A nationwide economic slowdown is undermining the government's savings and loan cleanup, driving up the cost and threatening to paralyze the entire effort, according to congressional testimony and interviews with government and industry officials.

Deteriorating economic conditions are pushing the cost of the savings and loan cleanup toward what government officials had envisioned as a "worst-case scenario" of $500 billion, Comptroller General Charles Bowsher told Congress yesterday.

The economic slowdown is simultaneously driving more thrifts into insolvency and making it harder and harder to find buyers for failed thrifts or the vast inventory of unwanted real estate, Bowsher and other officials have told Congress.

Only six months ago, the General Accounting Office put a price tag of $325 billion on the S&L cleanup, including interest to be paid over the next decade. Now the GAO estimate is up to $370 billion and still rising and will jump by another $100 billion if the economy slips into a recession as many economists now expect. The money is needed to cover huge losses on the S&Ls' loans and operations when the thrifts' deposits are transferred to other institutions.

"Five-hundred billion is a good figure," said GAO chief Bowsher.

As the costs rise, government and industry officials also are discovering that the cleanup effort is becoming hamstrung by major legal and business setbacks, continuing disputes over financing, shifting strategies and bureaucratic red tape.

When Bush administration officials testified yesterday before a House Ways and Means oversight subcommittee, Rep. J.J. Pickle (D-Tex.) said bluntly, "The fact of the matter is you've sold very little of the property. It's not moving and something needs to be done."

But L. William Seidman, head of the Resolution Trust Corp. (RTC), the agency in charge of the cleanup, said last night, "I don't believe the effort is falling apart or in crisis. I do believe it's moving more slowly than I would like to see.

"The economy has been moving against us -- that clearly will slow things up," he said.

"I think what's happening is you are seeing all the problems of a $250 billion institution getting underway and doing it in the full glare of public observation. Underlying it all, I think you would find we are making progress."

The cleanup suffered an embarrassing reversal this week when the RTC was forced to cancel a worldwide satellite television auction of $300 million worth of real estate from failed thrifts.

"It's another bubble that has burst in the RTC's effort," said Rep. Bruce Vento (D-Minn.), who heads a congressional task force overseeing the cleanup. "It certainly is a drawback and a backward step that shows that the administration is not getting off the dime to solve this problem."

Seidman blamed cancellation of the sale on shortcomings of the auctioneer, but Rep. Charles Schumer (D-N.Y.) said, "It was pretty clear the RTC was going to cancel or be faced with a flop.

"What it shows is that they wasted the first year, and that is going to hurt us in a lot of ways. It's sad to say -- and I hope it's not true -- but this may be a preview of other things to come," Schumer said.

Less visible but potentially more damaging were six recent federal court decisions ruling against government regulators' handling of failed thrifts. Those decisions not only limit the government's options but also could force it to leave many weak thrifts in business and add billions to the cleanup cost.

Also driving up the bill to the taxpayers are newly discovered costs of the 96 S&L rescues arranged by regulators in 1988. The estimated tab for those transactions has jumped from $40 billion to $75 billion and could go even higher because of declining real estate prices.

The country's real estate woes are now affecting commercial banks, threatening to exhaust the fund protecting bank deposits and thus leave taxpayers to carry the cost of further bank failures.

The government had been counting on banks to buy or finance a lot of the assets of failed thrifts, but that hasn't happened because "they have a full plate of the very same assets themselves," said William Roelle, deputy director of the RTC.

The economic slowdown is forcing the RTC to search for new strategies to keep the cleanup moving. When President Bush signed the S&L cleanup bill in August 1989, the plan was to quickly end the thrift crisis by providing enough cash to shut down all the bankrupt S&Ls, pay off their depositors and sell off all their investments.

But that hasn't happened. The RTC has taken over 489 failed thrifts, but almost 600 other sick S&Ls remain in business suffering from what regulators say are all-but-fatal financial problems. The RTC has been able to dispose of only about 250 of the thrifts and is still holding $165 billion worth of assets from failed S&Ls.

In an abrupt about-face, Seidman last week suggested it might be better to let some insolvent S&Ls stay open after all. That proposal stunned members of Congress, who saw it as an admission that the RTC is so overwhelmed by the size of its problems that regulators are willing to delay action and run the risk of pushing the cost even higher.

The thrift and banking industries are both suffering from years of overbuilding in real estate. Unable to find tenants for their offices, apartments and stores, many developers have defaulted on their loans, dragging down the government-insured lenders who financed their projects.

As real estate markets continue to deteriorate, more banks and thrifts are failing, adding their portfolios of bad loans and foreclosed property to the already huge inventories of the RTC and the Federal Deposit Insurance Corp., the federal fund that insures bank deposits.

Even some healthy financial institutions are being hurt and are afraid to make new real estate loans while the market is still falling. As a result, there is little credit available for investors who might want to buy real estate, loans or other assets from the government.

Now the government is having to compete with banks and real estate developers who are trying to unload their distressed investments, said Karen Shaw, president of the Institute for Strategy Analysis, a Washington consulting firm. "Who would you rather deal with, the RTC with all its qualification forms and bureaucrats, or with a bank and its real estate developers who really need to sell some stuff quick?"

The only way the government is going to be able to dispose of its real estate will be to offer seller financing, Seidman told the House Ways and Means Committee yesterday. But the Bush administration has been reluctant to let the RTC offer financing to buyers, fearing that if they can't make their payments, the government will again be stuck with the property.

Congress has been swamped with complaints that RTC officials -- fearful of political criticism -- are so swathed in red tape and regulations that it is impossible to do business with them. Real estate executives have testified that it often takes months to get a response to purchase offers, that RTC officials are unwilling to negotiate on prices and would-be buyers are walking away in frustration after trying to deal with the government.

Describing RTC's bureaucratic ways to the Senate Banking Committee last week, Martin Rueter, an executive of the Century 21 real estate chain, complained that the government required a 33-page contract to sell a $47,000 house.

RTC officials point out that they have recently signed two contracts to turn management of nearly $3 billion worth of real estate over to private managers and are preparing to turn billions of dollars worth of additional real estate over to private managers.

Getting such a huge government venture off the ground inevitably takes time, they say. Agency officials are changing their procedures to streamline sales and have ambitious plans to sell assets in large packages to institutional investors later this year.