Magic of Panama

Panama City used to be somewhere people travelled through, not to. But the transformation of a run-down neighbourood into one of the hippest barrios in Latin America is changing that. Vicky Baker reports. A grubby billboard stands propped up against the kerb. "La Casona de las Brujas", it reads, which loosely translates as the House of Witches.

It seems appropriate for a dark side street in Panama City's ramshackle Casco Viejo neighbourhood. I have no idea where Xili, my Panamanian friend, is taking me, but I'm pretty sure she doesn't have a secret penchant for black magic.

Five minutes later, it becomes clear. Some sort of magic has been worked here, but it's far from sinister. What was once a girls' school has been transformed into one of the funkiest live music venues in the city. A shabby corridor leads to an open-air courtyard decked in fairy lights: the school's old wooden desks have been brightly painted, barrels have been upturned to make seats, and there's a giant portrait of the Virgin Mary keeping watch over the dance floor.

Panama does not spring to mind as a place to find decent alternative music, but it's fast gaining that reputation. Places such as La Casona - hosting a diverse bill of artists, national and international, signed and unsigned - are gaining huge fan bases and confounding preconceptions.

Until recently, the Panamanian capital was a place where travellers stopped only long enough to take a photo of the canal and do a bit of shopping, before moving on to the San Blas islands or the country's other famous archipelago, Bocas del Toro, near the Costa Rican border.

But more and more people are now using the capital as a base. As well as its nightlife and booming restaurant scene, you've also got a wealth of attractions within easy reach, including two coastlines and the breathtaking rainforest with toucans, hummingbirds, harpy eagles, howler monkeys, even the occasional jaguar if you're very lucky.

The place that has really got people talking is Casco Viejo (also known as Casco Antiguo). Until very recently it was a slum, but now this edgy district in the west of the city is the place to be seen. A low-rise maze of winding streets filled with colonial architecture, it is at that intriguing stage where a Wifi-enabled cafe with immaculately groomed window boxes sits next to an abandoned shell of a building with no windows.

It is also where the best nightlife is found. Bypass Calle Uruguay, a neon-lit central avenue lined with mainstream bars, restaurants and clubs, and head for La Casona de las Brujas (enlacasona.com).

At the forefront of the area's artistic renaissance, the nomadic La Casona makes its home in rundown colonial properties before the developers move in. After a successful stint in the school, it's about to unveil its latest location: an art deco bank with a high ceiling and the look of a hip loft apartment, just across the road from the school at Plaza Herrera.

"Everyone's talking about the property boom here, but the country's music is equally explosive," says Fred Maduro, lead singer of the Vox, a metal and prog rock band that I see play at La Casona.

"There's huge diversity here - bands are fusing native music with rock, creating a really fresh sound."

It seems the region at large is finally taking note of the country's talent too. Last November, a homegrown band, Los Rabanes, won a best album award at the Latin Grammys with their mix of ska, punk, reggae and rock.

The jazz scene is also attracting attention. If you miss the huge January festival, try Platea (scenaplatea.com) in Casco Viejo, a cosy joint with bare-brick walls that alternates live jazz nights with salsa. "James Bond was here recently," the barman tells me proudly. Daniel Craig was in town shooting the latest 007 film, Quantum of Solace, with Panama standing in for Bolivia and Haiti.

For something grittier, Fridays and Saturdays bring heavy rock to Banos Publicos (Plaza Herrera), which, as the name suggests, was once a public toilet. Behind sliding grill doors is a venue little bigger than a garage, painted black and decorated with glinting CDs hanging from the ceiling. The lack of frills makes you feel as if you've gatecrashed a squat party.

Panama City's nightlife is enough to make a person nocturnal. But sleep through the day and you miss Panama's other big draw: the beaches.

Here not only are you faced with the usual dilemma of which bathing suit to pack to the beach, you also have to pick a coast, Pacific or Caribbean. I consider tossing a coin, but I decide to opt for the one that's been recommended by a local. "Well, it's a Caribbean island . . ." she begins, and I am sold.

I board a diablo rojo, or "red devil", as these ubiquitous converted American school buses are known in Panama. Resembling drive-by art shows, each one is covered roof-to-bumper in graffiti. (Think macho caricatures of Tupac and Beanie Man mixed, oddly, with cartoon characters and fairytale castles.) I make a brief stop at Portobelo - once a major hub for trading gold, now a likeable town, with a Unesco-listed ruined fortress and a forthcoming role in the Bond flick. Then, it's just a short hop to the shores of Isla Grande.

Despite the name, Isla Grande isn't that big - just 5km by 1.5km, with a population of around 200 people of African descent, most of whom live in colourful, low-rise buildings on the strip surrounding the main landing dock. Homely restaurants, bars and posadas dot the coast, while a winding path through a forest filled with coconut palms, banana trees and fist-sized butterflies brings you to the more isolated northern shore and the small, luxurious Bananas Village Resort (bananasresort.com).

I arrive on a weekday, so there are no crowds of day-tripping urbanites. A two-minute walk from the dock takes me to a peninsula of empty sand, with shallow waters that are a tie-dye spectrum of blues.

Isla Grande may not have the remote isolation or indigenous tribes of the San Blas archipelago, a 50-minute flight (or three-hour jeep and boat ride) to the northeast of Panama City. But it has got the clear-watered beaches, and a laidback vibe. "Check out: 2pm," reads the sign outside the waterside posada Cabanas Cholita, home to colourful mosaic-covered walls and quirky lobster decorations.

Activities on the island include snorkelling (keeping an eye out for Francis Drake's lost coffin, rumoured to be lying somewhere in these waters), rambling to the central lighthouse, or taking a boat trip round the mangroves.

But, in keeping with the spirit of the island, I do none of the above.

Just lying on the sand and splashing about a bit suits me fine. Besides, there's lots of eating to do: cerviche, chichemie (a corn drink that resembles cold rice pudding) and cheesecake at a thatched cafe called El Nido del Postre (overpriced and not very Panamanian, but irresistible nonetheless).

NOTE: Stay at the chic Canal House (+507 228-1907, canalhousepanama.com) in Casco Viejo, from $155 (BD58) per room.