U.S. Faces Tough Challenge in Helping Ailing Economy : Foreign aid: American-inspired sanctions have dealt a severe blow to the country. ‘There is nothing much to rebuild,’ says one Administration official.

The Bush Administration’s efforts to nurse Nicaragua’s sanctions-strangled economy back to health are likely to be more modest--and decidedly more difficult--than the U.S. rebuilding of Panama, government and private analysts said Monday.

Not only have the U.S. trade restrictions on Nicaragua been broader and more effective than those that Washington imposed on Panama, but Nicaragua had only a rudimentary economy before the United States clamped on its embargo.

“As a result, there is nothing much to rebuild--everything has to start just about from scratch,” said a U.S. official who is involved in the Administration’s review of the Nicaraguan economic situation.

Lance Taylor, a Massachusetts Institute of Technology economist who surveyed Nicaragua’s economy last year under a contract for Sweden’s foreign aid agency, reached the same conclusion.

Nicaragua’s greatest need, he said, is cash to pay for the goods it has to import “until the economy has a chance to recover. And that could take quite a while.”

The U.S. sanctions, imposed by former President Ronald Reagan on May 1, 1985, include an embargo on virtually all trade between the two countries, a cut-off of all commercial air traffic and refusal to allow Nicaraguan-flagged ships to enter U.S. ports.

Washington has also blocked all lending to Nicaragua by international financial institutions such as the International Monetary Fund, the World Bank and the Inter-American Development Bank.

Although the trade embargo has not left Nicaragua totally helpless, it has crimped that country’s exports and forced Nicaragua to hunt for substitute markets abroad--often at the price of having to pay higher shipping costs.

The trade restrictions are far more sweeping than those that the United States imposed on Panama in March, 1988, as part of an effort to depose Gen. Manuel A. Noriega, then the country’s dictator. The United States lifted those restrictions after its Dec. 20 invasion of Panama forced Noriega out of power. Noriega is now in a Miami jail awaiting trial on drug-trafficking charges.

In Panama’s case, the United States had also frozen the country’s cash assets in the United States, as well as tax payments from U.S. firms with branches in Panama and fees that the U.S. government owed for the use of the Panama Canal. But Nicaragua had none of these assets for the United States to freeze.

“It’s a far cry from Panama,” an Administration official said, referring to possible lifting of the sanctions. “The jump-start rhetoric we’ve used in Panama just doesn’t apply.”

Taylor’s calculations show that the embargo has cost Nicaragua about $100 million a year in lost trade--a sizable sum in an economy that totals only $2.5 billion annually.

“It has been quite effective,” he said. “Exports have fallen off sharply, while imports have remained high.”

The years of U.S. trade sanctions, combined with the Nicaraguan government’s prosecution of a civil war against the Contras, have left the country’s economy in tatters and in need of emergency help.

The economy is in a recession and is plagued by hyper-inflation. Export earnings are down to less than half the $700 million to $800-million per year that prevailed in the late 1970s. And Nicaragua is about $250 million in arrears on loans to the World Bank and the Inter-American Development Bank.

“The economy there is in shambles,” said Peter Hakim, director of the Inter-American Dialogue, a Washington-based think tank that specializes in Latin American economic affairs. “They really are in serious trouble.”

Analysts estimate that lifting of the U.S. sanctions and unblocking potential loans from the World Bank and the development bank could help buoy Nicaragua’s economy until the new democratic government can begin to rebuild it.

The United States could also revive some old trade benefits, such as the duty-free status for Nicaraguan imports here. It also could accept Nicaraguan sugar.

But most experts see little that the United States can do to stimulate the country’s economy very quickly. Nicaragua’s major exports include cotton, shrimp, meat and coffee, and the world price of all four commodities is falling.

In addition, U.S. foreign aid already is committed to the brim, and European governments are more likely to be interested in investing their aid in the emerging East European democracies.

“It’s going to be pretty much up to the Nicaraguans themselves,” Taylor said.

U.S. SANCTIONS ON NICARAGUA

The U.S. trade embargo against Nicaragua was imposed by former President Reagan on May 1, 1985, and continued by President Bush last Oct. 25.

Bush said then that if Nicaraguan President Daniel Ortega were to hold fair elections and implement democratic reforms “the emergency that prompted the imposition of the trade sanctions would largely be resolved.”

The sanctions impose:

An embargo on all U.S. exports to or imports from Nicaragua of goods or technical data;

A ban on all flights to and from the United States by Aeronica, the Nicaraguan airline;

A ban on entry of Nicaraguan-registered ships into U.S. ports;

Termination of the Treaty of Friendship, Commerce, and Navigation with Nicaragua.

Exceptions to the trade ban include books and magazines, as well as medicine, food and clothing “intended to be used to relieve human suffering.”

Nicaragua, a poorly developed agricultural nation, exports mainly coffee, cotton, bananas and other farm products; it imports machinery, equipment and oil, among other items.

TRADE WITH U.S. AND SOVIET BLOC

The United States was once Nicaragua’s biggest trading partner. But trade has dwindled to virtually nothing since the 1979 revolution that brought leftist Sandinistas to power. The Reagan Administration suspended economic aid in 1981 and imposed trade sanctions in 1985. Meanwhile Nicaragua’s imports from Soviet Bloc nations, mainly the Soviet Union and Cuba, have soared.

* 1983-88 figures provided by U.S. Latest data available.

Source: Direction of Trade Statistics Yearbook