oversight

Foreign Assistance Programs

Published by the Government Accountability Office on 1971-01-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                         STATEMENT OF
                            THE COMPTROLLERGENERAL OF THE UNITED STATES
                                           BEFORE THE
                              SUBCOMMITTEE ON ECONOMYIN GOVERNMENT
                                   JOINT ECONOMIC COMMITTEE

                                                    Januarv       4, 1971


Mr.     Chairman        and Members of the Committee:

        As requested             in your       letter       of November 25, 1970, we have assembled

a statement            showing     the various            types      and categories              of assistance              which

contribute            to the military           capability           of f-oreign           countries.            At your

request        we have,       to the extent              possible,           placed     a dollar        value        on each

of the program              categories        for       the past      six      fiscal       years.

         In order        to prepare          this       statement       it     was necessary            to gather           data

from a number of sources                     within       the Executive               Branch which         we have set

forth     in the following                categories:

         1.      Military        Assistance             Grants

         2.      Foreign       Military         Sales Through                U.S.     Government        Channels

        3.       U.S.       Commercial        Sales of Military                 Articles

        4.       Turnover        of Real and Personal                  Property          to Other         Nations,          and

        5.       U.S. Economic Assistance  Related                             to Internal            Security
                 and Common Defense Purposes

I believe        it     would be most helpful                    to you if          I proceed         to explain           each

line    item     and what it             represents.

        First,        however,      it     might      be well        to describe            briefly      how the

Executive        Branch       is organized              to administer           assistance            programs       for

other     countries.
     .v .                                 e                                                              0
                  The Foreign             Assistance          Act of       1961,       as amended,              Section     622,

       provides        that     the Secretary                 of State          under        the direction            of the President                     _
/’
       will       be responsible              for      the continuous               supervision            and general           direction

       of economic            and military              assistance           programs.

                  Section      623 of the act                 defines        the responsibilities                     of the Secretary

       of Defense           which         include       (1)      determining           military          end item         requirements

       and procurement               and delivery                of the      items       to the foreign               country,

       (2)     supervision           of training              of foreign            military           personnel,         and (3)      estab-

       lishment        of priorities                 in the procurement,                  delivery           and allocation            of

       military        equipment.

                A Department               of Defense            (DOD) Directive                (Number 5132.3             dated     July       8,

       1963,       currently         under          revision),           defines        Department           of Defense          policy        and

       responsibilities                   relating        to military            assistance.               Within        the Department

       of Defense           the Assistant               Secretary          of Defense               (International          Security

       Affairs)        is     designated             as the principal                staff          assistant        to the Secretary

       of Defense           in the functional                    field     of      international             security.           As such he

       is     responsible           for      developing           and directing               all     aspects        of military

       assistance           as it         relates       to the Department                 of Defense,              including       grant

       aid;       service      funded         support         of military            assistance;             funding       support        of

       international            military             headquarters,              agencies            and military          assistance

       groups ; military                  sales      to other        nations;          providing           of military           personal

       property        excess        to Department                of Defense            requirements             to foreign        countries;

       and ship        loans        and leases.               Ship       loans      of major          combatant        vessels       also

       require       specific             congressional             approval.




                                                                                                                                                     -2-
           The Assistant           Secretary           of Defense           (Installations               and Logistics)              has

the primary           responsibility             for       developing         the      logistic          plans     required          to

implement        the military             assistance             programs.            He also      has authority               to act

for   the ‘Secretary             of Defense            in respect           to turnover           of     real     property--

military        installations--no                 longer         required       for     use by the Department                       of

Defense,        located         in foreign           countries.             The military           departments           are

responsible           for     preparing         data     necessary           to develop           Department          of Defense

programs        and to implement                military          assistance           and sales          programs       in

accordance           with      instructions            from      the Assistant               Secretary          of Defense,

International               Security      Affairs.

           The Under Secretary                 of State          has been delegated                the authority               by

the    Secretary            of State      to coordinate              the economic              and military           assistance

and sales        programs.              The continuous             supervision               of the military           assistance

program       has been delegated                 to the Director                of     the Bureau of Politico-Military                           ’

Affairs,        Department             of State , while            supervision               of economic          assistance

programs        is     the responsibility                   of    the Agency           for     International           Develop-

ment (AID),           Department          of    State.




