Security Assistance

Pursuant to a congressional request, GAO assessed the implications and associated costs of Foreign Military Sales (FMS) debt reform legislation that allowed countries to repay FMS loans by refinancing them in the private sector at lower interest rates.

GAO found that: (1) as of September 1988, $14.8 billion in outstanding FMS loans and overdue payments were eligible for refinancing; (2) as of May 1989, six countries had refinanced almost $7.5 billion; (3) an estimated 13 countries will repay about $9.7 billion during fiscal years 1988 through 1990, with costs to the U.S. government totalling $1.8 billion; (4) although the prepayment program would generate budgetary receipts, the forgone future principal and interest payments would offset them; (5) although all countries are eligible to participate, some may decide not to because of the program's 90-day arrearage restriction, they cannot afford the collateral, or their FMS debt is too small to incur the refinancing costs; (6) Congress appropriated up to $270 million to reduce interest rates to 10 percent on eligible loans for countries that did not choose to refinance; and (7) the administration had not requested the funds because they would have come from limited discretionary security assistance funds.