Shortly before Jose Lopez Portillo became Mexico's new president on Dec. 1, the president residence here was redecorated in a seemingly symbolic way.

Out went the rustic furniture and Mexican folk art favored by Lopez Portillo's predecessor, Luis Echeverria. To replace them, the new president opted for a decor of formal portraits and French antiques.

To many Mexicans, removal of the populist trappings with which Echeverria has surrounded himself singaled the end of an era: the six turbulent years during which Echeverria sought the mantle of a champion of the poor at home and a leader of the Third World abroad.

Although Lopez Portillo has paid the obligatory lip service to Echeverria's unpredictable and radical policies, the evidence so far indicates that his presidency will be as unlike his predecessor's as his taste in furniture.

Little more than a month ago, this most populous of Spanish-speaking countries seemed to be in the grip of a national nervous breakdown.

In the last half of 1976, Mexicans had seen the value of the peso cut in half after 24 years of fixed parity with the dollar. In near hysteria, thousands lined up at border stations, clutching suitcases, crammed with their life's savings in a frantic effort to get their money into U.S. banks.

The stampede to exchange pesos for dollars swamped Mexican banks, and the central bank temporarily halted foreign-exchange transactions.

In the country's fertile northwest farm belt, thousands of militant peasants - spurred by Echeverria's last-minute expropriation of a quarter-million acres of private land - seized huge chunks of other farms. It seemed that a shooting war might ignite between squatters and landowners.

The country was swept with rumors about plots of a coup d'etat that would block Lopez Portillo's inauguration and keep the controversial Echeverria in power. Mexico - long one of the most stable, prosperous and envied nations of Latin America - suddenly seemed to be on the brink of chaos.

The panic subsided as quickly as it began. The turnabout began on Dec. 1 when, despite all the rumors of a coup, a festive inaugural ceremony saw Echeverria turn over the tricolored sash of the presidency to Lopez Portillo.

With his inaugural address, the new president began trying to calm the anxieties. His appeals for confidence, patience and cooperation have had an effect that has already earned for him an admiring nickname, "the magician."

Lopez Portillo, 56, has managed this even though the country still had no clear idea of what he plans to do. His government is in the throes of a transition remarkably similar to that taking place in Washington. As the Mexican president and his aides feel their way into their jobs, they have deliberately avoided talking about the specifics of how they will tackle Mexico's problems.

Most Mexicans seem inclined to give Lopez Portillo a breathing spell. But everyone is aware that the present surface calm will shatter again unless he quickly comes to grips with the problems that have shaken Mexico.

Some of these problems are the result of the worldwide recession and its depressing effect on Mexico's economy. In the past few years Mexico, once the only Latin American country with a favorable balance of trade, has found its situation reversed. The rising cost of imports has sent inflation soaring, and the government was forced into massive additional borrowing abroad that skyrocketed Mexico's debt from $13 billion to $24 billion.

Those internationl conditions coincided with Echeverria's commitment to a free-spending program of internal government investment that added to the debt and triggered a clash with the business establishment so bitter that the two sides wound up hurling charges of "facists" and "communist" at each other.

Observers of the Mexican scene tend to explain the current situation by resorting to technical phrases such as balance of payment deficits, income redistribution and investor confidence. They are really describing symptons, not root causes. At its core, Mexico's dilemma is that it is a prisoner of geography and history.

With a land mass of 762,000 square miles - roughly a fifth the size of the United States - Mexico ranges from arid desert in the north through rugged mountains and high plateaus to jungle in the south. Because of inadequate rainfall in many areas, only 16 per cent of its territory is arable.

As a visiting writer once noted, it is "a beautiful land to look at, but a hard land to live in."

Yet, Mexico has a polulation estimated at 62.3 million. Largely because of what one government official privately calls "our eternal marriage to the Catholic Church," that population is officially estimated to be increasing at the galloping rate of 3.5 per cent a year. Many people believe the annual birth rate is actually closer to 4.5 per cent.

