TRAVEL / The Place Next Door: The Canal Zone: Freighters gliding through the jungle, colonial architecture and Wild West scenery are among the attractions of Panama, Costa Rica's unexplored neighbour. Simon Calder continues our series

THE JOURNEY from the United States to Panama confirms all your preconceptions about Latin America: sweaty, sickly air, tainted with the fumes of fierce cigarettes; heavily armed officials who leer suspiciously at strangers; taxi drivers gabbling conspiratorially in bad Spanish. And that's just Miami airport.

Once you touch down at Panama City's approximation to an international gateway, your fears are confirmed. Why did you not choose the easy option next door? Costa Rica, Panama's neighbour, has cultivated an image of stability in a region which is a roll-call of small but brutal conflicts - Nicaragua, El Salvador and Panama. Costa Rica, parading the fact that it has had no army since 1948, has cornered the market in pacifism and eco-tourism. Panama, meanwhile, has cornered the market in dodgy dictators. Though the election a fortnight ago was democratic, the people's choice as president was a pal of prisoner 41586 - General Manuel Noriega. The thug ejected by the Americans in 1989 is interned in a Miami prison, but some still remember him fondly. While Costa Rica is the acceptable face of Central America, Panama is regarded as the acne- scarred ugly sibling. This false impression keeps visitors away from a nation awesome in its landscape, history and hospitality.

None of these qualities is immediately apparent at the airport, however, as you battle to ensure the survival of yourself, your luggage and your wallet. Lightening the latter by dollars 20 (US currency reigns supreme) persuades a taxi driver to take you into the architectural confusion known as Panama City. If your budget is more important than aesthetic considerations, get him to drop you at the Hotel California, a cheap but cheerless slab of concrete. With your belongings safely double-locked inside your cell, you can begin to survey the capital. Your first impression is that it is a right old muddle, with the emphasis on mud. Nothing you subsequently see will convince you otherwise.

The flashier parts of the city indicate its status as a destination for funds of dubious provenance. Skyscrapers are clad in reflecting glass which mirrors the sunglasses worn by the armed guards outside - and by most of the bank customers. The poorer quarters of the city look as if they were jerry-built in the last century and have been patched up amateurishly ever since. Most of the cityscape comprises the squat, square, breeze-block style favoured by the designer of the Hotel California.

Why should you put up with this when the hotels in Costa Rica are safe, comfortable and considerably more elegant? Because Panama is the very heart of the Americas, and central to the conquest of the New World. And because you will have the time of your life there, once you escape from Panama City.

A couple of miles beyond the commotion of the modern capital, the original Spanish settlement breathes softly of past glories. You can wander across an expanse of lawn casually pocked by ancient foundations and weatherworn masonry. Its decrepitude is a consequence of the waves of marauders who have swept across the city and country, but amid the remains of the cathedral and fortress you can sense the old magnificence.

Panama got where it is today by being the slimmest point on the waist of the Americas, no more than 50 miles across. Its importance was sealed one day in 1513, when Vasco Nunez de Balboa led a straggle of Spanish colonialists from the Caribbean across to the Pacific. It took him 27 days, and he was beheaded shortly afterwards by the tyrannical governor, Pedarias the Cruel, who regarded him as a rival. You can make the journey in an hour and a half on a bus - and enjoy a longer life expectancy.

For a century or two, the natural harbour at Portobelo on the Caribbean coast was about the richest place in the world. Every precious morsel wrested from the western half of South America was shipped up the Pacific coast to Panama City, then hauled across the isthmus to Portobelo - a beautiful and calm haven where Columbus's ship once sheltered. The warehouses were abandoned long ago, and the jungle is creeping up on the ruins of colonial commerce. Portobelo these days trades only in lazy ambience. It feels like the end of the road, a lush suspension of normal life, where the main activity is a studied inactivity.

Everywhere else in the Americas it is easy to get your bearings, since the Atlantic lies in the east and the Pacific to the west. In Panama, contrary as ever, the plate tectonics have wrenched it out of position. So Portobelo is the one place on the Atlantic side where you can watch the sun set into the ocean. You could become besotted with sights like this. Next door in Costa Rica, any spot so serene would by now have been planted with retirement homes for rich Americans.

There are plenty of Americans living in Panama, but they are concentrated into the 10-mile strip of the Canal Area, owned and operated by the US. The octogenarian canal, carved through a continent between the world's greatest oceans, is one of the most stupendous things you will ever see. The Panama Canal Area is a slice of imported suburbia - and one of the most ridiculous things you will ever see. Balboa, the capital, is pure Small Town America - full of neatly cropped lawns, gum-chewing all-American kids and scowling GIs. They are guarding an investment which will be handed over to Panama in 1999, but until then generates a million dollars a day in tolls.

