ive years after Mexico touched off the Latin American financial crisis by declaring itself out of cash, the nations of that region remain economically battered and hard-pressed to earn or borrow the money they need to invest, grow and make timely payments on their roughly $400 billion in foreign debts. It has been a five-year odyssey marked by near collapse by several major debtors, confrontations between debtor nations and their bank lenders, and worries that the rest of the world could be pulled into the mess if a major debtor failure triggered a crisis in the international financial system.

But in that period, the financial problems of Latin America largely have "evolved from an imminent threat to the world banking system to a continuing threat to developing country growth," according to William R. Cline of the Institute for International Economics. "We've all gone through moments of high hopes and moments of significant despair and found each to be extremes," said Donald McCouch, executive vice president in charge of the international and banking sector for Manufacturers Hanover Corp., the giant New York bank.

Certainly the crisis has gone on far longer than most bankers, economists and government officials anticipated -- even in the darkest and most confused hours following the Aug. 20, 1982, announcement by Mexico that it was out of cash and could no longer make payments on its $75 billion in foreign debts.

At the time, the problem was seen as frightening but temporary, one that could be solved if the short-term cash crunch could be overcome. By 1983, nearly every Latin American nation had run out of cash.

Today it is clear that the debt problem of Latin America is long-term and complex and will hold the region and its bank lenders in thrall for the foreseeable future.

If the Latin American nations are to resume the growth rates they achieved in the late 1970s, when they borrowed large amounts of foreign capital to finance both investment and consumption, they will have to do it using mainly domestic savings and whatever money they can coax back from the billions of dollars their citizens have invested abroad. To attract this so-called flight capital, countries will have to have more efficient, consistent and growth-oriented economic policies.

There will be some foreign lending and investment, but it will be far less abundant than in the 1970s. And the need to pay interest on money already borrowed will be a continuing constraint on the Latin American nations' economic growth.

"Growth-oriented policies are not easy to implement," according to a top international economic official, because powerful elites and other special interest groups often benefit from protectionist policies and other measures that hurt the country as a whole.

The picture is not totally bleak. The region is in far better shape today than it was in 1982 or 1983. Then, in a desperate attempt to stay afloat financially, countries slashed their imports and investment spending to come up with some of the money needed to pay their creditors. The rest came from the International Monetary Fund and commercial banks.

As a consequence of the belt-tightening, the countries suffered massive recessions during the early years of the decade. For example, economic output fell 14 percent in Chile in 1982, 2.5 percent in Brazil in 1983 and 5.3 percent in Mexico in the same year.

Since 1984, most of the debtor nations have achieved economic growth. But the Latin American recessions that began as early as 1981 were so severe that real income per capita for the region as a whole was 6.2 percent lower at the end of 1986 than it was in 1980, the peak of the region's prosperity.

The income figure would have been even lower if not for the sharp economic growth in Brazil, whose economy dwarfs the others. Brazil climbed back to its 1980 levels of per-capita income last year. But after two years of steamy economic growth, caused in part by unsustainable economic policies that the government was unwilling to change, Brazil ran out of capacity and the ability to increase production. It slid back into recession and inflation. Years of deferred investment -- caused in part by the need to service earlier debt -- caused the boom to bust.

Other countries will face the same pain that Brazil experienced. Most countries have much slack capacity left over from the boom days of the late 1970s and early 1980s. But within a few years, if the economies continue to increase output, that spare capacity will be eaten up. And they will be hard-pressed to add significantly to that capacity.

Without large amounts of foreign savings, the debtor nations are finding it difficult to grow, modernize and become competitive in the world. Net investment in Latin America was halved between 1980 and 1984, according to Marcelo Selowsky, the chief economist for Latin America and the Caribbean at the World Bank.

Last year in Brazil, gross real investment in plant and equipment -- which includes spending to replace outmoded capacity as well as for expanding and modernizing -- was 30 percent below what it was in 1980. In Argentina it was 52 percent below that year's level. For the region as a whole, it was 33 percent below what it was at the start of the decade.

