Thousands of Panamanians joined the January 9, 1964, protest over the refusal by American authorities to fly the Panamanian flag over Balboa High School in the Canal Zone. A bloody confrontation ensued with U.S. troops that left 23 Panamanians and four U.S. Marines dead.

By Steve Nettleton
CNN Interactive

(CNN) -- January 9, 1964, is known in Panama as Day of the Martyrs. It was on that day 23 Panamanians and four U.S. Marines were killed in riots sparked by the American refusal to fly the Panamanian flag over Balboa High School (then inside the U.S.-ruled Canal Zone). The scuffle marked a violent peak of a growing resentment against the United States for what Panamanians perceived as decades of unfair treatment by their de facto colonial power.

Nearly 36 years later the final lowering of the Stars and Stripes above the Panama Canal is triggering an ironic shift in national sentiment. While jubilant over regaining sovereignty over their entire country, some Panamanians are also worried about a future without the United States.

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"There's kind of a historical vindication ... and a sense of national pride in the fact that they now control one of the last outposts of colonial presence," said Bruce Bagley, a professor at the University of Miami's School of International Studies.

"On the other hand, it has created great consternation in Panama about the future, because the United States was an important source of both employment and income and a guarantee for Panamanian security," said Bagley, a recognized authority on Latin American affairs.

Panama's love-hate relationship with the United States has remained one of the most significant factors in Panamanian politics in its 96 years of independence. It was Washington's support that helped Panama seize its freedom from Colombia in 1903, and it was U.S. investment and determination that built what Washington viewed as Panama's raison d'etre: the Panama Canal.

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Though the 10-mile-wide Canal Zone and its significant U.S. military presence rankled nationalist Panamanians, the arrangement provided thousands of jobs and injected millions of dollars (called "balboas" in Panama) into the country's economy.

A poll published in the Panama City newspaper La Prensa in September found that 61 percent of the 1,219 Panamanians surveyed favored talks on continuing some form of U.S. military involvement after the canal is returned.

Negotiations on exactly what kind of involvement, however, have stalled, and Panama's new president, Mireya Moscoso, has pledged not to seek talks that would "mean the continuation of U.S. military presence in Panama."

The closing of Fort Clayton, on the eastern shore of Miraflores Lake about 5 miles from the canal's Pacific coast terminus, ended the U.S. military's 88-year presence in Panama. The transfer to Panama took place in a colorful formal ceremony on July 30, 1999.

Moscoso and her government are, however, insisting the United States perform at least one more military deed: clean up at least 7,000 acres (2,800 hectares) of former live-fire training ranges littered with unexploded ordnance. The Pentagon contends it has cleared most of its ranges of ammunition, and says it would be too expensive to clean other large sections of inhospitable jungle.

Like her predecessors, Moscoso has little leverage in forcing the United States to bow to Panama's interests.

"Panama is a small state incapable of effectively protecting itself from U.S. depredations," said Bagley. "I think it is both geographically predestined and geopolitically determined that Panama has very few options."

Apart from Omar Torrijos Herrera, who successfully negotiated the return of the canal with U.S. President Jimmy Carter, most former Panamanian leaders have ultimately failed to override U.S. interests in Panama's affairs.

A scene from the December 1989 U.S. military invasion of Panama, ordered by President George Bush to capture dictator Manuel Noriega and bring him to trial in Miami on drug trafficking charges

Perhaps the most dramatic example of this came in December 1989 when U.S. troops invaded Panama and ousted military ruler Manuel Noriega, accusing him of murder, drug trafficking and a host of other crimes. Few Panamanians were angered by the U.S. intervention, however, thanks to Noriega's history of brutal repression.

Since Noriega's departure, Panama has fought to shake off a reputation of resorting to military dictatorships. And Moscoso, who defeated the son of Torrijos in the 1999 presidential election, has vowed to crack down on corruption and nepotism and clean up Panama's image.

Such a pledge may be tough to keep. The transition of former U.S. properties in the Canal Zone into private enterprise is vulnerable to possible bribery and kickbacks. Money-laundering, while down from its peak in the 1980s, maintains a foothold in Panamanian banks.

And lurking on the southern border regions with Colombia are leftist guerrillas, a possible security threat to the fledgling democracy.

On the eve of what many Panamanians consider their proudest moment, the dangers they face have evoked among some a sense of nostalgia for the past and fear of the future.

"The United States presence there was not an unmixed curse," Bagley said. "It had its silver linings, and those silver linings have largely departed. And they have left perplexity and uncertainty in their wake."