SHAKE-UP AT THE WHITE HOUSE : Panetta Selection Expected to Serve Several Purposes : White House: He faces tasks of bringing order to the staff and increasing President’s leverage with Congress.

When Leon Panetta first talked to Bill Clinton about a job in 1992, he was neither a campaign stalwart nor a longtime Arkansas friend. The 15-year California congressman had even taken a shot at Clinton’s campaign manifesto for what he viewed as its overly rosy budgetary arithmetic.

But if those facts ever stirred any doubts in the inner circle, they are long forgotten now.

In 17 months as director of Clinton’s Office of Management and Budget, Panetta showed Clinton his skill as an ideological advocate, an administrator and a high-profile representative to Congress and the public. In the process, the affable one-time Republican also convinced Clinton that he could use his well-honed Washington skills to put straight the much-criticized disorder of his White House staff.

“What the President is looking for is somebody who has the knowledge to make that system work,” said Tony Coelho, the former California congressman who is now an outside White House political adviser. “Leon has that knowledge, and he has it in depth.”

His appointment is expected to serve a number of purposes at once, Administration officials said. Panetta is expected not only to help unstick the balky gears of power at the White House but also to increase the President’s leverage with Congress.

“Even if he did nothing at all with Congress, Leon is so well respected that they will take tremendous comfort just from the fact that he’s there,” predicted one White House official.

Panetta also may help the beleaguered President with the wide circle of contacts in the news media that he has cultivated in his years on Capitol Hill.

Long known as a deficit hawk, Panetta became a principal architect of the Administration’s five-year 1993 economic plan.

“He will go down in history as the OMB director who did, I think, virtually the impossible,” Clinton said Monday in introducing his new chief of staff. The Administration considers it one of its chief accomplishments that the annual federal budget deficit is now in its third year of slowing and will fall below $200 billion this year for the first time since 1989.

In the opening months of the Clinton Administration, Panetta argued vigorously for deficit cutting--so vigorously, in fact, that he drew denunciations from others who wanted a freer-spending White House. “The Poster Boy for Economic Constipation” was the label applied to him by Paul Begala, one of Clinton’s presidential campaign managers.

“Anybody who doesn’t think Leon, the nice guy, isn’t tough enough has never debated him,” said Begala.

Panetta also won points for shepherding through Congress a plan that ultimately squeaked through by a single vote.

White House officials say Clinton was also impressed by Panetta’s management of OMB.

Panetta showed he did not gladly suffer poor performance, firing two top-level appointees in the first year. He also made clear that it was he, not Alice M. Rivlin, his strong-willed deputy, who was running the agency.

He also improved morale at an agency that had been demoralized by a former director, Richard Darman, an administrator who kept the reins of power almost exclusively in his own hands. “Spirits had been pretty darn low among the green-eyeshade people,” said Gary Bass, executive director of OMB Watch, a liberal advocacy group. “But he changed that.”

Panetta’s term has not been without its difficult moments. In April, 1993, Panetta confessed to a group of reporters that he thought the President’s economic plan was in deep trouble and that the North American Free Trade Agreement was dead.

The downbeat assessment sent shock waves through Washington, but Clinton accepted Panetta’s apology without fuss. A week later Clinton was defending him as having done a “wonderful job” for the Administration.

Bass said Panetta’s candor was the reflex of a former congressman who had been largely free before to confide his deepest thoughts.

But while observers say Panetta is tough enough for the new job, few describe him as a head-cracking chief of staff in the mold of John H. Sununu or H.R. (Bob) Haldeman, who served former Presidents George Bush and Richard Nixon respectively. Rather, his technique is to win over adversaries with polite but ceaseless argument.

Rep. Robert T. Matsui (D-Sacramento) recalled the way Panetta would wrest an agreement out of opponents while he chaired the House Budget Committee.

“He had these really long meetings where he would sort of wear down the opposition”--including such polar opposites as liberal Rep. Barney Frank (D-Mass.) and conservative Rep. Charles W. Stenholm (D-Tex.).

Panetta, who represented the Monterey coast in Congress, first won headlines for being fired. Working for the Nixon Administration in 1970, he was dismissed as head of the civil rights office of the Department of Health, Education and Welfare after pushing for aggressive action.

Within a year, he had switched to the Democratic Party.

Panetta is the son of Italian immigrant parents who ran a restaurant in Ft. Ord. Some officials believe Panetta’s California connections may have been another point in his favor in landing his new job.

Times staff writer Karen Tumulty contributed to this story.