The paint is chipping badly in places now, from the old wooden tropical houses in the Canal Zone. Potholes in the street make driving bumpy. The once meticulously mowed lawns are overgrown, moisture laden, dangerous breeding grounds for the malaria-carrying mosquitos. Hedges are badly in need of clipping. A garden goes untended, the banana trees rotting for lack of attention. The administration building looks imposing from a distance on the hill overlooking the Zone, but up close one sees it is cracked and stained. And down the road, toward the Miraflores Locks, a rusty gate clangs on a broken hinge in the sultry breeze, proclaiming the recent neglect that pervades the Panama canal Zone.

Signs of decay are everywhere.

Al Baldwin is a Company man all the way.His father worked for the Company. He is the public information officer with a big office in "the Building." His house, just a stone's throw away, is more than halfway up the hill. Baldwin, who is now quite fat and red-faced, balding and sporting colorful ties and alligator shoes, is the son of an American father and a Panamanian mother. He also is married to a Panamanian.

Baldwin officially is not allowed to be against the treaties because he works for the U.S. government which is, of course, officially for the pair of treaties, one of which transfers control of the canal and the other guaranteeing its neutrality. But Al Baldwin is against the treaties. Really against.

He stands in his office and brandishes a newspaper photograph, his face flushed with anger, his voice rising with excitement. "They've burned me in effigy," he cries, not quite saying who "they" are. "I'll have to leave if the treaties are ratified. I can't take the harassment. They'll nationalize the canal. Why not? I'd do it too. Go for broke. I can't live here. The arrogance displayed by the Panamanian government is unbearable. There's going to be an exodus around here. Don't fool yourself. They're not gringo lovers. And we're not giving the canal back, either. We're transferring it. They never owned it in the first place. Instead of apologizing we should be proud.It nearly killed me to see all those Communists who started the '64 riots sitting behind President Carter at the treaties' signing this fall." He pauses just long enough to get his breath and says, "We made Panama what it is today and they should be grateful."

At first glance Panama City seems like a thriving little metropolis. High-rise buildings going up here and there, new construction, a whole avenue of banks Panama is trying to promote, selling itself as the new banking center of South America. The new Switzerland.

At the El Panama Hotel, the city's grandest, designed by Edward Durell Stone, there is a new pool and new cabanas are being built around one side.

But wait. Sit down in the palm-filled open courtyard lobby of the El Panama at midday and order a pina colada. Look.

Isn't the paint chipping there? And there is a slightly seedy look to the place.

The ceiling fans overhead lull you into indolence but then you realize that a half hour has passed and the pina coloda still hasn't come.You signal the waiter once more. A companion, a Panamanian, laughs, only a tinge of scorn in his voice, and he shrugs.

"In the old days," he says, "I would invoke the proverbial," 'manana.' Your drink will be here manana. But now we don't use 'manana' anymore to explain when things will finally get done. Everything is postponed until the treaties are ratified. We say 'after the treaties' now, instead of 'manana.'"

Fernando Eleta is 24 a graduate of the Georgetown University School of Foreign Service, speaks perfect English, wears Gucci shoes, is handsome and rich and is a member of what is known is Panama as the "oligarchy."

His father, Fernando Sr., owns the largest and most powerful television station in Panama, is the former foreign minister of Panama, and also owns a chunk of Air Panama.

The "oligarchy" in Panama, is, in fact, no longer the small despotic group of very rich people who control the country - because they don't. But they still refer to themselves as "the oligarchy" because they do have the money and in Panama, money is still power.So, since their leader, elected President Arnulfo Arias, was deposed in a bloodless coup by Omar Torrijos, they have been allowed to live the same way, continue their businesses, keep their social positions. All they have to do is keep their mouths shut.

They keep a laid-back, low profile, making money during the week, going to the beach houses on the weekend located on the Avenue of the Millionaires in what is inexplicably called the Interior.

Over lunch at the posh Union Club, the bath and tennis club of Panama City, he explains his position.

Eleta says he is pro-treaty. "Because of my nationalism. Giving another country the right over our own is like the Americans giving the Russians the Brooklyn Bridge."

Eleta went to grammar school in the Zone to learn English as many of the children of the oligarch have done by paying a tuition. He refused, even as a child, to pledge allegiance to the American flag. And even to this day, despite his wealth and sophistication, he feels enormous hostility towards the Zonians.

"They are a colonial enclave which infringes on our territorial and sovereign integrity. They're apart from Panama, a ghetto. The majority of them don't even venture into Panama to learn or appreciate what exists outside that territory. They're not Panamanians, they're not Americans. They become sort of intruders in our country. Their allegiance is to territories which are not theirs and it hurts your pride, your feelings of nationalism. They're a breed apart and they're having a crisis of identity."

