the government, and replaced by a National Police. Between 1904 and 1920 the United States intervened four times in the republic's civil life, mostly at the request of one Panamanian faction or another, and American diplomats routinely advised Panamanian officials on appointments.

How was the canal built between 1904 and 1914?

The French had already done much of the work and had been destroyed by two things they did not understand. Ferdinand de Lesseps, who had built Suez, began digging in 1881 on a sea-level plan that was wrong for the Chagres River, which rises ten metres in the rainy season and would have wrecked any channel cut to its level. Worse, nobody knew that mosquitoes carried yellow fever and malaria. The company employed about 40,000 men at its peak, nine-tenths of them Afro-Caribbean labourers from the West Indies, and by 1884 was burying more than 200 a month. It went bankrupt in 1889 having spent some $287 million, having lost perhaps 22,000 lives, and having ruined the savings of 800,000 investors. Two-fifths of the excavation needed for the eventual canal had nevertheless been done, the railroad was intact, and the hospitals and workshops were standing.

The American project began in 1904 under a civilian commission that made little progress and was rescued by three men. John Stevens, chief engineer from 1905, rebuilt the railroad, organised supply, housed and fed the workforce, and concluded that a lock canal at 26 metres above sea level was the only practical scheme. William Gorgas, who had cleaned up Havana, attacked the mosquitoes: his gangs drained standing water, oiled puddles, screened and fumigated buildings, laid piped water and sewers, and even emptied the churches' holy water fonts. Goethals is said to have complained that every mosquito killed cost the United States ten dollars; Gorgas is said to have replied that he would rather not be bitten by a ten-dollar mosquito. The last case of yellow fever in Panama was recorded on 7 December 1906; malaria took longer and killed more, but the incidence fell by roughly nine-tenths.

George Goethals took over in 1907 and finished it as a military operation. The work was three problems at once: cutting a channel through the continental divide at Culebra, damming the Chagres to create Gatun Lake, and building three flights of locks — Gatun on the Atlantic side, Pedro Miguel and Miraflores on the Pacific — to lift ships to the lake and lower them again. Steam shovels and dynamite moved 232 million cubic yards of material; the Culebra Cut slid repeatedly, burying tracks and shovels, and kept sliding after the canal opened. By 1913 about 65,000 people were on the payroll, most of them West Indian, with 12,000 from southern Europe and 5,000 Americans in supervisory posts. Total deaths on the American works are usually given as 5,609.

The first complete transit was made on 15 August 1914, but the canal was not formally opened until 12 July 1920, and the gap is not a technicality: slides in the Cut closed the waterway for long periods in 1915 and 1916, and the canal did not carry reliable commercial traffic until the slides were brought under control. The American excavation cost about $375 million; with the French expenditure and the $10 million paid to Panama the canal came to roughly $645 million.

What kind of society grew up in the Canal Zone?

The Zone was 553 square miles of what its inhabitants called "the Area", run by the Panama Canal Company and its own government, with a governor answerable to the secretary of war. Its 40,000 American residents on the eve of the 1977 treaties — two-thirds of them soldiers and dependants — lived in company houses assigned by seniority, painted grey with white trim, with the lawns cut at public expense. There were no private shops: the commissary sold refrigerated meat at prices Panamanian merchants could not match, and by 1913 ran 22 general stores, 22 hostels and two hotels. The Zone had its own schools, hospitals, courts, radio station and police, and its own currency arrangement: the balboa at par with the dollar.

It was also a Jim Crow society, organised on a distinction that every account of the period treats as racial and that the paperwork described as payroll. Skilled white employees were on the "gold roll", paid in American gold; Black and southern European workers were on the "silver roll", paid in silver, at roughly half the rate for the same ten-hour day. Housing, schools, hospitals, swimming pools, commissaries and cinema entrances were segregated. In the first half of 1906 the death rate among non-white workers was 59 per thousand, against 17 per thousand among white employees. The system outlived the construction period by decades; it was still in place in the 1940s, and the equalisation of wages was one of the things the 1955 treaty was supposed to deliver.

The Panamanian side of the fence had a different experience of the same waterway. The Zone employed thousands of Panamanians and generated the traffic that made Colón's free zone possible after 1948, but its wages set a ceiling on what the rest of the economy could pay and its commissaries undercut the merchants who were supposed to benefit. Panamanians could not enter without passing a guard, and Panamanian sovereignty over it was, in the phrase used at the 1960 flag ceremony, "titular". Michael Conniff's title for his study of West Indian labour on the canal — Black Labor on a White Canal — describes the arrangement.

