Chamorro, Sandinistas in Accord : Nicaragua: The government’s free-market economic agenda remains as the regime shelves anti-inflation plan.

In a landmark pact with the Sandinista opposition after six months of sparring, Nicaragua’s new government has won acceptance for much of its free-market economic agenda in exchange for shelving a drastic anti-inflation plan to lay off at least 10,000 public employees.

The accord, signed last month by Sandinista unions that paralyzed the nation with a violent July strike, is described by government and opposition leaders as a partial settlement of the nation’s postwar struggle between revolutionary Sandinista economics and American-sponsored capitalism.

But while moving to appease urban Sandinista workers, the government of President Violeta Barrios de Chamorro faces a growing rural challenge from the right. Hundreds of former Contras, who disarmed after her election achieved their goal of ending Sandinista rule, have sealed off half the country’s main east-west highway with roadblocks to protest continued Sandinista control of the military and the government’s failure to give them promised farmland.

The rebels’ avowedly peaceful Civic Movement to Save Democracy has won the support of Nicaragua’s Roman Catholic bishops, the main business leaders’ council and 17 town mayors in Chamorro’s coalition. But scattered groups of former rebels have picked up weapons again to seize farms from Sandinista cooperatives and confront the police. Eighteen people have died in armed clashes.

The bloodiest confrontation occurred Friday when a score of rebels with automatic rifles attacked the police station in Nueva Guinea, a city 190 miles east of Managua. Four rebels were killed and 34 other people, including nine police officers, were wounded.

On Saturday, a group of rebels and civilians seeking the resignation of the Sandinista security chief in La Concepcion, 30 miles south of Managua, were holding three of the town’s five police officers and three other Sandinistas hostage after an occupation of police headquarters Friday night.

The turmoil has cut short the government’s celebration of the Oct. 26 Economic and Social Consensus accord, an achievement already dimmed by the business council’s refusal to sign it. Business leaders objected to a clause that allows some private property confiscated by the former government to remain in Sandinista hands and said that other concessions point to a much slower economic recovery than was expected when Chamorro took office last April 25.

But foreign economists and diplomats said the pact is significant because it commits all signers, from 35 labor and producer groups across the political spectrum, to a process of permanent consultation to prevent economic disruptions.

“We have begun a great revolution in nonviolence,” Chamorro declared after the five-week negotiations. “This is a new style of governing Nicaragua.”

“Without this,” said Gen. Humberto Ortega, the Sandinista commander of the army, “no financial wizard of any ideology can solve the economic and social problems of Nicaragua.”

After a decade of armed conflict and faltering socialist policies, the Sandinistas left 3.7 million Nicaraguans a legacy of quadruple-digit inflation, declining production and 40% unemployment. Chamorro inherited an $11-billion foreign debt, a bureaucracy that was spending $25 million a month more than it took in, and a mere $3 million in the Central Bank.

As the war’s end idled tens of thousands of former Contras and Sandinista soldiers, the new government cut its deficit to $7 million a month by ending subsidies on bus, electricity, water and telephone services, causing prices to skyrocket. With salaries averaging $120 a month in a new currency that pegs most prices to the U.S. dollar, Nicaragua suddenly became one of the most expensive places in Latin America as well as one of the poorest.

Tensions exploded in July when Sandinista unions that still represent most of the central government’s 120,000 workers and help manage more than 400 state-owned companies went on strike and set up street barricades to protest plans for layoffs and privatization. Four people died in a week of rioting.

Last month’s pact, an outgrowth of the settlement of that strike, produced a compromise. The unions accepted plans to end the state monopoly on banking and foreign trade and to sell off state companies, as long as benefits gained by workers under Sandinista rule, including the right of ownership, “are taken into account.”

In turn, the government abandoned plans to fire 10,000 to 35,000 civilian workers by year’s end. It agreed to maintain the current allocations for health and education in next year’s budget, lower utility rates and transport fares for the poor, and write off debts of farmers hurt by the drought. Only the army will cut its payroll, retiring 5,000 officers by Dec. 31.

The only civilian laid off because of the accord was Central Bank President Francisco Mayorga, who lost a policy dispute with other Chamorro advisers. The Yale-educated economist had advocated sharp cuts in the government payroll to keep the new currency, the gold cordoba, on a par with the dollar. Most economists now believe the currency will be devalued.

In a parting shot, Mayorga warned that such a move would trigger a new burst of inflation, after six months of steady decline, and undermine the confidence of foreign donors. “This is exactly what the Sandinistas are seeking,” he said.

Sandinista negotiators said the government met many of their demands because, with oil prices rising and world attention focused on the Persian Gulf crisis, foreign aid would be slow in coming regardless of any spending cuts here.

Behind-the-scenes talks that produced the agreement were conducted by former President Daniel Ortega and Antonio Lacayo, the president’s son-in-law and chief of staff. Chamorro joined in the talks only on the final day, in a futile appeal to the business leaders’ council to sign the accord.

Far more alarming to Chamorro is the active opposition by the former Contras, whose protests over the delay of resettlement land promised by her government have escalated into demands that the Sandinista-dominated army and police force be dissolved and that two of her ministers resign.

The protests have mushroomed since police in the southeastern village of Yolaina opened fire on a march by former Contras and their families late last month, killing one and wounding 13 others.

In retaliation, former rebels and their supporters have set up 14 barricades this month along a 110-mile stretch of the Rama Road, from Juigalpa to the town of Rama, isolating southeastern Nicaragua from the rest of the country and causing mounting losses to farmers.

Chamorro admitted last week that she had failed to meet her promises to the Contras. She sent a commission to negotiate with them and ordered police to refrain in the meantime from using force to settle land disputes or to clear the road.