Both the United States and the government it installed in Panama have bungled the chance for a new beginning for that country, which was paid for in blood last December.

To begin with, instead of disbanding Manuel Noriega's army, the United States and Panama agreed to reconstitute it as the country's police. This was meant to save the time that would have been needed to train a new force, to lighten the political cost of the invasion by getting U.S. troops home quickly and above all to avoid facing the difficult problem of what otherwise to do with 16,000 goons that a Florida grand jury was ready to indict en masse as "a continuing criminal enterprise" and that are no more fit to defend democracy than Count Dracula is fit to guard a blood bank.

Like most decisions made in moral cowardice, this one was wrong. The recent rising by police elements and the need to deploy U.S. troops to put it down (since no trustworthy Panamanian units existed) are clear proof of this. Civilian rule in Panama still depends on U.S. troops to defend it from the army we beat last December. Far from having our forces freed, we must keep them on in Panama indefinitely at risk to themselves, to U.S. popularity and to the national interest should they be needed elsewhere, say, in the Mideast.

Meanwhile, the government of President Guillermo Endara has shown no eagerness to provide a fresh start for a country that is exhausted and bankrupted by tyranny, economic sanctions and invasion. For most of the dictatorship, the political classes did well. Few in office share the ordinary Panamanian's desperation at what happened to the country and his rage at those responsible.

The dictatorship's constitution is still in effect. It establishes the armed forces as a branch of government, co-equal to the executive, and gives legal sanction to military ambitions. The government evidently is happy with it, just as it has been happy to pamper people such as Capt. Fritz Gibson, who in December of 1979, directed and starred in the savage public beating given law professor Miguel Bernal for the "crime" of protesting Panama's grant of asylum to the shah of Iran. Thousands of Panamanians are still homeless because of the invasion, but Gibson lives in what was once the Canal Zone in one of the duplexes ceded by the United States as a result of the 1978 canal treaty. He enjoys a rich pension, as if the nation were grateful for his services.

The dictatorship's laws are still on the books, including a libel law under whose provisions a person can be jailed for five years on a simple accusation. Its mere existence violates the right to freedom of speech. President Endara has invoked it to dissuade criticism.

Some of Endara's closest advisers enjoyed influence during the dictatorship. The chief prosecutor was private secretary to puppet President Ricardo de la Espriella, who as head of the National Finance Council in the '70s and '80s made possible some of the worst thefts. The ministry of justice is stocked with holdovers from the dictatorship, including Gilberto G. Cazorla, who in 1984 had a printer jailed for producing opposition election materials, a perfectly legal activity, then jailed the printer's sons for good measure and who still defends these actions on the grounds that they were ordered by a colonel.

As may be imagined, these people have set no records in dispensing justice. A few of the old regime's worst criminals are in jail, but none has been tried, and plunderers go about in ostentation, a constant affront to decent citizens.

Some unsavory old-regime practices continue also. The United States, which turned a blind eye for years to Noriega's drug dealing, is pressing Panama, and conditioning $84 million in aid on it, for a treaty that would allow U.S. officials access to local banking records in order to end the laundering of drug money. Panama argues, with much reason, that ending banking confidentiality would destroy the country's finance center. On the other hand, while money laundering could be controlled internally, and while the banking community would welcome an end to it (since only a few of Panama's banks engage in it), the state banking commission has been lethargic in exercising its policing responsibilities.

Such lethargy is intolerable while ordinary Panamanians are suffering. Sanctions and invasion left the economy dead in the water. Some improvement has occurred, but unemployment is still near 20 percent. The government has made some useful efforts toward attracting investment but has failed to provide either leadership in the present emergency or hope for the future. The chief reason for this is that it is unwilling to break with the past.

Help and understanding from the United States are needed, but only Panamanians can solve the country's current problems. The dictatorship's constitution and laws must be scrapped. The dictatorship's criminals must be prosecuted and an effort made to recover stolen funds. The dictatorship's sympathizers must be purged from government. The dictatorship's soldiers must be replaced by a loyal and honest force of police.

Disappointing as the government has been, it is still a great improvement over what went before it. The trauma of two decades of tyranny could not, in any case, have been healed quickly. The pity is that a year has been largely wasted.

The writer is co-author of "In the Time of Tyrants," an account of military rule in Panama.