"I feel hostile to them," says Eleta. "But not to Americans. I can see how they might become emotionally attached to the Canal Zone like the British were to India. But I believe that Panamanians of all walks of life, including the college educated, those educated in the United States, would be willing to act with force if necessary in order to put an end to the Canal Zone."

They are two different countries, really, Panama City and the Panama Canal Zone.

Panama City teems with life, with people, with neon signs, with stores, with street vendors, with children screaming and playing, people hanging from balconies, leaning out of windows and doors, drivers racing through red lights, billboards, loud radio music, restaurants, bars, young men in bell bottoms flirting with young women in gaily colored dresses.

The Zone is antiseptic, drab, colorless, clean, empty, lifeless. There are no sidewalks, no signs of people, no signs at all. A gray painted building has in small black lettering on the side, simply "Shoe Store."

The difference between the Zone and Panama City is that the Canal Zone is a form of communism and Panama City is capitalism - at least in terms of their contrasting life styles.

There is one thing they do share - the feeling of tropical malaise which dominates both, the mutual hint of jungle rot.

John Williams is head of the pilots' association in the Canal Zone. Without them, the Canal is useless, and it takes between eight and 10 years to properly train a pilot to be able to steer a ship through the canal, so delicate a function is it.

Williams has been interviewed to distraction on the subject because he is one of the few people in the Zone who is basically pro treaty. He is intelligent, thoughtful, funny and sick to death of the media.

"I've started the 'Interviewee Equity Guild' with Dick Cheville, a doctor," he explains solemnly. "We plan to provide visiting reporters and members of Congress with whatever flavor of local person they want, be it redneck, closet liberal, flaming liberal, middle of the road, conservative . . . We've also designed a button that says 'Welcome to our Colonial Enclave,' so that when we greet the reporters and congressmen we'll all wear the button, white linen suits, we'll have a servant around fanning us with a big fan and we'll be sipping gin."

He laughs. "There's a lot of gallows humor going around. I don't understand why the sociologists aren't swarming around over the place. To watch it disintegrate. Living in the Panama Canal Zone is a little bit like Washington. It's unreal.

"And the people here have developed the attitude, despite the legal facts, that this IS America and it's being taken away from them. You're putting them in an identity crisis of the first magnitude, stripping them of their identity, and it creates a pretty volatile situation.

"The people who live in the Canal Zone did not come here to live in a foreign country. Eric Hoffer talks about types of Americans who thrive on living overseas - soldiers, diplomats, businessmen, missionaries, elites. There are two kinds who don't - working men and gangsters. The Zone is mostly made up of working men and their families. And they're really worried because they don't know what living under the Panamanian government will be like. They are not as much afraid of what they know will happen as they are afraid of the unknown. It's like asking a virgin how she likes sex."

In Panama City the rich businessmen tell a joke about Gen. Omar Torrijos, their "Maximum Leader." According to the tale, Torrijos goes to visit another Latin dictatorship and is conferring with his equivalent in the national palace. The other leader is complaining that his country can't get anything done because his people are so stupid.

"Look," says the leader, "I'll give you an example." And he calls a guard and instructs him to "go down the hall and see if I am there." The guard salutes and races down the hall, returning moments later with the report that indeed the dictator is not there. "You see what I mean?" says the exasperated dictator. "I know," replies Torrijos. "It would have been so much easier for him to telephone."

For the past several months, ever since the Canal treaties were signed in Washington this fall, Omar Torrijos has been on display.

He has seen senators and their aides and staffs, and White House officials and journalists, and he has been plastered over just about every newspaper and television show in the country. All the time doing his number for the Carter administration to convince people the treaties should be ratified.

Because of all this exposure, it appeared as though Torrijos was the focal point of Panama.

But Torrijos, who has a tendency to be somewhat spontaneous, got himself into occasional trouble by saying the wrong thing. He had to be closely watched.

So shortly before the debate in the U.S. Senate began on the treaties, President Carter sent word to the Panamanian leader that from then on he was to give no interviews to anyone, under any conditions. The orders were followed.

The important thing here, however, is not that Torrijos suddenly developed a low profile. Torrijos never really had that high a profile anyway. And it was only because of the treaties that Torrijos became the focus of so much attention. But the image that has been created of Torrijos as a dynamic, involved, omnipresent leader is not accurate.

Omar Torrijos is like a Howard Hughes of Panama. He is, in title, in fact and in deed the "maximum leader" of the tiny country and its 1.8 million inhabitants.

But he's not there. He hides. Hardly anybody ever sees him. He has little to do with the daily running of the government. But he has managed to divide the responsibilities so that nobody else could really be said to have the power.

