When Felix Garcia Diaz was threatened with government expropriation of his 2,000-acre farm near here a decade ago, he abandoned his wheat crop, bought a shotgun and went to war against the Socialist presidency of Salvador Allende.

"The bandits came and they took half of my property," said Garcia, 60, who is proud of his rural bluntness. "And so I drew a line and said 'no further,' and I defended with arms what I had left. It was open warfare to preserve what I had built with my own hands."

Garcia got his farm back after Allende was overthrown by a military coup in 1973, but his fortunes have not improved. Now, as Garcia sees it, another government is threatening to push him off his land.

The agents this time are bank officers, not land redistribution cadres, and pure free-market conservatism has replaced Marxism as the official ideology. But for Garcia and thousands of other farmers in Chile's agricultural heartland, ruined by debts and the collapse of the national economy, the effect is the same.

Thousands of small wheat growers and cattle ranchers in this rugged southern farm region have halted production and are faced with losing their property this year because of staggering debts, accumulated after the cutoff of traditional government aid and multiplied by sky-high interest rates and the drop in the Chilean peso's value.

The farmers are angrily blaming the crisis on the free-market economic policies of Chile's military government--and increasingly, on the political leadership of Gen. Augusto Pinochet.

"We are not responsible for the situation we are in, and we have pretty much taken a rebellious attitude, because they are practically expropriating our property," Garcia said. "This is the result of an erroneous and extreme economic policy, and just like in 1973, we are asking for what might be called the right to reclaim our land."

The growing discontent of these predominately conservative, middle-class citizens has become a serious political problem of Pinochet's suddenly troubled rule. Once a bastion of government support, farmers and other small business groups, which have long been well-organized in Chile's politicized society, have begun to move toward the kind of hostile mobilization that was a key to Allende's downfall.

Already, leaders of farmers' organizations here claim credit for intimidating Chilean banks into holding off on most foreclosures and farm auctions through sale boycotts and demonstrations, a claim confirmed by local banking sources.

In addition, the farmers' unions have joined with truckers and other unions of small businessmen in southern Chile to issue a series of manifestos demanding major changes in government policy, including political liberalization.

"We have been like the fuse on a bundle of dynamite, because people all over the country are supporting our stand," said Carlos Podlech, the president of the National Wheat Growers' Association. Podlech was expelled from Chile in December after organizing a demonstration of farm and business leaders in Temuco, but he was allowed to return in February and has since hardened his position.

"Time has run out, and people are full of desperation," said Podlech, who only two years ago supported a new national constitution that mandated Pinochet's rule until at least 1989. "Everyone is getting together to push--to push this government out of the rut where it is stalled."

Pinochet's response to the farmer's protests has mixed repression with partial efforts to bail out the agricultural sector and other Chilean producers burdened with high debt. In addition to expelling Podlech, police violently broke up the demonstration in Temuco and temporarily shut two local radio stations that supported the movement.

Last month, Finance Minister Carlos Caceres announced a new economic plan under which private debtors of less than about $300,000 would be allowed to renegotiate parts of their loans at easier terms with government backing. The measure was part of a broader package to rescue Chile from one of its worst economic recessions while refinancing the country's unmanageable foreign debt, 70 percent of which is held by the private sector.

Leaders of the agricultural sector, which owes $1.2 billion in debts to Chilean and foreign banks, were quick to say the government had not gone far enough.

"How it is going to be done, I don't know, but if we don't have years of extensions on our payments, we are not going to be able to keep producing," said Domingo Duran, the president of the Confederation of Agricultural Producers. "We are losing everything--our property, our liberty."

Although the level of political dissent has not reached the heights of a decade ago among southern Chilean farmers--who say they fought Allende on ideological as well as economic grounds--the troubles of agricultural production are in many ways far worse now than in even the last, chaotic months of the Socialist government.

According to government figures, the production under the military government of the dominant crop in the south and Chile's most cultivated foodstuff, wheat, has never reached the level of 1971, 1.3 million tons. This year production has been estimated at 560 million tons, less than one-third of that needed for internal consumption and well below the 746 million tons produced in 1973, when Chilean agriculture was described frequently as paralyzed by strikes and disputes over land redistribution.

Around Temuco, where wheat, cattle and dairy farms predominate, dozens of farmers simply have stopped planting because they can no longer afford to buy seeds or cannot obtain new credit to finance their crops, according to leaders of local farming associations. In the past two years, about 40 farms in Temuco's province have been auctioned off for bad debts, and 17 farmers in southern Chile are reported by Podlech to have committed suicide as their situations deteriorated.

For many farmers, the bitterness of the hard times is all the greater because of the high hopes that followed the military takeover nine years ago.

"The government called on us to save the country, and we launched in four days after the coup with a great enthusiasm to work," said Garcia, who recovered the land expropriated by the Socialists, sold it and bought a new 800-acre dairy farm. "It was only after a time that we saw we were ending up just as bad or even worse than before."

After the Allende years, many farming operations were returned to private ownership and farmers needed large credits to reinstall infrastructure and modernize equipment.

At the same time, the Pinochet government, determined to create a pure free market economy in Chile, ended subsidized credits to farmers from state development banks, canceled decades-old support price programs and reduced tariffs to a flat 10 percent, encouraging large imports of cheap agricultural products from abroad.

Farmers were forced to seek credits from the newly privatized banking system and sell their grain to the newly private flour-mill industry, both of which soon became monopolized by a few large conglomerates. Prices dropped sharply at the mills even as interest rates at the banks ranged as high as 4 percent a month--far more than small-margin farming operations could afford.

Garcia says he was a typical case. He borrowed originally in pesos and soon found his debts growing unmanageably because of the high interest rates on such loans. Then, in June 1982 his bank allowed him to convert much of his debt into dollar loans, which had lower interest. Four days later, the government devalued the Chilean peso, leading to a slide against the dollar that in a few weeks doubled the amount Garcia had to earn in pesos in order to pay.

Now, Garcia says, his loans are worth more than his property, and he has almost no prospect of paying. "Without forgetting the debts, the government has to allow us a system that relates to the realities," he said. "The state has to provide the solution, or they will turn over to bankruptcy the people that for many years have driven this country's economy."

In a manifesto issued in Temuco in December, a coalition of farming and business groups said extreme measures were necessary to save their operations: a government takeover of the banking system, a moratorium on debt payments and fixed interest rates for new, government-supplied credits, among other measures.

But despite such demands--and the protests that have accompanied them--many here say that no real solution is in sight. "The farmers go on with this illusion that the government will touch them with a magic wand and get them out of this situation," said a Chilean bank official. "But it doesn't look like it will happen."

"What will happen is that a lot of people--not a majority, but a substantial percentage--will lose their land. After that, it's unpredictable."