The "horror stories" abound.

There's the one about the Agency for International Development mission director in Cairo who leased a furnished villa there for his official use at a cost to U.S. taxpayers of $37,800 a year.

And the AID mission director in Bogota who charged the American government $1,716.17 for silver tableware that he added to the government owned furnishings of his residence - after the United States decided to end its bilateral aid program to Colombia.

And the $120,095 in travel advances that AID employees had not accounted for in more than a year.

And the average salary of AID Foreign Service officers, which is $31,139 a year, $6,021 more than FSOs at the State Department make.

And the fact that two-thirds of AID's U.S. employees are in Washington, some of them with nothing to do, rather than overseas - a condition that led the agency's new administrator, John J. Gilligan, to lament that his bureaucracy is "overage, over rank, overpaid, and over here."

The horror stories, as AID officials call them, raise questions about lavish living and poor management of U.S. aid programs. They have led congressional conferees to recommend a $7 million cut in AID's $220 million operating budget request.

But they are only part of a larger issue that is now being addressed by the administration, Congress, and such influential think tanks as the Brookings Institution.

The issue is what direction this nation's foreign economic assistance should take. Should it put more stress on helping the poorest billion people in the world? What is the best way to help them? Should the United States beef up its contributions to international financial institutions like the World Bank which lend money to poor countries. Should the United States continue to give what some officials call "bag money" in the name of development funds to Israel and Egypt? Is U.S. bilateral, or nation-to-nation, aid still relevant in light of the increasing reliance by many developing nations on trade and private commercial bank lending to jog their economies? If it is relevant, is AID capable of administering it?

Some of these questions may well surface on Capitol Hill today when Gilligan briefs the House International Relations Committee on the status of foreign aid and when the full House votes on a $6.8 billion foreign aid bill.

Meantime within the administration, an inter-agency task force including AID, the State Department, Treasury and the Office of Management and Budget is completing a report to the President on the questions of whither aid and AID.

A Brookings study on the subject is due to be released this week. And after Congress quits for the year, the Senate Foreign Relations Committee staff plans to start rewriting the basic legislation governing foreign aid.

Some middle echelon AID officials say Congress spends much of its time nitpicking about their agency. The Cairo mission chief, whose villa rental is four times the average paid by AID mission directors, faces rampant inflation, these officials say. And the Bogota mission will continue to operate until 1980 even though the U.S. aid phaseout was announced in 1975.

But congressional critics say the excuses are just that. Sen. Daniel K. Inouye D-Hawaii) argued, "Inflation is rampant, but not that rampant." And Rep. Clarence D. Long (D-Md.) accused some AID officials overseas of being "overpaid stuffed shirts who use their high salaries to entertain the elites. They don't talk to the poor."

Gilligan acknowledged in a recent interview, "A lot of Lad practices have crept in. We don't have the fundamental management tools necessary to run an agency this size."

Because of Foreign Service and Civil Service rules on hiring and firing, "our personnel system is incapable of functioning," Gilligan said. "We can't recruit and deploy the kinds of people we need in overseas missions."

AID has gone through two reductions in force in the last eight years, and its staff, which numbered 16,000 at the height of the Vietnam war, now total 6,100. Older bureaucrats with seniority bumped younger staffers, and now, says Gilligan, the agency is choked with "program analysts and designers who keep re-analyzing projects" and does not have enough experts in health, agriculture, foreign languages and population planning.

The AID administrator had brought in auditors and management consultants cut paperwork by one-third, given overseas officials more responsibility, and said he hopes to cut the Washington staff by 300 to 500 and transfer about 250 overseas. He has also sent telegrams to foreign mission directors urging them to follow life-styles which reflect restraint and demonstrate sensitivity to the poverty of those we seek to help."

Gilligan seems to have impressed Capitol Hills critics, but Ted Van Dyk, who quit last month as AID's assistant administrator because he thought Gilligan was moving too slowly, predicts the AID chief will be co-opted by the bureaucracy. Van Dyk called the agency "a terminal case. We ought to kill it and start all over."

Over the last 30 years the government has spent more than $120 billion in economic aid to other countries, of which about $19 billion has been repaid.

Through the Marshall Plan, the United States helped rebuild the wartorn industrial nations of Western Europe and Japan. Through the Truman Doctrine and the mutual security program in the early 1950s, it helped shore up governments in countries such as Greece and Turkey that were threatened with Communist domination. Through Point Four, it started technical aid to developing countries.

During the most of the 1950s, Asia, primarily Taiwan and South Korea, received two-thirds of all U.S. economic aid, most of it feared to the United States' military objectives.

In the early 1960s, the United States encouraged its European allies to provide more aid to the developing world and it increased its own funding, giving both to international lending organizations and to a growing number of countries directly.

To coordinated the new effort, AID was established in 1961, taking over the functions of such predecessor agencies as the International Cooperation Administration and the Development Loan Fund. In those days the United States was spending about three quaters of 1 per ceet of its gross national product (the total economic output) on foreign economic aid.

With the growing U.S. involvement in Vietnam in the mid-to-late 1960s, American economic aid became even more tied to political and security considerations, and much of it was funneled into Southeast Asia to support the war effort.

As this nation sank in the Indochinese quicksand, public disenchantment with foreign aid sent U.S. spending into a continuing slide. The $5.3 billion appropriated in fiscal 1977, which has just ended, is slightly more than a quarter of 1 per cent of the GNP.

