For nearly a decade, the shopkeeper had been supporting the communist New Peoples' Army, doling out two pesos a month to the friendly young guerrillas who slipped in and out of his small store in the slum area called Agdao. It was true that they killed many people, he acknowledged. But they were mainly the men who made life in Agdao miserable -- abusive police, street robbers, arrogant soldiers, informers and the like.

One of them had been his neighbor, a ne'er-do-well thug with a reputation for cheating on his wife. His unpopularity had increased, the shopkeeper said, when he became a military spy providing information on the rebels' activities in Agdao. One day he received a letter from the NPA warning him to mend his ways, but he ignored it. He ignored a second warning, too, and became so incautious as to meet military intelligence agents in his home. At 11:45 p.m. on December 24, 1984, 15 minutes before Christmas, he stepped into the street from his house and was shot dead by three bullets from a pistol.

The "liquidation," as NPA propaganda styles murders, caused little stir because such deeds are so common in this sprawling port city at the Philippines' southeastern tip. Davao, the country's third largest metropolis, has become the testing ground for urban revolution and the latest stage in the NPA's 16-year armed struggle to overthrow the regime of President Ferdinand Marcos, get rid of the large American military presence and create a peoples' democracy modeled on the works on Mao tse-Tung. Now growing in numbers and increasingly successful in its campaigns in the countryside, the NPA has settled on Davao as the laboratory in which to test urban guerrilla warfare.

Nearly three years of urban warfare have left few visible scars on Davao. The visitor's initial impression is of a city strangely untouched by violence. Large tankers and freighters still glide into the busy port, bringing in oil and taking out plywood and fruit, and the commercial streets are crowded with local shoppers.

But the appearance is deceiving. Many business and professional men have given up and moved away. Ordinary non-political crime is spreading and extortion is common. Several well-to-do doctors, according to a lawyer who represents them, are targets of threats by men claiming to come from the NPA. A communist sympathizer assured me the extortionists are really mere criminals using the NPA name to strengthen their demands. I do not know which version is true, but it is a measure of Davao's destabilization that one no longer knows whom he is bribing to stay alive.

The NPA has transformed Davao into the bloodiest killing ground of the revolution. In the last three years, literally hundreds of police, soldiers, informers, gangsters and para- military gunmen have been shot to death. In 1984 alone, more than 80 policemen were murdered, many of them on busy streets in daylight hours. In the typical encounter, an NPA "sparrow unit," a two-or three-man assassination squad, emerged from a crowd, fired a single bullet into the policeman's head, grabbed his pistol and merged back into the crowd. Frightened police have abandoned routine patrols and ceded the streets to the rebels.

The murders have terrified the business and professional leaders and threaten to turn a once-prosperous trade center into a ghost town, but among the poor there is tolerance, even silent approval of the bloody campaign. Many with whom I talked recently spoke of the NPA with respect and admiration -- "NPA means 'Nice People Around'", one woman said with a smile -- and eagerly admitted helping the rebels with food, sanctuary and money. Poor residents of Davao regarded NPA guerrillas not as invaders but as protectors who killed the bad cops, mean soldiers and thugs who preyed on their communities.

The support of these poor people has made large sections of Davao safe havens for the NPA, providing its first urban base after years of being confined to the mountains and remote regions of Luzon, Mindanao and Samar. Unarmed rebels move about freely in slum areas like Agdao, where they distribute propaganda leaflets and drop into homes for education sessions on the "U.S.-Marcos dictatorship". With little interference from the military, they are able to store weapons, dispense "revolutionary justice" to those who oppose them and even support themselves financially through contributions and a crude but progressive system of taxes levied on frightened businessmen.

