Reagan foreign policy goes on trial in Caribbean

In Central America, armies clash with guerrillas. But in the nearby island nations of the Caribbean, the main struggle is a nonviolent one over how to build growing economies.

Throughout the Caribbean, the free enterprise system is on trial. If the United States and its allies fail this test, then, on some islands at least, what has been a mostly peaceful struggle could turn more violent - and destructive of American interests, diplomats say.

The sunny Caribbean, with its white beaches and emerald seas, has had its share of violence in recent years: election-year shoot-outs in Kingston, executions in Grenada, riots in Haiti and the Dominican Republic. But the region's islands have had none of the full-scale civil warfare that has erupted in Central America. Most of the islands have higher levels of literacy, stability, and political debate than the nations of Central America.

In one election after another in recent years, Caribbean peoples have turned away from left-leaning politicians toward centrist and conservative ones whose policies are characterized by pragmatism. The leaders of these islands are now demanding that the US recognize their distinctiveness and take a fresh look at the advantages the region has to offer business investors.

The exception to the trend is, of course, Cuba. Cuba continues to work to the best of its ability to undermine American interests in the Caribbean. But while the Cubans and their Soviet supporters enjoy considerable influence in Central America, their influence appears to have reached a low point in the Caribbean islands.

Several Caribbean governments criticized the US invasion of Grenada last October. But it is now apparent that the American intervention and the expulsion of the Cubans was widely welcomed by most Caribbean peoples. Noncommunist Caribbean nations and territories are looking as never before to the United States for help in resolving their problems.

This presents the United States not only with opportunities but also with a time of testing. At this point, it is not certain that the US is up to the challenge, US diplomats and Caribbean political leaders say. President Reagan's economic development program - the Caribbean Basin Initiative, or CBI - has had some initial impact in creating new jobs and new exports from the region, but its overall success is still far from guaranteed. The economic and financial problems of the Caribbean are staggering. They include heavy foreign debts, limited economic growth, exports insufficient to pay for imports, and high levels of inflation and unemployment.

The centerpiece of the CBI, announced in 1982, is the granting of duty-free treatment for 12 years for many Caribbean exports to the United States. The duty-free segment of the program went into effect only some eight months ago, so it is too early to tell whether the Caribbean nations will be able to take full advantage of it.

An optimistic view is expressed by Peter B. Johnson, executive director of Caribbean/Central America Action, a nonprofit organization funded primarily by contributions from US firms with an interest in the region. Mr. Johnson asserts that the Caribbean Basin Initiative has already stimulated many new investments by American businesses in the region. He predicts that this will develop into ''a substatial wave of new investments.''

The Reagan administration considers the Caribbean nations to be strategically important, first of all because of the sea lanes that pass around them. About two-thirds of American oil imports flow through the region stretching from the Bahamas in the north to Belize in the west to Trinidad and Tobago and Guyana in the south. The Caribbean is also a major source of illegal immigration to the United States, and the Reagan administration fears that unless the region's nations come to grips with their economic problems, such immigration will increase.

But the Caribbean's economic problems will not be easily resolved. The quadrupling of oil prices in the early 1970s jolted the region's more than two dozen small nations and territories. Then they were hit by a drop in prices for their major exports, such as sugar and coffee. Finally, the chill of the worldwide economic recession reached the region and is still being felt. Bargados and Trindad and Tobago escape oil crises

There are exceptions to this grim picture. Because it produces its own oil, Trinidad and Tobago and its more than 1 million people have escaped the worst effects of the world's oil crises. Barbados and its 250,000-plus people have managed to ride out economic shocks through effective administration, a steady tourist trade, and movement away from a reliance on sugar exports. The island has diversified its economy by developing light manufacturing and electronic assembly industries.

The Reagan administration's answer to the other, more economically troubled nations of the region has been to encourage the growth and diversification of private-sector exports. The administration has also increased its technical and economic assistance, with the largest amounts going to Jamaica, the Dominican Republic, Haiti, and Grenada.

But in each of these countries that is is getting special attention from Washington, the problems are daunting:

* Jamaica. The Reagan administration chose this island of some 2.2 million people as the model for free enterprise success. But while private American investment is increasing in size on the island, it has so far been disappointing to many Jamaicans.

Since taking office in 1980, Prime Minister Edward Seaga has reversed a decline in economic growth, but unemployment remains high at an estimated 26 to 27 percent of the work force. The Jamaican leader has been unable to reduce the bureaucracy and government expenditures as much as he would have liked. Small farmers, local manufacturers, and the poorest of the urban poor have been hurt by Seaga's attempts to open the Jamaican economy to foreign competition. Labor disputes and bureaucratic regulations have discouraged some investors.

* The Dominican Republic. The largest democratic nation in the Caribbean is in deep trouble. President Salvador Jorge Blanco's government is expected to have to raise gasoline prices at some point, and that could trigger more riots such as those that erupted last April. The price hike is required in order to win approval from the International Monetary Fund and additional foreign aid and loans.

If violence does break out, a small, Cuban-supported communist party could make gains. The Dominican crisis has been aggravated by popular disillusionment with the ruling social democratic party's failure to carry out economic reforms that would lead to a more equitable distribution of wealth.

