	Background

Egypt is currently among the largest recipients of U.S. foreign assistance,  along with Israel, Afghanistan, and Iraq. 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.According to State, the  objectives of the FMF program worldwide include:  assisting friendly foreign militaries in procuring U.S. defense articles  and services for their countries’ self defense and other security needs;  promoting coalition efforts in regional conflicts and the global war on   improving capabilities of friendly foreign militaries to assist in  international crisis response operations;   contributing to the professionalism of military forces;  enhancing rationalization, standardization, and interoperability of  friendly foreign military forces;  maintaining support for democratically elected governments; and  supporting the U.S. industrial base by promoting the export of U.S.  defense-related goods and services. 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. 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. 2). 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. 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. 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. 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. Egyptian and U.S. officials cited several examples of Egypt’s support for  U.S. goals. 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. 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. 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. 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. Specifically, we interviewed U.S. Department of Defense (DOD),  and Defense Security Cooperation Agency (DSCA) officials. 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. We did not examine or assess U.S.  economic assistance to Egypt.
Why GAO Did This Study

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 Found

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.