Security Assistance: State and DOD Need to Assess How the Foreign
Military Financing Program for Egypt Achieves U.S. Foreign Policy
and Security Goals (11-APR-06, GAO-06-437).			 
                                                                 
Since 1979, Egypt has received about $60 billion in military and 
economic assistance with about $34 billion in the form of foreign
military financing (FMF) grants that enable Egypt to purchase	 
U.S.-manufactured military goods and services. In this report,	 
GAO (1) describes the types and amounts of FMF assistance	 
provided to Egypt; (2) assesses the financing arrangements used  
to provide FMF assistance to Egypt; and (3) evaluates how the	 
U.S. assesses the program's contribution to U.S. foreign policy  
and security goals.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-437 					        
    ACCNO:   A51479						        
  TITLE:     Security Assistance: State and DOD Need to Assess How the
Foreign Military Financing Program for Egypt Achieves U.S.	 
Foreign Policy and Security Goals				 
     DATE:   04/11/2006 
  SUBJECT:   Federal aid to foreign countries			 
	     Foreign aid programs				 
	     Foreign economic assistance			 
	     Foreign governments				 
	     Foreign military assistance			 
	     Foreign military sales				 
	     Foreign military sales policies			 
	     Foreign policies					 
	     Interoperability					 
	     Program evaluation 				 
	     Risk assessment					 
	     Strategic planning 				 
	     Egypt						 

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GAO-06-437

     

     * Report to the Committee on International Relations, House of
       Representatives
          * April 2006
     * SECURITY ASSISTANCE
          * State and DOD Need to Assess How the Foreign Military Financing
            Program for Egypt Achieves U.S. Foreign Policy and Security Goals
     * Contents
          * Results in Brief
          * Background
          * The United States Has Provided $1.3 Billion in Military
            Assistance to Egypt Annually to Purchase Defense Articles and
            Services
          * Cash Flow Financing Flexibility Allows Egypt to Pay for Defense
            Goods over Multiple Years
               * Cash Flow Financing Allows for Flexibility
               * In the Past, DSCA Limited the Number of New Commitments to
                 Less than the Appropriated Amounts, Allowing Funds to
                 Accumulate
               * Cash Flow Financing Allows for Significant Commitments that
                 Anticipate Future Appropriations
          * Officials Assert that FMF Assistance to Egypt Supports U.S.
            Goals, but State and DOD Do Not Evaluate the Program's
            Contributions to Key Goals
               * Officials and Experts Cite Examples of Egypt's Support for
                 U.S. Goals
               * State and DOD Do Not Evaluate How FMF Assistance to Egypt
                 Achieves U.S. Goals
          * Conclusion
          * Recommendations for Executive Action
          * Agency Comments and our Evaluation
     * Objectives, Scope, and Methodology
     * Letter of Request and Letter of Offer and Acceptance Process
     * Agency and Organizational Roles and Responsibilities
     * Example of an Evaluation Framework
     * Comments from the Department of State
     * Comments from the Department of Defense
     * GAO Contact and Staff Acknowledgments
     * PDF6-Ordering Information.pdf
          * Order by Mail or Phone

Report to the Committee on International Relations, House of
Representatives

April 2006

SECURITY ASSISTANCE

State and DOD Need to Assess How the Foreign Military Financing Program
for Egypt Achieves U.S. Foreign Policy and Security Goals

Contents

Table

Figures

April 11, 2006Letter

The Honorable Henry J. Hyde Chairman The Honorable Tom Lantos Ranking
Minority Member Committee on International Relations House of
Representatives

After signing the Camp David Peace Accords, Egypt emerged as the second
largest recipient of U.S. military aid in the world. Since 1979, Egypt has
received about $60 billion in military and economic assistance overall
with about $34 billion in the form of foreign military financing (FMF)
grants and loans that enable Egypt to purchase U.S.-manufactured military
goods and services. To fund this program, approximately $1.3 billion has
been appropriated annually and disbursed through a cash flow financing
arrangement that allows Egypt to spread the payments over several years.
Specifically, the United States uses FMF funds set aside for Egypt to
purchase military equipment, services, and training from U.S. contractors
on Egypt's behalf. These defense articles and services are to modernize
Egypt's armed forces and enhance Egypt's military interoperability with
the United States. According to Department of State (State) and Department
of Defense (DOD) officials, FMF funds also contribute to the U.S. goal of
maintaining regional stability and supporting Egypt as a partner in the
Middle East. Recently, congressional committees have sought to alter the
balance of economic and military assistance provided to Egypt and to
review the results of the assistance.

At your request, we reviewed selected aspects of the FMF program for Egypt
including the composition and funding of the program and the U.S.
government's assessment of its contributions. Specifically, we (1)
describe the types and amounts of FMF assistance provided to Egypt, (2)
assess the financing arrangements used to provide FMF assistance to Egypt,
and (3) evaluate how the United States assesses FMF assistance to Egypt
and its contribution to the advancement of U.S. foreign policy and
security goals.

To meet these objectives, we reviewed documentation and interviewed
officials from State, DOD, and the Defense Security Cooperation Agency
(DSCA.) We traveled to Cairo, Egypt, to meet with Egyptian officials at
the Ministry of Defense and U.S. officials at the U.S. Embassy and at the
Office of Military Cooperation (OMC). We also interviewed officials at
U.S. Central Command (CENTCOM) in Tampa, Florida, to discuss their roles
and responsibilities in the FMF program for Egypt. In addition, we
interviewed senior Egyptian officials in Washington, D.C., and several
political and military experts from academic and policy institutions in
Washington, D.C. We examined DOD data collected from 1999 to 2005 to
determine the composition of foreign military financing assistance
provided to Egypt. This report examines FMF for Egypt and does not assess
economic assistance to Egypt. We performed our work from June 2005 through
March 2006 in accordance with generally accepted government auditing
standards. A detailed description of our scope and methodology is included
in appendix I of this report.

Results in Brief

Since 1979, Egypt received more than $60 billion in military and economic
assistance from the United States and is currently among the largest
recipients of U.S. assistance worldwide, along with Israel, Afghanistan
and Iraq. In fiscal year 2005, Egypt received nearly $1.3 billion in FMF
grants, which comprises about 80 percent of Egypt's military procurement
budget and more than 25 percent of the total amount of FMF assistance
provided worldwide. Over the life of the program, Egypt has acquired 36
Apache helicopters, 220 F-16 aircraft, and 880 M1A1 tanks-among other
items-as well as the training and maintenance to support these systems.
According to DOD, the FMF program has helped Egypt replace its Soviet-era
equipment with modern weaponry and equipment. In the past 6 years, almost
$8 billion has been provided in the form of FMF grants that enable Egypt
to acquire U.S.-manufactured military goods and services.

