My first reaction on getting a good look at downtown Managua was to burst out laughing.

Could President Reagan be serious, I asked myself as I looked at the littered block-size vacant lot opposite the city's finest hotel, the Intercontinental. The panorama of desolation was dotted by gutted buildings, which were further pocked by the removal of bricks from the shells. I could see squatters inside and roosters strolling through the squalor.

The 1972 earthquake flattened the capital of this wretched country and the ever-odious dictator Anastasio Somoza grabbed the relief funds to rebuild villas for his rich friends on the outskirts of town. The Sandinistas never got around to cleaning up. They have better things to do, they say.

Near the hotel I saw a taxi that seemed to be a metaphor for the whole mess, the unspeakable poverty, the incoherent government, the battered hopes and dreams of the revolution. Its tires were flat, its hood paintless, and its insides seemed to have been chewed by rats. A medallion on the battered door proclaimed it to be a member of the Fraternity of Taxis of Solidarity.

Beat-up, rusted-out city buses, packed to the eaves, grind through the streets, passing horse-drawn wagons. The only new vehicles are the East German trucks that are used to transport soldiers to the war zone.

This is the engine of military might that our president warns us threatens Nicaragua's neighbors and even ourselves?

The military threat evaporates on sight, and no serious American here will discuss it. Instead, they cite the danger that this poor wreck of a nation will be a model for other restless Latin-American revolutionaries.

A model? Are there Latin Americans who want a capital where there is no water two days a week, where shortages -- of light bulbs, toilet paper, sugar -- strike like bandits? Where gasoline and certain foods are rationed and the inflation rate is 50 percent?

George P. Shultz, our secretary of state, tells us it is "a Soviet state."

If it is, it's nothing like Albania. The first thing you see in the lobby of the hotel are plaques advising of weekly Lions Club and Rotary meetings. And the morning after the congressional delegation I accompanied arrived, we met with two vehemently dissident businessmen who spent an hour ripping the Sandinistas up one side and down the other -- even though they said the room was bugged and they would be reported and perhaps arrested.

Like all other stories I heard in Nicaragua, this one had a contradictory sequel and no real conclusion. Enrique Bolanos, the small, voluble head of the country's largest business federation, told us in the morning how he had been jailed twice for criticizing the state. But in the evening, we met him at a U.S. Embassy reception and heard him recount proudly how he had appeared several weeks ago on a televised town meeting with President Daniel Ortega and other members of the National Directorate and had told them how they were wrecking the economy.

"They don't repress very well," murmured an American colonel.

Freedom of the press may be curtailed, but freedom of expression is not. Nicaraguans are friendly, talkative people, and, in spite of everything, they like Americans. They argue about their government openly and passionately in terms that will be heard during the congressional debate on the $14 million in aid for the "contras."

The discussion rages nonstop, ding-dong, tick-tock. It is the U.S.-sponsored war, say the Sandinistas, that has distorted everything, distracted the leadership, made repression mandatory. No, say the anti-Sandinistas, it is the crazed authorities, who burn to make Central America a Soviet satellite.

On censorship, which so inflames Reagan, we met with the Chamorro family, owners of La Prensa. The day we arrived, La Prensa did not publish because of heavy censorship. But the next day, all the censored stories were printed, including full discussion of Reagan's new plan. The one deletion: the word "peace" to define it.

Violetta Chamorro, widow of publisher Pedro Chamorro, who was murdered by Somoza, told of the return of censorship. Somoza at least had done it efficiently. The editor, however, told of a recent visit from Vice President Sergio Ramirez, who spoke of possibly limiting censorship to military matters.

Ortega, whom we met the next day, confirmed it. Ramirez had negotiated with what Ortega called "the voice of the contras" but nothing has come of it because, he said, "La Prensa went running off to the U.S. president to tell him what they talked about." Thus, another unresolved question is added to the rubble, which is the only thing that Nicaragua -- Reagan's "threat" and "model" -- has plenty of.