Secure among its friends in the slums, seemingly immune to capture, the NPA has become virtually self-supporting through a crude system of "taxes" extracted annually from businessmen. The largest taxpayers are the logging companies which own timber tracts in the mountains of an adjoining province, Davao del Norte. Access to those tracts is along trails that wind through insurgent-controlled terrain. If a company wants its logs brought down to local factories, it pays a fee. A Davao attorney familiar with the practice said that the NPA is scrupulous in calculating the levies which are based on companies' production and income records. The richer the logger, the higher his taxes. The lawyer cited one company which is known to pay the NPA 50 thousand pesos a year -- about $2,800 -- to move its logs. The company that refuses to pay is warned. If it ignores two warnings, one of its trucks is found burned.

In contrast to the NPA's Robin Hood image, the Philippine military based here -- contingents of marines, regular army, Philippine constabulary and para-military units -- are viewed from the slums as a sort of army of occupation. They are accused of torturing civilians, executing suspected guerrillas without trial and performing hated dragnet operations that disrupt entire communities in the middle of the night. In truth, the military does not occupy very much. Only the marines, which have a reputation for discipline and fair play, move about Agdao and other slums on routine missions. The others spend much of their time in barracks, moving out only in force to make arrests or search homes for suspected insurgents.

Among the business and political leaders of Davao, there are many who believe the communist successes -- and the military's impotency -- are irreversible and fear the Davao experience will spread soon to other cities, even to Manila, the capital. Only the removal of Marcos, who is widely despised here, and an end to military abuses against civilians could prevent what has become a local civil war from becoming a national one, they said.

One of these leaders is Zafiro Respicio, a young national legislator who was elected in 1984 on an anti-Marcos ticket. He is one of many bright young assemblymen elected during a surge of national outrage over the assassination of the opposition leader Benigno Aquino Jr. in August, 1983. It is to people like him in the moderate opposition that many look for the development of democratic reforms that might blunt the insurgency.

Respicio is not optimistic. One day in his office in Manila, he rummaged through a bundle of clippings from Davao newspapers and held up one with this headline: "Death Squad Kills Two More City Policemen." "There!" Respicio said, "that is my city." He ticked off other liquidations from memory. The NPA was able to kill in daylight because so many of his people had come to accept murder as justified punishment of soldiers and para-military thugs who killed innocent civilians, he said. His city was suffering a "total breakdown in law and order" and the insurgents would soon be applying the lessons of urban destabilization to other places. "Davao," said Respicio, "is a microcosm of what the Philippines will be in five years if Marcos is still in power."

The Marcos government, teetering on financial collapse and trying to stem the damage to public support created by Aquino's assassination, has usually minimized the threat of the insurgency. But the United States has become as alarmed as Respicio about the NPA successes in Davao and in the countryside. Two of the most important American foreign military bases, Subic Naval Base and Clark Air Base, are located in the Philippines and their loss, many U. S. officials believe, would be a catastrophe outranking Vietnam in strategic importance.

These U.S. officials also think the time of crisis is fast approaching. American intelligence estimates that communist units have a "meaningful presence" in two-thirds of the country's 73 provinces and are more or less able to control or influence 20 percent of the villages. Some believe that as much as 40 percent of Mindanao, the large southern island, is virtually ceded to the communists by the Philippine military, which manages only occasional and temporary forays. Once confined to platoon-sized operations of 10 to 20 armed men, the NPA now frequently launches attacks of company-sized units and on some occasions has been encountered at battalion strength.

Richard L. Armitage, an assistant secretary of defense, recently told Congress that the success or failure of the insurgency could be decided within "the next three years" and he expressed blunt doubts that the inept Philippine military could contain it. The Reagan administration has asked for a large increase in military aid to Marcos' government and is pressing for sweeping reforms in the army's discipline, efficiency and combativeness. Many Filipinos, recalling Vietnam, believe that direct American intervention could be the next step, although no U. S. official with whom I talked believed that to be politically possible.

On any scale of world communist revolutions, the Philippine version would seem to rank as the one least likely to succeed. It was launched in 1968 in good Maoist form as a "protracted war in the countryside," but its founders were the middle-class products of Manila's finest universities who had scant knowledge of either guns or peasant life. It is a wholly indigenous revolt lacking the support of any foreign communist power. Although nominally Maoist, it has never received more than moral encouragement from China.