The West Indian workforce changed the country it worked in. Barbadians and Jamaicans, brought in by the tens of thousands, stayed, and their descendants became a large part of the population of Colón and Panama City, English-speaking and Protestant in a Spanish-speaking Catholic republic. Their presence produced one of the ugliest episodes of Panamanian politics: the presidency of Arnulfo Arias, whose Panameñismo was explicitly a programme for a Hispanic Panama and who aspired to rid the country of West Indians, Chinese, Hindus and Jews. The United States refused to deport them, and Arias was removed by the National Police in 1941 while out of the country — with, the Library of Congress study notes, visible American relief.

What did the treaty revisions of 1936 and 1955 change?

The first revision came out of the Good Neighbor policy and ran into the American military. The General Treaty of Friendship and Cooperation, signed by Cordell Hull and Ricardo Alfaro on 2 March 1936, renounced the American guarantee of Panamanian independence and the right to intervene in Panama City and Colón, raised the annuity to 430,000 balboas, recognised a joint responsibility for canal defence, and gave Panama the right to build a highway to Colón, which ended the railroad's monopoly on trans-isthmian transport. Two further conventions, on radio broadcasting, were never ratified at all.

What is usually called the 1936 treaty was in force only from 1939. The Senate's Committee on Foreign Relations held it for three years while the War Department argued that the concessions would undermine canal defence, and it passed in July 1939 only after Panama agreed that American troops could manoeuvre on Panamanian territory and that the United States could act unilaterally if there was no time to consult. The pattern — Panama negotiates, the Senate extracts conditions, the treaty arrives diminished — repeats in 1977. A common account says the 1936 treaty raised the annuity to $436,000; the treaty text says 430,000 balboas, and the higher figure appears to come from a computation at a different exchange rate.

The second revision came after the war, and its terms were settled in Washington before Panama saw them. José Antonio Remón, a former police commander elected president in 1952, had made canal reform his programme; the State Department offered in 1954 to raise the annuity to $1.93 million instead of extending economic aid, and Remón preferred the annuity. He was assassinated on 2 January 1955, three weeks before the treaty was signed on 25 January. It raised the annuity to $1.93 million, gave Panama the right to tax the incomes of Zone employees who were not American citizens, restored Panamanian jurisdiction over Punta Paitilla and parts of Colón, ended American control of sanitation in the two cities, released the United States from its exclusive right to build trans-isthmian roads, and committed both governments to a single wage scale in the Zone. Panama leased the United States 19,000 acres outside the Zone for military exercises for fifteen years.

None of this touched the central issue. The Zone remained, the "in perpetuity" clause remained, and the annuity remained trivial next to what the canal earned. In 1955 the payment was about $2 million a year; by the early 1970s it had crept to $2.3 million, while the canal took in tolls of some $100 million a year and Panamanian ships paid them like everyone else's. The gap between what Panama received and what the canal was worth became the arithmetic of the next twenty years of politics.

Why did a flag dispute kill twenty-five people in 1964?

The flag mattered because it was the one thing about sovereignty that could not be argued away. In 1960 Eisenhower agreed that Panama's flag should fly beside the American flag at one site in the Zone, and in January 1963 Kennedy ordered both flags flown at all civilian locations. Kennedy was assassinated before the order was carried out; the Zone's governor, Robert Fleming, interpreted it by ordering that no flag be flown at civilian sites at all, which the Zone's American residents read as a surrender of sovereignty. Students at Balboa High School raised the American flag and guarded it; the governor, misjudging the temperature, left for a meeting in Washington.

On 9 January 1964, some 200 students from the Instituto Nacional in Panama City crossed into the Zone carrying their own flag, intending to raise it at Balboa High. They were met by police and by a crowd of Zonians, and in the scuffle the Panamanian flag was torn. Word spread, crowds gathered at the border, and by nightfall the fighting had spread along the fence and into Colón. It lasted three days. Twenty-one or twenty-two Panamanians were killed, along with four American soldiers, and several hundred people were wounded; most of the Panamanian dead were shot by American troops firing into crowds. The damage was put at more than $2 million. Panama broke off relations, took the case to the Organisation of American States and the United Nations, and refused to restore them until the United States agreed to negotiate a new treaty. 9 January is now Martyrs' Day.

The riots did what seventy years of diplomacy had not: they made the canal a problem the American government had to solve. Johnson agreed to negotiate, three draft treaties were produced in 1967, and they collapsed because they kept American bases in a sovereign Panamanian zone and because Panamanian politics could not ratify anything that looked like a lease. Arnulfo Arias, elected president yet again in 1968, was overthrown on 11 October 1968, eleven days after taking office, by the National Guard he had tried to sideline. The Guard's two senior officers, Omar Torrijos and Boris Martínez, abolished the assembly and the parties, closed the university and censored the press.