Except nobody's quite sure whether he has the power either. They're just not motivated enough to find out. So things just sort of keep drifting along with nobody really knowing who's in charge. With everbody making separate decisions, Torrijos takes credit for the smart, successful ones; everybody else takes the blame for the bad ones.

Nobody knows what his ideology is. A lot of people think he's surely got to be a communist because he dresses and acts like Fidel Castro, affecting a guerrilla look, wearing farigues and American army boots and carrying a gun.

Not only that, it is said that at least one of his chosen treaty negotiators is a communist and the head of the National Guard is considered left-leaning.

On the other hand the other half of the population is convinced that he is most certainly a fascist dictator since his closest friend, his Bebe Rebozo as it were, is a wealthy businessman. The president of the country also is a rich businessman who is the liaison with the business community, and the minister of planning is a former student of the University of Chicago's conservative economist Milton Friedman.

It's all very confusing. And to confuse matters more, his slogan is "Neither with the left nor with the right, with Panama!" And it creates a certain atmosphere of uncertainty and hostility. Perhaps that's why Torrijos hides. He lives at the beach on the Pacific side. Alone. He almost never comes into Panama City. Months go by between visits. Many Panamanians have never seen him. There are no pictures of him anywhere, not on billboards, not on the walls of apartments or in offices. There is no sense of him or his existence.

One gets the impression that he is a bit like Major Major Major in "Catch 22," only in when he's out and out when he's in.

Ask any Panamanian what he does and they will grin and explain matter-of-factly that he spends his time with women, drinking and having a good time.

Rory Gonzalez, his pudgy business friend, who is trying to get a copper business going in Panama, lives in the city and "arranges" the women for Torrijos. "Rory is," explains one very high-up Panamanian, "explains one very high-up Panamanian, "minister of 'private affairs' for Omar."

At any time during the day or night people will point up the the sky and tell you that a certain small helicoper flying in or out is full of women Rory is sending up to the maximum leader for the evening.

Visiting senators who saw him at his beach house at Farallon describe his bedroom as being occupied by "the most enormous bed ever made" mounted on a huge pedestal. His private bathroom is piled with cases of Alka Seltzer. And on display is an extra pair of American military combat boots of which he is very proud. The lower class Panamians think that Omar Torrijos is "muy macho." The upper class Panamiamms, the educated, rich "oligarchs" find him a "disgusting peasant," a ridiculous and pathetic joke being played on their country.

For each pre-debate trip to Panama by U.S. Senators and their staffs, Torrijos was trooped out to do his dog and pony act, talking to them, taking them on tours where the peasants crowded around in the streets to see him. "Of course they did," said one cynical Panamian. "They weren't crowding around to express their adoration the way they do with Fidel. They all turn out ot see if he really exists."

His wife lives separately in Panama City."She says," explained another Panamian woman, "that she prefers to be the 'widow' of a national hero than the wife of a traitor."

Torrijos himself has made it clear that he has no interest in running the government, that he is bored by the day-to-day problems that beset leaders, that he prefers to hang out with his peasant friends and his women on the seashore.

The theory among sophisticated and educated Panamians is that Torrijos, though hardly brilliant, is clever enough to understand that the less people see of him, the less likely they will want to get rid of him.

The whole situation is like a comic opera based on a Graham Greene version of a banana republic. One gets the feeling that Torrijos could be overthrown at any moment-if only someone would think of it. But nobody really hates him because they can't figure out what he stands for. Besides, it's too much trouble.

"It's a despotism tempered by stupidity and sloth," laughed one member of the "oligarchy."

"We wake up every monring," said another, "hoping there was a coup the night before. But it's like waiting for Godot!" She shrugs listlessly. "I suppose it's because we are not a violent people."

Still, there are those who say things will change."After the treaties . . . "

High up on the hill, on the top of the Administration Building-known simply as "the Building" in the Zone-in a glassed-in office overlooking the Panama Canal sits the governor of the canal, Gov. H.R. Parfitt. Actuallly the governor is a major general in the Army Corps of Engineers, but this particular job requires that he report directly to the president, that he not use his rank, that he wear civilian clothes.Everyone in the Zone calls him "governor."In the old days when the Oligrachy was in power, the then-lieutenant-governor had many good Panamanian friends among the leaders of the country. Today he has none. "My Panamians friends are the oligarchs from the time before," he says meaningfully, naming several of the wealthier, more social Panamians. He's not crazy about the Torrijos crowd, partly because Torrijos refuses to call him "governor," and remarked once, "governor of what?" Torrijos calls him "general," instead.

Having been here before as lieutenant-governor makes him less objective than he might normally be about the treaties. But his job demands that he be in favor of the treaties. So he tries not to be emotional and most of the time he succeeds. But sometimes, just sometimes, emotions creeps into his voice as he explains the plight of his fellow Zonians.

