By GLENN GARVIN
Herald Staff Writer

MANAGUA -- Battered by two months of political violence and worried that one of
the casualties might be Nicaragua's foreign aid, President Arnoldo Aleman's
government waved the white flag late Tuesday night, giving in to nearly all the
demands of striking transportation workers.

It was the second time in four days that Aleman's administration capitulated to its
political opponents. On Friday, the government agreed to raise the budget for
Nicaraguan universities by 7.5 percent after a series of bloody confrontations with
student demonstrators.

Government officials declared the settlements a victory that would restore peace
after 60 days of daily confrontations between police and protesters backed by the
opposition Sandinista party.

``I think the agreements are good ones,'' presidential spokesman Gilberto Wong
said. ``The important thing was to get the country running again.''

But economists were not so certain. They said the high price of the deals,
coupled with two months of daily television coverage of burning vehicles and
shattered windows, will cost Nicaragua dearly when the international financial
community meets in Stockholm, Sweden, later this month to consider hurricane
reconstruction aid for Central America.

``The country's losses aren't just in the economic plane, but also in the image it
projects to the rest of the world,'' economist Carlos Benavente said. Both private
investors and donor governments are likely to shy away from a country with ``a
climate of instability,'' Benavente said.

The violence, the worst in Managua since the days of President Violeta
Chamorro's government, left three dead and hundreds injured, inflicted about $30
million in damages, and led to scores of arrests. Members of street gangs joined
in the fray last week, helping to smash windows of autos and taxis that defied a
warning to stay off the road, and brought Managua nearly to a standstill.

To end the violence, the government agreed to raise the budget for universities,
even though the country already spends 25 times as much on its 35,000 college
students as it does on the 1.2 million children in primary and secondary schools.

It also promised to roll back the price of diesel fuel from $1.41 to $1.28 and
abandon plans to deregulate the country's bus lines. Deregulation was intended to
open the market to new competition that economists hoped would have led to
lower fares and better service.