Big Military Contractors Go on the Defensive : Budget: Since when did conversion mean providing loan-guarantees for arms sales abroad? Since Pentagon spending was cut back.

How does the Raytheon Corp., maker of the Patriot missile, spell “defense conversion”?

A-R-M-S S-A-L-E.

In one of the more inventive lobbying campaigns waged this budget season, Raytheon and other top military contractors shopped a proposal to divert money slated for defense conversion to pay for $5 billion in loan guarantees to promote arms sales overseas. The CEOs of nine top defense contractors told Defense Secretary Les Aspin that the government-backed loan guarantees “would certainly be an appropriate part of any conversion” program.

The proposal to dip into defense-conversion coffers to underwrite arms sales is an attempt to compensate for the slow but steady reductions in the U.S. military budget. Worried that Bill Clinton might not embrace the pro-arms-sales policies of his predecessor, the defense industry, led by its lobbying arm, the Aerospace Industries Assn., has adjusted its tactics. That, according to a State Department official who oversees U.S. arms-export policy, explains the campaign to cloak loan guarantees under the guise of economic conversion.

“You can’t say we need to subsidize arms sales,” says the official. “You can’t say we need to give big bucks to big companies.” Instead, the defense industry adopted the “soft-landing” theory--”people are going to be downsizing no matter what,” so why not slow down the transition and ease the pain?

Such reasoning sounds disturbingly similar to that coming out of Moscow these days. For example, Foreign Minister Andrei V. Kozyrev has been pressing Washington not to block Russian arms sales on the ground that the revenues would be used for conversion, consumer goods and new machinery. But paying for defense conversion with arms-sales profits is like underwriting an addict’s rehab with cash generated from drug deals.

Then there’s the cost of diverting money from the already-meager defense-conversion budget. The money proposed for this year’s contribution to the loan-guarantee program would eat up funds from the $1.7 billion currently earmarked for defense conversion. Even if the guarantee program works as advertised and all the countries make good on their debts, the diverted money would not be available until the loans are fully paid. Of course, if a country welshes, or if the United States forgives the loans--as it did in 1991 with $7 billion in Egyptian debt--taxpayers would have to pick up the tab.

Finally, backers of the bill claim that the U.S. defense industry faces disadvantages compared with its foreign competition. In fact, with or without the loan guarantees, the United States already has the world’s largest weapons-subsidy program. It’s called foreign aid . About one-quarter of all such aid--$3.4 billion this fiscal year--goes to supplying weapons or military training. Ninety-five percent of it is in the form of grants to foreign governments generally restricted to purchases of U.S.-built weapons. Most of the rest subsidizes $855 million in low-interest loans to buy U.S. arms on easy credit. Either way, as Rep. Howard L. Berman (D-Ca.), an opponent of loan guarantees, says, “We have a military assistance program that dwarfs any other country’s foreign-export financing.”

Far from being disadvantaged, U.S. weapons producers are doing quite well. The United States has increased both its market share and volume of arms sales. In 1992, for example, a down year by recent standards, the United States had $13.6 billion in sales to the developing world--3 1/2 times the total of its closest competitor, France, and 136 times more than China, everyone’s arms-transfer bad guy. On the basis of these deals, the United States is moving to corner the global arms market, accounting for 57% of all sales to the developing world last year.

Still, the Aerospace Industries Assn. seeks to convert legislators to its defense-conversion cause, concentrating on the armed services committees. So far, no takers, although an amendment, offered by Rep. Tom H. Andrews (D-Me.), to prevent any diversion of defense-conversion funds was defeated in the House Armed Services Committee earlier last week. Andrews is considering reintroducing his measure on the House floor. If, as expected, the committees reject the proposal to poach the conversion budget, the industry is likely to continue lobbying for loan guarantees paid for with money from other accounts. Such a proposal was passed last week by the Senate Armed Services Committee, which approved a measure to provide $1 billion in guarantees from Pentagon research and development funds.

Whatever the fate of this proposal, the arms-sales-as-conversion program is a measure of the defense industry’s desperation in an era of U.S. military cutbacks. But as Deputy Defense Secretary William J. Perry, has said, “I do not think the industry should count on (arms sales as) being a salvation.” Weapons exports, despite the recent boom, won’t ever make up for the good old days when a pumped-up Soviet threat sustained $300 billion a year in military spending.