The United States has provided Egypt with FMF assistance through a
statutory cash flow financing arrangement that gives Egypt the flexibility
to plan for and acquire defense goods and services that can be paid for
over time, similar to installment payments. The arrangement allows for
flexibility in the management of payments and significant commitments that
will need to be paid for in the future. As of 2005, Israel and Egypt are
the only countries permitted to use cash flow financing. According to DSCA
officials, from 1986 to 1998, DSCA managed the cash flow financing program
by limiting new commitments, and by 1998, the Egyptian program accumulated
large undisbursed balances1  of about $2 billion. DSCA and Egyptian
military officials then began planning to eliminate these balances by
2007. Because the flexibility of cash flow financing permits Egypt to pay
for its purchases over time, some purchases are not due for full payment
until 2011. Egypt currently has letters of offer and acceptance2 (LOA)
agreements for U.S. defense articles and services that are worth about $2
billion more than available FMF appropriations to date. Egypt is
financially liable to the U.S. government under the LOAs. However, the
U.S. government awards the contracts that procure the defense articles and
services to be delivered to Egypt and is liable for the payments due on
those contracts.3 DSCA officials stated that, if there were a reduction in
anticipated appropriations, the United States would first look to Egypt to
provide funding consistent with its promise to pay under the LOAs; however
if Egyptian funding were not forthcoming, the U.S. government would have
to continue to meet its contractual obligations and make payments as they
become due. DSCA officials stated that a reduction in funding would
require reducing the scope of existing contracts, among other things. This
may affect the achievement of FMF program goals in Egypt and some aspects
of U.S. relations with Egypt.

Although officials and several experts assert that the FMF program to
Egypt supports U.S. foreign policy and security goals, State and DOD do
not assess how the program specifically contributes to these goals. U.S.
and Egyptian officials cited examples of Egypt's support for U.S.
interests, such as maintaining Egyptian-Israeli peace and providing access
to the Suez Canal and Egyptian airspace. However, DOD has not determined
how it will measure progress in achieving key goals such as
interoperability and modernizing Egypt's military. For example, CENTCOM,
the responsible military command, measures modernization as the ratio of
U.S. to Soviet-era equipment in Egypt's inventory and does not include
other potentially relevant factors, such as readiness or military
capability. Achieving  interoperability with Egypt is complicated by both
the lack of a common definition of interoperability and limitations on
some types of equipment transfers. Although it may be difficult to measure
how FMF assistance to Egypt achieves strategic goals such as maintaining
peace, operational goals such as modernization and interoperability lend
themselves to measurement. Given the longevity and magnitude of the FMF
assistance to Egypt, assessing the degree to which the program meets its
goals would provide objective and useful performance information for
executive decision makers and overseers. Legislation such as the
Government Performance and Results Act (GPRA)4 and administration
initiatives such as the Office of Management and Budget Performance
Assessment Rating Tool (PART) establish the expectation that federal
programs will be evaluated to provide such important information.5

To help Congress assess the balance of economic and military assistance to
Egypt, we recommend that the Secretaries of State and Defense conduct (1)
an assessment of the impact of potential shifts in future appropriations
on the Egypt FMF program and (2) periodic program-level evaluations of the
program. The latter would require the United States to define specific
objectives for the goals and identify appropriate indicators to
demonstrate progress toward achieving those objectives. Specifically, we
recommend that the agencies define the current and desired levels of
modernization and interoperability with Egypt, including the establishment
of benchmarks and targets for these and other goals.

DOD concurred with our recommendations but stated that we should direct
the recommendations primarily to the Secretary of State. However, DOD and
State are joint partners in the FMF program for Egypt-State sets the broad
goals for the program while DOD works closely with Egypt's military to
implement the program. Therefore, the recommendations are appropriately
addressed to both State and DOD. State did not indicate whether it
concurred with our recommendations. In regard to our first recommendation,
State emphasized that steps to mitigate risks are already in place, such
as maintaining reserves to pay costs associated with terminating
contracts. However, contract termination reserves are last-resort measures
that do not represent a comprehensive assessment for reducing risk
associated with possible fluctuations in Egypt's FMF resources. A risk
assessment should include other measures such as reducing the scope of
existing contracts, stopping new orders, or selling undelivered defense
goods.

On our second recommendation, State noted that it would work with DOD to
better define measures for assessing Egypt's modernization goals, but
stated that defining a level of interoperability would be speculative.
However, improving Egypt's ability to operate with the U.S. and coalition
partners has been a critical, yet unmeasured goal of the program. At a
minimum, DOD and State can begin to measure Egyptian forces' capabilities
to operate with allied countries in military exercises or peacekeeping
operations. DOD and State provided technical comments that we incorporated
as appropriate. Comments on a draft of this report are provided in
appendixes V and VI.

Background

Egypt is currently among the largest recipients of U.S. foreign
assistance, along with Israel, Afghanistan, and Iraq. Since 1979, Egypt
has received an annual average of more than $2 billion in economic and
military aid. Egypt has generally received about $1.3 billion each year in
foreign military financing assistance in the form of grants and loans.
From 1982 to 1988, the United States forgave Egypt's FMF debt to the
United States and began providing military assistance in 1989 solely in
the form of grants with no repayment requirement.6

State and DOD planning documents describe FMF as one of several U.S.
security assistance programs7 which are a subset of U.S. security
cooperation efforts designed to build relationships that support specified
U.S. government interests. These interests include building friendly
nations' capabilities for self-defense and coalition operations,
strengthening military support for containing transnational threats,
protecting democratically elected governments, and fostering closer
military ties between U.S. and recipient nations.8  According to State,
the objectives of the FMF program worldwide include:

o assisting friendly foreign militaries in procuring U.S. defense articles
and services for their countries' self defense and other security needs;

o promoting coalition efforts in regional conflicts and the global war on
terrorism;

o improving capabilities of friendly foreign militaries to assist in
international crisis response operations;

o contributing to the professionalism of military forces;

o enhancing rationalization, standardization, and interoperability of
friendly foreign military forces;

o maintaining support for democratically elected governments; and

o supporting the U.S. industrial base by promoting the export of U.S.
defense-related goods and services.

