PERSPECTIVE ON FOREIGN AID : The Best Course Shuns Dependence : The benefit to Eastern Europe of joining world markets vastly exceeds any imaginable aid totals from the West.

In response to the revolutions of 1989, the U.S. government is about to embark on its latest initiative in “development assistance”: an aid program for the newly free countries of Central and Eastern Europe. While the project has already been authorized by Congress and the Administration, its specifics remain unclear. The size and duration of the initiative, for example, are undetermined. Even the sorts of policies the United States would finance have not been spelled out.

Such apparent hesitation and confusion speak to the fact that America’s foreign-aid effort is in disarray.

A stunningly candid report by the U.S. Agency for International Development, which administers most of America’s non-military aid, said as much last year. Reviewing the programs of the 1960s, ‘70s and ‘80s, the report concluded that “all too often, dependency has won out over development”; that “only a handful of (recipient governments) ever graduated from dependent status,” and that “radically reshaping future official assistance programs” must be “both an immediate concern and a major long-term national priority.”

The problem is that we have forgotten the lessons that used to guide our policies. In the 1950s and early ‘60s, U.S. aid flowed to such countries as Taiwan, Korea and Greece--places that subsequently enjoyed rapid and self-sustaining material advance.

The record of American development aid since its inception in 1949 suggests that some approaches are distinctly more likely to be beneficial to new recipients in Eastern Europe than are others. Here are a few suggestions:

--Announce an end-date for the program. The success of development aid should be signaled by its termination. Many recipient governments have acted as if they expected foreign taxpayers to finance their activities not only today but for generations to come. The Marshall Plan was an aid program for recovery, not development, but its administrators wisely announced its duration in advance. Similarly, when our aid officials informed South Korea in the early 1960s that development funds would soon be phased out, the news sparked an economic boom. Scrambling to replace Washington’s aid, Seoul embraced an export-oriented strategy.

--Recognize and build upon opportunities in the world economy. The greatest success of American “development” efforts is the postwar world market system, which we helped create. Trillions of dollars in goods and services are now traded internationally every year, and a vast pool of finance capital flows across national boundaries in search of reward. The economic future of the countries of Eastern Europe will depend in large part on how fully they involve themselves in these world markets; potential benefits vastly exceed any imaginable aid totals from the West.

But America must also keep its domestic markets open. It would be perverse to proffer handouts to these newly independent states while preventing our consumers from purchasing their products.

--Emphasize the importance of “business climate.” Unlike more recent programs, which have largely attempted to raise living standards through social-welfare services and other unsustainable transfers, America’s initial aid programs took the connection between “business climate” and development to be obvious.

A country’s business climate was said to be mainly conditioned by its government’s policies and practices. Rule of law, respect for individual rights, sound money, budget discipline and a liberal trade orientation were only some of the factors seen as conducive to investor confidence, economic activity and increased productivity. The U.S. Chamber of Commerce’s recent mission to Bulgaria, which brought American specialists in tax law, commercial codes and other business fundamentals to Sofia, is exactly the sort of technical-assistance package U.S. aid once excelled in providing.

--Steer clear of the international financial institutions. These agencies--such as the World Bank and the International Monetary Fund--have outlived the problems they were created to solve. “Helping Eastern Europe” would surely be a good new assignment. But what these organizations would contribute is by no means obvious. For more than a decade, the World Bank tried financing “policy reform” in poor countries but recently announced it was abandoning the effort: Promises of reform simply were not bankable. The IMF is now deeply involved in the Third World debt crisis, but may actually have deepened and extended that crisis through its own actions. As for the European Development Bank now being created, little can yet be said, but the appointment to its presidency of the adviser who masterminded France’s disastrous experiment with socialism in the early 1980s would hardly seem auspicious.

--Frame aid policies around basic American principles. For several decades, U.S. development programs have financed and even required practices in foreign countries that would be utterly unacceptable at home. In the 1980s, for example, our aid sponsored a “land reform” in El Salvador that tied peasants to the soil as virtual serfs. We also helped subsidize China’s coercive population-control campaign. We should not offer aid to others that we ourselves would reject.