WHEN THE FIRST NEWS of Ronald Reagan's Presidential victory clattered over the international wire services, Central America's military rulers and their supporters mixed sighs of relief with shouts of celebration. The head of Guatemala's right wing National Liberation Movement said it was 'just like New Year's Eve with mariachis, marimbas and firecrackers.'

But for most of the area's 21-million inhabitants from the highlands of Guatemala to the dense jungles of Panama the change of leaders by their neighbour to the North was an occasion of despair. During the election campaign Mr Reagan had been pointedly clear in his policies towards Central America. Nicaragua was already 'lost' to Marxists according to the President and 'communist subversion in the Americas' would go no further.

American politicians like Senator Jesse Helms dusted off the old 'domino theory'. Discredited during the Vietnam war it suddenly became fashionable again. The new East-West flashpoint shifted. The spotlight was no longer on southeast Asia, Angola, Mozambique, or even Afghanistan. It was aimed squarely at Central America. 'If we don't stop 'em there, they'll be on our borders.' So the argument goes - first Nicaragua, then El Salvador, Guatemala, Mexico. And who knows? It could end in hand-to-hand combat on the Ewing ranch in Texas.

The naivete of such a 'theory' is more lamentable in that it is being passed off as the reasoned wisdom of intelligent men. But seeing every national conflict as a reflection of the primal tug-of-war between the superpowers is not just narrow-minded. It also ignores the causes of injustice and inequality that underlie popular rebellion in most Third World countries.

By any standards Central American history is a saga of brutal repression, inexcusable poverty, racism and foreign meddling. Since Spanish 'Conquistadores' arrived on the Panamian coast at the beginning of the sixteenth century, the region's development has been geared to the needs and demands of outsiders. To be sure, local elites have also prospered from this external dependency. But the majority of the people, the descendents of the Maya Indians whose labour produced the region's wealth, have been both impoverished and exploited.

Spanish colonizers were drawn to the Central American isthmus by rumours of easy riches in gold and silver. However, they stayed for another kind of wealth - land. Indians were forcibly dispossessed of their ancestral territory and enslaved to work large estates. The methods of exploiting Indian labour changed over the years from outright coercion to a kind of debt slavery. Even today the cheap labour of Indian peasants is the foundation of the region's economy.

Natural dyes, indigo and cochineal, together with cocoa were the first cash crops grown for export back to Europe. But it was the introduction of coffee in the mid-1800s that turned a tropical Latin backwater into a going concern. Coffee sales exploded to meet the growing demand in industrializing Europe. By 1914 coffee was the region's main foreign exchange earner. It accounted for 85 per cent of Guatemala's exports, 80 per cent of El Salvador's and 35 per cent of Costa Rica's.

New legislation favouring large growers enabled them to encroach even further on Indian land. The peasants were pushed onto the most inaccessible and least fertile areas. On their small plots they grew corn and beans in the time left from working on the nearest plantation. Expropriating Indian land has been less of a problem in those countries with large European populations - Costa Rica, Panama and parts of Nicaragua. There the Maya were either wiped out completely or driven into isolated jungles and mountains. But in El Salvador, Honduras and especially Guatemala, Indians and 'ladinos' (mixed bloods) have remained the majority.

On the humid slopes of the Caribbean coast, US businessmen in the late 1800s began to carve out enormous banana plantations. In 1899 the now-infamous United Fruit Company was born. Seeing banana exports as an economic fillip to the east coast, governments granted vast tracts of land to the company - especially in Honduras and Guatemala.

Unfortunately, the promise of development turned sour. United Fruit ran its plantations like independent states. Railways were built to coastal ports and company towns hacked out of the jungle. But the lines of transport went straight to New Orleans, New York and Boston. Honduras' capital Tegucigalpa is not even on the country's national railway . Little foreign exchange remained except to grease the palms of sundry politicians.

By 1979, the descendents of United Fruit, the Standard Fruit Company (Dole) and United Brands (Chiquita or Fyffes owned or controlled over 300,000 acres in Honduras alone - about a fifth of that country's arable land. Together with Del Monte the three multinationals today control 60 per cent of the region's banana production and 90 per cent of the export trade. The economic and political influence of the banana companies was so great and their ability to strong-arm national governments so blatant the nations of Central America became known as 'banana republics'.

In the 1940s and 1950s sugar, cotton and beef broadened the areas concentration on coffee and bananas. But whatever the harvest, export crops have remained the economic backbone of every country. Those five still account for more than half of the region's total exports.

When the Central America Common Market was formed in the 1960s, foreign investment in light manufacturing and assembly industries poured into the region. Food processing, chemicals, tobacco and textiles blossomed as Western multinationals set up local subsidiaries to take advantage of rock bottom wages and tax-free exporting privileges. Foreign investment tripled from 1960-68 with US companies leading the way.

But impressive growth rates of the 1960s and early 1970s managed only to camouflage the miserable living conditions of the peasants.

Jobs created in manufacturing could not hope to keep pace with the thousands of impoverished campesinos seeking work in San Salvador, Guatemala City, Tegucigalpa, Managua and other cities throughout the isthmus. And the only people with money to spend on luxury consumer goods turned out by the new factories were a comparatively small number of wealthy city dwellers and rich farmers.