Generally, FMF provides financial assistance in the form of credits or
guarantees to U.S. allies to purchase military equipment, services, and
training from the United States. Recipient countries can use the
assistance to purchase items from the U.S. military departments through
the Foreign Military Sales (FMS) process or directly from private U.S.
companies through direct commercial sales. State is responsible for the
continuous supervision and general direction of security assistance
programs, including FMF, in coordination with DOD. DSCA leads the
day-to-day program implementation for each FMF recipient country in
coordination with other DOD entities at the unified combatant commands9
and in the recipient countries. CENTCOM's responsibilities include
developing and implementing security cooperation plans for Egypt and other
countries in the Middle East, as well as coordinating with other
government entities on major Egyptian equipment requests. (See appendix II
for a description of the FMS process for purchasing FMF-funded cases and
appendix III for a description of the roles and responsibilities of the
entities involved in the program.)

Members of Congress have periodically sought to alter the balance of
economic and military assistance to Egypt. In 1998, the United States and
Egypt agreed to a 10-year assistance phase-down in conjunction with a
similar package for Israel. The package for Egypt reduced economic
assistance by $40 million each year but did not increase FMF assistance to
Egypt. U.S. economic assistance to Israel was reduced by $120 million each
year, and the amount of U.S. military assistance was increased by $60
million per year. In 2004 and 2005, amendments to the Consolidated
Appropriations bill10 for fiscal year 2005 and the Foreign Relations
Authorization bill11  for fiscal years 2006 and 2007 proposed converting
some military assistance to economic assistance to Egypt. The 2004
amendment was not adopted and did not become law. Furthermore, as of March
2006, the 2005 amendment has not been enacted. Additionally, a conference
report attached to the fiscal year 2006 Foreign Operations Appropriations
bill requires State to report to Congress on the balance between economic
and military assistance provided to Egypt, including whether maintaining
the current level of military assistance in relation to economic
assistance is appropriate in light of the political and economic
conditions in Egypt and in the region.12 Although this requirement was not
stipulated in law, it conveys congressional intent to have this
information provided to the Congress.

Over the past decade, Congress and the executive branch laid out a
statutory and managerial framework that provides the foundation for
strengthening government performance and accountability, with GPRA as its
centerpiece.13 GPRA is designed to inform congressional and executive
decision making by providing objective information on the relative
effectiveness and efficiency of federal programs and spending. A key
purpose of the act is to create closer and clearer links between the
process of allocating resources and the results expected to be achieved
with those resources. Program evaluations are objective studies that
answer questions about program performance and results, and explore ways
to improve them. In 2002, OMB implemented the Performance Assessment
Rating Tool (PART) method of assessing federal programs. PART assesses
federal programs in four areas: purpose and design, strategic planning,
management, and results and accountability. Another assessment tool, which
we have discussed in previous reports, is a logic model.14 This tool can
be used to describe a program's components and desired results, while
explaining the strategy by which the program is expected to achieve its
goals. A logic model is a representation of the relationship between the
various components of a program, typically including at a minimum, inputs,
activities, outputs and outcomes. By specifying the program's theory of
what is expected at each step, a logic model can help evaluators define
measures of the program's progress toward its ultimate goals. (See
appendix IV for details on the logic model.)

The United States Has Provided $1.3 Billion in Military Assistance to
Egypt Annually to Purchase Defense Articles and Services

Since 1979, Egypt has received about $34 billion in FMF assistance which
the United States has generally appropriated in annual amounts of
approximately $1.3 billion. In fiscal year 2005, Egypt received nearly
$1.3 billion in FMF grants, more than 25 percent of the total amount of
FMF assistance provided worldwide. FMF assistance to Egypt accounts for 80
percent of Egypt's military procurement budget and has served to replace
some of Egypt's Soviet-supplied equipment with modern U.S. equipment.
Egyptian officials stated that 52 percent of their military inventory is
U.S. equipment as of August 2005.

Over the life of the FMF program, Egypt has purchased 36 Apache
helicopters, 220 F-16 aircraft, 880 M1A1 tanks, and the accompanying
training and maintenance to support these systems, among other items (see
fig. 1). According to U.S. and Egyptian officials, the Egyptian military
is better equipped to defend its territory and participate in operations
in the region. For example, the Egyptian military has participated in
peacekeeping missions in East Timor, Bosnia, and Somalia. In addition, the
Egyptian military participates with the United States in Operation Bright
Star, a biannual military exercise involving forces from other coalition
countries, including Germany, Jordan, Kuwait, and the United Kingdom. The
purpose of the exercise is to conduct field training to enhance military
cooperation among U.S. and coalition partners and strengthen relationships
between the United States and Egypt, as well as other participating
partners.

Figure 1: Key FMF-Financed Systems Purchased by Egypt Include F-16
Aircraft, Apache Helicopters, and M1A1 Tanks

From 1999 to 2005, the United States provided a total of about $7.8
billion to Egypt in FMF funds. Egypt spent almost half of its FMF funds
from 1999 to 2005 (about $3.8 billion) on major equipment such as
aircraft, missiles, ships, and vehicles (see fig. 2). For example, Egypt
spent 8 percent of its FMF funds on missiles, including 822
ground-launched Stinger missiles, 459 air-launched Hellfire missiles, and
33 sea-launched Harpoon missiles. Egypt also spent 14 percent on aircraft,
including 3 cargo airplanes; 10 percent on communications and support
equipment, including 42 radar systems and 8 switchboards; and 9 percent on
supplies and supply operations, including 1,452 masks to protect against
chemical and biological agents.

Figure 2: FMF Purchases for Egypt Total $7.8 billion (1999-2005)

Note: Numbers may not add due to rounding.

Egypt spent the remaining amount of its FMF funds-about $2.5 billion-on
maintenance, weapons and ammunition, and other requirements. DSCA adheres
to a total package approach when working with Egypt to procure items
through the FMF program, which ensures that the costs of support articles
and services for new equipment are included in the total price of the
item. In addition to the equipment, support items include training,
technical assistance, initial support, and follow-on support. Egyptian
officials stated that approximately one-third of their FMF funds are
dedicated to follow-on support; one-third to upgrade U.S.-supplied
equipment; and nearly one-third to new procurements.

Cash Flow Financing Flexibility Allows Egypt to Pay for Defense Goods over
Multiple Years

The United States permits Egypt to finance its military purchases using a
statutory cash flow financing arrangement that allows Egypt to make
purchases in one year and pay for them over succeeding years using grants
made from future FMF appropriations. The arrangement allows the United
States to enter into contracts in advance of-and in excess of-current FMF
appropriations for Egypt. Specifically, Egypt is not required to pay the
full amount of the LOA15 up front. Cash flow financing allows Egypt to pay
only the amount that signed LOAs require in a given year for specified
defense articles and services. The cash flow financing arrangement
benefits Egypt in that it can receive more defense goods and services than
it can under other financing arrangements. However, the program
accumulated undisbursed funds because the agency refrained from making as
many new commitments for goods and services as the annual appropriation
would have allowed, according to DSCA officials. The cash flow financing
arrangement allows for significant commitments to be made based on
anticipated appropriations.

