Bush Open to Discussing Major Western Aid to Soviets : Economic summit: The President ties his potential support to economic reforms and the end of aid to Cuba.

President Bush said Wednesday that he is willing to discuss new European proposals to provide massive Western aid to the Soviet Union but warned that he will not be ready to support such an effort until Moscow makes needed economic reforms and ends its aid to Cuba.

At a press conference at the Marshall Space Flight Center in Alabama, Bush said that he would be “perfectly prepared to talk to our allies on any subject” at the annual seven-nation economic summit in Houston on July 9 to 11 and that the aid issue “will probably be one of them.”

But he pointedly advised reporters to “discount the fact that we are planning” a bold new initiative.

“I’m not saying we’re not interested,” he added, “but I’m saying there are some formidable obstacles.”

Bush’s comments essentially reaffirmed the Administration’s previous position, which argues that truly massive aid for the Soviet Union would be a waste until Moscow adopts economic reforms needed to pave the way for a shift toward a market-oriented economy.

At the same time, however, the President’s willingness to discuss the issue in public marks a softening of his earlier hard-line opposition--and an apparent effort to avoid a clash with the West Germans and French, who have announced that they will raise the issue in Houston.

On orders from the White House, the National Security Council is leading an interagency review to hammer out recommendations on precisely how far Bush should go to accommodate the Europeans when the allies formally bring up their proposals in Houston.

The Soviets have been pressuring the allies for massive Western aid, contending that failure to provide it could lead to a collapse of the Soviet economy, which in turn could prompt new civil unrest that could topple Soviet President Mikhail S. Gorbachev.

Gorbachev has openly cited large-scale Western aid as a condition for Soviet acquiescence to membership by a new united Germany in the North Atlantic Treaty Organization--a plan that Bush regards as non-negotiable.

U.S. officials say that the European proposals would provide between $3 billion and $20 billion over the next two or three years and that there are wide variations on what form the aid should take.

“The positions are all over the map,” a senior Bush policy-maker said.

Secretary of State James A. Baker III is expected to explore the issue with U.S. allies during the monthly “two-plus-four” talks about German unification, which also include the Soviet Union, the two Germanys and Britain and France. He left Wednesday for East Berlin, where the meeting is scheduled to begin Friday.

The major question facing Bush and his policy-makers is the one the President raised on Wednesday--how to provide large-scale aid without giving Moscow more leeway to postpone needed economic reforms. The Soviets already have put off reform efforts several times.

Bush said Wednesday that there still is “an awful lot of reform that has to take place in the market, in the distribution systems” in the Soviet Union, including full-fledged recognition of private property, which had been abolished under the communist system.

He also pointed to “some political problems that we have discussed very frankly with Mr. Gorbachev--not the least of them (the) $5 billion a year (in Soviet aid that is now) going down to Cuba.” Officials said that Bush wants that aid ended before the West provides any major help to the Soviet Union.

Even if Bush were to agree to join a Western effort to prop up the Soviet economy, officials said that the Administration still would face a raft of legal and political problems in pushing such a package through Congress.

U.S. law currently prohibits any such aid unless Moscow formally enacts statutes easing regulations on Jewish emigration and pays off its financial debts to the United States, both on bonds and on obligations from the Lend-Lease Agreements signed during World War II.

Even if those hurdles could be overcome, the decision would be politically controversial. Only a few months ago, Bush sharply criticized House Majority Leader Richard A. Gephardt (D-Mo.) for advocating massive aid to the Soviet Union.

It isn’t immediately clear how soon the Administration would hammer out a new U.S. position. Top policy-makers clearly want to see the issue decided well before the Houston summit, but they concede that the final decision is certain to be made personally by Bush.

Officials here conceded that the White House “has been inundated” with appeals by the Western allies that the United States go along with a new massive aid package for the Soviets. “There would be a real brouhaha at the summit if we remained rigid,” one policy-maker said.

Times staff writer James Gerstenzang contributed to this story from Huntsville, Ala.