The NPA began as little more than an armed gang of former students and instructors who found an early ally in a small off- shoot of the Huk rebellion of the 1950s. Even today, its armed fronts are believed to number no more than 12,500 men and women aided by local militias of perhaps another 10,000.

The NPA is the propaganda and fighting arm of the Communist Party of the Philippines which in 1968 was fashioned to replace the withered party apparatus that had been loyal to Moscow for nearly four decades. The intelligensia that founded the new party were better trained in argument and paper combat than in firing rifles, and few took them seriously. Most who drifted into the new armed struggle had been first politicized in the nationalist, anti-American crusades of the 1960s. Their leader was Jose Maria Sison, a writer and instructor at the University of the Philippines, whose conviction was that American imperialism " . . . is the single most important determinant force in reactionary politics in the country."

Sison, who was captured by the military in the mid '70s, (and is imprisoned in Manila) explained the basic blueprint for revolution in a treatise entitled "Specific Characteristics of Peoples' War In The Philippines." From secure bases in the mountains, guerrilla teams would move into the villages of low-lying areas, gradually winning over the peasantry by good works, prosyletizing and justice by the gun. Operations would be decentralized through a system of "fronts," each front linking guerrilla units in several villages and towns.

Eventually, the armies would begin "encircling the cities from the countryside," while urban underground comrades prepared the groundwork for a general uprising. At the end, Sison wrote, the revolution would have to face the inevitability of intervention by American military forces.

Armed mostly with weapons taken from Philippine soldiers, the NPA has followed Sison's plan with remarkable fidelity and discipline, first in the central and northern mountains of Luzon, later in the east-central island of Samar and now in the large southern island of Mindanao.

First a mountain base is established. Then a village is approached by NPA organizers who behave something like a domestic peace corps. Its members help with farming and medical services and invite themselves into homes for seminars on Marxism and Mao, American imperialists and the evils of the local landlord. They organize tenant committees, often bullying the landlord to lower rents and in some cases confiscating his land. Very soon after its arrival, the NPA kills a policeman or a soldier who is particularly despised, usually after warning him ti mend his ways. Such "revolutionary justice" is also extended to criminals and mere ne'er-do- wells -- wife-beaters are often among the earliest to be liquidated.

What happens next is a cycle of military intrusions -- arrests, dragnet searches, the torture and sometimes killing of prisoners -- that in many cases binds peasants and villagers more closely to the NPA. In the neighborhoods of Mindanao which I visited, the NPA has fashioned its Robin Hood image largely by posing as protectors of the poor against the oppressions of government forces.

The government rejects as false most charges of military abuse, but the pattern of torture, beatings and summary executions (for some unknown reason called "salvagings") has been documented for years by both Philippine and foreign investigators. The Task Force Detainees, a Catholic Church-related organization which is anti- Marcos, annually presents convincing evidence of hundreds of "salvaging" cases in which the bodies of victims are found adrift in the tides or lying in shallow graves.

Torture of suspected NPA allies is so common that some believe it to be government policy. In 1983, Amnesty International representatives interviewed victims who had been detained in military cells and concluded that torture had become "so prevalent as to amount to standard operating procedure for security and intelligence units."

To some NPA supporters I interviewed in Davao the local military is sometimes a horror, sometimes a joke, and is laughingly referred to as the guerrillas' most efficient recruitment tool. One middle-aged woman told how her own experience with the soldiers had cleared up any doubts about where her sympathies should lie. Her home is in a poor section of Agdao which is known to harbor several NPA cadres permanently stationed in the city. One day the Philippine constabulary came searching houses, including her own, ostensibly seeking information on a policeman who had disappeared. She and three men were taken to constabulary headquarters for questioning. She was released after interrogations but the three friends were jailed and tortured, one of them so severly that he later died.