At the same time, some economists argue that this nation of 6 million is the one that could best take advantage of the Caribbean Basin Initiative.

* Haiti. As a recent Canadian study puts it, Haiti's more than 5 million people are confronted with economic problems of ''mammoth proportions'' that do not lend themselves to quick solutions.

The land ruled by President Jean Claude Duvalier is only one-third arable, and some 80 percent of the population is illiterate. A combination of overpopulation, steep slopes, torrential rains, and extensive wood-cutting has led to soil erosion, the country's No. 1 problem.

According to international agencies, a small urban elite - less than 1 percent of the population - controls more than 40 percent of the national income. Government corruption and mismanagement inhibit progress.

* Grenada. This 133-square-mile nation became an economic test case for the Reagan administration following last October's US invasion and the expulsion of Cuban workers, military advisers, and intelligence officers.

Despite its small size and a population of fewer than 100,000 people, Grenada's economic problems are not easy to deal with. Most potential investors are holding off until they see the results of elections, expected to be held later this year. Unemployment is estimated at 30 percent. The interim government of Nicholas Braithwaite has had trouble paying its employees. Roads and the electrical system are for the most part in dreadful shape. New tax and investment codes are being drafted to attract foreign investment.

In all of these islands, a so-called ''brain drain'' has been devastating. Tens of thousands of skilled entrepreneurs and technicians have left, mostly for the US and never to return. Schools are training too many theoreticians and planners and not enough engineers and technicians, educators and government officials say. As in many developing nations, there is an enormous lack of people who can maintain and repair machinery.

''Maintenance is the biggest problem in the third world right now,'' says a Trinidadian scientist who works on development projects throughout the region. ''There's no glamor in maintenance.'' New investments, exports brighten economic picture

At the same time, there are signs in the region that a new spirit of pragmatism could help produce growth.

Mr. Johnson, a former State Department official, whose Caribbean/Central America Action organization was formed five years ago to promote trade and investment in the region, points to a number of positive signs: a trip by American businessmen to Haiti that is expected to produce more than a dozen new investments, increased cooperation between Caribbean governments and private sector organizations, new exports to the US of winter vegetables by half a dozen companies in the Dominican Republic, and three new electronic assembly plants established on the island of St. Christopher as a direct result of the CBI.

Some four to five years ago, it might have been difficult to make the argument that the Caribbean offered a good deal to American business. In mid- 1979, revolutionaries overthrew the Somoza dynasty in Nicaragua, sending shock waves across the Caribbean. In the same year, a coup - the first of its kind in the English-speaking Caribbean - brought a left-wing regime to power in Grenada. Through the collapse of a government on one island and elections on another, left-wing leaders came to power in two newly independent island nations, Dominica and St. Lucia. On Jamaica, the third-largest Caribbean island, Prime Minister Michael Manley strengthened ties with Fidel Castro's Cuba.

But by 1980, the pendulum was swinging in the other direction. Jamaican voters ousted Michael Manley, partly because of a deteriorating economy and partly because of a fear of communism. Harvard-educated Edward Seaga replaced him. In the same year, following a landslide election victory, Eugenia Charles, a conservative lawyer and businesswoman, became Dominica's first woman prime minister. The swing away from the left has persisted on other islands, too. In St. Christopher-Nevis in June, Kennedy Alphonse Simmonds's moderate government regained power by a large margin.

By the time the US intervened in Grenada in October of last year, sentiment in the Eastern Caribbean had turned strongly against Grenada's left-leaning regime. And once that regime was ousted, the East Caribbean leaders' preoccupation with security shifted to a new emphasis on expanding production and creating jobs.

While the 1970s were years of idealism and radicalism for the Caribbean, the 1980s could be years of realism. That may only be the case, however, if weakened economies start to grow. Few observers think that the political shift away from the left will hold for more than a few years in the absence of improved economic conditions.

''The bright hopes of the independence period have faded,'' says Sir Philip Sherlock, founder of the Association of Caribbean Universities and Research Facilities, at a conference on economic development.

''The drive for economic and social development has been frustrated by events beyond our control, by the rise in the cost of energy and a fall in the revenue from exports,'' he says. ''... The mood has turned sour. Neither Marxism nor the democratic system seems to work.''

But Sir Philip also senses that this sour mood might now be changing and that a young leadership was emerging ''with fewer of the great expectations we had, with a more realistic approach, and with less interest in ideological doctrines and greater interest in making use of what we have.''

Loren E. Lawrence, the US charge d'affaires in Grenada who once served as ambassador to Jamaica agrees. He adds a note of warning, however:

''There's a swing to the center and right-of-center, but it won't last long unless opportunities are seized to improve the economics of the situation.

''There has to be a perception that more people are getting jobs rather than fewer,'' Mr. Lawrence said in a recent interview in St. George's, Grenada. ''The young kid who has dropped out with a scowl on his face and a machete in his hand can be won over if you give him an opportunity to become respectable. He and his wife and his child have to have a place to live and work with some sense of respect.''

US-Caribbean economic links. Key US aid recipients in 1985 fiscal year Jamaica $100 million + Dominican Republic $91 million Haiti $47 million Grenada $57 million*

*Fiscal year '84 and '85