Defense Firms Want Loan Guarantee for Sales Abroad : Arms: Critics say move would exacerbate worldwide weapons race. Proponents say it is needed to preserve jobs.

WASHINGTON —  Faced with shrinking military spending at home, the U.S. defense industry has begun pushing the federal government to set up a $5-billion loan guarantee program to finance weapons sales to friendly foreign nations.

Led by the ailing aerospace industry, a coalition of defense corporations this week was finishing up a detailed proposal on the loan program for the White House Office of Management and Budget.

The coalition also is shopping for a congressman to sponsor legislation next month to establish the loan fund. The measure would be attached to the $263-billion defense appropriation bill.

The initiative poses a predicament for an Administration eager to find ways to help the battered defense industry but vulnerable to accusations of fueling arms races and worsening strife overseas.

“The climate now is very mixed,” said Janne E. Nolan, a Brookings Institution arms control expert. “It’s up to President Clinton to decide whether it’s a jobs issue or a proliferation issue.”

The industry is trying to focus the issue on jobs. In a letter to Defense Secretary Les Aspin, the chief executives of Rockwell International, Lockheed Corp. and seven other companies said the loan program could provide employment for 200,000 workers.

“At a time when the defense industry is firing 100,000 people a year, this would keep the industrial base alive and some of those people employed,” said Joel Johnson, vice president of the Aerospace Industries Assn., the trade organization spearheading the effort.

Critics argue that the financing would speed the arms race and delay the U.S. defense industry’s conversion to civilian production.

“This is a cynical attempt to stretch out military production lines that the U.S. government is through with,” said Lora Lumpe, who monitors arms sales at the Federation of American Scientists.

The program would be modeled on the U.S. Export-Import Bank, which guarantees sales abroad of U.S. products. The loan guarantees make U.S. goods more attractive by providing lower interest rates for buyers. But the bank is prohibited from financing arms deals.

The new proposal would make loans available for defense sales to a wide range of U.S. allies. Johnson said a tentative list includes Greece, Turkey, Portugal, Spain, South American countries and such developing Asian nations as Thailand, Malaysia and Indonesia.

An attempt to set up a smaller program was defeated by Congress in 1991. But experts inside the industry and outside observers rate the chances of passage higher this year because of the deep economic troubles afflicting the defense community.

So far, the White House has not articulated a strong position on arms control, and non-proliferation experts fear that the issue will be obscured by economic factors.

“It will be easy for the proliferation concerns to be overwhelmed by more practical political considerations, such as people losing jobs and the industry hating your guts,” said one arms control expert who asked not to be named.

Arms control supporters fear that Clinton will follow the path of former President Jimmy Carter on the issue. After campaigning for restraint on arms sales abroad, Carter bowed to economic pressure and aggressive industry lobbying to allow large overseas sales.

In an effort to deflect concerns over a new spending program, the defense industry says only $65 million a year would have to be appropriated to support a $5-billion guarantee program. The $65 million would cover loan defaults.

The defense firms want the money to come from the $1.6 billion in conversion funds that Clinton has proposed as part of the defense budget. Those funds are to retrain defense workers, help communities and companies cope with lost jobs and develop new technologies.

California is the only government now guaranteeing defense sales abroad. The state’s Export Finance Office guarantees loans up to $588,000 for purchasers of state-manufactured products, including arms.