NEWS ANALYSIS : Coup Collapse Alters West’s Aid Politics : Economics: Some analysts say Mikhail Gorbachev was weakened when he returned empty-handed from July summit.

With the collapse of the hard-line coup in Moscow, the politics of Western aid to the Soviet Union have been fundamentally altered in the space of less than a week.

Before the failed putsch, the Bush Administration had refused to provide significant amounts of economic assistance to the Soviet Union, contending that a massive aid program would be wasted until Moscow embarks on a dramatic program of political and economic reform.

At the London economic summit in July, the United States and the world’s six other major industrial democracies effectively rebuffed President Mikhail S. Gorbachev’s requests for assistance to revive the moribund Soviet economy.

Now, some critics contend that Bush turned his back on Gorbachev when he needed Western help the most. By forcing Gorbachev to return from the London summit virtually empty-handed, he was weakened politically, providing an opening for the coup plotters, critics complain.

Economist John Kenneth Galbraith charged that Gorbachev was a “victim of a Washington policy” that allowed “democracy to become identified with economic hardship among the Soviet people.”

Graham Allison, director of a Harvard University center studying how the West should help the Soviets, complained that U.S. aid to the Soviet Union so far has amounted to “peanuts.”

As a result, pressures are mounting in the West to provide more, if for no other reason than to make a symbolic show of support for Gorbachev and last week’s hero, Russian Federation President Boris N. Yeltsin.

Many in Congress and the Administration now believe that a strong signal should be sent to make it clear to the Soviet people that the Western allies endorse their rapid march to democracy.

Congressional Democrats, led by House Majority Leader Richard A. Gephardt (D-Mo.), are already planning to introduce legislation calling for expanded Soviet aid when Congress returns from its summer recess.

And, while the White House has not yet publicly acknowledged it, senior Administration officials are convinced that they must provide more emergency food and humanitarian assistance. Although they remain opposed to any expansion of long-term economic aid until the Soviets embark on fundamental economic reforms, officials say that emergency food shipments would help head off growing criticism in Congress and in Europe of White House policies.

The White House, playing down a report in The Times that it was moving toward giving the Soviets emergency food assistance, said Thursday that such aid was only being discussed at the staff level. On Friday, State Department officials confirmed that the United States stands ready to provide food and other emergency aid to help get the Soviets through the winter, if Moscow requests it.

And on Sunday, Secretary of State James A. Baker III said on ABC that while the Soviet Union must “demonstrate a determination that economic reform move forward” before further Western aid is granted, he added: “That doesn’t mean that we’re going to let people starve.”

Secretary of Defense Dick Cheney echoed this view on NBC, saying that “I think if there are major humanitarian needs this winter in the Soviet Union, that we probably would be prepared to help.”

In fact, senior Administration officials acknowledged last week that the White House realizes it is under the gun to do more for Gorbachev and Yeltsin.

“I think the likelihood that you will see an acceleration of food and humanitarian assistance is very high,” said one senior Administration official. “The politics have changed.”

Some U.S. allies seem poised to move even more rapidly. On Friday, the British government called for a meeting in London this week of the major industrial democracies to discuss whether to alter their July position on aid to the Soviets. Meanwhile, France, Germany and Italy all made clear that they favor immediate aid increases after the failed coup.

“Now we have another window of opportunity for robust engagement by the West, to side with the forces of reform and democracy to ensure that they succeed,” said Harvard’s Allison. “That window closed for three days, and now it is open again. We must not lose that opportunity again.”

Yet the politics of aid are almost certain to run into the harsh economic realities of the Soviet Union.

The Soviet economy is collapsing, and many Western economists argue that giving the Soviets aid is like pouring money down a rat hole.

Some even assert that simple food and humanitarian assistance would represent an empty gesture, since the Soviet distribution system is a shambles. Most of the food would probably rot in warehouses, they say.

“The idea that we can get them through the winter is wrong,” declared Lawrence Kudlow, an economist at the New York securities firm of Bear Stearns & Co. and a former Reagan Administration economic policy-maker. “Their problem is not a lack of food but a lack of a distribution system. You can’t just give them food and expect it to get to the people.”

Administration officials, congressional leaders and economists also agree that longer-term investments in the Soviet Union will be useless until Gorbachev and Yeltsin decide to abandon their halfway measures and move straight to a market economy. Legal and political reforms are needed just as badly to clarify ownership of property and natural resources throughout the country.

Still, Western analysts and political leaders are hopeful that the failed coup and the sudden burst of democratic momentum in the Soviet Union will accelerate the pace of reform dramatically. With the right wing discredited, Gorbachev may now feel more freedom to move rapidly toward a market economy.

And even if he doesn’t feel that way, Yeltsin and other radical reformers, who have gained enormous stature in the last week, should now have the power to force Gorbachev to act.

But analysts here say that the Soviet Union’s economic problems are so massive and appear so intractable that even the Yeltsin camp may back away when it becomes clear that market reforms will come only at enormous political cost.

Indeed, leading Western economists who have met with reformist economic advisers to Gorbachev and Yeltsin say that even those advisers have basic misconceptions about market economics.

One Western economist recalled a meeting he had with Gorbachev and Yeltsin advisers in June to discuss a wide-ranging study of the Soviet economy, prepared jointly by the World Bank and the International Monetary Fund. Six months after the study had been released, those advisers still did not understand it, the economist said.

In fact, Western-style economics is still an alien science to the Soviets. A Federal Reserve Board official said, “They don’t think of economics the way we do.”

Legal and political questions about the role of foreign investment in the Soviet Union also must be quickly ironed out before more Western firms will open up shop. The Union Treaty between the central government and the republics, delayed by the coup attempt, would help, American firms say.

The treaty would turn over ownership of much of the country’s natural resources to the republics. That, in turn, would make it clear to Western oil and mining companies with whom they should negotiate to develop projects in the country. Chevron, for instance, is likely to agree to an extensive oil exploration and development project as soon as the Union Treaty is ratified.

But the Soviet economy needs much more. The nation’s currency, the ruble, is virtually worthless, store shelves are empty and widespread hunger is a real possibility this winter.

Many observers contend that Soviet citizens can rightly blame Gorbachev for messing up their system over the last few years. By trying to muddle through and compromise with halfway economic reforms, Gorbachev has crippled the central economy without breathing life into free markets, they say.

As a result, the unofficial currency in the streets of Moscow is the American dollar.

With the Soviet economy under such strain, some Western analysts question whether it is wise for the United States to keep the Soviets waiting for assistance and investments. Instead of tying aid to basic economic changes and reforms--which may still prove impossible to carry out--perhaps America should strike a different deal.

The United States could, for example, pledge assistance if the Soviet Union agrees to further cut defense spending, which still accounts for 25% of its gross national product.

“If we can trade aid for massive defense cuts, I think that would be worthwhile,” said Martin Feldstein, a Harvard economist who was President Reagan’s chief economic adviser in the early 1980s. “That would not just be open-ended aid; that is the kind of offer we ought to welcome. And I think the events of the last week may make that kind of deal possible.”