Reagan Freezes Libya’s Assets : Surprise Move Called Precaution Against Seizure of U.S. Property

President Reagan, stepping up economic sanctions against Libya, signed an executive order Wednesday freezing several hundred million dollars’ worth of assets held in American financial institutions by the regime of Col. Moammar Kadafi.

The surprise move, less than 24 hours after Reagan ordered U.S. oil companies out of Libya, was described as a precaution taken in case the Libyan government decides to seize the assets of the departing Americans.

Other officials worried, however, that the move could be seen as an invitation to Kadafi to respond in kind.

A senior Administration official, when asked why the President did not order the freeze when he announced the other sanctions at a nationally televised news conference Tuesday night, said certain information was received Wednesday that prompted the move. The official, who spoke on the condition that he not be identified, refused to provide further details.

Pressure on Allies

At the same time, the White House intensified public pressure on U.S. allies in Europe to join Reagan’s campaign to punish Kadafi for allegedly sponsoring the terrorist activities of Abu Nidal, the radical Palestinian whose organization is held responsible for bloody airport attacks in Rome and Vienna last month.

“The case is so clear that if we could all stand together and isolate that country, that country would then have to change its ways,” Reagan said in an interview with independent television bureau chiefs, citing the cost of increased security and tourist dollars lost overseas because of the fear of terrorism.

Although there was no evidence that European nations have altered their opposition to economic sanctions, White House spokesman Larry Speakes said: “We believe we have caught their attention. So far, so good.”

The freezing of Libyan government assets, held primarily in bank deposits and stocks and bonds, is virtually the last step the Administration can take on its own toward its goal of diplomatically and economically isolating Libya.

Reagan’s order, which becomes effective immediately, was taken under emergency powers granted by several laws--mainly the International Emergency Economic Powers Act of 1977--to enable him “to deal with the threat to the national security and foreign policy of the United States.”

The order “blocked all property and interests in property of the government of Libya, its agencies, instrumentalities and controlled entities and the Central Bank of Libya that are in the United States,” or that may come into the possession or control of the United States.

The senior Administration official said the freeze involved “hundreds of millions of dollars” of Libyan government property.

Then-President Jimmy Carter undertook a similar freeze in 1979 during the Iranian hostage crisis, and resolving the financial tangles that it created was a major stumbling block in the final release of the American hostages. Some cases still are winding their way through U.S. courts.

A Treasury Department official said that the freeze was begun Wednesday “as a precaution,” should Kadafi decide to nationalize the approximately $400 million in assets of U.S. companies pulling out of Libya.

Because Reagan ordered a freeze, not a seizure, the assets can be recovered later by the Libyan government. The assets of Libyan citizens were not included initially, but could be added later.

Conveying his outrage at what he called Libyan-sponsored terrorist activities, Reagan at his news conference Tuesday night called Kadafi a “pariah,” a “barbarian” and “flaky.” He ordered all Americans to leave Libya by Feb. 1.

One top White House official Wednesday expressed concern that Reagan could face a hostage situation in Libya similar to the one Carter faced in Iran if Kadafi decides to retaliate by preventing the estimated 1,500 Americans living in Libya from leaving.

“You could end up having an Iran-type hostage situation Kadafi couldn’t control,” he said, “or more realistically, once people realize their paychecks are cut off and want to leave en masse, their only value would be as hostages.”

Expatriate Mentality

This official said that the subject of a possible hostage crisis came up at a Monday lunch attended by Reagan and his top advisers, who concluded that the risk was unavoidable and that it was better to move now to force Americans out of Libya than to leave them there.

Still, this official conceded that only a handful of Americans in Libya may elect to return to the United States. “You’re working with a strange community,” he said. “A lot of these people are damn near expatriates.”

Although Reagan has taken the strongest unilateral steps available to him--short of military action--the consensus by observers is that they will have little effect on Libya’s well-being unless Western Europe is willing to sever some of its financial and diplomatic ties with the Kadafi regime.

In the independent television interview, the President said he understands the economic constraints that are holding back the allies. Noting that they are “torn” between cracking down on terrorism and potentially endangering their economies, he said he hopes to convince them that any sanctions would be “something of short duration” until Libya could be brought “back into the fold of civilized countries.”

However, there were indications that any movement by the Europeans might be prompted less by Reagan’s economic actions than by the Administration’s persistent threat that a military strike could still be possible if peaceful measures proved ineffective.

In a prepared statement, Speakes deliberately continued to keep the door open to the military option.

“All available measures remain under consideration to bring terrorists to justice,” he said. “We want to convince Kadafi that terrorism will not be cost-free, nor will it be without consequence. Should Kadafi continue his involvement in international terrorism, we are fully prepared to take additional measures.”