Furthermore, according to Neville Beharie, an economist at the International Development Bank, Latin American countries still have to pay a high, if unmeasurable, price for the steep and continuing cuts that most have made in fixed investment, education spending, health and other social spending. "A lot of the problems are subterranean. They will come out in five or 10 years," Beharie said.

The debtor nations have made moves to reform their economies to cope with a world in which they have to rely on their own funds and earning capacities.

Many of the debtors have boosted exports, made their exchange rates more competitive, moved to sell off money-losing state enterprises and have slowly opened inefficient but protected sectors of their economies to foreign competition. The steps are all designed to enable them to grow and pay their debts. They are also designed to give domestic investors enough confidence in their economies that they will return some of the scores of billions of dollars on deposit abroad.

But such reforms buck centuries of tradition and often are opposed by powerful special interests that benefit from protection. Given Latin American traditions, the staying power of economic reforms is uncertain.

Those economic uncertainties are compounded by continuing worries about the stability of the new democracies that have sprung up in Argentina, Uruguay, Brazil and Peru in recent years. In Chile, where a military junta has held power for 13 years, there are uncertainties about what will happen when the junta holds elections in 1989. These political worries are added roadblocks to the return of foreign investment and lending.

Furthermore, the countries are finding it hard to grow and invest in a world environment that seems unfriendly despite the emergence of the growth plan called for by U.S. Treasury Secretary James A. Baker III in late 1985. The so-called Baker Plan, more a series of prescriptions than an organized treatment, called for more commercial bank and multilateral development bank lending to Latin America -- and a few other debtor nations -- in return for growth-oriented policies in Latin America.

The plan has had its "internal" problems. Commercial bank lending has been slow in coming, although major loans were made to Mexico, Chile and Uruguay this year and another one is in progress for Argentina. The World Bank sharply boosted its lending last year, but internal turmoil at the institution this year has slowed the institution's lending. And in most countries, the growth-oriented reforms have been more vocal than actual.

The biggest problem with the Baker Plan is not the plan itself, but with the rest of the world. "What has let Latin American nations down was the behavior of the world economy in the last three or four years," according to a top U.S. economic official.

The debtors must run large trade surpluses in order to generate dollars that a decade ago they could have borrowed to pay their interest bills and buy vitally needed imports.

But their effort to run trade surpluses has been undermined by relatively slow world economic growth that has caused a depression in most commodity prices. The World Bank's Selowsky said that nonfuel commodity prices fell to record lows between 1984 and 1986. Many countries have sharply increased their export volume but, because of falling prices, their overall revenues have declined.

Their ability to export has also been hampered by protectionist policies in developed countries -- especially European nations and Japan -- and in Brazil by a domestic boom that absorbed goods that otherwise would have been exported.

Furthermore, rising interest rates could wreck even the most carefully laid plans. Interest rates declined markedly in recent years, relieving some of the repayment pressures. This year they have started to rise, although they are far from the near-record levels that prevailed when the crisis broke in 1982.

Selowsky said that the future is fraught with so many risks to both the debtors and the creditors that some mechanism should be devised to "safeguard against external shocks," that could "easily abort the progress."

He said that in good years -- such as the one Chile is experiencing due to strong copper prices -- a country should put some of its increased export earnings into reserves. At the same time, Selowsky said, the countries should be protected from some of the downside risks, such as a sharp decline in export prices, an increase in import prices or, most important, interest rates.

The costs of servicing its massive, $400 billion debt burden continues to be the major threat to economic prospects in the region.

It drains billions of dollars from investments that need to be made today and is a constant reminder of the mistakes these nations made when they borrowed the funds. The money was often used to finance consumption or grandiose investment projects that did the country little good and, more importantly, failed to earn dollars that are needed today to service the debt.

The ability and willingness of these nations to pay at least the interest on their loans continues to cast a pall over the health of the international financial system.

