Unrealistic Use of Loans To Support Foreign Military Sales

Gao ID: ID-83-5 January 19, 1983

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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Joan M. McCabe Team: General Accounting Office: International Division Phone: (202) 275-5857


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