Torrijos came out on top within a year, having seen off Martínez and a counter-coup in December 1969, and he turned out to be a different kind of soldier. He built a populist alliance of the Guard, the peasantry, students, the small People's Party and sections of the working class; he flew by helicopter to villages to listen to complaints; he described his rule, in a phrase the Library of Congress study borrows, as a "dictatorship with a heart". He also understood that nationalism was the only politics that united the country, and that the canal was the only nationalism available.

How did Torrijos win the canal back?

He began with diplomacy and, when that stalled, with embarrassment. Talks resumed in 1971 and went nowhere until Panama got the UN Security Council to meet in Panama City in March 1973, where a resolution calling for a "just and equitable" treaty was vetoed by the United States — a veto that did more for Panama's cause than the resolution would have. Washington sent Ellsworth Bunker as envoy, and in February 1974 Kissinger and Foreign Minister Juan Antonio Tack agreed eight principles: Panamanian sovereignty in the Zone, a fixed expiry date, more money, and a continuing American role in defending the canal. Kissinger then said publicly in 1975 that the United States must keep the right to defend the canal unilaterally for an indefinite future, and 600 students stoned the embassy.

The breakthrough came with Jimmy Carter, who was willing to give up a permanent physical presence in exchange for a guaranteed right to keep the canal open. The two treaties were signed in Washington on 7 September 1977 before representatives of twenty-six hemispheric states. The Panama Canal Treaty abolished the 1903 convention and everything after it, dissolved the Canal Zone on 1 October 1979, put the waterway under a binational Panama Canal Commission with an American majority on its board and an American administrator until 1990, and set the transfer for noon on 31 December 1999. The Neutrality Treaty, which had no expiry date, committed both countries to keep the canal open to all shipping "in time of peace and in time of war", and gave the United States a right to act against any threat to it.

Torrijos signed the second treaty without enthusiasm, and said so at the ceremony: the transition was 8,395 days, American bases would remain, and Panama was accepting "a treaty of neutrality which places us under the protective umbrella of the Pentagon". He extracted a Statement of Understanding from Carter two weeks later, clarifying that American action would be aimed at keeping the canal open rather than at intervening in Panama's internal affairs, and most of it was written into the Senate's instrument of ratification. Panamanians approved both treaties by 67.4 per cent in a plebiscite on 23 October 1977, on a turnout of 96 per cent. The Senate consented on 16 March and 18 April 1978, by 68 votes to 32 on each, after attaching the DeConcini condition allowing the United States to act unilaterally if the canal were closed.

Torrijos did not live to see 1999. He died in a plane crash in western Panama on 31 July 1981, and the Guard he had built turned on itself. Rubén Darío Paredes and then Manuel Noriega took command; the 1984 election was stolen for the government's candidate, Nicolás Ardito Barletta, by a margin of about 1,700 votes out of 300,000; and the officer who had been chief of intelligence since 1970 became the most powerful man in the country.

How did Noriega's regime end in an American invasion?

Noriega had been on the CIA's payroll since 1967, at $100,000 a year rising to $200,000, and had spent the 1980s helping Washington with Nicaragua and El Salvador while simultaneously taking money from drug traffickers and laundering it through Panamanian banks. The two careers became incompatible in 1985, when the dissident physician Hugo Spadafora was found murdered in a mail sack, having accused Noriega of involvement in drug trafficking, and in 1986, when Seymour Hersh published the intelligence relationship in the New York Times. American grand juries indicted Noriega in February 1988; Washington imposed sanctions; Panamanian banks froze; and because Panama used the dollar, the economy seized up.

The end came through an election. In May 1989 the opposition coalition's candidate, Guillermo Endara, appears to have beaten Noriega's man, Carlos Duque, by roughly three to one on the basis of returns counted at the polling stations. Noriega annulled the result, and his supporters beat Endara in the street with steel pipes. A coup attempt in October failed. On 15 December the National Assembly declared that a state of war existed with the United States, and that night Panamanian troops at a roadblock in the El Chorrillo district shot and killed an American marine officer, Robert Paz.

The invasion began before dawn on 20 December 1989. Some 27,000 American troops attacked the Defence Forces' headquarters, the airports and the bridges; the PDF, about 16,000 strong and largely a police force, was overwhelmed within days. Endara was sworn in as president at an American base the same morning. Noriega took refuge in the papal nunciature and surrendered on 3 January 1990; he was flown to Miami, tried, convicted of drug trafficking and racketeering, and sentenced to forty years. He died in Panama in May 2017, three months after his release.

