Army Flaunts its Independence. GUATEMALA: ARMS SALES

WHEN the United States punished the Guatemalan Army for human-rights abuses in 1977 by cutting off military aid, some top military commanders here gave an unexpected response: They laughed. Without the US peering over its shoulder, the defiant Army quickly became the best-trained - and the most brutal - in Central America, virtually eliminating the guerrilla threat. Neighboring El Salvador, meanwhile, still struggles against a leftist insurgency despite $800 million of US military aid over eight years.

As the trademark of its independence, Guatemala even built a munitions factory for its Israeli-made Galil rifles, thus becoming the only arms manufacturer in Central America.

Such fierce independence might have seem threatened last summer when the government bought 20,000 American-made M-16 rifles from Colt Industries. Few Guatemalan officials deny that the controversial $13.8 million deal, which sneaked in under the US Congress's $14 million limit on arms sales to Guatemala, signals warmer relations between their Army and the Pentagon.

But even as soldiers begin training with the first shipment of 5,000 rifles, the Army is warily preserving its independence.

In fact, say well-informed politicians and military sources, the M-16 deal was the sole concession allowed President Vinicio Cerezo Ar'evalo by conservative Army officers after two aborted coup attempts last year. Furthermore, these sources say, some top Army officials think the purchase creates the ideal conditions to begin exporting ammunition throughout Central America.

``The sale of M-16s represents a rapprochement between Guatemala and the US, but I don't see tight relations,'' says sociologist Jos'e Luis Cruz Salazar, a former Army colonel. ``Guatemala doesn't want to get too involved in the [Central American] conflict - or too dependent on the US.''

For the three-year-old Cerezo government, the deal may have bought a degree of political leverage: Officials portray it as evidence of the rewards of returning to civilian rule.

``Vinicio needed the 20,000 rifles urgently to prove to the Army that democracy works, to prove that he is able to get the goods,'' says deputy Edmund Mulet.

But Mr. Cerezo's leverage is likely to be limited. In fact, rumors of the arms deal provoked discontent within certain Army factions disturbed by rising corruption and dependence on the US. A group calling itself ``Officials from the Mountains'' accused the pro-American Minister of Defense, Hector Alejandro Gramajo, of taking kickbacks in the arms deal.

The dispute over the arms purchase was one factor that helped fuel two internal uprisings on May 11 and Aug. 9.

Military experts here say the M-16 deal was the only vestige of power Cerezo and General Gramajo could salvage after these debilitating coup attempts. The two acceded to most other conservative demands, ranging from key appointments to a crackdown on popular movements.

The purchase of the M-16s did not include ammunition, so the Army says it will be relying completely on its factory in Coban, which produces spare parts as well as bullets. The plant, which can easily produce ammunition suited for the M-16, normally operates at just 15 percent capacity.

Military sources say privately that the Army will bump up production to meet its own needs - and to become a key supplier for Honduras and El Salvador.

The Army denies rumors of arms exports. ``The factory has the capacity to supply us, but not enough to sell,'' says Army spokesman Luis Arturo Isaacs.

But according to one source with close ties to the military, the Army is already entering discussions with El Salvador about the possible sale of ammunition.

``The only way for the deal to be viable, since the M-16s cost so much, is for Guatemala to start selling ammunition to El Salvador and Honduras,'' says this source. ``By exporting ammunition, the Army could solve a problem for the US, solve a transport problem for Honduras and El Salvador, and make money for itself.'' He adds: ``Guatemala could become the Israel of Central America.''