how do people in panama traditionally dress?

Believe it or not, most of the guys wear Jeans and a button front "sport" shirt. That is both in the city and out in the interior. For leisure time, they'll wear a T-Shirt (which they call a "sweater") or an athletic jersey and jeans. The jeans usually have unfinished bottoms, not sewn to the correct length, and they wear the shirt out, not tucked in.

High level businessmen, Attorneys, Accountants, etc wear suits or just a long sleeve shirt and tie.

This is the capital city and Panamanians are very style conscious so the professionals dress up for business meetings.

In spite of the heat, you won't see Panamanian men wearing shorts on the street. If you see a guy wearing shorts he is probably a tourist or a Norte Americano.

Some will wear the real Panamanian hat. This is not the one usually associated with Panama. That one is from Ecuador and is only worn by touristas. The real Panama hat, comes from the "interior" of the country and they wear it with the front and back brim turned up as if would be if they had been riding a horse. You can tell the difference because it usually has a dark brown fiber woven into the crown, the brim or both. And the brim is bigger. The more famous Panama hat is all one color.

People in Panama make fun of the foreigners that dress up weird with baggy pants and dont look well groomed.