A conflict has been brewing in the Canal Zone, culminating in the Governor disallowing the flying of either the American or the Panamanian flag. Forceful flying of the American flag in multiple locations within the Canal Zone by students of Balboa High School sparked outrage from Panamanians across the border, like the students of Instituto Nacional. The latter took a Panamanian flag and a sign proclaiming Panamanian sovereignty over the Canal to the Zone to raise it over Balboa High. A clash with the Zonian students ensued, in which the flag was torn.

News of the event spread like wildfire and before long, massive crowds had assembled at the border between Panama and the Zone, attempting to cross the fence and plant Panamanian flags whereever they could reach. Zonian authorities resorted to tear gas and crowd control, but by the evening, the 80-strong police department was overwhelmed with a crowd of 15,000.

The situation worsened quickly with American-owned businesses being looted and burned in Panama City. Within a few hours the news had passed all over Panama and given rise to wild rumours, among them a popular notion that the USA was about to make the Canal Zone a fully integrated territory. Wild rumours bred wild riots, the city of Colón saw widespread direct combat between Panamanians and Zonians.

With the riots completely out of control, casualties begin ramping up, and with them, controversy. A multitude of sources spread news of Zonian police forces shooting protesters and bystanders, with pictures emerging of one Ascanio Arosemena, a 19-year-old student, who was helping evacuate wounded protesters when he was apparently shot to death. An infant girl was declared dead from respiratory problems after being exposed to tear gas in her neighbourhood.

International media begins to strike hard at the Zonian local authorities, quickly expanding to take shots at the US on the whole.

President Roberto Chiari has officially suspended diplomatic relations with the US until the latter opens a new round of negotiations on the treaty concerning the Canal.