US weighs impact of a Nicaragua embargo

The Reagan White House is rolling out the cannons for a possible trade war with Nicaragua. Top US officials, including Secretary of State George P. Shultz, are urging President Reagan to slap a trade embargo, plus other economic sanctions, on Sandinista-ruled Nicaragua. Congress may be ready -- in fact, even eager -- to support a trade crackdown. Sen. Lloyd Bentsen (D) of Texas says:

``It doesn't make any sense for us to buy their goods and finance with our dollars the export of their revolution.''

Support for an embargo, however, is not universal. A number of specialists say an embargo could be counterproductive, because Nicaragua's economy is expected to grow steadily weaker, even without United States action. An embargo would give the Sandinista rulers an opportunity to blame Uncle Sam for their problems.

Conditions are already grim in Nicaragua, and the embargo would make things considerably worse for that country's 3 million people, experts say. Visitors there report signs of economic trouble on all sides. Three factors are blamed:

The Marxist-oriented Sandinistas have moved the country toward a state-controlled economy. This has scared away private money, dried up foreign investment, reduced output, and bred corruption in the public and private sectors.

Armed rebellion by US-backed contras operating out of Honduras has diverted an estimated 40 percent of the government's resources and damaged Nicaraguan agriculture, the most important sector of the nation's economy.

US economic sanctions, including suspension of American aid in 1981 and reduction of Nicaragua's sugar quotas, have crimped Nicaragua's industrial output and reduced its foreign trade.

All this has greatly changed everyday life in Nicaragua, a nation whose rich soil and small population once ensured an abundant diet for most of its people.

Travelers such as Robert S. Leiken, a senior associate at the Carnegie Endowment, report seeing empty shops, East European-style lines at stores, and signs of malnutrition among children.

Others report great scarcities of automobile tires and batteries. Tires are used so long that they are sometimes dubbed ``Kojaks,'' after the bald TV detective.

Mr. Leiken, who has made six visits to Nicaragua since 1981, says even the smallest mechanical problems there can be troublesome. On his most recent trip, for example, a rock from a poorly maintained road flew up and punched a hole in the crankcase of his automobile.

Ordinarily, a new crankcase pan would have been installed, or the hole quickly repaired. But nothing is easy in today's Nicaragua. There are few spare parts. And soldering material to repair the hole is in short supply. As a result, Leiken spent 21/2 days getting his car repaired.

Another example: A resort usually frequented by workers from some of Nicaragua's socialist allies was closed while Leiken was in town. A water pump that supplied the building had broken and could not be fixed or replaced.

The big questions for American policymakers are: Would an embargo against Nicaragua really make a difference in Sandinista policy? And would it serve US interests?

Donald Regan, the White House chief of staff, told an interviewer the other day that Nicaraguan leader Daniel Ortega Saavedra had gone to Moscow this week ``for further instructions and more money to pursue disruptions among his neighbors down there in Central America. Yet we continue to buy his coffee and his bananas. Why do we continue to do that?''

Wayne Smith, a former chief of the US interest section in Cuba, and now a lecturer at Johns Hopkins University, says an embargo ``would hurt Nicaragua, there's no question about that. But they would survive.''

Dr. Smith is more concerned about the long run. The effect of an embargo on Nicaragua could be counterproductive, he says, because it would ``drive them deeper and deeper into the socialist economic system.''

Leiken expresses similar concern based on his visits there. He notes that factories are closing down, cars won't run, food is in short supply, prices are doubling and tripling while wages are frozen. All this without a US embargo. Anger with the Sandinistas is growing. The government tries to blame President Reagan for its problems. But the people aren't buying that argument.

An embargo, Leiken worries, could give the Sandinistas a scapegoat -- the US -- on which to blame their troubles.

A senior official in the Senate says it's doubtful an embargo would really be very effective in the long term unless Europe and Latin America cooperated. That's considered unlikely.

But some members of Congress, including many Democrats, are concerned that their recent vote against military aid to the contras might send the wrong signal to the Sandinistas, as well as the voters back home. The embargo gives Congress a chance to ``do something'' about Nicaragua's leftist government.