                                                                                                                                           -3-
                                                                          TABLE I
                                                                                                                                                                .   -

                                                         U. 5. MILITARY       ASSISTANCE GRANTS                                                                 .
                                                              FISCAL    YEARS 1965-1970


                                                                       1965            1966           1967          1968                1969          1970
                                                                                                      (In Millions)

Military        Assistance     Program      - Grant   Aid         $1,005.0          $1,098.7     $     905.2     $     615.8       $     460.0   $     409.0
                                                                                                                                                                8
Military    Assistance         Service      Funded
    Support of Other          Nations                                     34.1          838.5        1,496.0         1,591.7           1,965.6       2,174.4

Support  of International                Military
  Headquarters,    Agencies,              and Assistance
  Groups with DOD Funds:

           a.   International      Military      Head-
                quarters      and Agencies                                18.9           20.1           21.1            22.8              22.0           55.6

           b.   NATO Infrastructure                                       23.0           43.6           81.8            37.5              47.0           50.0

           c.   Military     Missions                                     72.5           91c;L         110.6           141.8             147.7         163.5

                                        TOTAL                     $1.1.53.5         $2.092.1     @,614.7        .$2,409.6
                                                                                                                               -
U . S . MILITARY ASSISTANCE GRANTS

         The amounts             presented           in our         tabulation              as Military           Assistance

Program        - Grant          Aid are          funds     obligated          for      fiscal          years      1965 through

1969 and funds                 programmed          for     fiscal       year        1970.        The authority              to provide

military            grant      assistance          is contained              in the Foreign                Assistance            Act of

1961,       as amended.                An annual          appropriation               for     the Military             Assistance

Program         is provided             by the Congress.                 This         assistance           includes         training

and training                support,          equipment,          construction,               technical           assistance,

repair        and rehabilitation,                    supply         operations              support,       and administrative

support.

         Military            Assistance           Service      Funded Support                   of Other          Nations        includes

equipment,            maintenance              and construction               and other           costs         for    the’support

of Vietnamese                and other          forces      in Southeast               Asia.           These funds          are made

available            from      appropriations              to the Department                    of Defense.             Their      use

has increased                in recent          years      as more countries,                    such as Thailand                 and

Laos,       are assisted               with     Defense       funds.          The initial               authority         for     the use

of such funds                was reflected               in the supplemental                    Defense         Appropriation            Act

of     1966.         The Defense              Appropriation           Acts      for         each year          since    1966 have

contained            similar       authority.              Also      included          is a total              of about         $350 million

from       fiscal       years      1967 through              1970 for         a number of projects                      previously

funded        by the Agency              for      International              Development               (AID)      in Southeast           Asia,

mainly        in Vietnam.               Under this          AID/DOD          realignment               program,        these      projects

were considered                 to be of a military                   nature,          such as repairing                  or rebuilding

highways            and railroads,              establishing            communication                  systems,        and other         support

for     outlying            hamlets.




                                                                                                                                               -5-
                              a
           The support            of International            Military        Headquarters             and Agencies

includes        administrative,                 operational        and capital           expense        program          costs

for    the U.S.         share       of   support       for    the headquarters               and agencies           of NATO,

CENTO, and SEATO.                   The costs        of US.        general         purpose     forces       committed            to

NATO and stationed                   in the European           Command, but not               directly          associated

with       support      of NATO headquarters                  and agencies,           are     not      included.

           The support            of NATO Infrastructure                  includes       program        costs      for

airfield        construction,             radar      systems,       air     defense       facilities            anti other

military        facilities.              The program          amounts       were transferred               from military

assistance           funding         to Military        Construction           Appropriations             as of June 30,

1967,       pursuant       to Public            Law 90-180.

           The support            of Military        Missions       includes         manpower authorizations,

equipment,           facilities          and the associated                costs     chargeable          to military

function        appropriations,                 and specifically            identified         with      U.S.      Military

Assistance           Advisory         Groups,      Military       Missions          or Military          Groups.