In 1973 Congress mandated a "new directions" policy in bilateral development aid. It acted after many members, including Sen. Frank Church (D-Idaho), complained that aid was proping up corrupt dictators and not helping the masses.

Focusing on the "poorest billion people" in the developing world, Congress ordered a shift from funding big highway, dam, and industrial projects to spending for smaller, moer direct food, health, farm and education programs.

The old policy, Congress found, had helped countries increase per capital income on the average, but oftern that meant only that the elites were benefiting and the poor were staying poor. The new policy was designed to help the very poor get a bigger slice of the economic pie.

As a result of the "new directions" policy, four-fifths of U.S. development aid now goes to countries where average per capital income is under $520 a year and half of it goes to countries with average income under $200.

But critics question whether the poorest-billion-people projects are more than Band-aids, whether they actually help people break out of poverty.

John W. Sewell of the Overseas Development Council, a private research organization here charges that AID's "bureaucratic reflex" to the new policy "has meant that unless a project puts food in mouths or injections in arms, it isn't done. Even farm-to-market roads are frowned upon," he said.

Ted Van Dyk says the policy is in danger of becoming little more than an "international welfare porgram." He urges support for larger projects like rural roads, irrigation canals and urban schools to promote a country's overall growth as well as higher income for the very poor.

But the prevailing opinion among foreign aid experts on Capitol Hill seems to be that the $1 billion bilateral aid program geared to the very poor is on the right track.

Sen. Church, chairman of the foreign economic policy subcommittee, says, however, that "even though it's improved, bilateral aid has only a marginal effect on changing people's lives because we spread it so thinly."

He and some key administration officials, including Gilligan, argue that the so-called IFIs, or international financial institutions, are better equipped than the United States to tell developing nations what drastic internal reforms they must take too improve their economies.

But resistance to IFIs is hardening on Capitol Hill, although Senate and House conferees have agreed to boost U.S. contributions from $1.14 billion to $1.9 billion doe fiscal 1978.

House conferees have insisted on amendments that would prevent direct or indirect U.S. funding to seven nations that are Communist or violators of human rights or both. Senate conferees have refused to accept the restriction which World Bank President Robert S. McNamara says his organization cannot legally accept. The fight is expected to continue this week when the House takes up the foreign aid bill.

Rep. C.W. (Bill) Young (R-Fla.), who sponsored an amendment barring U.S. aid to Vietnam, Laos, Cambodia, and Uganda, said he is skeptical of the IFIs "because we lost control of where the money goes. We can't get an adequate accounting. The World Bank gives us a slick report at the end of the year, but I invited myself to a meeting where the loans were being made and they wouldn't let me in."

The most popular component of foreign aid on Capitol Hill is the Security Supporting Assistance (SSA) program, for which conferees have agreed to spend $2.2 billion in the coming year, $500 million moore than last year.

Critics call it "bag money" to nations that are important to U.S. political and security interest, but it is firmly entrenched. Even Rep. Young, an opponent of many facets of foreign aid, supports it "as an extension of our own national defense."

If the aid bill is approved, $785 million of SSA loans and grants will go to Israel to shoe up its budget and $750 million will go to Egypt for such projects as grain storage, electric power, and Suez area development.

Some senators and representatives grumble that SSA money is usually not geared to the real development needs of the countries it supports and that some nations, like Egypt, cannot absorb the massive amount they get, but Sen. Church predicts the program will continue to grow. "If it contributes to a Middle East peace settlement, it's part of the price we have to pay," he said.

In a variety of unspectacular ways, U.S. assisstance has affected people around the world. AID-financed research has produced a milk substitute that has been shipped to countries in Asia, Africa, and Latin America, and in Niger it has developed new varieties of sorghum and millet. AID funds have provided relief to victims of 380 natural disasters like floods and earthquakes in the last 10 years. Itts current projects have increased the number of children going to school, lowered birth rates, and provided jobs to hundreds of thousands of people in construction and agricultural development.

For all the contrasting views on the value of America's aid program, not even its strongest critics suggest that the United States should simply abolish it.

The reasons are partly humanitarian - "You can't just ignore a billion people who don't eat and can't read," says a Treasury Department official. Also, the program has had some striking successes - several former aid recipients like Taiwan, South Korea, Venezuela and Colombia have become aid graduates.

Another major reason is that commercial banks, which have loaned enormous sums to developing countries, make few loans to the poorest nations. In 1975 commercial banks provided about $15 billion of the $27 billion in external capital flows to middle-income developing nations such as Mexico and Brazil but only $1.2 billion of the $6.7 billion that came from outside sources to such impoverished nations as India, Bangladesh, Chad, Pakistan and Upper Volta.

Commercial bank officials say they must impose more stringent terms than the international lending banks and that only governments and the IFIs can take on the high credit risk countries.

Gilligan argues that "lots of nations can't qualify for regular bank loans. They have to be helped."

To him, the question is "Whether we're going to play a strong role in building the world we want to see in the year 2000 or whether we're going to withdraw and play Marie Antoinette."

The question to AID critics is whether the agency is capable of directing a strong U.S. role. Congress seems to be waiting and watching.

Rep. Long, chairman of the Foreign Operations Subcommittee of the House Appropriations Committee, thinks "Gilligan is saying the right things." And Clement J. Zablocki (D-Wis.), chairman of the House International Relations Committee, adds, "It's a new administration. We have to give it a chance."