She now readily acknowledges sympathy with the NPA whose members, she explained, "know who to get rid of." In her account, the rebels dispensed a rough but basically fair justice, especially in killing criminals and brutal police. She said that the NPA had imposed some sense of order and discipline in Agdao, unlike the police. She felt that some in the military might be good men. "But everytime I see a military man in uniform, I feel fear," she said. "But I am not afraid of the NPA man."

Like others interviewed here, the woman seemed to regard NPA killings as measured justice while the military's are casual, even whimsical, and usually unexplained. The Davao office of Task Force Detainees contains the "salvaging" case of one Teresito Pancon, who was arrested one afternoon at a crossroads in the community of Matina. No reason for the arrest has ever been given. (Despite many requests for interviews during a two-week period, the various military branches declined to arrange them for me).

Pancon's body was found in a shallow grave a few days later in a municipal cemetery. His family chose not to pursue the case, although witnesses could identify the arresting patrolman, because, a lawyer said, they have no faith in the military.

Most murders and disappearances in Davao are not witnessed, of course, and it is often difficult to sort out just who is killing whom. Some of the most vicious slayings have been committed by armed gangs wearing no identification. Given the record of military abuse here, people are quick to say that they are gunmen hired by military authorities whose own agents are afraid to enter the slums. Some blame the military, others the local barangay captains whose political domains are threatened by the growing insurgency.

Midnight murders and random arrests would probably generate enough recruits to fill the ranks of several NPA battalions. But the Philippine military has developed an even more productive tactic. The people on whom it is inflicted call it "zoning;" the military calls it a dragnet. The terminology is important because "zoning" was the despised method of rooting out native rebels used by Japanese soldiers occupying the country during World War II. In its present application, constabulary units surround an entire neighborhood, roust residents from their homes and make house-to- house searches for NPA supporters.

"Zonings" have become almost routine in the more impoverished sections of Davao, where around 100 NPA cadres are believed to be stationed, and have reinforced the military's image as that of a foreign invader. (It is invarialbly referred to as "Marcos' army," not the Armed Forces of the Philippines). Equally brutal murders by the NPA's "sparrow units" are accepted, conversely, as heroic revolutionary acts and not only by the party faithful. "Sparrows" can kill almost any exposed target without fear of being reported to the police. In one brief period, they liquidated a police captain as he visited relatives in a relocation center, a police investigator relaxing in a canteen, a patrolman waiting for a ride on a busy street and a constabulary officer standing in a hospital lobby.

The NPA had fashioned its Robin Hood image by purporting to kill only the bad guys, the policemen and troopers who demanded petty bribes or harrassed the innocent. In truth, its more recent murders have been less discriminating. Traffic police have been shot on busy corners simply because their pistols were needed for the revolution. Some assassinations are essentially political statements, messages written in blood to demonstrate the NPA's ability to kill anyone, anywhere, and get away. In one especially chilling incident, a high school military arts instructor was gunned down one afternoon amid a crowd of students and teachers. Instead of fleeing, the assailants conducted an impromptu seminar on the evils of militarization.

One businessman whose company is failing invited me for an interview and we met in his thick-walled basement office that resembles a war bunker. Uniformed guards watched the entrance and inspected each visitor. The businessman, embarrassed by the trappings of security, explained he had moved into the basement because he, too, had been the targets of threats, some of which had from employes he had been forced to discharge. His business depended to a certain extent on Davao's tourist trade, which has fallen sharply since the stories of murdered police began spreading. The Japanese consulate had issued advisories warning vacationers to go elsewhere.

Many of his friends had moved to Manila, the businessman said, and every day brought more homes on the market. Chinese merchants, doctors, almost anyone with money, had become subjected to extortion. In one three week period, there had been two murders a day. It was not always clear who was killing whom and perhaps the most frightening murders were those that had no apparent connection to politics. Certainly, he said, the NPA was making Davao its testing ground for urban guerrilla warfare, but its "liquidations" were only part of the chaos. "The military says it is the NPA. The NPA blames the military. All that most of us know is that Filipinos are killing Filipinos."