Out of this truggle came the event that shaped modern Mexico - that bloodbath of revolution that began in 1910, when millions of impoverished peons rose against the dictatorship of Porfirio Diaz, and continued as a succession of regional civil wars until the 1930s.

The revolution affected Mexico much as the Civil War did the United States. In attempting to solve some problems, it left a residue of others that still defy resolution.

Out of the revolution's ashes grew the Institutional Revolutionary Party, the PRI. It transformed Mexico into what is, for all practical purposes, a one-party state. Every Mexican president since the revolution has come from its ranks.

Although it tolerates token opposition parties, the PRI keeps all real power to itself through an awesome grass-root organization, Tammany-style patronage and strong-arm tactics.

The party's self-pronounced purpose was to institutionalize the goals of the revolution. The means employed was "sector democracy" - organization of the party into coequal parts, each representing one of Mexico's main interest groups.

The PRI's current division into three sectors - labors, farm and "popular" - theoretically provides political homes for everyone in Mexico. The sheltering of such diverse groups under one political roofs means, in theory, that all shades of ideology are represented in the party councils.

It is as if Jimmy Carter and Gerald Ford, Reagan and George McGovern, George Wallace and Edward Brooke all belonged to the same U.S. party.

In the PRI's early days, the left was in the ascendancy and the emphasis was on Latin America's first radical land reform and the expropriation of foreign intereests (mainly American) that traditionally had controlled Mexico's wealth. While the party still tries to project its radical past, the spirit began to wane in the early 1940s.

Beginning with President Miguel Aleman immediately after World War II, the government began shifting toward the right. Aleman's aim was to capitalize on Mexico's promixity to the United States, make his peace with U.S. investors and start the country toward rapid industrilaization. In the ensuing years, the PRI's self-perpetuating mechanizm cast up three successor presidents from the same mold.

Despite their rhetorical homage to "revolutionary ideals," they pinned their hopes on what was essentially the old "trickle-down" theory of economics. They gambled that rapid industrialization would produce the jobs necessary to take care of the growing population.

For a long time, it seemed that Mexico might need be beating the odds. During the 1960s, the annual growth rate regularly averaged 7 per cent; per capital income before the recent devaluation stood at $1,307. Many economists were predicting that Mexico might become the first Third World country in the postwar era to pass from the ranks of underdeveloped to developed nations.

In human terms, this meant a rapidly growing middle class whose influence is apparent everywhere - in the abundance of consumer-society goods available in Mexican shops, in the neat rows of suburban housing that surround most Mexican cities, even in the modishly fashionable haircuts and jeans suits of girls whos grandparents were barefooted peasants.

But the growth made the government less responsive to the three mass-oriented sectors of the PRI than to a fourth force that is not even in the party - industrial, banking and commercial interests. While impressive strides were made, the relentless increase in the population left too many people beyond the reach of the surface prosperity. By the late 1960s, the formula of political stability and rapid but limited growth was threatening to break down.

That was underscored by the trauma of 1968, when, on the eve of the Mexico City Olympic Games, widespread protests broke out, culminating in the army's machine-gunning a political meeting and killing almost 300 persons. The interior minister in charge of putting down the unrest was Luis Echeverria.

By the time Echeverria moved up the presidency in 1970, the smell of burning fuse had become too strong to ignore. The student movement was going underground, the intellectuals had become the government's most bitter enemy, and the laboring and peasant classes were showing increasing signs of restiveness.

To the surprise of almost everyone, Echeverria did an about-face from his former stance as a hard-line conservative, choosing to let the steam of unrest escape into the open.

Despite the lables subsequently pinned on him, what Echeverria did was not much more radical than the American New Deal, and not very different from the economy-stimulating proposals now advocated in the United States by conservative labor leaders like Georege Meany. Echeverria launched a program - dubbed "sharred growth" - through which he sought, in one great burst of public spending to narrow the vast economic and social gulf between Mexico's haves and have-nots.

