CIA Rates Eastern Europe’s Prospects : Economy: It looks for short-term pain and long-term gain. That’s more optimistic than a similar report on the Soviet Union last month.

Eastern Europe’s emerging democracies face daunting problems, including the likelihood of deep recession, in shifting to a free-market economic system, but their long-term prospects are good if they can surmount these difficulties, the CIA said Wednesday.

A similar report on the Soviet Union, prepared by the CIA and the Pentagon’s Defense Intelligence Agency in April, said the Soviet economy was so unstable that it could collapse in the face of any serious shock.

But the agency’s special report to Congress on Wednesday spoke of optimistic prospects for East European countries over the long run and praised governments such as Poland’s for embarking on “unprecedented” reforms, even though they are likely to prove painful in the short term.

It warned, however, that even countries that undertake needed restructuring face years of slow growth and high unemployment that could spawn serious social disruption and a severe political backlash that could set back reform efforts.

Despite all the near-term pessimism, the CIA report was decidedly more optimistic than the one issued on the Soviet economy. It said that the response to reform efforts in Poland show that “an entrepreneurial spirit survives--there are . . . risk-takers” left.

Nevertheless, the document cautioned that “the realities of the economic situation facing the region are daunting,” and “performance may be poorest in those countries pushing reform the hardest”--at least until the harsh economic medicine has time to take effect.

The agency also expressed optimism about the likely impact of the impending reunification of West Germany and East Germany, saying that it would “help jump-start” East Germany’s economic recovery and could boost incomes there by 5% a year.

And it predicted that, with the Soviet presence now diminished, former East Bloc countries will begin cutting defense spending sharply, providing a kind of “East European peace dividend” that ought to free up needed resources to help finance economic reforms.

Wednesday’s report is expected to bolster calls in Congress for added aid to Eastern Europe, although that was not necessarily its intent.

Sen. Jeff Bingaman (D-N.M.), chairman of the panel’s subcommittee on national security, said the CIA’s findings show that many East European countries “are in for a period of recession and economic crises.

“I hope our own long-term policy will help provide stability and the necessary investments to work through these problems,” Bingaman said.

The White House has been urging caution in providing such help to make sure that the new governments undertake the proper reforms. But the lawmakers have consistently voted more money for Eastern Europe than the Administration has requested.

The 45-page report compiled for Congress’ Joint Economic Committee said that despite “real progress” in moving toward a free-market economic system, most countries in the region lag behind in carrying out planned reforms.

It said Western governments can play a major role in getting the region on its feet but that much of the help will have to come from private investment. Most lending from commercial banks already has dried up.

And it predicted that the key to stability in the region will lie in how much hardship East European voters are willing to tolerate as they move toward a more productive economies. That “remains largely untested, even in Poland,” the document said.