Panama is not part of South America. Panama is in Central America. In fact, Panama is the thinnest part of the land strip that connects North and South America. Of course, this is why the Panama Canal, is where it is. The Panama Canal connects the Pacific and the Atlantic ocean. Ships would have to travel all the way around South America! The panama Canal saves these ships almost 8000 miles travel. It is no wonder ships gladly pay $200,000 to $500,000 cash to Panama to avoid the fuel costs and time it would take to use the alternative route around South America.