Old Panama was built by the Spanish (though, for a change, without using
Mayan or Incan stones to do it), and at the time, this was the only area
settled. The wall here was part of the fortification designed to protect
the city — and their incoming ships —
from marauders. It didn't work very well, as a well-known Captain Morgan
(yes, the one from the rum bottle) repeatedly showed up and ransacked
the city for booty.
Today, Old Panama is more or less a disaster zone. Nearly all the old
buildings are minutes away from complete structural failure, and the
government hasn't nearly enough funds to renovate anything more than
one or two streets of the neighborhood. At low tide, the plethora of
graffiti and urine smells make this old wall seem much less like a
historic landmark, and much more like a dumpy neighborhood.
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