DELG Program Has Seen Little Demand

Consistent with congressional intent, DOD designed the DELG Program to operate through various user fees to cover its operating costs and the risk of potential default on loan payments by the borrowing nation. In addition, it is unclear what impact export financing arrangements have on export sales, because other factors may also affect a purchasing country’s decision on from whom to buy. DELG Program Guaranteed One Loan and Issued Nine Nonbinding Notifications for Other Loan Guarantees

Since its inception, the DELG Program has issued one loan guarantee valued at about $16.7 million to support a U.S. company’s licensed direct commercial sale of unmanned air vehicle and moving target simulator systems to Romania. The DELG Program Differs From Other U.S. Government Defense Export Financing

In addition to the DELG Program, the U.S. government supports defense-related export financing through the U.S. Export-Import Bank (Eximbank) for dual-use and drug interdiction equipment and through the Foreign Military Financing Program, administered by DOD, for direct commercial or government-to-government sales of defense articles, services, and training. Resolving Uncertainty Concerning DELG Program Responsibility Poses a Challenge to DOD

DOD has not submitted a required report to Congress nor resolved issues concerning programmatic responsibilities and resource management of the program. The National Defense Authorization Act for Fiscal Year 1996 required that the President submit to Congress a report on the loan guarantee program, including an analysis of the costs and benefits of the program and any recommendations for modification of the program that may be appropriate, such as adding to the list of eligible countries, and any proposed legislation necessary to authorize a recommended modification. The ongoing dispute regarding program management responsibility may be hampering day-to-day program operations. This has not occurred. We discussed with several banking and industry officials the level of interest in the DELG Program as well as alternative financing sources available to borrowing countries.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) Defense Export Loan Guarantee (DELG) Program, focusing on: (1) the level of program activity to date; (2) the program's financial status; (3) other sources of financing available to borrowing countries; (4) comparing DELG Program characteristics with other U.S. government export financing programs; and (5) examining issues related to the planned fiscal year 1999 transfer of DELG Program responsibilities within DOD.

What GAO Found

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.