In the highlands of Mexico's far south, where pine forests give way to Indian towns, to jungle and to oil wells, the battle for change in Central America is felt more than anywhere else in this country.

The heavy 17th century walls of San Cristobal, the regional market Cown, are painted with thick red-and-black slogans supporting revolution, and signs saying "Death to Reagan," and "Yankee DOGS get Out of El Salvador."

The Mexican government has little sympathy for the U.S. definition of Central America's problems as a fight against falling communist dominoes that could extend to Mexico itself. Officials argue that their own political system, rooted in the Mexican revolution of 1910, has channels for peaceful change.

But here in Mexico's soft underbelly, 700 mountainous miles from the capital and next door to the small, war-ravaged countries to the south, the government's nonchalance about its own potential problems, and its hands-off theories about Central America's wars have given way to activist policies designed to head off trouble before it develops. g

In a mix of concession and repression that largely has gone unreported in Mexico City, President Jose Lopez Portillo's administration has pumped vast amounts of money, technicians and technology into this region during the past several months. At the same time, it has substantially expanded the military garrison that watches over the majority Indian population here in the border state of Chipas.

The poker-faced Indians who sit beneath the graffiti selling corn and garlic on San Cristobal's sidewalks may not grasp the import of the battles of bullets and ideology that is now under way in El Salvador and ready to boil over in neighboring Guatemala. Yet most people know about the constant stream of refugees from both countries that passes through here. Men, women and children who look like Mexico's own peasants knock on doors, ask for help, and tell stories of terror. The rumor network through which the Indians get their information, insiders say, is hot with tales about what is going on "on the other side."

Chiapas is Mexico's most Indian and its most isolated state. Local officials like to boast that it is a "rich, sleeping giant." Besides oil, it produces more electricity, coffee, bananas and cacao than any other state.

Privately the officials concede that Chipas also has more landed gentry, haciendas run like fiefdoms, and impoverished Indian peasants than most corners of Mexico.

Minor rebellions are frequent in the tightly knit Indian communities that feel abused by outside political or business interest. Yet no opposition group has managed to exploit or channel the Indians' discontent.

Before this could happen -- and because of the troubles just a few hundred miles away -- the government has begun implementing a strategy to secure the region's continuing stability, a factor that makes Mexico almost unique in Latin America.

On a recent visit to the newly formed state development agency, Prodesch, located in an old convent overlooking the town, the place was busier than San Cristobal's legendary Indian market.

Experts of all types rushed around in pickup trucks bearing the initials of government agencies. Delegates from Indian villages, distinguishable by their different woolen smocks or embroidered shirts, stood in long lines outside offices marked "Health," "Agriculture," "Drinking Water."

"What we're doing here is part of a nationwide rural development drive," said one of Prodesch's directors, "but Chipas is more urgent. There has been a lot of tension and violence because of the discontent here. We cannot deny there is a chance of more unrest because of the wars next door."

"So now we have programs and all sorts of incentives," he continued. "The idea is to develop the area and to keep people busy, out of trouble, making them produce."

By midyear, after the first 12 months of the program, the state and federal government will have spent at least $135 million on development projects, more than twice the amount it spent in Chipas in any previous year.

Projects range from construction of roads, small village clinics and government stores with subsidized staples to the distribution of improved seeds and renting out the 3,000 new government tractors at token fees.

The other end of the government's carrot-and-stick policy in Chipas lies with the 24th Army Regiment and its expanded base outside Comitan, on the road to the border.

Set among pine trees on the open rolling hills that turn into Guatemala's mountains in the distance, it is the operations center for the southern highlands, the jungle and the border strip.

While the commanding officers at the base declined to give any information, a well-placed official in Comitan said the base has been expanded in recent months "from 3,000 to 8,000 men."

You will not detect any great increase," said the official, "because many soldiers and officers do intelligence work in the towns around here in civilian clothes."

Last December, the Mexican armed forces staged the nation's largest-ever military maneuvers here. For more than a week, 45,000 soldiers moved across the entire state. At that time, the military described the maneuvers as exercises amied at defending the oil fields.

A high civilian official, however, said that the exercises were as much part of "psychological warfare against the population to get the message across that it is dangerous to step out of line."

The role of the Army is not without pitfalls, however, and its presence does not always guarantee stability.

In one of the villages where the Army staged a mock battle of the good soldiers against "the bad, red invaders," the parish priest said the locals had been terrified during the exercise. "The soldiers went on a house-to-house search for arms, and stole many people's belongings," the priest said in an interview.

While the role of the Mexican Army is mild-mannered compared to the often brutal repression of its Central American neighbors, The peasantry seems to fear and dislike the government troops.

Local military commanders traditionally sell protection to the landowners or political bosses in Chiapas. In exchange for food, housing or money, they help out against "disorderly peasants."

During a widely reported land dispute in the village of Wolonchan in June last year, the Army killed 15 people, and wounded many more, causing a national scandal.

The large influx of new money has begun to unsettle a number of communities. Last month, the mayors of five villages were replaced after disputes and riots over the way they handled the government funds.

"It's the inevitable result of our new approach," explained Gustavo Moscoso of the government planning agency. "We're letting the leaders or the community choose what to do with the money to end the paternalist approach and to stop corruption Normally so much of every development project is skimmed off by the middlemen and contract salesmen and kickbacks that only about 30 percent reaches the community. We think we're avoiding that now."

Development experts here also have been critical of the political ties the local bosses are attaching to the aid. Officials of the Institutional Revolutionary Party, the perennially ruling party, have bee recruiting people to join the official peasant organization, church officials say. They warned that anyone who joined other groups would not be eligible for the credit program, technical assistance or shopping in government subsidized stores, these sources added.

"This bullying is backfiring, because this pressure is making people angrier," said one critic here.

Nonetheless, there appears to be a consensus among the most critical elements, including anthropologists, priests and development workers, that the chance of Central America's revolution spreading to Chiapas is not at hand.

"There are many angry people in Mexico," said a lawyer who long has given free legal advice to the poor. "Life is getting harder, more expensive. People want change, but they don't know how. They are not organized and their leaders are co-opted or killed. No wonder the government is confident."