NEWS ANALYSIS : Mexico’s Zedillo Takes Off on Uneven Footing : Politics: New president had charmed the populace. Then, in one disastrous week, the roof fell in. Now he fights to recover.

A week ago, President Ernesto Zedillo was on a roll.

Just 18 days into his six-year term, the 42-year-old Yale-educated economist had charmed the opposition into passing a radical judicial reform package by overwhelming margins in both houses of Congress. He had won the confidence of bankers, business people and brokers through a new budget package that projected 4% growth and 4% inflation in 1995. And he had won over the Mexican public, less than half of whom had voted for him in August.

Polls showed that almost two-thirds of all Mexicans approved of Zedillo’s new administration.

Then the bottom fell out.

Zedillo’s roll became a tumble, then an avalanche, of seeming missteps and bad luck.

Rebels rose up in the southern state of Chiapas. The Mexican stock exchange plummeted. Zedillo and his economic team reacted with harsh measures that cut the value of the nation’s currency by 20% in a day. International and domestic economists questioned Zedillo’s competence. And finally, a volcano on the outskirts of the capital threatened to erupt.

On Monday, as Zedillo and his government began the climb back to credibility with encouraging new signs of peace in Chiapas, the toll of this one terrible week was clear: The president’s popular support had been cut almost in half, according to one poll; headlines declared, “The Romance Is Over,” and Zedillo’s traumatized nation was deep into what an investigation by the Mexico City economic daily El Financiero called “a severe economic and financial crisis.”

In an accompanying editorial on “the virtual collapse suffered by the economy” last week, El Financiero disclosed that the government’s foreign-exchange reserves are insufficient to meet even its most immediate needs; it stressed that Zedillo now bears “maximum responsibility” to take the lead in rescuing the nation from its many crises.

But as they took stock after one of Mexico’s bleakest Christmases in recent memory, analysts here also speculated widely on Zedillo’s strategy--past and present--and the extent of the blame he must bear for last week’s crises, which he largely inherited from his predecessor, Carlos Salinas de Gortari.

At the heart of those crises is Chiapas. Analysts agree that Zedillo had few options to deal with the rebel Zapatista National Liberation Army when he took office. Even before Zedillo’s Dec. 1 inauguration, the Zapatistas were threatening to break the truce they declared with the Mexican army Jan. 12 after a two-week shooting war left at least 145 people dead.

Once in power, Zedillo spoke often of his commitment to negotiation, a unilateral cease-fire and a solution that would address the Indian rebels’ demands for equal treatment and authentic democratic reform.

But even as he did this, Zapatista leader Subcommander Marcos was quietly ordering his fighters to slip out of their rain-forest stronghold, through a cordon of 40,000 Mexican troops and into dozens of villages and towns in the north of the state.

Analysts said they were certain that Zedillo’s security advisers had told him, in advance, that the Zapatistas would stage a major “event” before the anniversary of their New Year’s Day uprising.

At the same time, they said, Zedillo’s economic team had determined that Salinas had left behind a dangerously overvalued peso, which needed big adjustment if Mexico was to remain competitive in international markets.

In what some then saw as a master stroke, Zedillo combined the two: He deliberately waited to move on the peso until after the Zapatistas’ Dec. 19 peaceful insurrection--a day of commandeering highways and town halls as “liberated territory.”

Zedillo was prepared.

The next day, he ordered Finance Secretary Jaime Serra Puche to publicly blame a “climate of insecurity” spawned by the rebels for the need to widen the trading band on the peso, allowing it to slide to four to the dollar from 3.34.

“It was brilliant. With a single act, he satanized the Zapatistas and administered the bitter economic medicine he would have had to apply in any case,” said one Mexico City political analyst.

But it was Zedillo’s next step that few analysts can explain.

Less than 24 hours after allowing the peso to devalue 12%, with a public promise to take no further action on the currency, Zedillo’s administration suddenly announced it would let the peso float.

Within hours, the peso lost a fifth of its value, U.S. investors in Mexico lost billions of dollars and some of the most prestigious financial analysts in New York declared a “crisis of confidence” in Zedillo and his new, young government.

Zedillo moved quickly into damage control.

Having lost the initiative to the Zapatistas, he ordered his most trusted aide, Interior Secretary Esteban Moctezuma, to offer Marcos an olive branch while ordering the army to prepare a stick.

On Saturday, as tanks and armored personnel carriers nudged into the Zapatistas’ jungle zone, Moctezuma announced that the government was relenting on one of Marcos’ major demands--allowing a Roman Catholic bishop sympathetic to the rebels to help negotiate an end to the conflict.

Bishop Samuel Ruiz, in the second week of a hunger strike, filled his Christmas sermon with joy and hope on Sunday. Within 24 hours, members of his ecumenical commission were en route to meet Marcos on the government’s behalf for the first time in months.

As they met in the Lacandon rain forest Monday, Zedillo appeared to be having better luck with nature, as well.

With more than 50,000 villagers in evacuation centers, scientists said the threat of an imminent eruption of the Popocapetl volcano--an event that could shower a city of 20 million with dangerous ash and mud--appeared to be receding.

Yet the imagery of Zedillo’s tough, first month in office endured.

A political cartoon in the daily Jornada on Monday morning showed two peasants walking away from the volcano.

“At least this isn’t like the devaluation,” one peasant tells the other. “Popo warns us in advance.”