The human cost is contested and the contest is political. The Pentagon's figures were 314 Panamanian soldiers and 202 civilians killed, 23 American soldiers and three American civilians. Americas Watch estimated about 300 civilians; a UN figure often quoted is 500; some Panamanian and Latin American groups put the total in the thousands. El Chorrillo, a poor district of wooden tenements next to the Defence Forces headquarters, burned, and the UN calculated that 20,000 people were displaced. The General Assembly condemned the invasion as a "flagrant violation of international law"; the Security Council resolution was vetoed by the United States, Britain and France.

What has Panama done with the canal since 1999?

The handover was quieter than anyone had expected. The Zone had ceased to exist in 1979; what remained was a transition in which Panamanians rose through the Canal Commission until they ran it — 82 per cent of employees by 1987, the administrator's post in 1990. At noon on 31 December 1999 the American flag came down at the administration building at Balboa and the Panamanian flag went up, with Jimmy Carter representing the United States and Mireya Moscoso, the president and widow of Arnulfo Arias, representing Panama. Panama took over some 370,000 acres, about 7,000 buildings, the ports at Balboa and Cristóbal, the railroad and two airfields.

What followed is a service economy built around the waterway and the legal arrangements attached to it. The canal is run by the Panama Canal Authority, a state agency with its own board and budget, which hands its surplus to the treasury: in fiscal 2025 it moved 13,404 vessels and 489.2 million tons, earned $5.7 billion, transferred $2.97 billion, and contributed 3.4 per cent of GDP directly. The Colón Free Zone, founded in 1948, is the largest free port in the Americas and the second largest in the world after Hong Kong, with some 2,500 firms re-exporting to Latin America and the Caribbean. Panama also runs the largest ship registry by number of vessels — over 8,300 — though Liberia passed it in tonnage in 2022. Banking, insurance, ports and tourism fill out the rest.

Membership of that economy has a price. The financial centre that made Panama useful to shipping also made it useful to people hiding money, and in April 2016 some 11.5 million documents from the law firm Mossack Fonseca were published by the International Consortium of Investigative Journalists, covering 214,488 offshore entities. The firm's founders were arrested in 2017 and acquitted, with 26 others, in June 2024, when a judge found the evidence insufficient and the chain of custody broken. The leak cost the country more in reputation than the prosecutions cost anyone in prison.

The canal itself has been rebuilt. Traffic reached the limit of the 1914 locks in the 2000s, and in a referendum on 22 October 2006 Panamanians approved a third set of locks by 76.8 per cent. The $5.25 billion project built new lock complexes at Agua Clara and Cocolí, widened and deepened the channels and raised Gatun Lake's operating level, was delayed by strikes, cost overruns and leaks in the new locks, and opened on 26 June 2016. It doubled capacity and let through Neopanamax ships about one and a half times the size of the old Panamax maximum.

Water is now the binding constraint. Each transit uses about 52 million gallons of fresh water, and the canal's reservoirs depend on a watershed that has been getting drier. In 2023, when Gatun Lake fell to its lowest level since at least 1965, the authority cut bookings from the usual 34 to 36 transits a day to 24, announced a further cut to 18 for February 2024, and restricted drafts; queues lengthened, some carriers diverted to Suez or to American rail, and traffic fell sharply. Bookings were restored through 2024 as the rains returned, but the authority has been buying land in the watershed, studying a third reservoir and pricing water through auctions ever since.

The politics have been less stable than the economy. Panama has had eight presidents since 1989, several of them under investigation: the Odebrecht bribery scandal reached two administrations, and Ricardo Martinelli was extradited from Miami in 2018 to face charges at home. José Raúl Mulino, elected in May 2024, inherited a migration crisis on the Colombian border — 520,085 people crossed the Darién in 2023 and 302,203 in 2024 — and then a diplomatic one, when Donald Trump began saying in December 2024 that the United States had been cheated over the canal. Mulino's answer was that the canal was Panamanian and there was nothing to discuss. In March 2025 a BlackRock-led consortium agreed to buy most of CK Hutchison's port business, including the two ports at each end of the canal, for $22.8 billion; Trump called it reclaiming the canal, and Panama called it a private transaction needing Panamanian approval.

Common myths about Panama

Timeline of Panama

What the map shows next

At 1905 on the map the republic is barely a year old and the map has just begun to draw it: the American canal project has started, the Zone exists as a strip cutting the country in two, and the boundary with Colombia has only recently stopped being a provincial border. That partition is the thing to look at, because it is what seventy years of Panamanian politics was about.

1977 on the map is the pivot. The treaties are signed that September, the Zone is two years from dissolution, and the map is drawing a country that is about to become continuous for the first time since 1903. By 1999 on the map the enclave is gone and Panama runs unbroken from Costa Rica to Colombia; at 2024 on the map the outline is the same, but the waterway is a Panamanian state enterprise handling a different fleet, and the argument has moved from sovereignty to water.