Indians were the first inhabitants of what is now Panama. Few early records of the Indians exist, and scholars do not know when the Indians first settled in the area. The Indians farmed, fished, and hunted.

Spain took control of what is now Panama from the Indians during the early 1500's. In 1501, Rodrigo de Bastidas, a Spanish explorer, became the first white person to reach the area. In 1502 -- during his fourth voyage to the New World -- Christopher Columbus, an Italian navigator employed by Spain, landed in what is now Panama. He claimed the area for Spain. A group of Spanish soldiers and colonists reached Panama in 1510. The Spaniards established colonies along the Atlantic coast. The Indians told the Spaniards of a large body of water that lay across the Isthmus of Panama, not far away. The body of water was actually the Pacific Ocean. Vasco Nunez de Balboa, acting governor of the colonies, led an expedition across the isthmus. On Sept. 25, 1513, he became the first white person to see the eastern shore of the Pacific.

The fact that Panama was only a narrow strip of land between the Atlantic and Pacific made the area important to the Spaniards. Sailing from military bases they established along the Panamanian Pacific coast, the Spaniards explored the west coast of Latin America. They conquered many of the Indian lands they reached. The most important conquest took place in the 1530's, when Spaniards led by Francisco Pizarro defeated the Inca of Peru. They took gold and other riches from the Inca and from other Indians. Spain built a stone road across Panama to transport the riches from the Pacific to the Atlantic coast. The riches then were shipped to Spain.

The Spaniards did little to develop Panama's economy. They treated the Indians harshly and killed many of them. Under Spain, Panama became a center for the distribution of black African slaves in the New World.

In the 1600's, Henry Morgan of England and other pirates attacked Spanish ships and towns in Panama. Many Spanish ships carrying goods from Peru began sailing around the tip of South America to avoid the pirates. Panama declined as a transportation center.

Colombia gained independence from Spain in 1819. In 1821, Panama broke away from Spanish rule and became a province of Colombia.

A gold rush began in California in 1848. People from the Eastern United States began sailing to Panama, crossing the isthmus to the Pacific, and then sailing on to California to reach the gold rush area.

Businessmen from the United States built a railroad across Panama to speed up passage across the isthmus. The railroad was completed in 1855, and Panama again became a busy transportation center.

Many laborers from other lands moved to Panama to help build the railroad. They included thousands of blacks from the West Indies. Many of the black laborers settled permanently in Panama.

Relations between Panama and the rest of Colombia were always strained, and, beginning in 1830, Panamanians staged several revolts against Colombia. In 1903, Colombia refused an offer by U.S. President Theodore Roosevelt to build a canal across Panama. Panama, encouraged by the United States, then revolted against Colombia. It became an independent nation on Nov. 3, 1903. The United States hoped to gain approval to build the canal from the newly independent country. It sent ships and troops to protect the new government against an overthrow by Colombia. The United States, with Panama's approval, then began building the canal.

The Panama Canal was opened on Aug. 15, 1914. It brought prosperity to the part of Panama near the waterway. The United States established the former Panama Canal Zone there. The economies of the Canal Zone, Colon, and Panama City flourished. Many Panamanians moved to the canal area to find jobs. But the changes near the canal had little effect on other parts of Panama. Most of the country remained rural and underdeveloped.

Political rivalries brought instability to Panama's government during the early and mid-1900's. The government changed hands many times.

Many Panamanians opposed U.S. control of the Panama Canal and Canal Zone. They demanded Panamanian control. In the 1950's and 1960's, Panamanians staged many demonstrations and some riots against U.S. control.

In 1968, Omar Torrijos Herrera, a military officer, took control of Panama and began to rule as a dictator. He strengthened the movement to end U.S. control of the canal and Canal Zone. In 1977, Panama and the United States signed a treaty designed to end U.S. control. The treaty resulted in the transfer of the Canal Zone to Panama in 1979. It also provided for the transfer of the canal to Panama on Dec. 31, 1999.

Panama today faces a period of major change. The transfer of the canal and Canal Zone probably will have major effects on the country's economy. Panamanian government and business leaders are planning to establish new manufacturing and processing plants and other businesses in the zone. Also, jobs held by United States citizens that are related to the operation and maintenance of the canal gradually will be taken over by Panamanians. These developments provide opportunities for much economic progress for Panama.

But the transfer of the Panama Canal and Canal Zone also presents challenges to Panama. The canal's operation and maintenance requires many technical skills. Panamanians must be trained in the skills to run the canal efficiently. Also, investments and spending by the United States government and U.S. citizens will probably decrease along with U.S. involvement in Panama.

Panama also faces the challenge of improving the parts of its economy that are not related to the Panama Canal. The country has valuable resources, including forests, fishing grounds, and fertile farmland. But Panama's forestry, fishing, and agricultural industries have never been developed to their full potential.

General Torrijos gave up control of Panama's government in 1978. Civilian leaders took control, but Torrijos kept much power as head of the military. Torrijos died in a plane crash in 1981. The military continued to hold much power after his death.

In 1983, General Manuel Antonio Noriega became head of the military and Panama's most powerful leader. In 1987, a former aide of Noriega accused him of election fraud in the 1984 presidential election, killing a political opponent, and making large amounts of money through corruption. In 1988, two U.S. federal grand juries in Florida indicted Noriega on charges of drug trafficking and racketeering in the United States. Panamanian President Eric Arturo Delvalle dismissed Noriega from his military command, but Noriega supporters forced the president from office. The U.S. government denounced this action. It imposed extreme economic sanctions against Panama and called for Noriega's resignation.

In 1989, Panama held a presidential election. Guillermo Endara, a politician opposed to Noriega, apparently won the election. But the Panamanian government declared the election invalid. On Oct. 3, 1989, a group of Panamanian soldiers tried to overthrow Noriega, but failed. The United States provided minor aid to the rebels by blocking some key roads. In December 1989, Panamanian soldiers killed a United States marine lieutenant. Mentioning this incident and the drug trafficking charges, U.S. President George Bush ordered troops into Panama to overthrow Noriega.

In January 1990, Noriega surrendered to United States officials, and Endara was named president of Panama. A new civilian government was formed. In 1992, Noriega was convicted on charges of drug trafficking, money laundering, and racketeering. He was sentenced to 40 years in prison. Noriega appealed the conviction. In 1994, Ernesto Perez Balladares was elected to succeed Endara as president.

SOURCE: IBM 1999 WORLD BOOK