MEXICO'S DISTRESS is not, unfortunately, an isolated case. It is only the most dramatic example of the financial stress that is now widespread throughout Latin America and the Caribbean. As the political consequences begin to unfold, North Americans have good reason for anxiety.

It goes back to oil, and the great price increases of the 1970s. Oddly, the Latin countries that sell oil seem to be in as bad a position as those that must buy it. The buyers knew from the beginning that they were in for a harsh time. But in the oil-exporting countries, people came to expect a continuous crescendo of wealth. Now that things are turning out differently, governments are having great trouble explaining what went wrong -- particularly where there's visible evidence of waste and corruption. There's a strong temptation, not only in Mexico, to blame it all on conspiracies, the banks and foreigners.

The economic turmoil of the past several years arrived in three waves. First came the oil prices of 1979-80, very bad news for the buyers. Next, the industrial countries of North America and Europe went into recessions accompanied by very high interest rates. Since most of the Latin countries had large foreign debts, the interest payments rose enormously while their ability to pay, by exporting to industrial markets, was limited by falling demand there. Finally, as a result of the widening recession, oil prices fell. They didn't fall terribly far, but to governments happily counting on a continuous rise, it was a staggering reversal.

Each country's vulnerability affects, to one degree or another, its neighbors. Argentina, with a lot of oil and the most balanced economy of South America, in theory ought to be in good shape, but its government has come unraveled in the aftermath of the military defeat in the Falklands. Its foreign debts turn out to be larger than previous estimates had suggested, and there are now rumors of possible defaults. Brazil, a heavy buyer of oil and the most highly industrialized economy of Latin America, has acted vigorously to protect itself. But for Brazilians the cost will be an end, at least temporarily, to economic growth. In Chile, everything depends on the price of copper, and copper has been falling for 21/2 years.

Among the sellers of oil, Venezuela, with its long experience in the oil markets, apparently saw trouble coming and braced itself. For Mexico, in contrast, the tremendous oil earnings were a wholly new experience. Heavy spending, and heavy borrowing on future oil revenues, became uncontrollable, and the borrowing continued even as the interest rates soared. Mexico apparently never gave much thought to the possibility that the music might stop.

Financial instability in Latin America means political instability, which, in turn, threatens several kinds of consequences to this country. It means rising immigration, largely illegal. It means uncertainty regarding the bank loans, and they are large enough that any substantial default would have a severe impact on the banking system here in the United States. It also means a decline in Latin American imports from the United States, and that's bad for employment and economic recovery here. In the weeks ahead you will hear a lot about the urgent need for the United States to help its neighbors. That's not altruism. The need is real, and for the United States it represents the most immediate kind of self-interest.