Panama hats are the trademark of Cuenca, Ecuador's third-largest and arguably most beautiful city—the misnamed toppers were first manufactured in the Cuenca area and continue to be produced there.
The town, located 80 mi/130 km southeast of Guayaquil and honored as a UNESCO World Heritage site since 1999, is one of South America's best preserved colonial cities with an old-world, Spanish-colonial feel—flower boxes at windows, wrought-iron balconies, red-tile roofs, cobblestoned streets and a lively market (Thursday, with a smaller market on Saturday). It's also a center for arts and crafts—many of the items sold in Quito and Guayaquil come from this area. Among the sights are several cathedrals and convents.
The best archaeological exhibits are at the Museo del Banco Central, located right in the heart of town, this museum offers excellent exhibits and dioramas about Ecuadorian culture and history. The Museo de Las Conceptas is housed in the Convent of the Immaculate Conception and is Cuenca's most famous religious art museum. The nuns there are cloistered, but visitors can see a diorama of their stark cells and view some of their primitive bread making equipment
A large number of expats have made this city home. For visitors, plan two nights to see the town, but add two more days if you're going on to Ingapirca, the country's principal Inca site. Be aware that the trip is close to two hours each way. Don't bother visiting the site if you are continuing to Peru, but do make the trip if it's your only chance to see Inca ruins—the masonry is amazing.
Other side trips can be made to the villages of Sigsig, Chordeleg and Gualaceo—small villages known for local handicrafts, a Sunday market and a church (in Gualaceo) with a stained-glass window portraying Jesus in a Panama hat—or to the stark, rugged National Park of Cajas, a 71,000-acre/28,800-hectare park with more than 200 glacier lakes and good trout fishing.
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