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Panama, city (1990 pop. 584,803), central Panama, capital and largest city of Panama, on the Gulf of Panama. Founded in 1519 by Pedro Arias de Avila, the city flourished in early colonial times as the Pacific port of transshipment of Andean riches to Spain. After it was destroyed in 1671 by Sir Henry Morgan, it was refounded (1673) 5 mi (8.1 km) west on a rocky peninsula. The city declined as the Andean sources of gold disappeared but revived briefly during the California gold rush and the building (1848–55) of the trans-Panama railroad. Construction of the Panama Canal brought assured prosperity, and American sanitary measures and disease control made Panama a clean and healthful tropical city. The political, social, and cultural nucleus of the nation, it expanded rapidly after World War II into a polyglot metropolis, creating new residential districts, improved recreational facilities, and such educational centers as the Univ. of Panama (founded 1935), important because of its inter-American organization and curriculum. Panama City is no longer a port; commerce is handled through neighboring Balboa. Although the city has a diverse manufacturing base, its primary economic activities are providing services for the canal employees and serving as a center for international banking. The city has a reputation as a drug transshipment point between South America and the United States and as a center for money-laundering. In Dec., 1989, Panama City was invaded by U.S. troops (see Panama), resulting in serious municipal damage and substantial civilian casualties. Panama City continues to experience rapid growth and ensuing social problems.
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