Unrealistic Use of Loans To Support Foreign Military Sales

ID-83-5: Published: Jan 19, 1983. Publicly Released: Jan 19, 1983.

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GAO reviewed the security assistance programs to determine whether these programs are tailored to the ability of recipient countries to pay for their military imports.

GAO found that, due to concerns over the size of the budget, the executive branch and Congress are keeping as much of the program off-budget as possible. On-budget loans can be made at flexible interest rates tailored to the countries' abilities to repay. However, the off-budget approach requires many countries to pay the same interest rate charged to the Treasury plus a fee to acquire the funds which many countries may not be able to afford. The Guaranty Reserve Fund, which is used to guarantee these off-budget loans, is undercapitalized in relation to the risks taken. The result might be that a future Congress will need to appropriate billions of dollars to fund a program authorized by a prior Congress. Furthermore, these loans delay rather than resolve the question of how to fund military imports for less developed countries.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: When we determine what steps the Congress has taken, we will provide updated information.

    Matter: Congress should: (1) place the entire foreign military sales program on-budget in the International Affairs account to reflect true budgetary costs; and (2) provide funds to the Guaranty Reserve Fund that establishes a level based on the nature and size of its current contingent liability covered by the Fund.

  2. Status: Closed - Implemented

    Comments: When we determine what steps the Congress has taken, we will provide updated information.

    Matter: Congress should: (1) approve a flexible security assistance financing program that recognizes the potential financial burden placed on the economies of developing countries by military imports; and (2) amend the Arms Export Control Act to allow for low-interest direct loans to have maturities up to 30 years for those countries facing short- and medium-term economic problems.

 

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