Panama Strongman Raises Demands, Prolongs Rule : As U.S. Aides Feud, Noriega Gains Upper Hand

PANAMA CITY â€”  On the reviewing stand, Gen. Manuel A. Noriega did not look like a dictator in trouble.

Appearing euphoric and at times giddy, he waved to a motley assemblage of 300 teen-agers, workers, homemakers and retired people on a baseball field in the poor district of San Miguelito. These newly formed “dignity battalions� faced their commander at attention.

As smoke bombs covered the field with a red haze, the exercise began. Thirty weekend warriors jumped over wooden hurdles and crawled over sandbags in a single-file assault on a dummy dressed in olive green, jabbing it one by one with the muzzles of their World War II-era Mauser rifles. “San Miguelito will be the tomb of Yankee imperialism!� boomed the announcer.

The volunteer battalions, reported to have 9,000 members, were created by Noriega after the Reagan Administration began trying to oust him as Panama’s military strongman. The 3-month-old U.S. effort mixes economic sanctions, drug indictments and political negotiations with an implied threat of military intervention.

Although nobody believed that such activities would deter the 82nd Airborne, the drill was a clear display of Noriega’s defiance on a day late last week when U.S. officials had said they expected him to accept a deal and step down as commander in chief of the Panama Defense Forces.

Since then, negotiations have been suspended, with Noriega having accused the United States of “economic and psychological aggression� against him. “Those powerful ones who think they can come to this territory without getting a whipping are mistaken,� he declared to the ragtag army.

It is now no longer certain when, or if, talks with Noriega will resume. Michael G. Kozak, a State Department envoy who spent more than three weeks here conducting the talks, is back in Washington “for consultations,� and officials there say there is no timetable for his return to Panama.

What is clear to Panamanian government officials, opposition leaders and diplomats here is that Noriega has the upper hand, while U.S. officials, who woefully underestimated his staying power, feud among themselves over conditions for his departure. In the process, Noriega keeps raising his demands and prolonging his rule.

‘A Lot More Confident’

“At the beginning, his situation looked precarious,� said a foreign ambassador who is not from the United States. “Today he looks a lot more confident. He calls the shots now, and I think he’s enjoying it enormously.�

The Administration has been pressing the 50-year-old general to step down since Feb. 5, when two federal grand juries in Florida indicted him on drug-trafficking charges.

But despite financial sanctions that have crippled Panama’s economy and helped trigger a March 16 coup attempt, Noriega has remained entrenched, prompting Washington’s efforts to negotiate for a compromise.

In this test of wills, Noriega has gained breathing space by tightening his control of the 15,000-strong Defense Forces while the government manages a limited return to normal commercial activity.

The poorly planned and badly executed coup attempt two months ago enabled Noriega to purge more than a score of suspected foes from the officer corps, leaving little hope that another plot can be mounted soon, according to analysts.

Meanwhile, calculated displays of military force and warnings of expropriation have silenced the opposition Civic Crusade, a coalition of more than 200 business and civic groups, since their nine-day general strike in March.

“People who wanted a drastic change before will now settle for a bargain,� said a Panamanian banker sympathetic with the Civic Crusade’s 11-month-old anti-Noriega campaign. “They realize the strikes and the sanctions have hurt themselves worse than Noriega.�

U.S. economic sanctions have had a severe impact, even forcing the closure of local banks, because Panama uses the American dollar as its currency. The economy stagnated in March, but by improvising and bartering, citizens sparked a slow recovery of consumer spending in April and so far this month. On May 9, local banks reopened for limited withdrawals.

Most economists believe the recovery is temporary. Companies are selling off their inventories, they say, but cannot get credit to resume production in the weeks ahead unless the sanctions end.

Finance Minister Orville Goodin predicts Panama’s gross domestic product could shrink by as much as 20% this year, a spectacular collapse even by Latin American standards. Other officials say 20,000 or more of Panama’s 130,000 public employees will be laid off.

While President Reagan and his aides hope the threat of long-term economic damage will keep pressure on Noriega to make a deal, the general’s advisers insist there is no hurry.

“The problem is that the officers defending Noriega do not shop at the grocery store,� a diplomat said. “They are insulated from the economic crisis. They will be the last to suffer.�

In recent speeches, Noriega has made ending the sanctions his first demand in talks with the United States. He also insists on U.S. recognition of his handpicked president, Manuel Solis Palma, and withdrawal of 1,300 U.S. military reinforcements flown to bases along the Panama Canal.

Commerce Minister Mario Rognoni, an adviser to Noriega, said last week the general is willing to step down as part of a “gentlemen’s agreement� with the United States, leave Panama for a vacation and come back to run for president.

“If he retires, popular pressure will force him to run,� Rognoni said. “Reagan has given him all the publicity he needs. By trying to portray Noriega as a drug-trafficker, Reagan has turned him into a statesman, a hero who has resisted imperialism.�

Other associates say Noriega really wants to leave public life and enjoy his wealth but is being egged on by ambitious associates around him, like Rognoni, who would stand to lose their own power.

“By making an issue of his retirement, the United States won’t let him retire,� said Ramon Sieiro, Noriega’s brother-in-law, who heads the pro-government Labor Party. “There are also friends who won’t let him, because he serves their interests. They have their benefits.�

The general has until November to decide if he wants to go into politics, and he seems to be keeping his options open. By then, any candidate in scheduled 1989 elections is required by law to be retired from executive positions in the military or the government.

Opposition leaders and most foreign diplomats believe that the only way Noriega could win an election is by counting the votes himself. They say most of the anti-American sentiment boiling in Panama these days is disillusionment over Washington’s inability to force Noriega out.

In his appearance at the baseball field, Noriega sounded vaguely like a candidate.

Besides exploiting the anti-Americanism in San Miguelito, he struck other populist themes, warning that “traitors� and corrupt officials will be purged from the payroll and punished “the Islamic way. . . . He who puts his hand (in the till) will have it cut off.