The international financial system is in a precarious condition.

Worry that it might collapse no longer is solely the province of the doomsayer.

Treasury Secretary Donald Regan told Congress recently that while he thinks it unlikely, a serious misstep by any of the major players in the international financial system--governments and central banks of the industrialized countries, the developing countries that are big borrowers or the large multinational banks--could precipitate a financial collapse.

The severe worldwide recession, which follows years of high inflation and high interest rates, has bled the world financially dry.

Although the careful cooperation of the major actors is central to the prevention of a major cataclysm during the next few months, the key to the health of international finance is the revival of the world economy, according to William McDonough, chief financial officer of the First National Bank of Chicago.

The "hunkering down" required of any country that needs to reduce its debt burden may work for one or two at a time, but when the entire world is in a recession and industrialized countries are importing less and several dozen debt-strapped nations are trying to reduce imports and expand exports at the same time, the traditional solutions probably won't succeed.

Bankers such as McDonough, who are worried about the money they have lent, also are concerned about the political repercussions in countries that are forced by the International Monetary Fund--the multilateral rescue agency--to slash their domestic spending almost overnight to reduce their borrowing needs.

The recession has sent to the brink of bankruptcy countries once thought to be impeccable credit risks. In the developing world, first oil-rich Mexico, then Argentina and most recently Brazil have told their lenders they cannot pay back loans on schedule. Brazil and Mexico each owe about $80 billion to foreigners. Argentina's foreign debts total $25 billion.

Smaller countries in South American and Africa are, or soon will be, similarly strapped.

Romania and Poland, whose loans once were considered guaranteed by the Soviet Union, also have had to postpone some debt repayments.

For the last six months monetary officials of major industrial countries and top executives at major multinational banks have been playing the role of international financial firemen: Putting out insolvency fires to buy time for countries to reach a long-term lending agreement with the IMF and renegotiate their complicated loan agreements.

Mexico, Brazil and Argentina, for example, all have initialed agreements with the IMF. The agreements require substantial belt-tightening in return for IMF loans. They also require the major banks to ante up more money.

"They IMF officials say they're not in there to bail us out. The big banks always have to pony up more money if the IMF is to come up with anything," said the chief of Latin American lending at a major U.S. bank.

For example, the IMF will loan Brazil $2.5 billion this year. The big banks are expected to come up with $9.6 billion in new and renegotiated loans. In the case of Mexico, the banks--not only here but in Europe, Japan and elsewhere--are expected to come up with $5 billion. The banks so far have committed a little more than $4.5 billion of that amount.

The alternative, of course, is to force the governments of these countries to consider default or to trigger such political upheavals--as countries retrench--that governments might fall--and their successors default.

The nine largest U.S. banks have outstanding loans to Mexico and Brazil that are equal to nearly their entire equity. Default is an alternative no bank wants to consider.

Even in areas where U.S. bank exposure is relatively smaller, such as in Eastern Europe, default is unpalatable. If the major international banks have huge loans to troubled countries, they have even larger deposits and loans with each other. A major Western European bank failure could have international repercussions that could be devastating if central banks could not contain the damage.

Bankers with a sense of history remember that it was the failure of an Austrian bank that set off the international financial crises during the Great Depression of the 1930s.

At the same time that borrowing countries (nearly all developing countries are facing difficulties repaying their debts) are causing banks problems, domestic borrowers are sagging under the onus of the recession as well.

In the United States one major company after another--many in the energy or real estate fields--are finding it hard to pay their bankers.

Meanwhile, Canadian banks are reeling from the decline in energy prices that has pelted many of their biggest borrowers. Until recently Canadian banks had few internal limits on the amount they could lend any one borrower. As a result, a single failure can have a much bigger impact on a Canadian bank than a similar-sized failure could have on the more constrained lending policies required of U.S. banks.

In Europe, Japan and Hong Kong the recession is clubbing companies and, as a result, the banks that are their lenders.

While much of the world's attention has been focused on developing-country debt, bankers gnash their teeth as much about an escalating series of industrial failures as they do about a possible dramatic country default.

The rescue operations mounted for Mexico and Brazil--by far the largest international borrowers--have been more melodramatic than dramatic to date. "It's been harrowing, exhausting and time-consuming, but we all knew the climax when we picked up the book," said a major banker.

As the cash to pay off maturing debts dried up, the United States and other big industrial countries, working through the Geneva-based Bank for International Settlements, pumped in emergency funds. Then the IMF stepped in, squeezed a belt-tightening agreement from the debtor country and told the major banks they had to lend more. Although many smaller regional banks, new lenders to foreign governments, have resisted supplying additional funds, the big banks eventually agreed.

With varying degrees of success the big banks (all of which in the United States have a list of smaller banks to keep in line) then make sure the regional banks stay the course as well.

If the bankers know the climax, they still are uncertain about the denouement. Can the countries survive the political repercussions of the belt tightening? Will the smaller banks stay with the loans or will major banks, especially in the United States, be forced to increase their relative exposure to these countries?

Finally, will the world economy revive in time?

The recession in the industrial world has depressed demand and prices for commodities that are the mainstay of the developing world. Declining oil prices, a boon to most nations, increase the vulnerability of countries like Mexico.

Only if the world economy is growing, McDonough said, will the belt-tightening measures required by the International Monetary Fund work.