Cash Flow Financing Allows for Flexibility

Unlike other countries that receive FMF assistance, Egypt and Israel are
currently the only countries that may receive defense goods worth more
than the annual FMF appropriation and pay for them over multiple years.
Cash flow financing enables Egypt to purchase more defense goods and
services than under other financing arrangements and to better plan its
military purchases over a number of years. For example, Egypt may begin
the process of purchasing an F-16 in one year and make installment
payments for the item over the life of the contract. Traditional financing
options for FMF programs permit countries to make purchases equal to the
amount of the particular appropriation in any given year or save
appropriations over multiple years. For example, a country using
traditional financing would have to plan its purchases by saving its FMF
funds over a period of years to accumulate sufficient funds to make the
full payment for the item. All other countries that receive FMF
assistance, except Israel and Egypt, are required to make their FMF
purchases in this manner.

In the Past, DSCA Limited the Number of New Commitments to Less than the
Appropriated Amounts, Allowing Funds to Accumulate

By 1998, more than $2 billion in undisbursed funds accumulated in Egypt's
FMF account because DSCA did not have a high enough level of commitments
to require disbursements in an amount equal to Egypt's entire annual FMF
appropriation. DSCA officials stated that previous FMF program managers
did not have adequate tools to track Egypt's FMF current commitments
against future FMF disbursement requirements. In August 1998, DSCA
established a system to project estimated commitments and payments by
fiscal year to obtain better control over the cash flow financing process.

DSCA developed and is now implementing a plan to disburse the accumulated
funds by fiscal year 2007. According to DSCA, OMB officials, and
congressional staff, in 1998, members of Congress and OMB became concerned
about the large balance in Egypt's FMF account and consulted with DSCA to
eliminate it.16 As a result, DSCA coordinated with OMB and subsequently
developed and implemented a plan in 2002, to disburse $300 million of the
undisbursed balances every year, in addition to the amounts appropriated
annually for Egypt's FMF program, until the undisbursed balances are
eliminated in 2007 (see fig. 3).  17

Figure 3: DSCA Plan to Disburse Egypt's Accumulated FMF Funds

According to DSCA officials, because tracking mechanisms were not in place
before 1998, program managers did not adequately track FMF commitments
against disbursement requirements and available appropriations. As a
result, DSCA's commitments for Egypt's FMF program were held at a low
enough level such that disbursements were less than the yearly
appropriations. This ensured sufficient funds were available to cover
future payments to contractors, according to DSCA.

DSCA developed three databases to track Egypt's FMF expenditures that,
according to DOD officials, address the undisbursed balance problem.
First, one database tracks the amount of FMF funds required for each
project for which an LOA was signed and the amount of funds needed in each
year to make the annual payments. Second, another tracking database
determines the length of time between the U.S. military's receipt of a
signed request to undertake a project for Egypt and its receipt of a
signed LOA to implement the project. This database also tracks the total
amount of funds committed to LOAs in each fiscal year. Finally, DSCA and
the Egyptian Ministry of Defense maintain a spreadsheet known as the Five
Year Defense Plan that lists the items Egypt plans to buy in the next 5
years, their expected prices, the year in which Egypt plans to purchase
each item, and the total amount of money available each year for
purchases. When an LOA is signed for an item listed in the Five Year
Defense plan, it is entered into the database and the funds needed to
purchase it are subtracted from the total amount of funds available.

Cash Flow Financing Allows for Significant Commitments that Anticipate
Future Appropriations

Cash flow financing also permits Egypt to order defense articles and
services that may be paid for with future appropriations or country funds.
As of March 22, 2006, the value of LOAs anticipating future funding
totaled approximately $2 billion, some of which are not due for full
payment until 2011. Due to the nature of cash flow financing, this number
can vary daily because contracts are signed, completed, or modified daily.
For example, from 1997 to 2005, the dollar value of these commitments at
the end of each fiscal year has varied from $1.3 billion to $3.6 billion,
whereas the average amount was $2.6 billion (see fig. 4). These
commitments are expected to be paid for with future appropriations. If
future appropriations are not available, Egypt will be responsible under
the LOA to pay these commitments with other sources.

DSCA officials stated that, if there were a change in the anticipated
appropriations, the United States would seek funding from Egypt to satisfy
the LOAs. If Egypt is unable to pay for the LOAs with its own funds, the
U.S. government would be liable for the payments due on the underlying
contracts executed on Egypt's behalf. To manage payment if expected
funding is reduced, DSCA officials stated that DOD would consider a range
of steps including reducing the scope of the existing contracts, and
stopping new orders, among other things. Additionally, defense articles
and services that have not been delivered would not be provided to Egypt,
if payment had not been received. As a result, DOD also may use FMF funds
held in reserve to pay companies' costs associated with closing down their

production lines and terminating the contracts.18  However, DSCA officials
stated that contract termination would be considered as a last resort.

Absent the availability of U.S. funds to pay the entire balance of
existing contracts, important implications for the achievement of the
program goals and U.S. relations with Egypt may arise. For example, if the
United States had to terminate multiple contracts on Egypt's behalf
because of a reduction in FMF program funding and Egypt's inability to
provide funding, the U.S. ability to achieve FMF goals such as military
modernization would be affected. In addition, U.S. and Egyptian officials
stated that a shift in funding may affect some elements of the
U.S.-Egyptian relationship.

Figure 4: Value of Egypt's Future FMF Commitments at the End of Each
Fiscal Year

State and DOD have not conducted an assessment to identify the impacts of
a potential reduction in FMF funding below the levels that are planned to
be requested. According to applicable internal control standards for the
federal government, an organization should identify risks-such as a
reduction in funding-and decide upon the internal control activities
required to mitigate those risks and achieve efficient and effective
operations, reliable financial reporting, and compliance with laws and
regulations.19  Management should then plan a course of action for
mitigating risks, developing mechanisms to anticipate, identify, and react
to change.

