In a report yesterday on the deaths of four Peruvian babies, oral rehydration salts should not have been referred to as pedialyte, the brand name of similar salts made by Abbott Laboratories.

In a report yesterday on the deaths of four Peruvian babies, oral rehydration salts should not have been referred to as pedialyte, the brand name of similar salts made by Abbott Laboratories.

A New York company is under investigation by federal authorities and the U.S. Agency for International Development for providing tainted antidiarrhea medications that allegedly led to the deaths of four Peruvian babies last month, U.S. officials confirmed yesterday.

The government of Peru has demanded $20 million in compensation for the deaths from either AID or the firm involved in manufacturing the tainted salts, U.S. Materials Co. of Spring Valley, N.Y., according to reports from the Peruvian capital of Lima.

The Peruvian government has recalled all the salt packages made by U.S. Materials, which had a $266,000 AID contract to provide 2.8 million packages for Peru. But AID officials said it would take some time before the recall message reaches the more remote parts of the country, a delay that has raised concern among some health officials that more babies could die before all the packages are tracked down.

At a news conference in Lima on April 5, Peruvian Health Minister David Tejada said the AID-provided packages contained a lethal dose of potassium. AID officials said this apparently resulted from an incorrect mixture of the potassium with sodium, the two main chemical ingredients in the salts.

Food and Drug Administration spokesman William Grigg said tests on sample packages of the salts indicate that "some parts of some lots are okay and some are not." A statement issued by the U.S. Embassy in Lima said preliminary tests had found "dangerously high levels of potassium" in two packages, but nothing unusual in two others.

AID officials said the agency's missions worldwide had been warned about the tainted salts but that none have been discovered outside Peru.

The incident has triggered an internal AID investigation into how a small, relatively unknown company, which one AID official said had manufactured the salts "in a garage," was able to win the contract.

Another AID official said it was the first time U.S. Materials had won an agency contract to manufacture the salts and little is known about the company except that it was a small operation. The official added that AID does not maintain a list of approved companies allowed to bid on its contracts.

AID officials said the company's headquarters is in Spring Valley, N.Y., but there is no telephone listing for it there. A company by that name has an office in Newburgh, N.Y., although no one answered repeated calls at the number there.

The U.S. attorney's office in White Plains, N.Y., also has opened an investigation of the company. Assistant District Attorney James de Vita refused to comment on the case except to say that his office was looking into whether the firm was involved in "criminal conduct" in connection with its AID contract.

The four babies died in the Cayetano Heredia Hospital in Lima on March 26 and 27 after receiving doses of the oral rehydration salts, commonly known in the United States as pedialyte. Such salts are widely used in Third World countries such as Peru to fight dehydration in infants resulting from diarrhea. There is no indication that any of the medications distributed in the United States are tainted.

AID Deputy Administrator Jay F. Morris said it is uncertain what percentage of the 2.8 million packages had been distributed at the time of the four deaths.

Morris said it was the first time such an incident has been reported in the six years that AID has been involved in distributing the salts.

He said 200 million packages of the salts are produced annually and are credited with saving the lives of an estimated 75,000 children in Peru and 500,000 lives throughout the Third World every year.

The salts are manufactured by a number of American firms. Morris said AID has canceled its contract with U.S. Materials Co. and given the order to Jianas Brothers Packaging Co. of Kansas City.

The deputy administrator said the Peruvian government still is committed to a program of distributing the salts and has asked AID for funds "to move the program forward" since the incident.

The salts, known in the medical profession as Oral Rehydration Therapy (ORT), are a mixture of glucose, sodium and potassium.