President Reagan has rejected a $65 million commodity credit loan for financially troubled Romania over the objections of the State Department and the Department of Agriculture.
Well-placed administration officials say the president turned down the loan, which would have been used to buy corn and soybean meal, to prevent exposing the U.S. government to the kind of risks it now faces as a result of uncollected debts in Poland.
"If they can't pay their bills, let's not extend them credit," is the way one official characterized the president's attitude.
Reagan's decision to make good on Commodity Credit Corp. guarantees to private U.S. banks that hold unpaid Polish loans has become a major political embarrassment for the administration. Unpaid U.S. government loans and loan guarantees to Poland total more than $1.9 billion.
Conservative critics of the administration, including a number of prominent congressmen, have said that the United States is bailing out the Soviet Union with its policy of paying interest on the Polish loans. The president said at his news conference Thursday that it was necessary to do this "because default would mean great financial hardship for a great many people and a great many institutions here in the West."
Reagan also said that default "would simply throw Poland more dependent on the Soviet Union and we would rather have that not happen."
What Reagan did not say at the news conference was that he had acted the day before on the Romanian issue in an effort to prevent a Romanian version of the Polish loan situation. Private banking sources said last week that Romania already is in arrears to western creditors by about $1 billion and could fall further behind if sources of funds are not found quickly.
In White House meetings scheduled this week, Reagan is expected to focus on broader issues of East-West trade, including the U.S. position on the supply of high technology and oil and gas components for the Soviet-European gas pipeline.
Because of unresolved differences, especially between the State and Defense departments, over how to handle the Western European allies, a mission to Europe headed by Undersecretary of State James L. Buckley is being put off until next month, according to government sources.
In turning down the Romanian request, the president acted on information from the Treasury and the Office of Management and Budget which said that Romania probably would be unable to repay the loan. This would put the United States in a position similiar to that it is in in Poland, Reagan was told.
But the State Department, which values Romania's relative independence from Moscow on foreign policy issues, and Agriculture, which is pushing hard to dispose of surplus U.S. grain, urged approval of the loan.
Reagan said at his news conference that American farmers had been hard hit by the cost-price squeeze, and added, "We're doing everything we can to stimulate foreign markets for them."
The divided counsel given to Reagan on the Romanian loan reveals some of the conflicting pressures within the administration. Budget officials are anxious to avoid any commitment that has a potential negative impact upon the administration's out-of-balance budget. Agriculture is worried about the economic plight of farmers, and State is worried that a stern position by the government toward eastern European nations will push them closer to the Soviets.
But a U.S. official said that the stakes for the United States are not as high in Romania, which has one of the most rigid political and economic systems in Europe, as they are in Poland, where significant liberalization had occurred before martial law was imposed. As a result, said the official, there was less inclination to lean on the president to do something "that's bad economics because it's good politics."
Even so, the decision was described by a high official as "an indicator" of the president's thinking on any future such loan guarantees.