Foreign Aid Cuts Loom as U.S. Looks Homeward : Policy: Even ‘sacred cow’ accounts such as Israel and Egypt cannot remain immune much longer, lawmakers warn.

WASHINGTON —  When Israeli Foreign Minister Shimon Peres visited Washington earlier this month, one of the questions he was asked during an appearance before a Jewish-American group was whether Israel is ready to accept a significant cut in U.S. aid.

Peres seemed unprepared for the question, and the broad grin on his face reassembled itself into a dour frown before he answered. Israel, he said finally, has already taken a steep cut in U.S. aid, with inflation reducing the value of the $3 billion it receives annually by 30% since 1985. “Give me peace,” he added, “and I will give up foreign aid.”

While Israel may still be politically less vulnerable to foreign aid cuts than most other recipient nations this year, the concern implicit in both the question and the answer underscores the growing alarm that aid recipients and their supporters in Washington feel as the United States looks homeward in the aftermath of the Cold War, turning its attention from containing communism to coping with the budget deficit and a raft of other domestic problems.

Never popular even in the best of years and already dwindling, the U.S. foreign aid budget is going to come under unprecedented pressure for further large-scale cuts. Even such “sacred cow” accounts as Israel and Egypt cannot remain immune much longer, lawmakers warn.

“There are going to be cuts--and they are going to be just about everywhere,” said Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate Appropriations subcommittee on foreign aid.

The Clinton Administration is engaged in a critical review of the $14-billion U.S. foreign aid program with the aim of reforming the Agency for International Development, which administers most of the assistance.

But while that review is not expected to be completed until late April, a major debate on the nation’s foreign aid priorities and programs is already getting under way in Congress. And, with painful domestic spending cuts and tax increases on the horizon, the question is “not what kind of foreign aid, but whether foreign aid,” said former Rep. Matthew F. McHugh (D-N.Y.).

Even traditional supporters of foreign aid agree that radical change is inevitable.

“A top-to-bottom re-examination of our entire foreign aid program is essential. It cannot be delayed,” Leahy said in a recent Senate floor speech.

“The longer we put off reforming foreign aid, the less foreign aid we will have to reform,” a Senate Appropriations Committee staffer added even more bluntly.

No one, of course, expects foreign aid to be eliminated. To the contrary, the Administration has already indicated that it wants to increase assistance to Russia and other former Soviet states struggling to stabilize their infant democracies.

Nor, with the Middle East peace process in a fragile state of flux, is a serious challenge to aid for Egypt and Israel likely this year despite the fact that they together receive more than one-third of the entire U.S. foreign aid budget.

But Turkey and other recipients in Asia and Africa could be in line for further cuts, and even Israel and Egypt cannot count on such high levels of assistance in the years ahead, many lawmakers warn.

While they would like to let the Administration present its reform proposals first, a number of House and Senate Democrats are privately voicing impatience with the slowness of the State Department review, which is headed by Deputy Secretary of State Clifford Wharton. A State Department spokesman said Wharton is working on the problem, but congressional aides complain that--with so many senior State Department positions still unfilled--there is no one in the new Administration who seems to know what is going on.

The Administration “deserves time to develop a strategy for reform . . . but we cannot wait until April,” said Leahy, who, along with his appropriations counterpart in the House, Rep. David R. Obey (D-Wis.), has scheduled hearings on foreign aid reform over the next two months.

“We can’t wait much longer,” agreed Rep. Benjamin A. Gilman of New York, the ranking Republican on the House Foreign Affairs Committee. “We need funds to support stability in the former Soviet Union and for other critical areas like Bosnia, the Middle East and Africa . . . but it’s not going to be easy to resist demands for cutbacks.” For one thing, Gilman said, many of the 110 new members of Congress were elected on promises to reduce the deficit and eliminate wasteful spending.

Yet for all the agreement on the need for reform, there are widespread differences over how it should be accomplished.

Everyone agrees that the existing rationale for foreign aid, which remains essentially unchanged since the 1950s and is premised on the need to contain communism, has to be revised now that the Cold War has been won. Democrats and Republicans alike also agree that the program has become so overgrown with regulations, limitations and conflicting purposes that the bureaucracy that administers it is in virtual gridlock.

But the consensus falls apart when it comes to proposed changes. Should the Agency for International Development be overhauled, or scrapped altogether, with its functions taken over by the State Department? If containment is no longer the key to U.S. security interests, what is?

While these aims are not mutually exclusive, how many of them can the United States afford to promote without spreading its aid too thinly to be effective anywhere? And if the United States cannot do everything everywhere, where should it focus its efforts?

Several reform initiatives are already under way.

Sen. David L. Boren (D-Okla.), for instance, is promoting an aid-for-trade bill that would require recipient countries to spend their aid on U.S.-built projects, converting foreign assistance into export financing just as the Japanese and many European countries do.

The George Bush Administration strongly opposed the bill last year on the grounds that it would “severely restrict” the President’s ability to manage foreign policy. But Sen. Mitch McConnell of Kentucky, the ranking Republican on Leahy’s Appropriations subcommittee, says Republicans increasingly support the measure.

“There is a lot of interest in the Senate in tying our aid to the purchases of U.S. goods and services. . . . The further you move away from the argument that there is some economic benefit to the American people in foreign aid, the tougher it is to sell,” McConnell said.