Before the United States became embroiled in World War II, it requested defense sites outside the Canal Zone for landing fields, roads, antiaircraft batteries, and warning stations. Arias, who openly sympathized with fascism, demanded compensation in the form of cash and the transfer to Panama of various properties. While in Havana, Cuba, on a private visit, he was removed from office by the national police (Panama had no army) in October 1941, and Ricardo Adolfo de la Guardia became president. After the Japanese attack on Pearl Harbor, Hawaii, on December 7, 1941, Panama transferred the defense sites to the United States, and tens of thousands of U.S. troops were stationed there to guarantee the security of the canal. While the waterway was never actually attacked, Japan had planned to do so, intending to use aircraft launched from submarines; however, the war ended before this effort could be mounted.

During and after the war the United States eventually returned 98 defense sites to Panama but continued negotiations on 36 others. The Panamanian government finally agreed to lease the sites, but the Panamanian National Assembly, influenced by the threat of mob violence, rejected the proposals. The United States abandoned the additional bases in 1947.

In 1945 the National Assembly put an end to the regime of de la Guardia, sent him into exile, and selected the ambassador to Washington, Enrique A. Jiménez, as president. In the presidential elections of 1948 Domingo Díaz Arosemena was declared the winner by the National Jury of Elections, depriving Arnulfo Arias of a victory. Díaz died in office in 1949, and, under a mountain of popular protests, his two vice presidents first accepted and then refused office. This action cleared the way for a bizarre maneuver by the election jury, which declared that, after a recount, Arias had won the presidency in 1948. Politics throughout this period were dominated by Colonel José Antonio Remón Cantera, commander of the increasingly militarized police, which became known as the National Guard.

In 1951 former president de la Guardia returned from exile and began to challenge the government. In May there was a run on the Federal Trust Company savings bank, which was subsequently closed; de la Guardia protested the closing and was therefore arrested. Then on May 10 Colonel Remón turned against Arias, who was overthrown, and Vice President Alcibíades Arosemena assumed power the following day. Remón won the presidential election of 1952 but was assassinated in January 1955.

The year 1955 was also notable for the flow of capital into Panama, including a loan from the World Bank that supported work on the Inter-American Highway and on local roads. But martial law was imposed in 1958 following student riots against the regime of Ernesto de la Guardia (elected in 1956) and against the United States. There were more disturbances during the first four months of 1959, and on Independence Day men said to have been students marched into the Canal Zone to raise the Panamanian flag. The police turned them back.

In the presidential election of 1960, Roberto F. Chiari emerged victorious. Despite a national debt of about $83 million and a budget deficit of some $10 million, he plunged into a vast program of slum clearance, housing, hospital construction, and health service. Arnulfo Arias also championed those efforts, and he became a front-runner in the presidential election of 1964; however, the National Guard intimidated voters who wished to support Arias, and the former secretary to the National Guard, Marco A. Robles, was declared the winner. Under Robles the economy of Panama was uneven. In January 1964 anti-U.S. riots were sparked when high school students in the Canal Zone used force to prevent the display of the Panamanian flag. In response to this action, Panama broke relations with the United States and attempted to take the dispute to the United Nations (UN) Security Council. These events led to reduced income from the Canal Zone and worried foreign investors, and unemployment became a serious problem. Eventually the United States agreed to renegotiate the Canal treaties, including setting a date for Panama to assume control over the canal and the adjacent Canal Zone. There were additional disorders in March and May 1968, when Arias, a presidential candidate, with his followers in control of the National Assembly, unsuccessfully attempted to impeach Robles.

Arias won the election, but after 11 days in office he was removed from power by the National Guard, which took control of the government. A ruling junta then instituted censorship of the press, suspended constitutional guarantees, and dissolved the National Assembly.

Rule by Torrijos and Noriega

By degrees, Colonel (later General) Omar Torrijos Herrera emerged as the leader of Panama. The constitution was again changed to strengthen and enlarge his powers. In 1972 a new national assembly, whose members were selected by Torrijos, gave him full executive powers and allowed him to rule as a dictator. Torrijos, behind a facade of popular government, transformed the appearance of Panama City through spectacular public works programs. The cost of these programs, however, plunged the country into heavy debt, and by 1977 an economic crisis loomed. Meanwhile, the dictatorship appointed and dismissed puppet presidents at will. In mid-1978 Torrijos obtained U.S. approval for the Panama Canal treaties (see Treaty relations with the United States), and this apparent triumph seemed to promise economic respite. He also agreed to U.S. requests to allow the exiled shah of Iran to enter Panama.

On July 31, 1981, Torrijos was killed in a plane crash, and a succession of colonels took command of the National Guard. In March 1982 Colonel Rubén D. Paredes became commander of the guard. When he resigned in September 1983 to pursue the presidency, control of the military and ultimately the country went to Colonel Manuel Antonio Noriega Morena, former head of intelligence.

Noriega renamed the National Guard the Panama Defense Force (PDF) and consolidated the dictatorship of Torrijos. He increased the size of the armed forces, harassed journalists, and ultimately created a paramilitary force to intimidate his opponents. The military retained control of customhouses, post offices, the Colón Free Zone, and other state-run enterprises. Also ominous was Noriega’s reported involvement in the narcotics traffic in collusion with Colombian drug cartels.

In 1984 Noriega permitted the first presidential elections in 16 years. Arias was the apparent winner, but after many delays in the vote count and suspected tampering, Nicolás Ardito Barletta, Noriega’s candidate, was proclaimed president. Eleven months later, Noriega deposed Barletta, who had dared to disagree with him, and replaced him with the first vice president, Eric Arturo Delvalle. In June 1987 riots erupted when the second in command of the PDF, Colonel Roberto Díaz Herrera, publicly accused Noriega of drug-related activities, murdering opponents, and rigging elections. In February 1988 Delvalle attempted to dismiss Noriega, who was being publicly condemned by factions within and outside the country. In the United States, Noriega was indicted in the same month on counts of drug trafficking and racketeering. Delvalle’s action resulted in his own dismissal, by orders of the Noriega-dominated National Assembly, and he was forced to take refuge on a U.S. military base, from where he continued to claim that he was the legal president.

U.S. President Ronald Reagan refused to recognize Delvalle’s successor, and in March 1988 he imposed sanctions, including the elimination of preferential trade for Panama and the withholding of canal fees. On March 16 an attempted military coup failed to overthrow Noriega, and paramilitary groups intensified their repression of antigovernment demonstrators.