U.S. Considers Diverting Economic Aid to Contras

The Reagan Administration is considering a controversial new plan to fund the rebels fighting Nicaragua’s leftist regime by diverting money originally intended as economic aid for Central America, officials here said Monday.

President Reagan and Secretary of State George P. Shultz still hope to persuade Congress to approve $14 million in covert funding to be provided by the CIA to the rebels, known as contras, the officials said. But because congressional leaders have said the covert aid is unlikely to pass, several alternative funding plans are being worked out, including the diversion of aid.

Under one version of the idea, officials said, U.S. money would flow to Honduras as economic aid with a “gentleman’s agreement” obliging the Hondurans to turn some of the money over to the contras. The Administration already has $147 million in economic aid that Congress has appropriated for Honduras, but it has never been spent because of a series of disputes with the Honduran government.

However, both Administration aides and members of Congress already have raised objections to the plan. Using money appropriated for economic development to fund the rebels “could simply be illegal,” even if it is used solely for non-military aid to the contras, said an official who asked not to be identified.

House Democrats have said that they will fight aid to the contras in any form. And the influential Republican chairman of the Senate Foreign Relations Committee, Sen. Richard G. Lugar of Indiana, said last week that he is concerned that the United States could “lose control” of the rebels if their funding were routed through another government, such as Honduras.

Shultz outlined the diversion idea to the Senate Intelligence Committee last week and got a mixed reception, congressional sources said. Shultz said he would prefer that such an arrangement remain officially covert, but some Republicans said they would insist on overt funding and some Democrats said they want no funding at all.

The economic aid idea “is one of four or five options that we are discussing,” a senior State Department official said.

Others reportedly include withdrawing U.S. diplomatic recognition from the Managua regime and extending open military aid to the contras, as well as providing “humanitarian” aid to the estimated 30,000 dependents of the guerrillas while encouraging other countries and private organizations to extend military aid.

The official said the Administration has not yet settled on any option “because as soon as we do that, you’ll see constituencies form up against it.” Instead, he said, the renewal of CIA funding will be pursued first and an alternative plan adopted only if the covert scheme fails.

“We’ll go with whatever we can find a majority in Congress to approve,” he said.

Contra officials have said they are already receiving modest amounts of help from the governments of Honduras, El Salvador and Israel, all of which heavily depend on U.S. aid. But they say much of that help has been intended only as a stopgap until the Reagan Administration can win new funding from Congress.

Presenting a Case

White House spokesman Larry Speakes said a vote on the covert $14 million could come sometime in April. Meanwhile, he said, the Administration will continue its campaign to change the terms of the public debate on Nicaragua, possibly including more speeches on the subject by President Reagan.

“We will be, in the coming weeks, presenting our case to the Congress, presenting our case to the people,” Speakes said. “We are hopeful that once the public realizes the seriousness of the situation, that there will be support both in the country and in Congress.

“Basically, it is not something that the public is devoting a lot of attention to at the moment,” Speakes said. “However, once . . . the public does understand the seriousness of the situation and the fact that we do face a Marxist-type government in Central America, then they do support our approach to it.”