The West German government yesterday announced a $40 million grant to the German Marshall Fund of the United States that will enable the organization to continue operations "indefinitely," according to its president, former State Department official Frank E. Loy.

The fund is an independent American organization wholly financed by the Federal Republic of Germany as a memorial to the post-World War II Marshall Plan. Named for Gen. George C. Marshall, the plan provided $13.3 billion for the rebuilding of Europe.

Originally, the West German government provided a gift of 147 million deutsche marks in 15 annual installments, beginning in 1972 -- an amount equal to $54 million at varying exchange rates over the years.

The additional grant is for 100 million marks over a 10-year period beginning in 1987.

Loy explained that a portion of each year's installment will be saved and added to an endowment fund that now amounts to $45 million.

That will enable the organization to maintain its current annual budget of about $5.5 million more or less permanently, Loy said.

The fund carries out educational programs and related activities to promote a better understanding between the European countries and the United States through relatively small grants to scholars and institutions.

One exception is the large support given the Institute for International Economics in Washington, which has received $4 million from the German Marshall Fund during the past four years.

Loy said that substantial funds will be added to existing programs dealing with issues of concern to the United States and West Germany, and that "we will spend a little money on increasing our knowledge of the German Democratic Republic. East Germany is still a big unknown."

Loy became president of the fund in 1981, after serving in the State Department as director of the Bureau of Refugee Programs, and earlier as a deputy assistant secretary for economic affairs.

According to West German businessman and politician Walther Kiep, who announced the gift here on behalf of West German Chancellor Helmut Kohl, one major project to be carried out with the new money will be a 1987 conference in Berlin on the 40th anniversary of the Marshall Plan.

The conference, Kiep said, "will attempt to redress the scant knowledge of the younger generation about postwar European recovery and the emergence of the Atlantic community."