GENERAL NORIEGA is getting desperate. The Panama strong man, who had imposed a state of emergency to close off protests against his misrule, responded to American criticism by lifting the emergency in order to permit a demonstration against the American Embassy. Police protection was withdrawn while Cabinet and ruling-party officials joined in the vandalism. When real demonstrators returned to the streets, the general had the police disperse them; the same police stood by and allowed armed men to set fire to a building owned by publishers of the opposition newspaper, La Prensa.

Gen. Noriega is not only a corrupt man but a shrewd one. He understands the resentment some Panamanians feel at living in the shadow of the United States, whose continuing interest in the Panama Canal gives it an exaggerated and not always sympathetic presence. Gen. Noriega brands expressions of American interest in Panama's democratization as interference in its domestic affairs. He accuses the United States of fomenting unrest in order to undermine the arrangements providing for turning over the canal -- the country's great national asset and reason for being -- to Panama. This is the spirit in which he received a solicitous Daniel Ortega of Nicaragua.

In the past, the United States, seeking stability, built up and relied on the local defense force. That is how Gen. Noriega and his predecessors got into the business of politics. But a business and commercial class has developed that demands a political system as modern as the country's economy. The time when people would accept Gen. Noriega's sort of military rule is over.

Fortunately, the United States, having modernized its state-to-state connection with Panama through Jimmy Carter's Panama Canal treaties, is now modernizing its connection to the Panamanian people. It was not possible to lean on the previous military leader, Gen. Torrijos, while counting on him as a partner in the treaty negotiations. It became possible to be bolder when Gen. Noriega took over, but Washington needed a jolt; one was provided by the homegrown peaceful protests against the general that began last month. By critical word and diplomatic deed, the Reagan administration has now separated itself from the military leadership and is openly identifying itself with the forces of democratic change. This is where the American interest lies.