Reagan Stops Most Payments to Panama to Turn Up Heat on Noriega

President Reagan shut off most remaining U.S. government payments to Panama on Friday, stepping up the economic pressure aimed at forcing strongman Manuel A. Noriega from power.

Reagan ordered the payments held in escrow as long as Noriega, indicted last month by two U.S. grand juries on drug trafficking and related charges, maintains the tight grip over Panama that forced deposed civilian President Eric A. Delvalle into hiding on Feb. 26.

In a written statement, Reagan said the action, and others the government announced, were directed only at “the illegitimate Noriega regime.” He added, “Until such time as democratic government is restored in Panama, the U.S. cannot proceed on a ‘business as usual’ basis.”

But the latest steps, which include suspending some tariff benefits for imports from Panama and an intensified scrutiny of Panamanians suspected of drug smuggling, still fell short of the full-scale trade embargo that many members of Congress have been demanding against Gen. Noriega.

“We have stayed away from the idea of some sort of broad trade embargo,” Secretary of State George P. Shultz told reporters at the White House. “We are anxious to see Gen. Noriega get out of there. We don’t want to punish the Panamanian people--we’re for the Panamanian people.”

Due Monthly Payment

Panama’s rapidly shrinking treasury is due a monthly payment on Tuesday of about $6.7 million, part of about $80 million that the U.S.-dominated Panama Canal Commission owes this year to cover fees and payments from ships moving through the canal.

A portion of the money, up to $833,000, for such services as garbage collection, police and fire protection and other public services will be paid to Panama in compliance with the 1977 treaties that turned the canal over to Panama and will bring all U.S. roles in the defense and operation of the waterway to an end on the last day of 1999.

Engineered Ouster

Last month, Delvalle tried to fire Noriega. The general responded by engineering Delvalle’s ouster in a vote by Panama’s legislature. The Reagan Administration continues to recognize Delvalle, who had served largely as a figurehead, as Panama’s legitimate president, but Noriega remains in control of the armed forces and, effectively, of the country.

Because of earlier U.S. sanctions, which halted much of the flow of U.S. dollars to the country, Panama’s banks were forced to close, crippling the nation’s economy and leaving the government virtually out of cash.

Shultz, stepping up the rhetorical war against Noriega, was unusually blunt.

“We identify an effort at a military coup for exactly what it is,” he said. “The source of the trouble is Gen. Noriega. The things that are being done by him, illegitimately, that is what is drying up the funds. We think he should leave Panama.”

Pipeline Funds Frozen

Shultz also disclosed that millions of dollars in revenue due Panama from a pipeline that carries 600,000 barrels a day of Alaskan crude oil across the country have been frozen in U.S. bank accounts as the result of an earlier action by Delvalle representatives in the United States.

“We are trying very carefully and deliberately but strongly to take actions that are focused on things that we think will make a difference,” Shultz said.

Rather than impose an embargo on all trade with Panama, Reagan took away the duty-free benefits that Panama enjoys on about $96 million of its exports to the United States under the Caribbean Basin Initiative and the Generalized System of Preferences for Third World nations. The move will modestly boost the cost of about 28% of U.S. imports from Panama, mostly food products like fresh fruit and fish.

Reagan left open the possibility of further actions that would deny the transfer of funds the Noriega regime continues to receive from non-government U.S. sources.

Shultz was careful to distinguish between the Reagan Administration’s opposition to Noriega and its support for Panama’s armed forces. Washington expects “to see the Panamanian Defense Forces resume an honorable and proper role in a constitutional system,” Shultz said. “They have an important and significant job to do.”

He also made it clear that the United States has taken no military actions threatening Noriega.