MANAGUA, NICARAGUA, JAN. 21 -- Seven years ago, 700,000 Nicaraguan cordobas were worth $25,000 and could buy a pleasant working-class home in this capital city.

Seven months ago, 700,000 cordobas were worth $87.50 and bought enough groceries to feed a family for a month.

This week, 700,000 cordobas are worth $16, the price in a Managua shop of one tiny pair of tin earrings of the type Nicaraguans customarily use for their baby girls' ears.

Nicaragua's currency has gone into a dizzying dive, bringing a dreaded new ill -- hyperinflation -- to an economy already plagued by chronic shortages and infuriating breakdowns.

Inflation ran at 1,800 percent in 1987, government figures show. But if it continues to rise as it has since November, annual inflation for 1988 will hit 13,000 percent, economists say.

The daily deterioration of living conditions for many Nicaraguans is putting urgent pressure on the leftist Sandinista government to persuade the U.S. Congress to end military aid to the Nicaraguan rebels, known as contras.

Pro- and anti-Sandinista economists agree that the Feb. 3 congressional vote in Washington on whether to renew contra aid represents a crossroads for the Sandinistas' faltering economic policies.

If the contras are not funded and a six-month-old Central American peace process continues, the Sandinistas may help their economy by cutting back sky-high military spending. Western European and Latin nations have said they could offer new trade, loan and investment opportunities for Central America as a whole, including Nicaragua, if a six-month-old regional peace process continues.

If Congress backs the war, the erosion of the Sandinista revolution will quicken. Sandinista leaders have threatened to spare no cost or sacrifice to battle the contras, and they have promised Nicaraguans even greater hardships, new measures extending state control of the economy and greater reliance on Soviet bloc aid.

"We're running out of adjectives to describe our situation. We had crisis, then we went to chaos, now what do we call this?" said Nicaraguan economist Francisco Mayorga, who holds a doctorate from Yale.

Nicaragua "is in the final stages of inflation before the money ceases to have any value," according to an American economist who lives in Nicaragua.

In October, the Central Bank rummaged through its warehouses for sheets of old 20-cordoba notes printed several years ago but never released because they had become worthless. (Today the dollar is worth 15,000 cordobas officially, and 44,000 on the ubiquitous black market.) The bank added three zeros after the "20" in smudgy black ink and issued the bills.

Barely six weeks later, as consumers required more and more bills to keep pace with soaring prices, the bank had to issue new 50,000-cordoba notes by the same method, using old 50-cordoba bills.

Wallets are a thing of the past. Nicaraguans carry their fat wads of cash in lumpy brown paper bags. The government, printing bills, increased the amount of cash in circulation four-fold last year alone.

Alvin Guthrie, head of an opposition workers' federation, said that for the first time his members are pleading with the union not to push for wage increases. "They have seen that every time wages go up, right away prices go right through the ceiling," Guthrie said.

The government increased wages by 900 percent during the year. But in real terms, a worker's salary is worth 6 percent today of what it was in 1979.

One force driving inflation, Ortega said in a Jan. 1 speech, is simple supply and demand: many bills and few goods to buy with them. Production shortfalls and the cumulative effects of the three-year-old U.S. trade embargo have left supermarkets offering few of the products shoppers need, while some bizarre selections are abundant.

At the La Colonia grocery in the heart of Managua, once stocked like an American supermarket, many aisles are empty. One full aisle is stacked with thousands of bottles of prohibitively expensive Worcestershire sauce. Another displays vast quantities of Nicaraguan rat poison.

"There's nothing to do but heave a sigh," said downcast shopper Maria Lidia Espinosa, 66, whose search for toilet paper was fruitless.

There is wide agreement, from Ortega to American officials, that the U.S.-financed contra war is a fundamental cause of the economy's hemorrhage. The government estimates its losses due to contra destruction last year at $377 million, while earnings from all Nicaraguan exports came to only $240 million. (The contras received $100 million from Washington last year.)

Defense consumed a staggering 55 percent of the budget for the third year in a row, leaving a fiscal deficit that no one holds any hope of closing.

Some factors are beyond Nicaragua's control. A severe drought late last year decimated the bean crop, a staple. World prices for Nicaragua's main exports, cotton and sugar, have plummeted.

But government credit and exchange rate policies, designed to favor the farmers and urban workers whose support the Sandinistas most want to attract, have wreaked havoc with the overall value of the currency. Sandinista peasants still get bank loans at 28 percent interest -- in effect, a gift.