Officials Assert that FMF Assistance to Egypt Supports U.S. Goals, but
State and DOD Do Not Evaluate the Program's Contributions to Key Goals

U.S. officials and several experts we consulted assert that FMF assistance
to Egypt has supported U.S. strategic goals such as regional stability,
the war on terrorism, and Egyptian-Israeli peace. Furthermore, U.S. and
Egyptian officials state that FMF has promoted a modern Egyptian military
by replacing 52 percent of its aging Soviet-era military equipment with
U.S. equipment, and improved U.S.-Egyptian interoperability through joint
military exercises. U.S. officials also stated that the U.S.-Egyptian
relationship resulted in expedited access through the Suez Canal and the
right to fly over Egyptian territory. Although DOD and State can describe
the qualitative benefits the United States receives from Egypt, the
departments have conducted no systematic, outcome-based assessment of how
the FMF program furthers U.S. goals. GPRA and PART establish the
expectation that federal programs determine whether they are meeting
agency and program goals-annual and long-term-and how performance can be
improved to achieve better results.

Officials and Experts Cite Examples of Egypt's Support for U.S. Goals

Officials and several experts assert that Egypt supports the U.S. goals of
the FMF program, which are found in State's annual Mission Performance
Plan for Egypt and its Congressional Budget Justification. Specific goals
include (1) modernizing and training Egypt's military; (2) facilitating
Egypt's participation as a coalition partner; (3) providing force
protection to the U.S. military in the region; and (4) helping guarantee
U.S. access to the Suez Canal and overflight routes. Another key goal of
the program is to enhance Egypt's interoperability with U.S. forces. DOD
officials stated that broader security cooperation and assistance goals
found in DOD's regional Theater Security Cooperation Plan also apply to
Egypt's FMF program, which we found to be consistent with State's goals
for the program.

Egyptian and U.S. officials cited several examples of Egypt's support for
U.S. goals. For example, Egypt:

o deployed about 800 military personnel to the Darfur region of the Sudan
in 2004;

o trained 250 Iraqi police and 25 Iraqi diplomats in 2004;

o deployed a military hospital and medical staff to Bagram Air Base in
Afghanistan from 2003 to 2005, where nearly 100,000 patients received
treatment;

o provided over-flight permission to 36,553 U.S. military aircraft through
Egyptian airspace from 2001 to 2005; and

o granted expedited transit of 861 U.S. naval ships through the Suez Canal
during the same period and provided all security support for those ship
transits.

State and DOD Do Not Evaluate How FMF Assistance to Egypt Achieves U.S.
Goals

State and DOD have not systematically evaluated how the FMF program
specifically contributes to achieving U.S. goals, particularly
modernization and interoperability. DOD currently conducts assessments of
security assistance activities in the region and regularly reviews
selected FMF-funded purchases at the country level. However, these
assessments do not provide information on specific FMF goals for Egypt or
progress made in achieving them.

DOD rates the collective effectiveness of a mix of programs on a regional
basis,20 including FMF, International Military Education and Training,
military-to-military contacts, and others. At the country level, DOD and
Egyptian officials regularly review the status of selected FMF-funded
purchases through financial management, program management, and
in-progress reviews. In addition, a Military Coordination Committee,
comprised of senior DOD and Egyptian military officials, meets annually to
discuss specific FMF purchases and types of equipment that have been or
may be procured. These efforts reflect DOD's attention to assessing broad
activities and certain financial and management aspects of FMF to Egypt,
but they do not provide a comprehensive assessment of how FMF contributes
to achieving U.S. goals.

We have reported that, although it can be difficult to isolate one
program's effect from another's or to assess a program's impact or
benefit, such assessments can help decision makers make more informed
choices when faced with limited resources and competing priorities.21
While some U.S. foreign policy and security goals, such as regional
stability or maintaining a strong U.S.-Egyptian relationship, may be
difficult to measure quantitatively, key FMF program goals-such as
interoperability and modernization-better lend themselves to measurement.

o DOD has not defined the degree of interoperability that it seeks to
achieve with the Egyptian military, nor has it determined how to measure
progress towards this goal. According to DOD doctrine,22 interoperability
is the ability of communications and other systems, units, or forces to
provide services to each other so that forces can operate effectively
together and information can be exchanged directly and satisfactorily. The
doctrine also states that the degree of interoperability should be defined
in specific cases.

Achieving  interoperability in Egypt is complicated by both the lack of a
common definition of interoperability and  limitations on some types of
sensitive equipment transfers. CENTCOM officials also stated that they
would prefer to operate with Egyptian forces according to the
interoperability standard used by the United States. They noted, however,
that the Egyptian military's definition of interoperability is limited to
participation in joint exercises, such as Operation Bright Star.
Additionally, Egypt and the U.S. use interim short-term solutions to
minimize limitations with respect to interoperability. For example, U.S.
officials stated they have established temporary communications
installations on certain equipment and have flown alongside Egyptian
C-130s to facilitate Egypt's participation in a joint exercise. Egypt
lacks specific equipment that limits its interoperability with U.S.
forces, but DOD has not formally assessed this limitation and its
implications on interoperability.

According to DOD policy,23 the desired level of interoperability cannot be
ascertained within a general statement of policy but is dependent on
factors unique to certain areas-such as compatible doctrine, tactics,
techniques, and procedures. U.S. CENTCOM officials acknowledged that
measuring interoperability in Egypt would vary greatly depending on the
operation conducted, the type and size of systems used, and the timing of
events. State officials acknowledged that it is possible to measure levels
of interoperability through specific capabilities demonstrated by Egyptian
forces participating in specific operations. For example, it would be
possible to measure the capabilities of Egyptian forces participating in
peacekeeping operations.

o DOD has similarly not defined how it will determine the extent to which
FMF assistance contributes to the modernization of Egypt's armed forces.
Currently, the Egyptian benchmark is based on a percentage of
U.S.-versus-Soviet equipment in Egypt's inventory, as reported by the
Egyptian military. According to Egyptian military officials, 52 percent of
its current military inventory is U.S. equipment. By 2020, Egypt's goal is
to increase this amount to 66 percent. DOD officials stated that they
believe Egypt's ratio of U.S.-to-Soviet equipment is accurate but
acknowledged that they do not maintain their own data to support the
statistics.

Nonetheless, other factors may be useful indicators to measure progress
toward modernization, such as the technical sophistication of Egypt's
units, weapons systems, and equipment to provide humanitarian assistance;
the readiness of Egyptian troops to deploy to a peacekeeping mission; or
the degree to which Egypt's troops are capable of maintaining a desired
level of operational activity during Operation Bright Star. Developing
these and other indicators would help DOD measure the degree of
modernization and, in turn, be better positioned to determine whether
Egypt's goals are reasonable.

While measuring goals in these areas presents some difficulties,
legislation and administration initiatives have recognized the need to do
so. GPRA emphasized the importance of evaluating federal programs. Program
evaluations help policy makers address whether program activities
contributed to their stated goals and can help improve programs and target
resources more effectively.

