Zuly’s Independent Backpackers (Calle Ricardo Arias near Avenida 3 Sur, tel. 269-2665, cell 6605-4742, www.zulysbackpackers.com , starts at US$8.50 pp) recently moved from its old home to a new spot across the street, though given its central location it’s quite likely skyscraper construction will uproot it again before too long. To get there, stand with your back to Restaurante Costa Azul and walk straight for 30 meters, crossing Calle Ricardo Arias and heading up the alley; Zuly’s will be on the right.
It hardly seemed possible, but the “new” Zuly’s is even more grungy and decrepit than the old one. This is definitely not one of Panama City ’s cleaner hostels. On the other hand, it occupies the entire four-story apartment building, and it has a strong gate out front and a walled garden behind, which makes for a relatively secure and (at least during the day) peaceful setting for a hostel in the heart of the city. It’s run by Panamanian Zuly Gutierrez and her German partner, Richard Hoehe, who are this place’s secret weapon. They are friendly, helpful, and stuffed full of useful information for budget travelers.
The hostel consists of 43 beds scattered among 12 rooms. Rates are US$8.50–9 for a bed in a fan-cooled dorm and US$10 for an air-conditioned dorm. Per-person rates are US$0.50 (fan) or US$1 (a/c) lower for couples who share a double bed in the dorms. Per-person rates for private rooms are US$11 (fan) and US$12.50 (a/c). If all the beds are taken, guests can camp in the garden for US$6. Guests can check in as early as 5 A.M. and as late as 1 A.M. The hostel offers free Wi-Fi and coffee. Breakfast is not included, but there’s a shared kitchen. Guests can use the washer (US$2) and dryer (US$2).
The owners will help arrange overland trips to Kuna Yala  or passage on a sailboat to Cartagena, Colombia. (The latest departures for Cartagena are listed on Zuly’s website; they’ll help even if you aren’t a guest.)
Across the street from Zuly’s, next to Restaurante Costa Azul, is Hostal San Roque (Calle Ricardo Arias and Avenida 3 Sur, tel. 264-3566, starts at US$15 pp), one of a growing number of local converted apartments trying to get in on the hostel craze. This one has a few things going for it, including a small inside courtyard and thick walls that make it a relatively quiet oasis in the middle of a busy part of town—as long as fellow guests keep it down, which they did when I visited; this is not a party place. There is a single eight-bed dorm. It’s plain and windowless, but air-conditioned and pretty clean, with a shared bath. Private rooms are also air-conditioned and start at US$40 s/d. This place has a very Panamanian vibe and has yet to be discovered by the gringo backpacker crowd.