To keep weapon sales in place, US offers new options for payment

By: Aaron Mehta

WASHINGTON — The United States is developing new options for arms customers as a way to ensure allies and partners don't drop planned procurements as the world economy remains in shock from the impacts of COVID 19.

Among the options, according to outgoing Defense Security Cooperation Agency head Lt. Gen. Charles Hooper, are allowing foreign countries to finance arms procurement through U.S. bank loans and altering existing payment schedules to stretch the costs over time.

“The bottom line here is, we are willing to work with our allies and partners, when they raise the challenges that they have, to find ways for them to continue to buy American and to ensure that they can pay for the equipment along a payment schedule that reflects their own economic conditions,” Hooper said.

During an exclusive exit interview with Defense News, Hooper declined to say which countries have already approached his agency about economic impact from the disease, but said that there are “certainly” customer nations that have reached out.

“There are partners that, we're already seeing that they are having challenges. So we're standing ready to work with them. As soon as we can gain an appreciation and the understanding of the challenges, we can find ways to help them,” Hooper said.

Hooper talked with Defense News two weeks before his Aug. 3 retirement. He is succeeded by Heidi Grant, the head of the Defense Security Technology Administration, a move that marks the first time a civilian has led the office since a previous agency was recognized into the current DSCA structure in 1998. The general expressed no concerns over that move, in large part, he said, because of Grant, a fixture in the international security cooperation world.

Grant will have to hit the ground running, given the potential impact from COVID on the world economies. The good news, Hooper said, is that by March, DSCA had concluded that the global economy would be hurt by the disease and set up an interagency working group, called the Operations Planning Group, to study program-level impacts from global trends and develop solutions.

The first step Hooper's team took was to revise the collection process of foreign payment in order to make them “a bit more flexible, to accommodate those partners that may be having some economic difficulties or may have reprioritized their budgets towards for example, economic recovery and away from defense.”

Those options include delaying payments on planned procurements to future years, creating new payment plans for ongoing procurement efforts, and returning funds currently on deposit with the United States to the customer nations as well as new financing strategies.

“One of the things we did is we are allowing our partners to draw on standby letters of credit from foreign banks operating in the United States, according to U.S. banking rules,” Hooper explained. “That offers a nation an opportunity to draw, for example, in that case, a standby letter of credit on one of their banks that operates in the United States, under United States banking rules, which ensures that there's no fiduciary risk to the United States.”

DSCA officials had been considering adding such an option for some time, but the economic downturn pushed the agency to start offering it for customer nations, Hooper added. Lucie Béraud-Sudreau, director of the Arms and Military Expenditure Programme at the Stockholm International Peace Research Institute, said that option sounds different from funding plans that have existed for some time in Europe, where specific entities in countries are responsible for guaranteeing arms-recipient states' loans thanks to the state treasury.

“There are a number of economic factors globally, that we anticipate will likely have an impact on country's abilities to move forward,” Hooper said. “Obviously, energy prices are lower, and those countries all over the world that specialize in energy are going to see a fall in revenue. We see countries that, as a result of the pandemic, are having to shift funds from their defense budgets to more domestic missions like economic recovery and other things.”

In addition to oil-reliant nations in the Middle East, Béraud-Sudreau said to watch the Pacific region, where “many countries have already decided to cut their military spending for this year, and planning decreases for 2021.” Indonesia, Thailand, South Korea, and the Philippines are among the nations that have already announced plans to cut defense spending, while Singapore is seeing delays in weapon deliveries due to supply chain issues.

“If there are limited orders in 2020-2021, there will be repercussions later on, as these companies work on long-term projects. Hence the pressure, on both sides of the Atlantic, for the defense sector to be part of economic recovery packages and high levels of military expenditure,” she said.

Over the course of his time at DSCA, Hooper oversaw almost 18,300 Foreign Military Sales actions, including 5,800 new agreements and various amendments and modifications to existing agreements, according to agency figures. He reduced three different surcharges on customers, saving customers millions of dollars as well. Also, timelines shrunk, with DSCA offering 50 percent of all new FMS cases that flow through the process to partner nations in 49 days or less by Hooper's exit.

And while Hooper did not want to preview what weapon sales totals for fiscal 2020 will be, he did say that the United States remains “on a very positive trajectory... We remain the global partner of choice. And I'm very optimistic that we're going to continue to see positive trends in our foreign military sales this year and in the years to come.”

https://www.defensenews.com/pentagon/2020/08/04/to-keep-weapon-sales-in-place-us-offers-new-options-for-payment/