Meanwhile, in the countryside conditions have gone from bad to worse. The dispossession of Indian and ladino families from their land has actually accelerated over the last 40 years. The number of peasants with no land at all has reached 40 - 50 per cent in some countries. According to Costa Rican economist Edelberto Torres-Rivas over 40 per cent of Guatemala's campesinos must survive as seasonal labourers on large plantations. In strife-torn El Salvador the number of landless families increased from 30,000 to nearly 170,000 from 1961-75.

Hundreds of thousands of poor families now crisscross the region searching for farm work - some migrate as far north as the vegetable fields of California's Imperial Valley. But most seize whatever local jobs they can - cutting sugar cane, picking coffee or cotton. Men, women and children clump together in squalid, cramped sheds. Wages range from $2.00 - $5.00 a day. Even those with small plots of their own make the trek to the coastal plantations during the harvest season to earn cash to pay off debts, or to buy fertilizer and seed for next year's crop.

For a region where more than half the population still depends on agriculture for a living, the virtual monopoly of arable farmland by a tiny minority of wealthy, white owners is a recipe for both widespread poverty and festering discontent.

In Guatemala, over 70 per cent of the fertile land is owned by just two per cent of the population. In El Salvador, a similar two per cent own 60 per cent of the land. The same blatant inequality is mirrored in the rest of Central America, with the exception of the region's democratic showpiece, Costa Rica. There too there is a gulf between rich landowners and small farmers. But there is one important difference. There are far fewer landless peasants in the country - as a result a strong, conservative group of smallholders has developed.

But in Honduras, El Salvador, Guatemala and Nicaragua official overtures to democracy have been mere window-dressing. The landed elite have expanded their wealth and sealed their power in pacts with a corrupt and vicious military. Intimate ties with the US business interests also developed.

Wealthy coffee growers and ruling 'caudillos' sent their children to American 'Ivy League' colleges. And Washington reciprocated by sending in the Marines whenever peasant or trade union demands for a better deal appeared to rock the status quo. The threat of armed intervention hung over any state that dared challenge the collosus to the north.

Marines occupied Nicaragua almost continually from 1912 to 1934, running the customs, the railways and the national bank When they finally withdrew, the baton of command was passed to National Guard chief Anastasio Somoza. 'He may be a son of-a-bitch,' US President Franklin Roosevelt commented, 'but he's our son-of-a-bitch.' By 1970, Somoza and his associates controlled half the country's agricultural production. So grasping was the family that ultimately even the small middle-class began to grumble about lack of opportunity.

By the time of the successful 1979 revolution the entire population was united against the dictator. With official unemployment scraping 40 per cent and barely a third of the population literate the new government was faced with a daunting job of reconstruction.

The informal American colonial presence is most pervasive in Panama, the narrow strip of land welding Central America to the South American continent. With the completion of the trans-oceanic Canal in 1914 the most strategic transport artery in the hemisphere fell under US control.

But more importantly, the Canal Zone became a major staging post for the Pentagon: soldiers from dictatorships all over Latin America have been trained there. Twenty thousand troops from the Pentagon's Southern Command are now based in The Canal Zone poised to respond to Washington's call. The 1979 Panama Canal treaties signed by President Carter give the US the right to intervene unilaterally in response to any threat to the Canal - without even notifying the Panamanians. Washington retains effective control over Canal Zone operations until the year 2000.

Even this was not enough for some Americans. Noteworthy among critics who slammed the Canal negotiations as a 'sell out' of US interests was then ex-Governor of California Ronald Reagan.

The overwhelming and popular support of the socialist-leaning Sandinista National Liberation Front in Nicaragua suddenly prompted US policy makers to take a second look at the unrest boiling over in Central America. At the same time a popular revolt against El Salvador's ruling oligarchy - the 'Fourteen Families'- erupted. And in neighbouring Guatemala, where guerrilla forces had been eliminated along with 20,000 innocent peasants in the early 1960s, discontent is also re-surfacing.

But the local elite and their military backers are not about to politely hand over the keys to the shop. They have fought back - with a brutal vengeance that strains rational understanding. Anyone vaguely suspected of advocating reform is pilloried as a suspected 'Communist subversive.' Peasants, priests, trade unionists, Christians, students, teachers, community organizers: any who challenge the rule of the wealthy risk violent reprisal.

To this volatile mix President Reagan has added another ingredient: the politics of nostalgia. His actions harken back to simpler days when America got its way just by flexing its muscles. So in Honduras, Guatemala, and most starkly in El Salvador, US military aid directly props up what can only be called state terrorism.

'Let terrorists be aware that when the rules of international behaviour are violated, our policy will be one of swift and effective retribution.' So said Mr Reagan on the return of America's hostages from Iran. The hollow irony of that statement now stands in bold relief to his government's tacit support of state terrorism in Central America.

The bald power politics of the President and the tough talk of Secretary of State Haig may bring smug satisfaction and words of praise from Central America's small clique of wealthy families. But to the region's poor, the actions only confirm a history of blind support for bloody dictatorships.

In a sense Mr Reagan's characterization of the struggle in Central America as a clash of ideologies is correct. But it is not the crude contest of 'Marxist totalitarianism' versus 'capitalist freedom'. It is much more fundamentally a battle for basic rights and human justice. As long as those goals undergird the thirst for change, a popular revolution can never be crushed only postponed.