Summary

The National Defense Authorization Act for Fiscal Year 1996 directed the Defense Department (DOD) to establish a loan guarantee program for the sale or long-term lease of defense articles or services to eligible foreign governments. DOD is required to charge fees to cover administrative costs and potential U.S. liability in the event of default on loan payments. In November 1996, DOD established the Defense Export Loan Guarantee Program and designed it to operate at no cost to the government. This report determines the program's status. GAO reviews the level of program activity so far, the program's financial status, and other sources of funding available to borrowing countries. GAO also compares the characteristics of the Defense Export Loan Guarantee Program with those of other U.S. government export financing programs and examines issues related to the planned transfer in 1999 of program responsibilities within DOD.

GAO noted that: (1) since its implementation in 1996, the DELG Program has guaranteed one loan and has not generated enough revenue in fees to cover its operations; (2) the program's ability to attract future activity to generate sufficient revenue for continued operations is uncertain, since countries have other sources that offer financing at a lower cost; (3) further, the availability of loan guarantees is one of numerous factors that affect a country's decision to purchase U.S. defense exports; (4) unlike the DELG Program, other U.S. government-administered programs that offer direct loans or guarantees for defense-related items are designed to operate with U.S. government subsidies, which reduce financing costs to the purchasing countries; (5) decisions on the scope and nature of continued DELG operations pose a challenge to DOD; (6) a report on program operations and any recommended changes has not been submitted to Congress, as required by law; (7) in addition, the DELG Program has not been transferred within DOD as originally planned under the Defense Reform Initiative; and (8) uncertainty about future program responsibility may also be hampering day-to-day operations.