No, the problem was that her parents failed to go to the US consulate to register her as an American citizen at the time of her birth. If they did, there wouldn’t be any problem.
Having spent three years in the “canal zone”...its as American as apple pie...and American territory to boot. Course, that was prior to 1999. But in the heyday of the 1960s, 1970s, and 1980s....this was pure Americana. I would imagine that none of the Time’s reporters have ever been to Panama or know anything about the old canal zone.