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I'm not exactly sure how you get the extension beyond 30 days; I know it involves going to the police station and paying a very small fee, but that's all I know. Most people don't do it -- if they stay longer and do get stopped, they plead ignorance. (I'm not recommending that, necessarily -- just describing reality.)
If you stay longer than 90 days, you definitely should get a Panama driver's license --it's the law. If you already have a valid license from another country, you don't have to take Panama's written or driving test -- they only test your vision and hearing.
But, the process is a bit convulouted: You first have to get your foreign license "certified" (notarized) by the US consulate in Panama -- they charge $30. Then you have to register that certification with some Panama agency whose name I've forgotten. Then you have to get a blood test from a certified lab, in order to type your blood. Then with all of that paperwork, and your US license and passport and $40, you go to the agency in Albrook to get your license.
If you plan to stay in Panama for more than 30 days, you definitely need to make friends with an attorney, imho. S/he can help you navigate all of this stuff far better than a chat board is going to do. Plus, you want someone "on the ground" to turn to should any sort of caca hit the fan, god forbid.
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