Supermercado Profits From U.S. Aid : Supplying the Contras--Big Business in Honduras

Supermercado Hermano Pedro has the modest appearance of a neighborhood mom-and-pop business: narrowly spaced shelves of canned goods and cornflakes, a small cooler for soft drinks and milk and a single checkout counter by the door.

But the corner grocery store in Tegucigalpa’s Comayaguela district is more of a business than meets the eye. Since last October, Supermercado Hermano Pedro--Spanish for Brother Peter Supermarket--has been the main supplier of groceries to the U.S-backed contras, as the Nicaraguan rebels are known.

With millions of dollars provided by the American government, the contras have been buying about 70% of their Honduran food supplies from Hermano Pedro, contras officials said. Truckload after truckload of goods are delivered from a secret warehouse, and Hermano Pedro is paid by the U.S. government through the store’s Miami bank account.

The business arrangement is a murky one, clouded with unanswered questions and allegations of impropriety.

Some contras officials said privately that the arrangement was imposed by Honduran military officers, some of whom, they added, share in Hermano Pedro’s profits.

Until recently, the Honduran government took the official position that there were no contras in the country, and even now it does not acknowledge that Honduras is the main staging area for the rebels in their war against the Marxist-led Sandinista government of neighboring Nicaragua. A rebel leader said part of the price for allowing contras bases to remain is a rake-off collected by Honduran military men.

“You are paying rent here so that they will close their eyes and let you stay,” he said.

Other sources, including two Honduran military men, said that money made by overcharging the contras is split with corrupt contras as well as Honduran officers.

“The prices are high, they are paid in dollars and they change the dollars on the black market,” said one senior officer. He underlined what he called contras corruption, but he also confirmed that there are Honduran officers involved in the arrangement.

Military Partners

Another senior Honduran officer said that the owner of Hermano Pedro, Rodolfo Zelaya, has military partners in the contras supply deal.

“He makes it a practice in all of his business deals to go in with military officers because they cover for him,” the officer said.

Zelaya is a substitute member of the Honduran Congress and secretary of the Honduran soccer association. He is known as a longtime supplier to the armed forces.

Zelaya was not available for comment. The store in Comayaguela is managed by his wife, Elvia de Zelaya, but she said she was not familiar with the contras account.

“I can’t give you any information,” she said.

Contras leader Adolfo Calero said he has no question about how the funds are expended by officials in his organization. Calero is the top civilian leader of the Nicaraguan Democratic Force, the main Nicaraguan guerrilla organization.

“I have not one single doubt about the people who handle these things in our organization,” he said. “I have full confidence in the honesty and integrity of our people who handle this thing. We can account for what we have handled.”

The contras purchasing arrangement with Hermano Pedro was set up last October to spend part of $27 million authorized by Congress for “humanitarian aid” to the rebels. The aid includes food, uniforms, boots and medical supplies. Purchase of weapons is forbidden.

The money is administered by a State Department unit created for the purpose, the Nicaraguan Humanitarian Assistance Office. That office is required to account for the funds.

In Washington, a House subcommittee voted 9-0 on Thursday to subpoena the records of 14 bank accounts used by suppliers or brokers who have received U.S. aid money to purchase goods for the contras. Twelve accounts are in Miami, one in Washington, D.C. and another in Chicago.

“We hope to find where the money went,” said Rep. Michael D. Barnes (D-Md.), chairman of the House subcommittee on Latin America.

According to the General Accounting Office, the government has no proof of how these suppliers and brokers spent more than $13 million of the $27 million appropriated by Congress last year for aid to the contras.

A March report to Congress by the General Accounting Office said the State Department has insufficient controls on transactions in Honduras to assure that goods paid for are not “diverted, bartered or exchanged.”

But Robert Duemling, head of the Humanitarian Assistance Office, said in a telephone interview that the “ongoing audit” by the GAO has turned up no evidence of misuse of funds. Duemling said his office verifies payments to all suppliers and checks the prices and quality of goods purchased.

“We continue to monitor the prices for everything,” he said. “We are confident that the prices we are being charged are market-competitive.”

Duemling said his 12-member staff is not large enough for “total surveillance” of how the U.S. funds are used in Central America. And he said he cannot establish a branch office in Honduras because of “political sensitivities” here about the rebels’ presence.

Nevertheless, members of Duemling’s staff have visited Honduras frequently to audit the purchasing. In some cases, he said, he has disallowed “inappropriate” purchases such as liquor and expensive shrimp.

Payments to Central American suppliers are made into their U.S. bank accounts, Duemling said. Honduran suppliers are paid in dollars at the official exchange rate of two Honduran lempiras to the dollar, he said.

Whether those dollars are traded for a profit on black market currency exchanges is not the State Department’s concern, he added. But he said he has a “written undertaking” from the contras leadership that any gains made by the rebels in changing the dollars will be used within the guidelines of the “humanitarian aid” legislation.

A contras official said that money made by the rebels on currency exchanges is spent on aid to the families of guerrillas, transportation and other incidentals.

Duemling said that the contras have accounted for such funds and that he is satisfied they have not been used improperly.

Store Makes Profit

Asked about allegations that some Honduran military officers share in the profits of Supermercado Hermano Pedro, he said: “There certainly is a commercial profit here, and I understand that. . . . Whether those officers are in any way interested in the profit, I don’t know.”

A contras official acknowledged privately that he was not happy with the Hermano Pedro purchasing arrangement.

“If it were up to us we wouldn’t buy from Hermano Pedro,” he said. “There were Honduran military officers who approved the choice of Hermano Pedro.”

One U.S. official said that Supermercado Hermano Pedro has received a total of about $5.7 million, mostly for food supplies, from the “humanitarian aid” funds.

Another American official said that Hermano Pedro adds a “carrying charge” of about 20% to its bills to the contras.

“Hermano Pedro is more expensive” than a competitive supply system would be, the official said, but he added that it is “not exorbitant.”

A third American official said that payment in dollars should entitle the contras to a discount of up to 20% because of the profits available on the currency black market, which is tolerated by the Honduran government.

The contras official in charge of supplies in Tegucigalpa, a Nicaraguan who uses the pseudonym of Jose Romano, said that he constantly checks other wholesalers and finds Hermano Pedro’s prices to be in line.

Romano said it is impossible to call for bidding on supplies for the contras.

“We can’t advertise in the newspaper for bidding to see who sells cheapest to the contras,” he said.

He said that groceries are ordered from Hermano Pedro about every other week. When an order is made, the store issues an invoice, which is sent to United Nicaraguan Opposition, a contras umbrella organization with offices in Miami. United Nicaraguan Opposition sends the invoice to Nicaraguan Humanitarian Assistance Office, which pays the supplier in dollars.

Romano said he did not know what Hermano Pedro did with the dollars received.

“They are free to do what they want with the dollars,” he said. “I don’t know whether they bring the dollars here or leave them there.”

Frank Arana, a contras spokesman in Tegucigalpa, said that the rebels’ finance director in Honduras would not grant an interview.

And Indalecio Rodriguez, a high civilian contras leader in Honduras, said: “This is not a legal, authorized business--we are clandestine.”

Times staff writer Doyle McManus contributed to this report.