Officials of the leftist Sandista government and business leaders here, constantly feuding since the 1979 revolution, agree on one thing: A Reagan administration decision to cut off aid could turn Nicaragua, already in the midst of a severe economic crisis, into a hard-line totalitarian state.
The Nicaraguan revolution, former junta member Arturo Cruz said, is "sitting on top of a volcano" while the U.S. government ponders whether Nicaragua has stopped allowing arms to be shipped through this country to guerrillas in El Salvador.
If the government measures do not pass U..s muster, there is little doubt here that the cutoff of American funds, together with possible U.S. pressure on international banks to decrease their lending, would put Nicaragua in such a financial bind that the Sandinistas would drop all vestiges of political pluralism, press freedom and mixed-economy socialism, and put the country at the mercy Soviet Bloc aid.
The question of whether the Sandinistas did permit Salvadoran arms transit to Nicaragua, something the Managua government has repeatedly denied, has become largely buried in a tense diplomatic dance that reflects internal politics both here and in Washington.
The State Department has presented what it calls "definitive evidence" that beginning in September, Nicaragua received arms shipments from Cuba and helped ship the arms to guerrillas trying to overthrow the U.S.-backed government in nearby El Salvador. Legislative restrictions require the cutoff of U.S. aid if the president determines that the Sandinistas are supporting "terrorism" in other countries.
Last month, the United States reportedly gave Nicaragua 30 days -- the dealine is Monday -- to stop the arms flow, something that pleased conservative congressional Republicans; who hav lone advocated a complete aid cutoff on the grounds that Nicaragua's government is already too far to the left.
In recent days, however, as other U.S. officials have argued that a cutoff would doom efforts at moderation here, Secretary of State Alexander M. Haig, Jr. has indicated that the weapons shipments have slowed to a trickle. Some observers here believe that, while the deadline is likely to be dragged out in Washington, aid will not be cut off.
For the Sandinistas, the issue is akin to asking, "When did they stop beating their wives?" Since they deny their government ever allowed, much less assisted, any arms traffic through the country, they are left in the prickly position of deciding whether to deny U.S. claims they have stopped the traffic in reponse to American pressure.
Junta member Sergio Ramirez conceded in an interview that arms may have gone through his country without government knowledge. But he denied that any new efforts to stop them were taken after U.S. protests.
"We have always said, and have always take steps to ensure, that no one uses our territory for the transport of arms," Ramirez said. "But there are airstrips all over this country, and we don't have the radar necessary to monitor them."
Nicaraguan officials do not stray from that public line in private conversations.
But well-informed sources in the Latin diplomatic corps who are close to the government say both U.S. premises are largely accurate -- that the arms traffice existed and that it has virtually ceased.
One source noted that flights of small aircraft from Nicaragua to El Salvador have stopped, as have the arrival of ships, allegedly carrying El Salvador-bound arms, on Nicaragua's east coast. A radio transmitter that beamed guerillia messages into El Salvador from Northern Nicaragua has stopped broadcasting, he said.
Tons of weapons originally destined for El Salvador, this source said, are now locked up in warehouses in Nicaragua. He said U.S. Ambassador to Nicaragua Lawrence Pezzullo "knows it and knows where they are." Pezzullo declined to respond when asked if that were true.
Some observers believe that if the arms flow has been slowed, it is not because the Nicaraguans or Cubans slowed it under U.S. pressure, but because the failed "final offensive" by the Salvadoran guerrillas in January so debilitated guerilla ranks that there are few people left to receive the arms.
In addition, reliable source here said that they believe the Cubans and the Nicaraguans were dismayed by the failure of the offensive and feel that the Salvadorans misled them with overly optimistic reports of their chances for success. Both countries are now reassessing their positions, the sources said.
Publicly, the Nicaraguans have called for a negotiated solution to the conflict.
That assesment tends to be supported by hints in allegedly captured guerrilla documents used last month by the State Department to prove its contention that the Communist Bloc was intervening in El Salvador.
The documents, which Sandinista leaders branded "absurd" and "complete CIA fabrications," show a divided Sandinista leadership that resisted, at least initially, pleas for help from the Salvadorans. The Nicaraguans, according to the documents, argued that they could not jeopardize their own revolution by becoming directly involved in the Salvadoran conflict.
U.S. officials maintain that the Nicaraguans at one point in late September changed their minds, assisting the arms traffic briefly, then stopping it after the State Department protested. According to the documents, the traffic started up again last fall, possibly with a hope that the guerrillas would win a quick and decisive victory.