In Costa Rica the rainforest has been preserved intact, which is why tourists flock there. In Panama, the jungle is ruptured by an engineering project of astonishing audacity. The Channel Tunnel represents a mere splinter beneath the surface of the earth compared with the deep scar of the canal. The first attempt, by Ferdinand de Lesseps (who built the Suez Canal), cost 22,000 lives and ended in failure. The Americans took over the project, and the country, and completed construction in 1914.

The operation has changed little since then. Canal-watching becomes a spectator sport at Miraflores, the first set of locks. From a grandstand, you watch the painful process of guiding a freighter through a lock only just large enough to hold it. The work is done by 'mules', tiny railway locomotives which look like escapees from a child's train set as they struggle to manoeuvre the ship towering above them. While this spectacle unfolds, a tour guide bombards you with figures. In its 80 years of existence, you learn, the 'Big Ditch' has carried 75,000 vessels. Fees are calculated according to displacement; the lowest was 36 cents, paid in 1928 by a swimmer who swam from one ocean to the other. The average ship pays dollars 30,000 (about pounds 20,000) for what is described as a 'quality transit service'.

If you can't hitch a ride on a ship through the canal, follow its course by bus along the Trans-Isthmian Highway (try saying that after half a dozen bottles of Soberana, the strong local beer which leaves you far from sober). The first time you glimpse a freighter gliding through a gap in the jungle is truly startling. Up here at the Continental Divide, in thoroughly inhospitable terrain, you are on board a clapped-out bus which is overtaking an ocean- going vessel. No other country in the world offers such a spectacle, and few other places are so maligned.

The Sun, in one of its rare forays into foreign affairs analysis, summed up Panama as 'where the worst of both North and South America meet'. The precise location of this collision is the Bridge of the Americas - where the Pan-American Highway crosses the canal. The structure itself is unimpressive, looking like surplus stock from the Tyne, but the symbolism of the intersection is intense. If the Trans-Isthmian Highway is the rib of the Americas, then the Pan-American Highway is the spine.

It begins in Alaska, snakes through the Yukon and British Columbia, races south through the United States and strides through Central America, the potholes gradually acquiring the dimensions of small volcanoes. By Panama it is on the point of collapse. The only break in the whole 12,000-mile highway occurs a short way beyond the bridge over the canal, when the world's longest thoroughfare squelches to a muddy halt at the Darien Gap. The east of Panama is impenetrable jungle, which reduces the highway to a cul-de-sac. Make a three-point turn and start heading back to Alaska. The scenic rewards are as generous as the people you meet along the way.

The first treat waiting as you wander west is the Azuero peninsula, a swollen thumb of glorious countryside which matches Costa Rica's reputation for natural beauty. Few travellers venture off the highway to explore the dramatic valleys, a succession of backdrops which seem to have been lifted straight from a Western movie. Fewer still venture into the mountains in the extreme west of Panama. A wheezing wreck of a bus shudders its way around the precipices into the highlands, polluting the cool, clear air only a little. The people around here, the Guaymi, are rather baffled as to why you have strayed so far, but welcoming none the less.

I found it hard to leave Panama. Not in the cliched sense that I would miss the kind, gentle people and their breathtakingly beautiful nation; I just couldn't get my passport stamped with an exit permit. I set off to find my way to San Jose - the capital of Costa Rica - on a lonely road which began in Rio Sereno (go to the middle of nowhere and take the first left) in Panama and ended in a town where order seemed suddenly to have been restored - not a single restaurant had an armed guard outside. I was clearly in Costa Rica, but there was no official border post. Being unable to exit Panama formally, I am technically overstaying my official welcome, and, as far as the authorities are concerned, am still there. I wish I really were.

Simon Calder is co-author, with Emily Hatchwell, of the 'Travellers' Survival Kit: Central America' (Vacation Work pounds 9.95).

TRAVEL NOTES

GETTING THERE: There are no direct flights between the UK and Panama. South American Experience (071-976 5511) has flights on KLM via Amsterdam for pounds 491 in June; this allows you to return from San Jose in Costa Rica - or other Central American capitals - for the same fare.

GETTING AROUND: Half a dozen airlines operate domestic flights. Fares are low, but so are safety standards. Buses run frequently along the Pan-American and the Trans-Isthmian highways. Away from the main routes, minibuses in various states of disrepair operate sporadically, departing when full or when the driver feels like it.

TRAVEL ALERT: The latest Foreign Office advice warns against crossing the Darien Gap, and recommends caution especially around the capital. Call Travel Advice (071-270 4129) or consult BBC 2 Ceefax page 564 for up-to-date advice.

FURTHER INFORMATION: The Consulate-General of Panama is at 119 Crawford Street, London W1H 1AF (tel: 071-224 1140, fax: 071-224 1440). No visas or vaccinations are required for British visitors.

(Photographs and map omitted)