THE TAILOR OF PANAMA By John le Carre Knopf. 332 pp. $25

In the English-reading world, Panama is virgin territory. As far as I know, "The Tailor of Panama" is the first English language novel of note to be wholly set there. For the thriller writer in particular, it is a land rich in plot: drug-running, money-laundering and other forms of international intrigue. It is an exotic and beautiful though famously corrupt country, with wicked extremes of rich and poor. Strategically important, it has a long history of American colonialism of which the chief monument is the great canal. A history, too, of outrageous leaders -- the charismatic "Maximum Leader" Omar Torrijos and the pockmarked, drug-dealing Manuel Noriega, the only former head of state languishing in a U.S. jail.

Most readers will remember the seriocomic 1989 U.S. invasion that put Noriega there. The invasion was enlivened by a new technique for applying pressure to those who succor our enemies: the seige-by-loud-rock-music of the papal nunciature, where Noriega sought sanctuary. Other details of the invasion are less entertaining: the U.S. shelling of the wooden slums of El Chorillo, for example, which ignited a fire that left hundreds of civilians dead and an estimated 3,000 homeless.

The burning of El Chorillo, evoked in flashbacks, is part of the nonfiction background of "The Tailor of Panama." In the foreground, the time is the late '90s, and Panama is moving uneasily toward the 1999 deadline for U.S. withdrawal from the canal negotiated by Torrijos and Jimmy Carter. The U.S. right strongly opposes giving up the canal; various other powers are angling to benefit from a change in its status. "All the world's vultures were gathering over poor little Panama, and the game was guessing who was going to get the prize."

It sounds like a perfect setting for a Graham Greene novel, and le Carre has written one. As the author acknowledges at book's end, "The Tailor of Panama" is a remake of Greene's "Our Man in Havana." Though it falls short of Greene's masterwork, it is an absorbing and unsettling achievement.

Greene's "Man in Havana" was an English vacuum cleaner salesman named Wormold living in Cuba on the eve of Castro's 1959 victory. After he is recruited by MI5 as a reluctant spy -- he needs the money -- Wormold succeeds almost in spite of himself. Discovering a talent for whole-cloth invention, he provides his handler with a network of imaginary agents and with secret plans that strikingly resemble the inner workings of a vacuum cleaner.

Like Wormold, le Carre's tailor, Harry Pendel, is a transplanted Brit in a corrupt and politically unstable Latin capital. He is the sole proprietor of "Pendel & Braithwaite Limitada, Tailors to Royalty, formerly of Savile Row, London, and presently of the Via Espana, Panama City . . . P & B for short." Like Wormold, Pendel winds up working for British intelligence because he needs money. He succeeds as a spy by making up an elaborate plot -- involving the Japanese, the French and the drug cartels -- to take over or sell off the Panama Canal. This perfectly suits his British masters, whose aim is to goad the Americans into abrogating the treaty and invading again.

Pentel also invents a revolutionary organization ("the Silent Opposers") and recruits a network of subagents collectively code-named "Buchan," in homage to an earlier British master of the literature of espionage, John Buchan, the author of "The Thirty-Nine Steps."

Unlike Wormold, however, Pendel is no newcomer to invention. Much of his life is a lie. He learned tailoring not from the legendary Braithwaite but in prison while serving a term for insurance arson. The Savile Row version of P & B never existed, nor did Braithwaite. Just out of prison, Harry was staked by his late Uncle Benny to a new life in Panama. Thus when a new customer, his would-be recruiter, Andrew Osnard, claims that his father had been a client of Braithwaite's, Pendel knows he's in trouble.

Osnard is a rather terrifying character. The son of tapped-out gentry, a "survivor of odious boarding schools," he had "no craft or qualification, no proven skills outside the golf course and the bedroom. What he understood best was English rot, and what he needed was a decaying English institution that would restore to him what other decaying institutions had taken away." "Semiliterate and quite unfettered by principle," he flirted with journalism and the priesthood. But it is in the secret service that Andy found "his Grail . . . his true Church of England, his rotten borough with a handsome budget."

By comparison, the good-natured Harry Pendel seems almost innocent. But only by comparison. Half Russian Jew, half Irish Catholic, Harry is all rogue, except for his loyalty and generosity to the handful of people he loves: his upstanding American wife, Louisa, a native of the Canal Zone who now works for an honest Panamanian politician; their two children; his bookkeeper and quasi-mistress Marta, hideously scarred from beatings by Noriega thugs; his fat playboy friend Mickie, a former student revolutionary and survivor of beatings and rape in one of Noriega's prisons; his late Uncle Benny, who during World War II talked himself "out of the camps and all the way to Berlin to make uniforms for German officers." Harry is doomed to betray them all.

Against the horrors of their stories, skillfully told in flashback, le Carre juxtaposes the elegant yet cozy world of Harry's business. Not since Beatrice Potter's "The Tailor of Gloucester" has the tailor's craft been so lovingly portrayed. It is also a welcoming world, where fine fabrics and careful fittings are available to anyone with the money to pay for them: Panamanian presidents and American generals, drug dealers and bankers, bishops and con men.

"The Tailor of Panama" is a darker novel than "Our Man in Havana" (the ending is positively murky). But like its model it has a sharp satiric edge. Le Carre's targets include not just the pervasive Panamanian corruption but the decay of British life and the whole colonial enterprise in which the United States assumed Britain's mantle. (The empire's new clothes?)

Also on le Carre's mind is the metaphorical resonance of clothing vs. nakedness, appearance vs. reality, coverups vs. truth. So, too, is the art of the storyteller: "It was tailoring. It was improving on people. It was cutting and shaping them until they became understandable members of his internal universe." A cutter and shaper of words rather than waistcoats, le Carre is his tailor's peer. Nina King is editor of The Washington Post's Book World.