Because of strong opposition from the State Department, budget director David A. Stockman's controversial proposal to slash U.S. foreign aid expenditures drastically is being softened.
The decreases in President Reagan's forthcoming aid proposals will be much less than originally advocated by Stockman's Office of Management and Budget.
Informed sources said yesterday that the outlines of a compromise began to take shape Friday night at a meeting between Stockman and State Department officials. The discussions, initiated by Stockman in an effort to ward off a bitter and embarrasing controversy, came after a Cabinet-level meeting earlier Friday had postponed a decision on the OMB proposals until Tuesday.
Although the outcome won't be determined before Tuesday, when State is scheduled to come up with its counterproposals, the sources said it had been agreed in principle that the Reagan administration, despite its desire for bedgetary austerity, must respect rather than scuttle its international aid obligations.
A backing away from many of these commitments had been suggested in a memo prepared by the OMB staff last week. When details were leaked and made public in the press, there was an explosive reaction from foreign aid supporters in Congress and from principal aid-giving nations around the world, who bluntly accused the United States of welshing on its obligations.
The most complicated and sensitive part of the emerging compromise involves the question of whether the United States will meet it commitments for a $3.4 billion, three-year contribution to the International Development Association, which is managed by the World Bank and which makes low-interest development loans to the world's poorest countries. OMB had proposed cutting the pledge by 50 percent.
That was the feature of the OMB plan that drew the heaviest fire from other donor governments. They are known to have been virtually unanimous in informing Washington that such a move would mean the end of the IDA, because, under the terms of the IDA pledging agreement, the other donors would be released from their pledges.
Sources close to the OMB yesterday denied that Stockman had agreed that the United States should ask Congress to honor the IDA commitment within the three-year period. Instead, they said, he still is insisting on a stretch-out of the U.S. payment of up to six years.
However, other sources familiar with the situation predicted that the matter will be resolved through an elaborate maneuver. It essentially would see the Reagan administration honor its commitment be seeking to have Congress approve the originally agreed three-year period, but hold down the impact on U.S. budget outlays by stretching the payments to the IDA over a longer time.
According to the sources, Stockman, in the Friday night talks, backed away from several other aspects of the OMB plan, which called for cutting $2.6 billion from the $8 billion fiscal 1982 foreign aid proposal submitted to Congress by President Carter.
The compromise calls for the United States to pay its share of the newly doubled capital increase for the World Bank, an obligation involving much smaller budget outlays than the IDA contribution.
If it did not accept its new bank contribution obligation, the United States would deprive the World Bank of substantial lending potential and, in the view of most experts on the bank's workings, would lose its present dominant voting power in the bank decisions.
Stockman also gave up the OMB proposal to eliminate a $100 million contingency fund from appropriations for the Economic Support Fund, which is intended to promote stability in areas where the United States has special security interests. The State Department has insisted that the contingency fund is necessary to deal with unforseen situations. sources said that, instead of the drastic reductions porposed by OMB, bilateral assistance will be maintained, as one source put it, "at levels, which although diminished, will still be respectable." The precise amounts the Reagan administration will recommend to Congress for bilateral assistance remain to be worked out by OMB, the State Department and other affected agencies. t
At the same time, the compromise reaffirms the desire of top Reagan administration policymakers to redirect foreign aid along more conservative lines that will give bilateral aid priority over multilateral aid as a political tool to reward friends of the United States wherever possible.
That aim, enunciated with bluntly undiplomatic force in the OMB memo, has never been a source of dispute with Secretary of State Alexander M. Haig Jr. and his key State Department aides. They objected primarily to the size of the cuts proposed in the OMB memo on the grounds that they would shrink the potential of foreign aid drastically as a policy tool.
The sources credited what appears to be an unexpectedly quick resolution of the dispute to the leak of the OMB memorandum and the publicity given to the sharply negative response it evoked from America's prinicpal allies.
Although it seems certain that Stockman will achieve some reduction in Reagan's commitment to foreign aid outlays -- and that at a time when institutions serving the Third World feel that greater aid is necessary -- the sources conceded that the administration was not prepared for the depth of the worldwide reaction to the brusque way in which the OMB plan would have gone back on U.S. pledges and cut off aid to the poorest nations of Africa and Asia.
Some sources also said the OMB memo reflected a zealous approach among certain of Stockman's aides, who are influenced by the ideas of the rightist Heritage Foundation think bank and went further than the OMB director had intended.
In internal administration discussions, Stockman is understood to have argued that Reagan's promises of budget cuts must affect all federal programs and that the Carter foreign aid proposal of $8 billion -- up $2 billion from the fiscal 1981 proposal of $6 billion -- was considerably in excess of what an austerity-minded Congress would approve and could therefore be pared considerbly in its submission.
For that reason, Stockman is understood to feel that his call for big cuts in an "unrealistic" budget proposal have been portrayed unfairly in the press as potentially the biggest cutback of U.S. foreign aid activities ever proposed.
On the other side of the argument, Stockman's opponents note that previous presidents, while sometimes proposing aid increases that were considered inadequate by the program's supporters, did not call for cutting it below previously set levels.
The opponents also are known to have argued that it is one thing for Congress to cut aid appropriations over the objections of an adminstration. But, they added, if the administration takes the lead in advocating cutbacks, that sends a very different kind of signal to the rest of the world about the president's attitude toward foreign aid programs.
Finally, the opponents point out, the figure that really counts in comparing budgets for different fiscal years is what is known as the "current services" budget -- an adjusted figure that takes into account continuing commitments that have been made by not yet funded.
For fiscal 1981, the foreign aid current services figure is slightly over $6 billion. Since the figure has been increasing at the rate of roughly $1 billion a year, many observers expect that even if Congress voted a no-growth foreign aid figure for fiscal 1982, the current services budget would come in a $7 billion -- only $1 billion less than Carter had proposed.
Because the fact is well known to OMB, some sources suspect that Stockman's real purpose in calling for a $2.6 billion cut in the Carter proposal was a negotiating tactic designed to force the aid program's partisans to make concessions, and that his real aim is not to whittle the new budget authorization below the present fiscal '81 levels but to hold its growth to somewhere between $6 billion and $7 billion.