Military Sales' Cash Flow Financing

Pursuant to a congressional request, GAO reviewed the use of U.S. appropriated grant or loan monies for cash flow financing for foreign military sales to allied countries, focusing on: (1) why the United States provides cash flow financing to certain countries; (2) the policy implications of such financing; and (3) whether such financing commits the United States to future military assistance. GAO noted that: (1) the United States allows certain allied countries to cash flow finance the purchase of defense systems and services to demonstrate its strong political commitment to those countries; (2) the Defense Security Assistance Agency and the Department of State have decided that only Israel and Egypt will be able to use cash flow financing in the future; (3) Turkey, Portugal, and Greece have been able to use cash flow financing to purchase specific systems, but they are expected to pay off their cash flow balances by fiscal year 1996; (4) the Defense Finance and Accounting Service administers purchases using cash flow financing with standard foreign military sales financial controls; (5) cash flow financing does not necessarily commit Congress or the executive branch to continued military assistance; and (6) the countries that have used cash flow financing have met their obligations and in general continue to buy U.S. defense equipment and services.