PRESIDENT Oscar Arias Sanchez of Costa Rica has worked hard for peace in Central America, one of the most troubled regions of the globe. The Nobel Committee made an inspired and timely choice by awarding him the Peace Prize.

He reinvigorated a stalled negotiating process and managed to get all the leaders of the region to sign a peace treaty designed to end the conflict between the political left and right. That battle, often a straight out shooting war, has disrupted lives in Central America for too long. Arias deserves praise for being one of the first leaders with the sincere desire and political ability to work toward peace.

The Arias plan, which was signed by the leaders of five Central American nations, including Nicaragua and El Salvador, recognizes the sovereignty of Nicaragua. It requires all countries to open their political process and to have a free press, leading to such tangible successes as the opening of La Prensa--an opposition paper in Nicaragua. It has already led to a peace between the Sandinistas and several Indian tribes in their country. But, most important, it shows that the countries of Central America, regardless of their political nature, can work together toward peace.

Unfortunately the Reagan Administration is not working toward peace. It continues to pursue a shortsighted and ideologial foreign policy of refusing to accept the Sandinista regime. Even as peace is being discussed the Reagan Administration is pressuring Congress to approve more military aid for the contras. One can only be hopeful that the Nobel will give Arias credibility in the halls of Washington, D.C. Immediately after winning the peace prize the Costa Rican leader asked Congress not to approve any more aid for the contras. House Speaker Jim Wright said that Arias' Nobel spelled doom for contra aid in Congress.

American foreign policy created the contras, a ragtag bunch of political-outs who seem to have more support in Miami than in Managua. The Sandinistas led a successful and legitimate revolution against a heinous dictatorship. Their government is recognized as sovereign by the majority of people in that country as well as the majority of nations in the world. It should by recognized as an equal nation by our nation.

The contras as a fighting force are the creation of this United States foreign policy. Peace in the region can only come if all parties recognize the illegitimacy of these rebels and allow the Nicaraguan government to grow and work with its bordering nations in peace.