Bush, Lawmakers Head for Foreign Aid Clash : Budget: President calls for caution in assisting emerging democracies. Congress sees his position as a failure to capitalize on global changes.

The Bush Administration is heading for a major political confrontation with Congress over how to assist the newly emerging democracies in Eastern Europe and Central America.

Both sides know a good political issue when they see one. Rep. Dante B. Fascell (D-Fla.), chairman of the House Foreign Affairs Committee, says voter sentiment for increasing foreign aid--all but absent during most of the 1980s--is now higher than at any time since the Marshall Plan was started in 1947.

“Everybody wants to help the emerging democracies,” Fascell exulted.

But the White House, hemmed in by the huge federal budget deficit and President Bush’s steadfast refusal to raise taxes, argues that a dose of caution is in order.

Deputy Secretary of State Lawrence S. Eagleburger warns that the fragile Eastern European and Central American economies are not capable of absorbing massive amounts of aid. Eagleburger recalls how America “dumped” money into Poland in the late 1970s, only to see it pay for consumer goods rather than productive new factories.

Must ‘Act Boldly’

To congressional Democrats, the Administration’s hesitancy amounts to nothing short of a failure to capitalize on sweeping changes around the globe--the democratic tide in six Eastern European countries, the ouster of Panamanian strongman Manuel A. Noriega and the electoral defeat of Nicaragua’s Marxist government.

“America must think creatively and act boldly,” asserted House Majority Leader Richard A. Gephardt of Missouri, who fired the Democrats’ first major salvo at the Administration Tuesday.

He announced an eight-point Democratic plan for additional aid and trade benefits for the Soviet Union and Eastern European countries.

The Administration contends that the emerging democracies often can benefit as much from trade, technology, investment and U.S. business expertise as from outright cash. It argues that in some countries--such as Romania and Bulgaria--the United States should wait for genuine movement toward democracy before parceling out substantial aid. “A new democratic differentiation,” Eagleburger called it last week.

Congress and the Administration have three basic choices: They can increase the foreign aid budget, cutting defense spending or domestic programs to foot the bill; they can slash aid to other countries to provide funds for grants to Eastern Europe and Central America, or they can simply allow the United States to take a smaller role in influencing developments in these regions--leaving it to other donors, such as Japan, to take the lead.

The Administration is trying a little of each. It has asked Congress for a beefed-up foreign aid budget and more authority to determine which countries should benefit. And it has been trying to persuade other major industrial nations--particularly Japan--to shoulder more of the burden.

At last weekend’s meeting in Palm Springs, Calif., Bush persuaded Japanese Prime Minister Toshiki Kaifu to help provide relief money for Panama and Nicaragua. Japan promptly announced that it will offer aid to Nicaragua.

Ceding Influence

To critics of this approach, it smacks of an abdication of responsibility. Robert E. Hunter of Washington’s Center for Strategic and International Studies said the United States is ceding worldwide influence to Japan even though the Japanese “are not capable yet of providing the leadership.”

At the same time, the Administration is seeking both to increase the foreign aid budget and to increase its own authority to spend the aid as it chooses, free of congressional mandates.

Since the mid-1970s, Congress has insisted on earmarking specific amounts of aid for particular countries--often down to individual programs. Now, the Administration is pleading for the flexibility to shift foreign aid money from some parts of the world to Eastern Europe and Central America.

Eagleburger complained Tuesday that congressional micromanagement of the foreign aid program “ties our hands” and makes it “impossible to respond to the new developments and changes” in Eastern Europe and other regions. A House Foreign Affairs Committee task force came to the same conclusion last year and recommended reducing or even eliminating the practice.

Secretary of State James A. Baker III has proposed shaving every country’s allocation and channeling the money into a central pool that Bush could use--in consultation with Congress, the Administration promises--to finance the aid for the emerging democracies. Bush strategists say they would use the rechanneled money for Eastern Europe, Panama, Nicaragua, the Caribbean and Jamaica.

But most lawmakers seem unwilling to yield authority. “Every Administration wants to have it--and they ain’t going to get it,” Fascell asserted.

Many members of Congress believe that earmarking funds gives them more leverage over the Administration and over foreign governments. And some use foreign aid to please local constituencies, such as Jewish groups and Greek-American groups.

The Administration has proposed a $20.8-billion foreign aid budget for fiscal 1991, up $1.7 billion from the current year. Some countries’ allocations were cut to provide funds for six new proposals:

--$300 million for Eastern Europe.

--$500 million for Panama.

--$441 million in drug-interdiction aid for the Andean countries.

--$888 million to clear up arrears on U.S. payments to the United Nations and other international organizations.

--$270 million to build a new U.S. Embassy in Moscow, to replace the one that is riddled with electronic bugs.

--$70 million for admitting 27,000 more refugees from the Soviet Union.

And now that Nicaragua has elected a friendly government, the Administration can be expected to seek aid for that country.

Budget Bolstered

If anything, Capitol Hill strategists say, Congress will sharply increase the Administration’s proposals for Panama and Eastern Europe, as it did for Poland and Hungary last year. Fascell proposed formally last week adding $2 billion to Bush’s foreign aid budget, and some Democratic lawmakers are calling for even more.

By far the most controversial plan for obtaining the money has come from Senate Minority Leader Bob Dole of Kansas. Earlier this month, Dole stunned Washington by suggesting the unthinkable--slashing aid to Israel and Egypt, which together receive about half the total current foreign aid budget, and trimming payments to other big recipients as well.

“The only way we’re going to pay for new aid . . . is to make some tough calls,” he said.

Although Dole’s proposal has not attracted widespread support, it has sparked a serious debate on Capitol Hill. Members of Congress now seem nearly unanimous in wanting to dig into the defense budget to find the additional foreign aid funds.

“If you’re going to have a $10-billion peace dividend, you may as well use $2 billion of it for foreign aid,” a key House strategist said.

Rep. David R. Obey (D-Wis.), chairman of the House Appropriations subcommittee on foreign aid, has drafted a broad plan for shifting money from the military aid budget. The lawmakers may also jettison the Administration’s requests to catch up on U.S. arrears to the United Nations and to replace the bug-plagued U.S. Embassy in Moscow. “You don’t need an awful lot to get what it takes,” Obey insisted.

This year’s foreign aid debate is the most explosive since the late 1970s, when President Jimmy Carter coaxed Israel and Egypt to make peace in return for promises of billions of dollars each in added U.S. aid. “I can’t even remember” when the issue has been this visible, said Hunter, a White House strategist during the Carter Administration.

Republicans and Democrats agree the aid dispute must be settled soon, or America could miss the chance to help shape the course of events in Eastern Europe the way it did in Western Europe after World War II.

“The issue is whether we’re going to be serious about playing a role in the outside world,” said Hunter of the Center for Strategic and International Studies. “The United States spent somewhere between $1 trillion and $2 trillion in Europe containing the Soviet Union during the Cold War years. Surely now we can spend some of that on peace--to consolidate those gains.”