WASHINGTON REPORT WASHINGTON: BEST GUESSES FOR '87

THE LAST TWO YEARS of the Reagan administration begin under the clouds of the Iran arms scandal and the Republican loss of Senate control to the Democrats. Both developments are expected to have a continuing impact on how policy- makers here deal with both general economic questions such as the budget and trade deficits and with more sectoral issues. Here are our best guesses - and a few hedges - about the likely results:

* * * * ECONOMIC OUTLOOK: The economy could weaken alarmingly in early 1987, but should rebound to a modest full-year growth rate. Inflation will heat up some. Unemployment will improve just slightly. The trade deficit will turn around too slowly to boost the economy very much.

FEDERAL BUDGET: A battle royal looms as President Reagan for the first time faces a Congress fully controlled by the Democratic opposition. Both sides will push for spending cuts and for new revenues that would not be called tax hikes, but programs will be shaped along Democratic lines.

MONETARY POLICY: The tightrope gets tighter, with less room for the Federal Reserve to push interest rates lower as inflation rises. Some Fed easing will probably come early in the year, with perhaps moderate tightening later.

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TRADE LEGISLATION: Congress is likely to pass a sweeping trade bill tightening import laws, promoting exports and giving the president new negotiating authority - a bill that may be just barely acceptable to the White House.

DEVELOPING COUNTRIES' DEBT: Most of the developing countries are expected to muddle along again in 1987, improving their foreign debt positions only marginally at best.

THE U.S. DOLLAR: The dollar will stabilize against most major foreign currencies, as U.S. economic growth at least matches growth in Western Europe and Japan and the U.S. trade deficit recedes, however modestly.

EXPORT CREDITS: France, Japan and other industrial nations probably will agree, at U.S. urging, to diminish - if not stop - the practice of mixing foreign aid with supplier credits as a way to win export sales in developing nations.

FOREIGN AID: The administration will persuade Congress to approve more money for the World Bank and new funding for two World Bank affiliates - the International Development Association and the incipient Multilateral Investment Guarantee Agency. Negotiations for a capital increase for the Inter-American Development Bank will be concluded.

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MARITIME SUPPORT PROGRAMS: U.S.-flag shipping interests and their allies in Congress will again try - and most likely fail - to revamp subsidies for all ocean liner companies. The Reagan administration will again endeavor to cut back and eliminate other support programs, probably with mixed results.

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RAIL REGULATION: Changes in the Staggers Rail Act seem likely, given the strong support for legislation building in the House Energy and Commerce Committee. Quick House action would put the responsibility for the bill squarely on the Senate and industry observers believe the Senate may not have the courage to kill it. Some see the rail industry coming up with legislation aimed at solving many of the issues it has with captive shippers.

LABOR PROTECTION: There also appears to be a good chance of congressional action on legislation imposing conditions to protect employees affected by short-line sales. Such provisions might be linked to the Staggers Act legislation, producing a bill that could draw a veto.

RAILROAD RETIREMENT: This could prove to be the sleeper transportation issue of the year. Administration officials are counting on railroad retirement changes to help bring in additional budget revenue. The carriers fear that a significant hike in levies could cost them hundreds of millions of

dollars and practically wipe out earnings. Meanwhile, the fund's financial problems appear to be growing and an anticipated revenue shortfall is getting closer. Outcome: uncertain.

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HAZARDOUS SHIPMENTS: There will be a lot of hard work on legislation in this area during the new Congress; the question is whether the controversy surrounding nuclear waste shipments will create enough problems to jeopardize enactment of a bill.

TRUCKING DEREGULATION: Legislation in this area appears unlikely even if the trucking industry adopts a new stance favoring action.

HIGHWAY FUNDING: Look for an administration move to get a no-frills spending bill enacted early in the session and a House move to deal with all the issues of interest to the highway industry. The odds are that a more sweeping bill will be enacted but it may not come before funding problems arise in the states.

STATE TRUCK TAXES: The future of state highway user taxes on the trucking industry will be influenced strongly by this year's Supreme Court decision on a controversial Pennsylvania axle tax. If the truckers win their case and the tax is ruled unconstitutional, as some legal experts expect, at least six other states may have to rethink their truck tax policies.

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AVIATION DEVELOPMENT: There will be a big fight on reauthorizing programs for

airports and air traffic control and the more than $4 billion surplus in tax receipts specifically earmarked for them. Congress won't agree to the numerous proposals to end its direct control over the programs and tax revenues but may commit itself to higher spending.

AIR TRAFFIC CONTROLLERS: Renewed congressional efforts, to re-hire controllers fired in 1981 in an illegal strike, will fail again.

AIRLINE MERGERS: Congressional concern about the industry's consolidation, which will continue next year with one or two new big mergers, may yield a few proposals for re-regulation but no action.

AIRPORT LANDING RIGHTS: The controversy over such rights also will revive, but it may take critics of the present buy-sell rule virtually all year to

draft an alternative. No 1987 action.

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BANKING: There is a much better chance that the non-bank bank loophole, which allows creation of near banks, will be closed this year since the new Senate Banking Committee chairman, William Proxmire, D-Wis., favors this. But there is still no agreement among large and small bankers, mutual fund industry and insurers over what new powers should be extended to banks in the commercial arena. That is the issue that has tripped up banking legislation in the last two congresses.

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INSURANCE: A push by President Reagan could stimulate real debate and even passage of catastrophic health insurance, but only if the president is willing to compromise.

There will be numerous hearings on the insurance industry's antitrust exemption under the McCarran-Ferguson Act and its relationship to liability law problems and the inability of certain segments of society to obtain insurance. But action this year is unlikely.

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COAL IMPORTS: The National Coal Association's estimate that coal imports will amount to 1 million tons to 1.2 million tons in 1987 will prove too low. Imports will include a 30,000-ton shipment of Chinese coal.

ACID RAIN: Low-sulfur coal producers will push for adoption of an acid rain bill they consider acceptable. That will pit them against their best customers, electric utilities, who will oppose the legislation. Congress, citing expense and the need for more information, won't pass an acid rain control initiative in 1987.

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