War that's breaking out in Panama? (5,3)
I believe the answer is:
straw hat
'panama?' is the definition.
('straw hat' can be a synonym of 'panama')
'war that's breaking out' is the wordplay.
'breaking out' indicates anagramming the letters.
'war'+'thats'='warthats'
'warthats' with letters rearranged gives 'STRAW-HAT'.
'in' is the link.
(Other definitions for straw hat that I've seen before include "Capital Investment?"" , "Panama" , "Boater" .)