Several sources said the Salvadorans put considerable moral pressure on the reluctant and divided Sandinistas, who, the sources said, received considerable manpower and financial assistance from their fellow guerrillas during the struggle to overthrow former Nicaraguan president Anastasio Somoza.
One source said that the Sandinistas one the Salvadoran guerrillas about $15 million, taken out of a Salvadoran war chest built up from a series of Kidnappings for ransom of Salvadoran businessmen during the past several years.
One high Sandinista official confirmed that the Salvadoran guerrillas helped "with large amounts of money" but refused to set a figure. "We are paying them back," that official said, "by making sure our revolution is successful, and they understand and accept that."
Informed Nicaraguans who have seen the State Department documents say the evidence seems plausible based on their own assessment of a Sandinista leadership that is divided between what are referred to here as pragmatists and dogmatists. Shifting views within the leadership clearly account for a chronic inconsistency in Sandinista domestic policy, Nicaraguan sources say, and may well explain the same inconsistency with regard to the Salvadoran guerrillas.
U.S. allies in Europe and Latin American have been almost unanimous in arguing that an administration decision to cut off aid to Nicaragua would harden the Sandinista leadership by discrediting the pragmatist position.
One Western diplomat here argued that the inexperienced Sandinista leadership was still flexible and had not fully defined its policy either economically or politically.
"Why force them to define it?" he asked. "And why force them to define it in this way [by cutting off aid]?"
That diplomat and others argues that the Sandinistas are losing political support every day because of erratic management and illogical policies.
"Why give them not only an excuse for their mistakes but also an enemy against which to rally domestic support?" a diplomat asked.
So far, the Sandinista rulers have followed what most observers feel is a relatively moderate line for a left-wing revolutionary leadership, pledging to maintain a mixed economy and a pluralistic political system.
Cruz, who is scheduled to become Managua's ambassador to Washington, said that the amount of U.S. aid at stake -- $15 million in credits left over from last year's budget and about $50 million proposed for this year -- is not crucial in an economy facing a budget deficit that may run well over $300 million.
But a final decision to cut off aid, he said, might affect the international banking community's willingness to continue loans to Nicaragua that have kept the economy afloat so far. Loss of that backing would be a "mortal wound," he said, leaving Nicaragua no choice but to depend on the Soviet Bloc for whatever aid it could give.
Other local observers believe the Sandinistas would be forced to crack down simply to deal with inevitable discontent in the face of economic chaos. That, one official said, "could well turn Nicaragua into another Albania."
Some members of the increasingly jittery business community, whose political clout has largely been emasculated by the Sandinistas, reportedly would welcome a cutoff, hoping that would lead to a counterrevolution and U.S. intervention.
But William Baez, a leader in the influential Superior Council of Private Enterprise, the local chamber of commerce, said most businessmen opposed a cutoff.
"We are not like the Cubans" who left home after their own country's revolution, Baez said. "We stayed here. If the U.S. writes us off now, it will be the end of the moderates. It's our heads that are on the line."
Ramirez, a member of the Sandinista organization, said that a cutoff, if coupled with pressure on other nations and international lending institutions, would amount to "economic warfare" that could "ruin our plans" for a pluralist society and a mixed economy. "it is sad even to speculate about that possibility," he said.
Sandinista supporters point out that, for all the revolutionary rhetoric, the Sandinistas have left about 80 percent of the country's farmlands in private hands and have confiscated, with some exceptions, only property owned by Somoza, his family and his closest supporters. Private businessmen still control about 60 percent of the economy.
The opposition newspaper La Prensa, with a circulation larger than the two progovernment newspapers combined, is essentially free to criticize the government, despite a vague censorship decree.
There have been sporadic instances of repression, such as the recent arrest of human rights activist Jose Esteban Gonzalez and the closing of the human rights office here. But an international and internal clamor led to Gonzalez' release a few days later and to the reopening of his office.
There is no question that the Sandinistas retain virtually total political control and do not intend to give it up any time soon. They promised elections soon after taking power, but last August announced that there would be no elections until 1985 and no campaigning until 1984.
But the Sandinistas vacillated on that decision, as they seem to do on almost every major issue. Last week, after denying permission for months, they agreed to allow Alfonso Robelo, a former junta member and now a prominent critic, to hold a political rally this Sunday.
One high government official, however, said that if there is total economic chaos as a result of U.S. actions, "you can forget about Robelo and La Prensa."