"You can't be here long and not take sides,"He says, his calm facial expression belying the emotion in his voice. "And not feel strongly about it. The canal is not run by mechanics. It's run by human beings. My biggest problem is trying to kill the adverse feelings that these people are an embarrassment to their country. There' no excuse for the U.S. government not being aware of the personal and human problems in these things."

The Chevilles are known to be one of the most moderate (basically pro-treaty) couples in the Canal Zone. And one of the most articulate. They are in their early 40's, both work, she as a teacher, he as a doctor. They both speak fluent Spanish. They have many Panamanian friends. They also have a keen understanding of the sociological situation in the Zone.

They live in a modest concrete apartment in the Zone, only a block away from the fence which separates the Zone from the squalor of the slums of Panama City, which line Fourth of July Avenue. As they sit and chat, a Panamian maid cooks supper in the tiny kitchen. TThe Chevilles-he is president of the Pacific Side City Council, the main Zone council-talk openly about the joys of what they term a "socialistic society" they live in, and the status symbols of a society in which money is not a particularly relevant issue.

"Reporters," says Dick Cheville, "have a difficulty understanding people who live in the Zone. We are not expatriates. But we like being on the edge of another culture. Maybe we are colonialists. But I'm not so sure colonies are a bad thing. We can have our cake and eat it too."

So, for these people there is the problem of having basic middle-class, conservative, right-wing values and living in what is, in fact, essentially a socialist society. So ironically, the most terrifying fear of all for the Zonians, especially those with deep roots in canal society, is the fear of capitalism.

"They say we like the socialistic life with no competition," says Dick Cheville. "And it's true that there is a certain leveling. It's possible to live here very inexpensively; there's no income tax; you get a tropical differential in pay; you shop at the company stores and, early on, the prices were very low and subsidized. Everything is provided by the Company."

And he admits that there is a certain isolation mentality that takes over, though he and his wife have not succumbed. "We have friends," he says, "who've never been two miles up the road, never been out of the gate of the Zone, never beeen in Panama City for a meal."

I'llproibably get out feaster if the treaties lose," he says. "It will be no fun. It will be ugly. You won't be able to go out of the Zone, ther will be possibly terrorist activites and if there were a kidnapping or a bombing, well, the Zone would be empty. But there are those who will stay even so," he says. "Who feel we must make a stand, no matter what, against communism."

Every morning at 7 o'clock a group of American businessmen-often 10 or 12-meet for breakfast in the coffee shop of the El Panama Hotel, a 20-year-old tradition. They talk about business matters and life in Panama in general. And always, always, privately. The American business men in Panama are, almost to a man, pro-treaty. "For one reason, and one reason only," said one of them. "Fear. Not fear of this government.But fear of what will happen if the treaties fail and this government is deposed. In Latin American countries the known is always preferable to the unknown."

It is a lazy Sunday afternoon in the Canal Zone. At Stevens Square, the center of action on the Pacific side, children are playing, eating ice cream cones from the bowling alley snack bar whilke their parents, dressed casually inslacks and shirts, cruise indolently around looking for something to do. It could be a scene out of the 1950s.

Two men are slowly, almost listlessly picketing in the hot sun. They are advertising an anti-treaty Zone rally for the following week. One holds up a sign for the passing cars to see, and as each car passes, the occupant honks in response.

The sign reads: "Honk if you agree that Carter lies, that Torrijos is a dictator, that the Russians flu is coming to the Canal Zone."

One of the pickets is Bill Drummond, a Canal Zone policeman and head of the Policeman 's Union, the most militant anti-treaty group. Policemen will be among the first to lose their jobs if the treaties are ratified and the Zone comes under the jurisdiction of the Panamanian police.

Drummond's deep-set eyes are haunted and his face is gaunt, his cheek bones sunken. His tall bony frame bespeaks a man nourished on zeal

Though he is only 39, he could be twice his age. He is obsessed by the treaties, lives them( they are his reason for being, his cause.

And he has a litany of outrages which he will tell you readily in that singsong memorized voice zealots can affect.

"The Panama government has no due process of law . . . the National Guard arrested me at the airport for no reason . . . they bombed my car . . . I am personally bankrupt . . . this thing has taken its emotional toll on me."

Facts and figures pour out as he makes his case, saving the worst for last.

"You know they made a study recently to see how Zone employes would react to living in Panama. At the end of the study they found that the Panamanians didn't maintain their buildings. People actually got stuck in elevators."

A Panamanian boy walks up to Drummond. The boy is carrying a large pair of shark's jaws. He wants to sell them. He thinks he has a live one.

"See,"he says plaintively, in broken English. "It's Jimmy Carter smiling."