When it came time to hand out prizes last month at the 14th Sao Paulo International Biennial, no one was more surprised - or angry - than a sculptor named Franz Kracjberg.

From the start, the gossip behind the scenes at the biennial, founded 26 years ago as South America's answer to the famous Venice art show, had it that Kracjberg's wood and rattan creations were in line for the grand prize. And just to be sure, Kracjberg himself had let it be known that if he were awarded anything but the $12,500 first prize, he would dismantle his exhibit and go home.

Still, when the awards ceremony began and Argentina's avant-garde "Group of Thirteen" walked off with the first prize, Kracjberg did nothing. But when, a few minutes later, the Polish-born Brazilian sculptor was given one of the many secondary awards, he made good his threat.

"I will not accept the prize," he shouted, rising from his seat to interrupt the reading of the awards list. "I have not come here to argue over prizes." And then, as TV cameras whirred away, Kracjberg angrily piled his works in a corner of the exhibition hall, all the while yelling that Biennial officials were "blackmailers" and that the five member international jury was biased against Brazilian artists.

To organizers of this year's Biennial - a sprawling, controversial and sometimes chaotic exhibition that finally concluded this week - that display of pique was in keeping with the Biennial's new look and philosophy. "We wanted an open show, a democratic show," says Brazilian critic Alberto Beuttenmuller, the leading force behind the Council of Art that invited Kracjberg to participate, "and that's exactly what we got."

In years past, of course, the Biennial didn't have quite so tolerant an outlook. Under the direction of millionaire businessman Francisco "Ciccillo" Matarazzo, who organized the first show and carefully supervised the next dozen, the Sao Paulo Beinnial acquired a reputation as perhaps the most stodgy and autocratic of the world's major international art competitions.

But when Matarazzo died earlier this year at age 76, his authority passed to a seven-member council of art and culture that determined that the Biennial would undergo sweeping changes.

"The Biennal had become too paternal," says Beutenmuller. "It had become little more than a giant glorified gallery, and many artists and critics had come to question the validity of its existence. It fell on us to rejuvenate it."

To rid the Biennial of its conservative image, the council made a point of inviting more young and experimental artists. The idea of inviting avant-garde luminaries such as Christo and robert Wilson ("Einstein on the Beach") also was toyed with until it was discovered that the costs were prohibitive. And in an effort to extend the scope of the show beyond the plastic arts for the first time, ballet, theater and video-tape groups were sought out.

But the most significant innovation made by the council was what Beuttenmuller rather grandiloquently calls "doing away with the geo-political concept." Although representatives of 36 nations, ranging from the United States and Japan to Yugoslavia and the Ivory Coast, participated in this year's Biennial, their works are grouped together not by country, as in previous years, but by themes or topics.

All told, there are seven different "propositions," each of which is broad enough - or vague enough - to house a variety of artistic styles. Argentina's "Group of Thirteen" entered their giant multimedia extravanganza as "noncatalogued art," but it could just as easily have fit in any of the other categories: Urban Archaeology, Recuperation of the Landscape, the Wall as Support for Art Works, Catastrophic Art, Video Art and Spatial Poetry.

Shown apart from the works in competition are "Anthological Exhibitions" devoted to the works of American Alfred Jensen and Mexico's Rufino Tamayo. Occupying much of the first floor of the Biennial's three-story permanent quarters in Parque Ibrapuera, the Rock Creek park of this city of eight million, these two retrospectives have won special praise from critics and the Biennial's 200,000 visitors.

"With Jensen, the United States has acquitted itself very well," says former Corcoran Gallery director Roy Slade, one of 60 U.S. museum directors, critics, artists and collectors who visited the Biennial: "Here's an artist whose work is persistent and honest, who has pursued his own vision for 70 years, shown at his best in an exhibit that's beautifully mounted and superbly lit."

Dwarfing the official American exhibit, which makes clear both Jensen's fascination with Chinese, Mayan and Kabbalistic numerology and his fondness for bright, thickly-applied color, is the Tamayo retrospective. Covering a 50-year period and valued at $20 million, it is the largest show ever devoted to Mexico's greatest living artist - and quite a surprise to anyone who associates modern Mexican art only with political muralists such as Rivera, Orozco and Siqueiros.

The very size of the Tamayo exhibit, though, angered some of the artists clustered together in corners of the second and third floors of the Biennial. Participants also complained that the competitive and prize-giving aspects of the show were "outdated" or "insulting," and nearly all of them grumbled about not getting the money and facilities they thought they had been promised.

But most outrageous comments - at least from Kracjberg and other Brazilian artists - have been directed at American jury representative Marcia Tucker, who was quoted in the press here as saying that "a country that isn't serious can't produce serious art." Published only after Tucker's departure from Brazil, these remarks have neither been confirmed or denied.

"To tell the truth, we don't know if she really said what she'd accused of saying," Beuttenmuller cautions. "But so many people were so mad about it that we've written her a letter asking her to clear up the matter one way or another."

Beuttenmuller's own inclination is to write the whole thing off as a simple misunderstanding.But at the same time, he points out, some aspects of the Biennial could easily give the outsider an impression of disorganization - the Brazilian color TV sets that are incompatible with video tapes made by artists in the United States and Europe, for example, or the exhibits mounted just hours before the shows's official opening.

"The installation simply has not been up to professional standards," says Roy Slade."My immediate impressions were of overwhelming size and an emphasis on the avant-garde and the experimental; but the closer I looked, the more it seemed like a student show. And that building. It looks like a factory, like an aircraft hangar."

The main problem, says Oscar Landmann, the German-born industrial engineer and collector of pre-Columbian pottery who succeeded Matarozzo as president of the Biennial, is the show's chronic shortage of funds.

"Our budget is about $250,000," Landmann said. "That's hardly anything compared to the $3.5 million the Venice Biennial gets or what the kassel and Paris shows can count on."

And untidy or not, the 14th Biennial has served as a means of boosting the careers of promising young artists such as the "Etsedron" group or Lydia Okamura, a Sao Paulo native who now lives in New York. Deeply involved in experiments with refraction and reflection, Okamura caught the eye both of the jury - which awarded her one of the $3,500 runner-up prizes - and vising art professionals.

The Biennial also has proved useful as a safety valve for Brazilian artists who have been critical of their nation's right-wing military regime. Although Landmann maintains that "this show has nothing to do with politics," one prize-winning exhibit called attention to the exploitation of Brazilian peasoants by rich landowners, and another prominently displayed work consisting of a wall on which were written political graffiti such as "how much longer this dictatorship?"

"This show fills a very important funciton," says Slade. "There is much here that is simply experimental for its own sake; but overall, it's quite marvelous, full of an energy and hopefulness that I find quite attractive."

But the final word, as usual, comes from the artists themselves. Hanging near a stairway on the first floor of the show was a banner whose cryptic message probably best sums up the mixed record of successes and failures that characterized the 14th Biennial:

"It is always good to remember," one of the show's participants wrote in huge block letters, "that an empty cup is full of air."