For our Geo Quiz, we asked you to locate a Central American colonial city that's undergoing a serious renovation.

The answer is the historic center of Panama City: Casco Viejo.

The World's Jason Margolis visited the place:

MARGOLIS: Panama City was bustling in 1657, awash with Peruvian gold and silver. Then the infamous pirate Henry Morgan paid a visit. He burned the city to the ground. The Spanish learned their lesson. They rebuilt the town a few miles up the road... on a small rocky peninsula that afforded better protection. That's when Casco Viejo was born.

On a recent rainy day, Ariel Espino takes me on a walking tour of the area. He's the director of the office of the old city, responsible for the area's rehabilitation.

Ariel Espino

"Most of the really important historic events of the history of this country were staged here or happened here. The independence. From Spain, the independence from Colombia. The canal projects, first with French than with Americans."

Even though Panama was a Spanish colony, the architecture in Casco Viejo has a distinctly French feel; ornate iron balconies adorn many two and three-story buildings. The French built up the city in the late 19th century when they tried to build a canal across the isthmus. They failed. Malaria and yellow fever claimed more than 22,000 lives. In the early 20th century, the Americans came to finish the job. Today, the buildings of Casco Viejo are an eclectic mix of styles and conditions: some buildings are strikingly beautiful, painted in dazzling bright colors. Others... have seen better days.

"Well we have here a good sample in this block. We have Casa Gongoro on the corner, which is the oldest house in the city, the oldest standing house in the city. It's owned by the city and used as an art center...Then we have a building being renovated by a European group of investors. And this building will probably be finished this year. Then we have a typical dilapidated house where some families have lived for many years. Probably squatters because squatting became the norm here some 20 years ago. And falling apart basically."

But overhauling a neighborhood is more than just restoring buildings. It's bringing back people... cafes, restaurants and stores. And some affordable housing. Slowly, the area is coming back into vogue.

At night, street musicians play outside the restaurant, "Casa de Portugal." Arlindo Santos opened up here three months ago. It's one of a only a half dozen restaurants in the neighborhood.

(in Spanish): "The changes in this neighborhood over the last few years have been radical...If you would've told me 4 years ago that you were giving me your property here, for free, there's no way I would've come."

Back then, there was little development. Crime and gangs were a big problem. Things have changed, but several police officers still mill about, telling visitors where not to go. The place TO go is the bar and restaurant, Platea. It opened just a year ago, and business is booming. Coca Morazo is the manager. We walk downstairs into the club.

"It's really good. It's increasing a lot... And people are starting to come here and they like very much. "

She opens the door and points to photos on the wall: a who's who of Panamanian jazz and salsa legends.

"As you can see there we have Danillo Perez, Nindo Fremont, Billy Coban, That's Barbara Wilson ..."

They all hang out here. On this night, Francisco Buckley is in the audience. Now age 67, he's one of the greats of Panamanian salsa.

We walk outside and chat in the street. He says things are changing quickly around here.

"And the country I know where I'm born, it's getting very expensive now. It's getting so expensive now. Once it wasn't so expensive. It's getting very expensive... next 10 years from now. We expect it to be this as, for tourism, as popular as Cancun, or you know, one of those hot places in Mexico."

Many of the people coming to Casco Viejo are foreigners - mostly American, Canadian, and European retirees. I ask Buckley if that's good or bad. He pauses, reflects then says it's good. It's progress. And he says some lucky Panamanians are cashing in as well.

"Well, Who is buying now is getting a very good opportunity. And I have friends buying in Casco Viejo. They pay a half a million dollars then they sell for a million, just in one year, two years. I think that it's a good business."

And that's what the government needs: good business opportunities. Nine out of 10 buildings here are privately owned. So while the government can help spur renovation, ultimately it's up to the free market to help revive this historic area of Panama.