In addition, OMB recently implemented PART to assess and improve program
performance so that federal agencies can achieve better results. A PART
review is intended to assess aspects of the program in order to form
conclusions about program benefits by looking at the program's purpose and
design, strategic planning, management, and results-that is, whether the
program is meeting its annual and long-term goals. To date, OMB has not
conducted a review of the FMF program in the Middle East region.

Conclusion

For the past 27 years, the United States has provided Egypt with more than
$34 billion in FMF assistance to support U.S. strategic goals in the
Middle East. Most of the FMF assistance has been in the form of cash
grants that Egypt has used to purchase U.S. military goods and services.
Like Israel, and unlike all other recipients of U.S. FMF assistance, Egypt
can use the prospects of future congressional appropriations to contract
for defense goods and services that it wants to procure in a given year
through the FMF program. Until 1998, DSCA limited the number of new
commitments to less than the annual appropriation thereby allowing more
than $2 billion in undisbursed funds to accumulate. If the plan to
eliminate the undisbursed funds for the Egypt FMF program is realized,
these funds will be depleted by the end of fiscal year 2007. As Congress
debates the appropriate mix between military and economic assistance to
Egypt, the inherent risks of such flexible financing warrant careful
attention and assessment by State and DOD.

Similarly, both State and DOD could do a better job assessing and
documenting the achievement of goals as a result of the $34 billion in
past U.S. FMF assistance and the $1.3 billion in annual appropriations
planned to be requested. Periodic program assessments that are documented
and based on established benchmarks and targets for goals would help
Congress and key decision makers make informed decisions. We agree that
expedited transit in the Suez Canal; support for humanitarian efforts in
Darfur, Sudan, and elsewhere; and continuing offers to train Iraqi
security forces are important benefits that the United States derives from
its strategic relationship with Egypt. However, without a common
definition of interoperability for systems, units, or forces, it is
difficult to measure the extent of current and desired levels of
interoperability, nor is it clear how the Egyptian military has been or
could be transformed into the modern, interoperable force articulated in
the U.S. goals for the Egypt FMF program.

Recommendations for Executive Action

Given the longevity of the FMF program, its relatively high appropriation
levels, the strategic importance of Egypt in the Middle East, and
congressional interest in assessing the balance between economic and
military assistance provided to Egypt, we recommend that the Secretaries
of State and Defense take the following two actions:

o conduct an assessment of the impact of potential shifts in future
appropriations on the Egypt FMF program. This would include identifying
risks, planning a course of action for mitigating those risks, and
developing mechanisms to anticipate, identify, and react to change; and

o conduct periodic program-level evaluations of the FMF program to Egypt.
The United States should define specific objectives for the goals, and
identify appropriate indicators that would demonstrate progress toward
achieving those objectives. Specifically, we recommend that the agencies
define the current and desired levels of modernization and
interoperability the United States would like to achieve. This should
include establishing benchmarks and targets for these and other goals.

Agency Comments and our Evaluation

We provided a draft of this report to the Secretaries of Defense and State
for their review and comment. DOD and State provided written responses
that are reprinted in appendixes V and VI. Both departments also provided
us with technical comments which we incorporated in the report as
appropriate.

In commenting on our draft report, DOD concurred with our recommendations
but stated that we should direct the recommendations primarily to the
Secretary of State. DOD and State are joint partners in the FMF program
for Egypt-State sets the broad goals for the program while DOD works
closely with Egypt's military to implement the program. Therefore, the
recommendations are appropriately addressed to both departments.

State did not indicate whether it concurred with our recommendations. With
regard to our first recommendation, State emphasized that steps to
mitigate risks are already in place, such as maintaining reserves to pay
costs associated with terminating FMF contracts. However, contract
termination reserves are last-resort measures that do not represent a
comprehensive assessment for reducing risk associated with possible
fluctuations in the resources of the FMF program for Egypt. As we specify
in the report, a risk assessment should include other measures such as
reducing the scope of existing contracts, stopping new orders, or selling
undelivered defense goods. An assessment that identifies the risks,
including a plan to mitigate and anticipate these risks, would be
appropriate and consistent with federal government internal control
standards.

On our second recommendation, State noted that it will work with DOD to
better define measures for assessing Egypt's modernization goals but
stated that defining a level of interoperability would be speculative.
Improving Egypt's ability to operate with the U.S. and coalition partners
has been a critical, yet unmeasured goal of the program. At a minimum, DOD
and State can begin to measure Egyptian forces' capabilities to operate
with allied countries in military exercises or peacekeeping operations.
Evaluating the degree to which the program meets its goals would be
important information for congressional oversight, particularly as
Congress assesses the balance between economic and military assistance to
Egypt, as well as the impact on U.S. foreign policy interests.

State commented that our report found that cash flow financing caused the
accumulation of undisbursed balances in the FMF program for Egypt. DOD
made the same comment in their technical comments. We modified the
language in our report to clarify that the flexibilities of cash flow
financing as managed by DSCA in the past allowed for the accumulation of
large undisbursed balances.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the report date. At that time, we will send copies of this report to the
appropriate congressional committees, and to the Secretaries of Defense
and State and other interested parties. We will also make copies available
to others upon request. In additon, the report will be available at no
charge on the GAO Web site, http://www.gao.gov .

If you or your staff have questions about this report, please contact me
at (202) 512-8979 or [email protected] . Contact points for our offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix VII.

Joseph A. Christoff Director, International Affairs and Trade

Objectives, Scope, and MethodologyAppendix I

To describe the types and amounts of Foreign Military Financing (FMF)
assistance to Egypt, we examined government and private sector documents,
databases, and reports; we also interviewed U.S. government officials.
Specifically, we interviewed U.S. Department of Defense (DOD), and Defense
Security Cooperation Agency (DSCA) officials. We examined DSCA data from
the Defense Security Assistance Management System (DSAMS) database for the
period 1999 to 2005. We sorted and categorized this data by type of
procurement, year, military service, and cost to determine the composition
of purchases made by funds provided under the Egypt FMF program. The broad
categories of equipment and services were then examined for specific
content and type of equipment, training, support, or service. In addition,
we conducted multiple interviews with database administrators and
information technology specialists to assess the reliability of the data
in this system. We determined that the DSAMS database is reliable for the
purposes of this report. We also interviewed officials and reviewed
documentation from the U.S. Office of Military Cooperation in Cairo (OMC),
along with U.S. Embassy officials, to better understand the nature of the
program and the types of equipment and services procured through this
program. In addition, we interviewed Egyptian military officials in Cairo
and Ministry of Foreign Affairs officials at the Egyptian embassy in
Washington, D.C.

