Reformers Count on Western Aid

IMRE BOROS doesn't understand. He tells potential Western investors about the Hungarian government's dramatic actions to unshackle its state-directed economy, the lifting of restrictions on private entrepreneurs, and the privatization of large state-owned enterprises, with 100 percent shares offered to foreign capitalists. But instead of applauding, the Westerners react with horror.

``Western bankers tell me, `Watch out. It's too much. It's too fast,''' says Mr. Boros, vice president of the Hungarian Credit Bank. ``We're prepared; our ideas are ready.''

As Eastern Europe moves to shake off communism, its future may depend less on the Soviet Union than on the West. Soviet leader Mikhail Gorbachev has given a green light to reform in Poland and Hungary. But Poles and Hungarians say that without significant Western economic support, their fragile economies could snap, submerging their reform experiments under a wave of inflation, unemployment, and debt.

Solidarity leaders were not pleased to hear last month that President Bush would not consider significant increases in American aid after a noncommunist government was installed.

``We're telling you that we're scrapping the old Stalinist model in favor of democracy,'' Boros says. ``To succeed, we need your help.''

When both East and West European analysts try to outline the future for the Soviet European Empire, they foresee two main possibilities - what they call ``Latin Americanization'' or ``Finlandization.''

``Latin Americanization'' assumes that the region's economic weakness overwhelms its move toward democracy and creates a dangerous power vacuum. After a period of chaos, an authoritarian government would emerge with generals at the helm. Such a scenario closely describes what happened in Poland in 1980-1981.

``Finlandization'' assumes economic problems are overcome and a working democracy put into place. In return for guarantees of its security interests, the Soviet Union would let the East Europeans enjoy internal, political, social and economic freedoms. East Europe, in other words, would be treated like Finland, a prosperous, Western-style democracy which respects the foreign policy interests of its Soviet neighbor.

Hungary is ``Finlandization's'' best test case. Compared to Poland, it has the luxury of occupying territory of minor strategic importance to Moscow. Unlike Poland, its economy, while strained, remains credit-worthy. ``Finland is much closer to my idea of socialism than Hungary,'' says Janos Barabas, the Communist Party's newly appointed ideology chief. ``Finland,'' agrees Sandor Csoori, leader of the opposition Democratic Forum, ``is a small nation like us which has found the best way forward.''

Until now, Washington's conceptual framework for dealing with Eastern Europe has been ``differentiation,'' a concept dating from the 1960s. It consists of three propositions:

The US will not try to change the status quo by force.

The US will encourage evolutionary, not revolutionary, change by supporting those regimes that respect human rights and implement market mechanisms.

The US will support East-bloc countries that take foreign policy decisions independent of the Soviet Union.

Western leaders meeting last month in Paris agreed that aid should be directed to East Europe's reform leaders, Hungary and Poland. But policymakers dispute whether the Western powers have been too fearful of provoking the Soviet Union in its backyard.

This timidity weakened democratic forces in Poland in 1980. As Polish stores were emptied by panic buying, the West offered no debt relief or emergency aid. Work stoppages increased and put pressure on the independent trade union. Martial law was declared and Solidarity banned.

The union now has reappeared, and Poland's shops once again are empty. The US and the European Community have agreed to airlift emergency food supplies. But when President Bush visited Warsaw in July, he offered only $120 million in aid. West Germany turned down Polish requests for a large aid package.

Lech Walesa long has pleaded with Western leaders for bolder action. For him to implement painful economic austerity, the Solidarity leader argued that the West must give him breathing room by rescheduling Poland's $40 billion debt and offering billions in aid. With Solidarity now leading the Polish government, Walesa and his advisers hope the West will increase its limited help.

``We can deal either with our internal economic disequilibrium or our external economic disequilibrium,'' says Witold Trzeciakowski, Solidarity's chief economic adviser. ``We cannot deal with both of them together.''

Western banks poured billions into Eastern Europe in the 1970s. But the money did not produce more efficient or prosperous economies. Western businessmen see few opportunities to make money, especially at a moment of deep political uncertainty. Western politicians fear that aid will be wasted. Giving Poland billions of dollars would be like letting lose ``a child in a candy store,'' said White House Chief of Staff John Sununu during the Warsaw visit.

Many thoughtful East Europeans agree. They don't want cheap credits, which are likely to delay painful reform.

What reformers say they want is more difficult than just money. They seek an end to protectionism, a genuine opening to free trade and free movement, and a willingness to integrate East Europeans into Western Europe.

This involves sacrifice. The European Community recently agreed to scrap trade quotas with Hungary by 1995. But it kept the high protectionist barriers against the Hungarian's best potential exports: farm products. West European agricultural protectionism permitted no exception.

For years, the West lectured East European governments to let their people travel. Now Poland and Hungary have relaxed their travel rules, and even offered to abolish all visas with West European countries. People seeking exit permits no longer form long lines outside passport offices. Instead, lines form outside visa-stingy Western consulates.

When freedom-seeking East Germans began to pour across Hungary's porous border with Austria, it wasn't just East Berlin which protested. Bonn pleaded with the refugees to go home, and subsequently closed its mission in East Berlin and embassies in Hungary and Czechoslovakia to refugees. Hungarian officials were not amused. They suggested the East Germans might qualify for refugee status in their country.

When President Bush visited Budapest, the same officials did not ask for billions in aid. They were most interested in permanent trade access to the US market and investment loan guarantees. These measures would increase the modest flow of US businessmen setting up joint ventures or their own factories in Hungary.

``Loan guarantees are worth more to us than a billion dollars in aid,'' says Boros. ``We don't want charity, we just want a chance to do business.''

This chance to ``do business'' represents much more than a simple economic challenge. It highlights a political challenge, which could involve redrawing the European map. If the Soviet satellites are integrated into the Western economic system, the raison d'^etre for cold war alliances vanishes. Hungarian neutrality is bound to increase calls for West German neutrality - and German reunification.

When Solidarity leaders recently visited Bonn, reunification was at the center of their talks.

``If Germany was reunited,'' one of the Polish participants later recalled in private, ``We were told it would become easier for Germany to guarantee our Western borders and offer us economic help. West Germany already is the East bloc's largest Western trade partner, investor, and creditor. It is also the Western country best-equipped with the historical experience and excess financial capital to take advantage of an opening in the East.

An expanded, potentially reunified Germany presents both a great opportunity and a great risk to the superpowers. It would challenge American ties with West Europe, while facilitating the return of democratic values to the continent. For Moscow, such a union could either revive fears of an aggressive Germany, or represent a step toward the Soviet Union's own integration into Mr. Gorbachev's cherished ``common European house.''

``Since the two superpowers share global responsibility, Eastern Europe's unstable situation has to be of great interest to them,'' argues Kalman Kulcsar, Hungary's minister of justice. The superpowers ``will negotiate our future. It is inevitable.''