Latin Pact Would Link 5 Economies : Cooperation: The agreement calls for coordination of the Central American nations’ policies on trade, debt, agriculture, environment and foreign aid.

The presidents of five Central American nations, emerging from a decade of violent conflict and deepening poverty, agreed Sunday night on an ambitious plan to integrate their economies.

The accord calls for setting up an Economic Community of the Central American Isthmus to coordinate every aspect of development--including trade policy, debt management, food production, environmental protection and the quest for foreign aid.

It also scheduled a July 31 meeting to open negotiations among the five nations on a mutual reduction of military forces, with the aim of turning arms spending into “peace dividends” for their fledgling, recession-mired democracies.

The declaration--signed by the foreign ministers of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua at the end of a two-day summit in this former colonial capital--is the most sweeping economic initiative from the region since the birth of the Central American Common Market 30 years ago.

It comes nearly three years after an equally ambitious Central American peace accord that led two months ago to a definitive settlement of the Contra war in Nicaragua and to recent talks to end wars between leftist guerrillas and the governments of El Salvador and Guatemala.

“We must advance far beyond the Common Market,” Salvadoran President Alfredo Cristiani said. “With mutual cooperation in all fields, we can move much faster in our development and consolidate the peace.”

The summit is the sixth among Central American leaders since the August, 1987, peace accord and the first devoted mainly to economics. With the Sandinistas out of power in Nicaragua and free-market conservatives on the rise in all countries, it marked a potential turning point in the region’s ties with the United States.

Secretary of State James A. Baker III arrived here Sunday night and is to meet with the summit participants today. Their talks are expected to focus on a Bush Administration proposal that U.S. aid to Central America--focused during the 1980s on defeating or containing Soviet-backed movements--be redirected through a multilateral mechanism encompassing other Western donors.

As an ideological battleground in the 1980s, Central America and its 30 million people suffered what a U.N. report calls “an unprecedented social and economic crisis.” Regional per capita income is down 20% from 1978, the report says, and two of every five people live in “extreme poverty.”

The summit agreement calls for several steps to recover the high intra-regional trade and growth levels achieved by the Common Market in the 1960s and ‘70s. President Rafael L. Callejas of Honduras said his country, which dropped out of the market 20 years ago, will rejoin.

The tone of the agreement is starkly different from the dominant rhetoric of those years, which favored state intervention and heavily subsidized industry.

Instead of blaming the industrialized nations for Central America’s poverty, the document focuses on ways the region can help itself and make outside aid more productive.

“We do not extend our hand to beg for charity,” said Costa Rican President Rafael Calderon. “But we say to you, here are the Central American people who will offer their labor, their effort and their dedication, but who also need the friendly hand of the developed world.”

And rather than emphasize tariff protection for nascent Central American industries against outside manufactured goods, the document calls for gradually lowering trade barriers--under a timetable to be set within three months--to make those industries more efficient and competitive in world trade.

The agreement sets other inward-looking goals: achieving regional self-sufficiency in food, rebuilding neglected roads and communications links, removing border restrictions and other physical obstacles to trade and adopting joint scientific and technical ventures.

Government ministers are to meet by mid-August to set up regional “mechanisms” to coordinate economic policies. The agreement says these bodies should represent not only governments but “different social sectors.”

A separate ministers’ meeting is to be held within a month to devise a joint strategy for renegotiating $20 billion in foreign debts. The document also calls for international assistance to save Central America’s ravaged forests, repatriate its 2 million refugees and fight its burgeoning narcotics traffic.

The summit document was debated Saturday and Sunday by Presidents Vinicio Cerezo Arevalo of Guatemala, Callejas of Honduras, Violeta Barrios de Chamorro of Nicaragua, Calderon of Costa Rica and Cristiani.

President Guillermo Endara of Panama attended the summit as an observer and was invited to integrate his country into the region’s economy. He said he will study the invitation.

The summit document gives government ministers six months to outline programs to minimize the impact of economic austerity measures on the poor. But other than calling for greater spending on health, child care and education, it offers no plan for correcting the vast social inequities that fueled the conflicts of the 1980s.

Except for Cerezo, a Christian Democrat in the final year of his term, the presidents meeting here are conservatives who have taken office in the last 12 months. With U.S. aid to the region declining and Europe consolidating as an economic bloc, they say they must speak with a single voice to hold the world’s attention during the early 1990s.

Central American officials said they are eager to learn from Baker whether the proposed new aid mechanism, modeled after the so-called Group of 24, would mean a decline in the current level of $1.5 billion in aid to the region from all outside sources.

The Group of 24 was set up last year to coordinate aid to Eastern Europe from the United States and 23 other Western governments. Under the Administration’s proposal, a similar group would channel aid to Central America under a program co-chaired by the United States, the European Community and Japan, with a U.S. secretariat.

While welcoming any plan that would aid the region as a whole, some Central American officials said they preferred that the program be directed instead by the World Bank or Inter-American Development Bank.