SANTIAGO, CHILE -- In early 1984, the situation looked grim for the "Chicago Boys."

Hailed for nearly a decade both here and abroad for the free-market economic revolution they were carrying out in Chile, the men running the country's economy, many of whom had studied at the University of Chicago, suddenly saw power slipping away from them.

With the economy entering its third year of recession, their policies were under attack and one by one the Chicago Boys were exiting the government.

Finally, in April 1984, President Augusto Pinochet lost faith in the University of Chicago economic model and named Luis Escobar, a proponent of bigger government, as minister of finance.

Escobar quickly ousted the remaining Chicago Boys from the government and reversed two key components of their program by raising tariffs and increasing public sector spending.

In February 1985, however, Pinochet grew disillusioned with Escobar's expansionary program and turned the reins of the economy over to Hernan Buchi, an apostle of the Chicago model. Over the past 2 1/2 years, Buchi has been steadily reducing the government's control over the economy and reducing restrictions on the private sector and individual initiative.

"The Chicago Boys are back in the saddle again," said a western diplomat.

The alumni of the University of Chicago's Graduate School of Economics would never have gained sway over Chile's economy in the first place had it not been for the 1973 coup, when the military overthrew President Salvador Allende.

Dozens of Chilean economists had graduated from Chicago in a scholarship program begun in 1957. But in a country where everyone was accustomed to a state-controlled economy, even businessmen viewed the free-market economists as cranks.

"For a long time, they were like the Hari Krishnas -- nobody listened to them," said Juan Gabriel Valdes, a Chilean political scientist writing his doctoral dissertation on the Chicago Boys.

The chance to make their voices heard finally came in 1973. As inflation soared, unemployment mounted, and with the economy paralyzed by escalating battles between pro- and anti-Allende forces, a group of free-market economists dominated by Chicago graduates drew up an economic blueprint for a post-Allende government.

When the military took power, without any economic program, the economists presented their plan. Despite initial resistance from the army, which favored continued government control over the economy, Gen. Pinochet gradually adopted the free-market plan. Chicago graduates Sergio de Castro and Alvaro Bardon were named minister of finance and central bank president, respectively, and Chicago Boys, as they were soon dubbed by the press, were appointed to other key economic policymaking positions.

In the years following the coup, they completely transformed Chile's economy by lifting price controls, floating interest rates, devaluing the currency, welcoming foreign investment, selling off hundreds of companies Allende had nationalized, lowering tariffs, privatizing the social security system, firing thousands of government employes and sharply paring public health and education spending.

Up through 1981 as the economy grew steadily, the Chicago Boys were called miracle workers. But De Castro made a fatal error and in 1982 the bubble burst.

In 1979, De Castro had fixed the exchange rate at 39 pesos per dollar in an attempt to reduce inflation. But three years later, when prices of the country's main export, copper, plummeted and international banks stopped lending to Latin American debtors such as Chile, the peso became greatly overvalued.

During the last half of 1982, the government had to devalue the peso nearly 100 percent. Hundreds of companies and most of the country's banks went bankrupt, suddenly unable to pay their dollar-denominated debts.

Over the next year, the economy contracted by 15 percent and the unemployment rate doubled. Pinochet fired De Castro and named another Chicago graduate, Sergio de la Cuadra, in his place. Several months later, De la Cuadra, too, was gone.

Sixteen months later, Escobar was appointed finance minister. He removed almost all of the remaining Chicago Boys from their posts and blamed the economy's troubles on them. As Escobar tried to bring Chile out of the recession through deficit spending and subsidies for local industry, the Chicago Boys' era appeared to be over.

But under Escobar, who unlike most of Pinochet's economic advisers didn't study abroad, imports rose, exports plunged and the budget deficit soared. With the country unable to meet foreign debt payments, Pinochet replaced Escobar with Buchi. The Chicago Boys had a second chance.

Buchi, who studied not at Chicago but at Columbia University, reversed Escobar's policies by reinstituting the free-market program. He lowered the uniform tariff to 20 percent, reduced government spending and resumed selling off state companies.

The Chicago Boys' new era is marked more by the re-implementation of market-based policies than by Chicago graduates themselves running the show.

In their previous heyday, more than 20 Chicago graduates held economic policymaking positions, including the posts of finance minister, central bank president and central bank vice president.

This time around, there are fewer Chicago-trained officials in the government and they hold subsecretary jobs. Budget Director Jorge Selume is the highest-ranking Chicago graduate.

Buchi, whose shaggy haircut makes him look more like one of the Beatles than Chile's economic czar, is the key to the Chicago resurgence.

"Buchi's policies are Chicago's: A stable monetary policy, a reduction in government spending, privatization of state companies and a stable exchange rate," said the diplomat. "Buchi is more Chicago than any of the Chicago Boys."

The return of the Chicago Boys' philosophy has drawn mixed reviews.

Businessmen and bankers are elated, with industrial profits up, agricultural exports booming and the country paying off its foreign debt.

But many opponents of the military regime, echoing criticisms of the Reagan administration and Britain's Margaret Thatcher, have said the government's economic program is benefiting the rich at the expense of the poor.

The Chicago-trained economists' alliance with the military has stigmatized their achievements.

"The Chicago Boys say they believe in the freedom of men but they were willing to sacrifice human rights and democracy in order to implement their economic freedoms," said Riardo Ffrench-Davis, the most prominent of several Chilean economists who studied at Chicago but oppose the free-market doctrine.

Still, the Chicago Boys' program has been so far-reaching that they have permanently altered the political and economic landscape of the country.

Opposition politicians have said that even if they win power when the country again becomes a democracy, which could occur by 1990, they will allow the private sector to continue playing the dominant role in the economy.

"We've had a decisive impact in that the politicians are much less inclined toward socialist policies than before," said Alvaro Vial, a Chicago graduate who heads the National Institute of Statistics.