The hilly town of Boquete, Panama, is growing fast, thanks in part to expatriate retirees, but its mild climate, physical beauty and friendly people far outweigh any inconveniences, its residents say.

Boquete, Panama ? New Zealand was too far, the south of France too cold and Colombia too unsafe for Casey and Susan Koehler. So the former Floridians settled on this mild and isolated coffee-growing town in western Panama for their retirement home.

A former U.S. government official, Casey Koehler had the bucks to spend his golden years anywhere. That he and his wife chose this hilly, horsy town of 20,000 over their three other “finalist” destinations speaks volumes about Panama’s growing attraction to American retirees.

“I’m a heart-attack survivor, so I like the laid-back thing. And knowing that every day I wake up it’s going to be between 72 and 80 degrees,” said Casey Koehler, 66.

Two years ago, he and his wife plunked down $192,000 cash for a three-bedroom, 4,000-square foot house in the Los Molinos subdivision. The purchase price was a one-third of what they would have paid in Naples, Fla., where they used to live.

And while the Koehlers’ home is near a scenic canyon and waterfall, a typical Boquete tableau, they and 1,000 other foreigners who have retired or bought second homes here have been lured by more than tranquillity, the weather and beautiful scenery.

For expatriate retirees, Panama offers big discounts on plane fares and hotels, good health care and shopping. All foreign income – such as U.S. pension benefits or Social Security – is exempt from tax. And for Americans, financial matters are simplified because Panama uses the U.S. dollar as its currency.

The atmosphere simply is friendly and more pro-American than many other Central American countries.

“The cost of living is much lower and the roads much better than places like Costa Rica,” said Shirley Bynum, a former Huntington Beach, Calif., resident who moved here two years ago from Gracia, Costa Rica. “And the tax system is more favorable.”

Bill Schroff, a former investment banker who advises U.S. investors and companies moving here, said Panama’s cost advantages over “Miami, San Diego or other nice-weather places that people want to retire to” are dramatic.

“Plus, Panamanians welcome us,” Schroff said. “It’s been an international banking and transportation hub for decades. They’re used to having gringos around, and they like us.”

Although Mexico and Costa Rica have been gaining popularity for several decades, Panama was “discovered” just a few years ago. Special retiree visas granted by the Panamanian government during the past 12 months exceeded 1,300, triple the figure for all of 2004.

Schroff’s company, Panama Real Estate Holdings, specializes in the Panama City high-rise market, in which foreigners are snapping up condominiums in the dozens of projects going up in the capital’s frenzy of construction. Americans aren’t the only buyers: Expansion of the Panama Canal and the booming economy are drawing multinational companies whose executives need housing.

“A lot of little things have gone our way,” Panamanian developer Jose Antonio Bern said.

But some clouds are on the horizon.

Rapid growth has overloaded streets with traffic and been a drain on the water system. During the January-to-April dry season, Boquete residents go days without running water, a period during which they have to rely on cisterns or delivered water.

Crime, once unheard of, has reared its ugly head: The area averages two break-ins a month, Mayor Manolo Ruiz Castillo said. To cope, the town, about 200 miles west of Panama City, soon will inaugurate a new municipal police force. Until now it had relied on the national police for protection.

Line Vreven, director of international affairs at AARP, the Washington-based advocacy group for the 39 million Americans age 50 or older, noted that Panama recently reduced the length of tourist visas to 30 days from 60 days, making shopping for a house more pressure-packed.