To assess the financing arrangements used to provide FMF assistance to
Egypt, and determine how undisbursed balances accumulated in the Egypt FMF
program accounts, we examined data from DSCA's Credit System Database and
interviewed officials from the DSCA Middle East and South Asia Division
and Comptroller's Office, as well as the Defense Finance and Accounting
Service. To identify the amounts of accumulated undisbursed balances, we
examined fiscal data by annual appropriation, total amount of accumulated
undisbursed balances, and amount of funds that had been disbursed by
fiscal year. We analyzed this data by fiscal year and interviewed the
database administrator and information technology specialists responsible
for this database. We determined that the Credit System Database is
reliable for the purposes of this report. To assess the manner in which
the undisbursed balances were being eliminated, we also examined three
DSCA databases used to manage the financing arrangement for the Egypt FMF
program: (1) a cash-flow tracking database that monitors letters of offer
and acceptance (LOA) and the amount of funds needed in each fiscal year,
(2) a fiscal year data base that monitors the time needed to execute a
procurement request, and (3) Egypt's Five Year Defense Plan. We
interviewed the custodians of these databases in DSCA's Middle East and
South Asia Division to develop an understanding of how they are used to
manage the cash flow financing arrangement and the program more generally.
We also met with the Office of Management and Budget (OMB) to gain an
understanding of the plan to eliminate the accumulated undisbursed
balances. We did not examine or assess U.S. economic assistance to Egypt.

To evaluate how the United States assesses FMF assistance to Egypt and its
contribution to the advancement of U.S. foreign policy and security goals,
we examined multiple U.S. and Egyptian government documents, and
interviewed U.S. and Egyptian government officials and foreign policy
specialists. Specifically, we obtained and analyzed the State Department's
mission and bureau performance plans to understand U.S. foreign policy and
security goals and priorities, and how the executive branch evaluates
those goals. Similarly, we obtained DOD theater and country security
cooperation plans and compared their goals and priorities to understand
how DOD would measure results against them. We then examined U.S. Central
Command's (CENTCOM) evaluation tools to understand what metrics it used to
evaluate program results. In addition to U.S. and Egyptian government
officials, we spoke with foreign policy experts from the Center for
Strategic and International Studies, Georgetown University, the Council on
Foreign Relations, the Heritage Foundation, the U.S. Institute for Peace,
the Middle East Institute, the National Defense University, the Carnegie
Endowment for International Peace and the Brookings Institute. To assess
DOD's evaluations of security assistance goals, we reviewed various
assessments and identified key components that are inherent in all of
these assessments. We also researched other potential models that may
assist in program evaluation. We interviewed officials from State and DOD
in Washington, D.C., who are responsible for administering and
implementing the FMF program to Egypt. We also met with Egyptian
government officials in Washington, D.C. We traveled to Cairo and met with
State and DOD officials at the U.S. Embassy and the OMC. In addition, we
interviewed CENTCOM officials responsible for the FMF program to Egypt as
well as Egyptian Ministry of Defense officials in Cairo.

We performed our work from May 2005 through March 2006 in accordance with
generally accepted government auditing standards.

Letter of Request and Letter of Offer and Acceptance ProcessAppendix II

The review and approval process for FMF-funded purchases begins with the
Egyptian military requesting the purchase of certain defense articles or
services, and ends with a signed letter of offer and acceptance for those
goods or services. Figure 5 depicts the review and approval process below.

Figure 5: Letter of Request and Letter of Offer and Acceptance Review
Process

The relevant Egyptian military department sends a letter of request (LOR)
to the Egyptian Armament Authority, which then forwards it to the U.S. OMC
in Cairo to be processed. If approved, the LOR is sent back to the
Egyptian Armament Authority and then to the Egyptian Procurement Office,
which forwards it to the DSCA and the appropriate U.S. military
department.

The relevant U.S. military department and agencies-including the Army,
Navy, Air Force, the National Security Agency, and the Defense Logistics
Agency-generate a Letter of Offer and Acceptance (LOA) and send it to DSCA
to coordinate with the State Department and notify Congress, if required.
Once endorsed by DSCA or the relevant military department or agency, the
LOA is sent to Egypt for acceptance and signature. After acceptance, LOAs
are sent to DSCA, DFAS, and the relevant military department or agency.
The country program director for Egypt registers the LOA into various
databases that track the program.

Agency and Organizational Roles and ResponsibilitiesAppendix III

The principal U.S. entities responsible for administering and implementing
the FMF program are State and DOD. The table below further describes their
roles and responsibilities.

Table 1: Agency and Organizational Roles and Responsibilities

                                        

Department or                   Roles and     
organization                 responsibilities 
State         Pol-Mil                         Supervises and directs       
                                                 security assistance          
                                                 programs.                    
DOD           OSD                             Supervises security          
                                                 assistance programs and      
                                                 integrates departmental      
                                                 plans and policies with      
                                                 overall national security    
                                                 objectives.                  
                 CENTCOM                         Responsible for:             
                                                                              
                                                 o exercising all unified     
                                                 command responsibilities for 
                                                 security cooperation         
                                                 programs;                    
                                                                              
                                                 o developing and             
                                                 implementing security        
                                                 cooperation plan for Egypt   
                                                 and other countries in the   
                                                 Middle East area of          
                                                 responsibility;              
                                                                              
                                                 o commenting on major        
                                                 Egyptian equipment requests; 
                                                 and                          
                                                                              
                                                 o coordinating with the      
                                                 Secretary of Defense, Joint  
                                                 Chiefs of Staff, military    
                                                 departments, and U.S.        
                                                 embassy officials in Cairo.  
                 DSCA                            Administers and supervises   
                                                 FMF planning and programs,   
                                                 develops FMF guidance, and   
                                                 approves requests for the    
                                                 financing of individual      
                                                 projects and contracts.      
                 OMC                             Plans and manages in-country 
                                                 aspects of the FMF program   
                                                 to Egypt and reports         
                                                 directly to CENTCOM and to   
                                                 the U.S. ambassador to       
                                                 Egypt. OMC assists in:       
                                                                              
                                                 o managing foreign military  
                                                 sales (FMS) case management; 
                                                                              
                                                 o training and other support 
                                                 for specific FMS cases;      
                                                                              
                                                 o monitoring end-use of      
                                                 equipment and training;      
                                                                              
                                                 o advising on disposal and   
                                                 transfer of weapons and      
                                                 equipment; and               
                                                                              
                                                 o evaluating Egyptian        
                                                 strategic and operational    
                                                 capabilities and             
                                                 requirements.                
                 MILDEPS and                     Responsible for:             
                 other agencies                                               
                                                 o preparing, executing, and  
                                                 managing individual          
                                                 FMF-funded cases;            
                                                                              
                                                 o developing letters of      
                                                 offer and acceptance;        
                                                                              
                                                 o soliciting bids and        
                                                 negotiating and awarding     
                                                 contracts; and               
                                                                              
                                                 o overseeing delivery of     
                                                 defense articles and         
                                                 services.                    
                 DFAS                            Ensures sufficient funds are 
                                                 available in Egypt's FMF     
                                                 account and provides         
                                                 spending authority approvals 
                                                 to the U.S. military         
                                                 departments to pay for goods 
                                                 and services on Egypt's      
                                                 behalf.                      
Egyptian      EAA                             Egyptian entity that manages 
                                                 the FMF program.             
Ministry of   Egyptian                        Directorate of the EAA       
Defense       Procurement                     responsible for reviewing    
                 Office                          and approving procurement of 
                                                 military goods and services  
                                                 through the FMF program.     

