Libya Transfer of $100 Million Led to Freeze

The Libyan government transferred about $100 million from an American bank to a foreign bank Wednesday, prompting President Reagan’s order later in the day to freeze all remaining Libyan assets in U.S. financial institutions, Administration sources said Thursday.

The freeze was intended to stop the regime of Col. Moammar Kadafi from shifting any more of its funds out of the United States, these sources said.

Officials declined to reveal the exact amount of Libyan funds remaining in U.S. financial institutions, although several hundred million dollars are believed to be involved. An Administration official said that the Tripoli government had kept as much as a quarter of its total foreign currency reserves in U.S. banks.

Sanctions Alone Won’t Do It

The freeze on Libya’s financial assets may prove troublesome for Kadafi, but Secretary of State George P. Shultz acknowledged at a news conference Thursday that economic sanctions are unlikely to cause the Libyan leader to drop his support for international terrorism.

“No one contends that these actions by themselves are likely to have a decisive effect,” Shultz said.

Nonetheless, he said, the decisions to sever all remaining economic ties with Tripoli, announced Tuesday and Wednesday by President Reagan, were put into effect because “we don’t want to have anything to do with” Kadafi and his government.

Stressing that the U.S. steps would be far more effective if the European allies adopted similar measures, Shultz announced that Deputy Secretary of State John C. Whitehead will visit Europe next week in an effort to enlist support for the sanctions. But, he conceded, “we haven’t had a lot of success in persuading people” to join the campaign against Kadafi.

“Just because others are not prepared to do the right thing is not any reason why the United States should not do the right thing,” Shultz declared. By taking this action, he said, Washington is “withdrawing the benefits of United States contact with them and making a statement.”

Shultz refused to comment on the possibility of military action against Libya, although he said that Reagan has virtually exhausted the list of peaceful sanctions and may, in time, find it necessary to use force.

“I think by this time we’re pretty much at the end of the road,” he said. “All of the things that one can think of economically have pretty much been done now.”

He added: “We are prepared to use the measures that will be effective and are necessary. Force is not always the best means, but it may be necessary on occasion.”

An Administration official said privately that Shultz had argued in favor of stronger action but that Secretary of Defense Caspar W. Weinberger opposed the use of military force, citing the difficulty of identifying targets, the danger of killing innocent civilians and the possible loss of U.S. aircraft and their crews.

Kadafi Held Responsible

The United States holds Kadafi responsible for the Dec. 27 terrorist attacks--Shultz called them “massacres”--that killed 15 travelers, including five Americans, at the Rome and Vienna airports. The Administration asserts that the killings were carried out by members of the Abu Nidal organization, a violent Palestinian splinter group that is supported by Libya.

“You have to identify the states that are willing to harbor these people,” Shultz said, jabbing a finger in the air for emphasis at the word “states.”

He scoffed at remarks attributed to Kadafi by a Libyan aide that Libya would extradite any terrorists in the North African nation and would urge Palestinian guerrillas to limit their attacks to “occupied territories”--Israel and the Israeli-occupied West Bank and Gaza Strip. (Kadafi on Thursday indicated he was having second thoughts on his call to limit attacks to “occupied territories.”)

‘Broad Array of Things’

“We’re looking for people to stop associating themselves with terrorism,” he said. “This rhetoric doesn’t get us anywhere. He (Kadafi) has done a broad array of things . . . over a long period of time. The nice thing would be to see an end to any more entries on that list.”

However, Shultz insisted that despite the actions against Kadafi, the United States supports “the legitimate rights of the Palestinian people.”

“The Palestinian people are a deprived people. . . . They deserve a better fate than they have,” he said. But, he added, terrorism by the Abu Nidal organization and other Palestinian terrorist groups would damage prospects of the Palestinians achieving their objectives.

In another action Thursday, the Transportation Department prohibited U.S. airlines from selling tickets for travel to and from Libya. However, foreign carriers were not affected, and no U.S. airline currently flies into Libya.

Shultz insisted that the United States wants all Americans now living in Libya, estimated at 1,000 to 1,500, to return home. Under Reagan’s order, Americans who remain after Feb. 1 would be subject to up to 10 years in prison, but Shultz said he assumes that wives and other dependents of Libyan citizens would not be treated that harshly.

The Administration official, who spoke on the condition he not be identified, predicted that only about half of the Americans in Libya will return home. He said the rest probably will stay because they are “roustabout” oil field workers who earn about $100,000 a year in Libya and probably would face unemployment in the United States.

Times staff writer Robert C. Toth contributed to this story.