The failure of a major debtor nation could cause severe losses in the worldwide banking system. That in turn could lead to such severe restrictions on the availability of money and credit that it would trigger a worldwide recession.

But the major commercial banks have been building reserves to cushion a default by a major creditor. And despite some testy and tumultuous confrontations, neither major debtor nations nor major banks appear ready to make the kinds of breaks that would trigger debt repudiation or collapse.

Although there are periodic calls for debt forgiveness, most nations have concluded that if they repudiate their debts they will hurt themselves more than they will help themselves.

Few nations are paying any principal on their debt, so repudiation would save them only interest. Although the interest payments are hefty, they represent only a one-time increase in buying power for the debtor nation.

But banks would undoubtedly slash the short-term credit the countries need to finance their exports and imports in the event of a repudiation. That would sharply curtail their long-term prospects.

"Over the long haul, most countries have concluded, the costs of repudiation exceed the economic benefits," an international economist said.

"In the days when the dimensions of the problems weren't well understood, there were significant risks," according to McCouch of Manufacturers Hanover. "Today there is a better understanding of the problems and the remedies. The players on both {the bank and the debtor} sides know their capacities pretty well. That adds to the insurance against miscalculation."

Miscalculation by a debtor or bankers has always posed the biggest threat to the system. An unduly harsh stand by banks, for example, might push a Latin American politician into repudiating. An overtly confrontational politician might find it impossible politically to avoid a default.

So far the banking system has weathered a unilateral moratorium on interest payments imposed by Brazil last February. Analysts say Brazilian President Jose Sarney imposed the moratorium mainly to deflect public attention from his unpopular economic policies -- which, after an initial surge of production and a lowering of inflation, returned the economy to high inflation and near-recession.

"The moratorium is Sarney's Malvinas," said Cline, referring to the 1982 Argentine war with Great Britain over the Malvinas Islands, which Britain calls the Falklands. The war was an attempt by a discredited military government to restore its popularity. Instead, Britain's victory further discredited the military government and hastened a return to democracy in Argentina.

So far, Brazil and its bankers have avoided a major public confrontation that might push the politically beleaguered Sarney into further pressing the debt issue in an attempt to evoke nationalistic support for his economic policies.

Only three years ago, debtors, bankers and U.S. officials were so worried about the unknown consequences of a debtor falling seriously behind in its payments that the United States and other debtor governments made an emergency loan to Argentina to keep that nation from falling more than 90 days behind on its interest payments.

Today banks are coping not only with the six-month moratorium by Brazil, the developing world's biggest debtor (it owes about $110 billion to foreigners), but also with payment disruptions of one sort or another by a number of smaller debtors -- including Peru, Ecuador and Bolivia.

"We're not out of the woods yet," according to a top U.S. economic official. But the fact that a major collapse has not occurred in the last five years is a strong indication that one will not happen, he said.

William R. Rhodes, the Citibank executive who has played the key role in negotiating for all the banks with the biggest Latin debtor nations, said the major problem has been that no country has managed a sustained economic success that would enable it to return to the market and "voluntarily" borrow.

"We came close with Mexico in 1985 and with Brazil last year," said Rhodes. But each time the country's economy fell apart. In 1985 and 1986, a combination of Mexico's internal election-year policies coupled with a massive earthquake and a plunge in oil prices sent the nation back to the economic brink.

Nearly all the billions of dollars that have been lent to Latin America since 1982 have come as the result of a concerted effort of the commercial banks and the international financial institutions rather than as a standard loan between borrower and creditor.

Increasingly, the debtors themselves must find the resources to boost investment and pay the billions of dollars of interest payments to international banks and official lenders, such as the International Monetary Fund and the World Bank.

"There will be growth, even possibly on a per-capita basis. But it will not be decisive," according to a top official of a major multinational institution.

"There will not be enough domestic savings. There will not be enough external financing," he said. "That means that in another five years, we'll be back to discuss the 10th anniversary of the Latin American debt crisis."