Legend:

CENTCOM - U.S. Central Command DFAS - Defense Finance and Accounting
Service DOD - Department of Defense DSCA - Defense Security Cooperation
Agency EAA - Egyptian Armament Authority EPO - Egyptian Procurement Office
MILDEPS and other agencies - Military Departments (Army, Navy, Air Force,
and Marines), Defense Logistics Agency, National Security Agency OMC -
Office of Military Cooperation (Cairo, Egypt) OSD - Office of the
Secretary of Defense POL-MIL - Bureau of Political-Military Affairs State
- U.S. Department of State

Source: GAO analysis of agency data.

Example of an Evaluation FrameworkAppendix IV

The logic model we provide below is a foundation and first step for
organizing the elements of a program. It is a tool that may help program
managers identify the necessary elements for an evaluation-but it is not a
complete evaluation itself. This model can also be used to communicate how
program funds are used to achieve program goals. Figure 5 depicts how FMF
dollars (inputs), training and procurement (activities), and the resulting
equipped and trained military (outputs) can be linked to enhanced
modernization and interoperability (outcomes). We are not prescribing this
or any other specific model, and the figure below provides a high-level
example in aggregate that is meant to be illustrative and does not define
all of the exact inputs, activities, and outputs of the FMF program for
Egypt. A program evaluation would typically include a breakdown of these
aggregated elements in further detail and would include definitions of
standards, benchmarks, and targets for each program goal.

Figure 6: Using a Logic Model to Link Inputs, Activities, and Outputs to
Outcomes

aDOD will need to define standards and desired levels for these terms.

Comments from the Department of StateAppendix V

Comments from the Department of DefenseAppendix VI

GAO Contact and Staff AcknowledgmentsAppendix VII

Mr. Joseph A. Christoff, Director, (202) 512-8979

Ms. Muriel Forster, Assistant Director. In addition, Nanette J. Barton,
Stephanie Robinson, Ann M. Ulrich, Lynn Cothern, Martin De Alteriis, Grace
Lui, and Christine Bonham made significant contributions to this report.

(320342)

www.gao.gov/cgi-bin/getrpt? GAO-06-437 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Joseph Christoff at (202) 512-8979 or
[email protected].

Highlights of GAO-06-437 , a report to the Committee on International
Relations, House of Representatives

April 2006

SECURITY ASSISTANCE

State and DOD Need to Assess How the Foreign Military Financing Program
for Egypt Achieves U.S. Foreign Policy and Security Goals

Since 1979, Egypt has received about $60 billion in military and economic
assistance with about $34 billion in the form of foreign military
financing (FMF) grants that enable Egypt to purchase U.S.-manufactured
military goods and services. In this report, GAO (1) describes the types
and amounts of FMF assistance provided to Egypt; (2) assesses the
financing arrangements used to provide FMF assistance to Egypt; and (3)
evaluates how the U.S. assesses the program's contribution to U.S. foreign
policy and security goals.

What GAO Recommends

We recommend that the Secretaries of State and Defense conduct: (1) an
assessment of the impact of potential shifts in appropriations on the
Egypt FMF program; and (2) periodic program-level evaluations of the
program. Specifically, the agencies should define the current and desired
levels of modernization and interoperability the U.S. would like to
achieve.

DOD concurred with our recommendations. State said that steps to mitigate
risks are in place. GAO responded that additional factors should be
included. State agreed to try to measure Egypt's modernization goals but
defining interoperability would be speculative. Some level of
capabilities, such as contributions to peacekeeping, can be measured.

Egypt is currently among the largest recipients of U.S. foreign
assistance, along with Israel, Afghanistan, and Iraq. Egypt has received
about $1.3 billion annually in U.S. foreign military financing (FMF)
assistance and has purchased a variety of U.S.-manufactured military goods
and services such as Apache helicopters, F-16 aircraft, and M1A1 tanks, as
well as the training and maintenance to support these systems.

The United States has provided Egypt with FMF assistance through a
statutory cash flow financing arrangement that permits flexibility in how
Egypt acquires defense goods and services from the United States. In the
past, the Defense Security Cooperation Agency (DSCA) accumulated large
undisbursed balances in this program. Because the flexibilities of cash
flow financing permit Egypt to pay for its purchases over time, Egypt
currently has agreements for U.S. defense articles and services worth over
$2 billion-some of which are not due for full payment until 2011. The
Departments of State (State) and Defense (DOD) have not conducted an
assessment to identify the risks and impacts of a potential shift in FMF
funding.

Officials and many experts assert that the FMF program to Egypt supports
U.S. foreign policy and security goals; however, State and DOD do not
assess how the program specifically contributes to these goals. U.S. and
Egyptian officials cited examples of Egypt's support for U.S. interests,
such as maintaining Egyptian-Israeli peace and providing access to the
Suez Canal and Egyptian airspace. DOD has not determined how it will
measure progress in achieving key goals such as interoperability and
modernizing Egypt's military. For example, the U.S. Central Command, the
responsible military authority, defines modernization as the ratio of
U.S.-to-Soviet equipment in Egypt's inventory and does not include other
potentially relevant factors, such as readiness or military capabilities.
Achieving  interoperability in Egypt is complicated by the lack of a
common definition of interoperability and limitations on some types of
sensitive equipment transfers. Given the longevity and magnitude of FMF
assistance to Egypt, evaluating the degree to which the program meets its
goals would be important information for congressional oversight,
particularly as Congress assesses the balance between economic and
military assistance to Egypt as well as the impact on U.S. foreign policy
interests.

Egypt FMF Funds Are Used to Purchase Items Such as F-16 Aircraft, Apache
Helicopters, and M1A1 Tanks

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