During his six years in office, he spent millions on highway construction, electrical power projects and oil and steel production. he especially lavished money on the poor, doubling the size and extent of public service and giving workers steep, across-the-board wage increases.

To whip up grass-roots support for his programs, Echeverria engaged in inflammatory, leftist-sounding rhetoric and sought on the international stage to identify Mexico with the underdeveloped world.

The conservative business establishment, finding itself regularly characterized as "plutocrats" and "pro-fascists," decided Echeverria was leading the country toward communism. It started siphoning money that normally would have gone to domestic investment off to safer havens in the United States and Europe.

By the time Echeverria, in one of his last acts as president, expropriated more than a quarter of a million acres of land in northwestern Mexico to give to peasants, the acrimony had reached its height, and the outside debts and diminished export earnings came crashing down.

Lopez Portillo has made it clear that his first order of business will be to restore Mexican's confidence in their own economy through an austerity plan. That will mean cutting back Echeverria's ambitious public spending projects and tamping down the wage demands of unions and social reform aspirations of the peasants.

That Lopez Portillo seems destined to be the man who reverses Echeverria's policies is ironic. The two have been close friends and collaborators since their days together as students. Lopez Portillo was Echeverria's finance minister, and Echeverria chose Lopez Portillo to become president.

It is ironic, too, that the conservative course being charted by Lopez Portillo seems to run counter to the mass-orienteed, egalitarian principles on which the political structure of contemporary Mexico is based.

The big question is how far Lopez Portillo can move toward the right expectations were raised by Echeverria. Some observers believe that certain of Echeverria's last-minute actions, like the land expropriations, were aimed at freezing the government into leftist positions from which it will be unable to retreat.

Others contend that the expropriations and the peso devaluations were carefully coordinated by the two men to put the onus for controversial but politically necessary actions on Echeverria and leave Lopez Portillo free to be the conciliator. Fear that Echeverria would remain a powerful force looking over his successor's shoulder have so far proved unfounded.

The endemic problems that Echeverria tried to solve remain. Fifty per cent of Mexico's wealth is still in the hands of 10 per cent of the people. About a third of Mexico's work force of 17 million is generally believed to be unemployed or underemployed. Mexico City and its environs have grown like a cancerous tumor into an urban sprawl.

Such conditions breed desperation. Four thousands, it is the quiet desperation that leaves them sitting on street corners, trying to eke out a living by shining shoes or peddling chewing gum and shoe laces.

For thousands of others, however, this desperation could take a more ominous turn. It is what impels ragtag armies of peons to swarm onto private farms and claim the fields as their own. It is what leads others - estimated in the millions - to slip across the border in a wave to illegal immigration that has caused increasing friction between the U.S. and Mexican governments.

Increasingly, there are doubts here whether the system, loaded down with the ideological baggage of the revolution, can handle these problems.

The "taboos," as Mexican politicians privately call them, include an agriculture and land policy that defy the reality of large-scale technology by religiously cleaving to te revolutionary goal of tiny plots worked by individual owners.

The "taboos" also include a nationalistic insistence that natural resources - including the potentially rich oil reserves that could prove to be Mexico's biggest economic asset - should be controlled and managed by historically inefficient and politically motivated state enterprises.

Perhaps most importantly, the "taboos" include the lack of meaningful political opposition. Without competition, many charge, the PRI has become fossilized, more interested in perpetuating itself than in responding to the country's needs.

Echeverria only aggravated the problems. Mexicans are watching to see how Lopez Portillo tries to steer around the "taboos" and to chart solutions for problems that many regard as virtually insoluble.

Echeverria succeeded only in aggravating the problems. Since leaving office, he has kept himself nearly invisible, contrary to the fears of many observers. But the problems he tried to solve - overpopulation and lack of resourcesA, and the resulting poverty and unrest - are all too visible.

NEXT: The Problem of Land .