                                                                                                                                      -6-
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                                           -7-
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                 FOREIGN MILITARY SALES THROUGH
                 U.S. GOVERNMENTCHANNELS

                           Basic       authority          for      the Department             of Defense            to sell          defense         articles

                 and services             to other          countries          is    contained           in the Foreign               Assistance            Act

                 of      1961,     as amended,            and the Foreign              Military           Sales      Act      of     1968.

                           Cash Sales and Export-Import                             Bank Loans are              shown by the year                    in

                 which        the sales          were approved               and the terms              of sale      were accepted                by the

                 purchaser.             These are           sales       in which       the ordering               nation        or international

                 organization             agreed         to reimburse             the U.S.       Government               directly        with       U.S.

                 dollars         or from         loans     authorized             by the Export-Import                     Bank of the United

                 States.

                           The Export-Import                   Bank assists           in financing              exports         from      the United

                 States        to foreign             countries,         including           military          articles         and services.

                 The Bank’s            authority          is      limited,        however,       by the Foreign                Military           Sales

                 Act     of    1968 which             prohibits        the Bank from             extending           credit          in connection

                 with      sales       of defense          articles          and services           to any economically                       less

                 developed            country.

                           Export-Import               Bank reports            show their          loans        by the year            of authoriza-

                 tion,        which     does not          necessarily             coincide       with      the year           or years           in which

                 the borrowing              country        placed        specific       orders          with      the Department                 of Defense.

                 For this          reason        it    has not been possible                    to show a precise                    breakdown

                 between         cash sales            and Export-Import               Bank loans.                Total       Export-Import               Bank

                 net      loan authorizations                   for    military        sales       for     this      6-year          period       amounted

                 to $1,559         million.




                                                                                                                                                                -8-
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                                Other     Credit    Sales   are   those    sales      where credits         or guarantees      are

                         made available         by the Department         of Defense.           Credits     may be granted

                         directly       by the Department,        or it    may guarantee          credits      extended     by the

                         Export-Import         Bank or by private         banks.       Direct     DOD credit      sales

                         increased       in   1969 after    guaranteed      credits      extended         by the Export-Import

                         Bank ceased.




                                                                                                                                     -9-
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     -1%
MILITARY SALES TO OTHER NATIONS
BY U.S. CORPORATIONS

          The data          presented        in our        tabulation       is      based on quarterly               reports

prepared           by the Bureau            of the Census and on Department                         of Defense          sources.

It     includes         defense       articles       and services           which      were shipped             to foreign

military           organizations            or other        foreign      military        establishments,              other

than       those       shipments       which       would     be considered            as military           sales     through

U.S.      Government            channels.          The Department           of State       requires          an export

license         for     certain       defense       articles          shipped       to foreign         nations,        including

commercial             sales.        At the request            of     the Committee        we attempted              to find

out      from      the Department            whether        information          was available           as to the volume

of these           sales     by individual           U.S.      firms.       We were       informed          that     this

information             was not       available,           since      the Department           deals     with       export

licenses,             not   sales,     and does not            prepare      reports       of     licenses          by individual

firms.




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              -12-
TURNOVER OF REAL AND PERSONAL PROPERTY

          These      turnovers           have been presented                     at acquisition                costs,         which

generally         are       the only       cost        figures        available           for        these     transactions.

Market       value       at the         time    the property               is    turned         over     would        normally

be much less             than      the original               acquisition             costs.

          Excesses          Provided       Under the Military                     Assistance             Program           are made

available          under        Section        503 of         the Foreign             Assistance            Act      of    1961,       as

amended.          This       section       authorizes               the furnishing               of military               assistance

to any       friendly           country        or international                  organization                and providing                  any

defense       article           or service.             It     is expressed              DOD policy,                as stated          by

the Deputy           Secretary           of Defense            in    1968,       to maximize               the use of excess

defense       articles,            pursuant           to the authority                 contained             in the Foreign

Assistance           Act.        Since August                1968,     the DOD has developed                         a program              to

facilitate           the expanded              use of         excess       defense        articles            for     MAP require-

merits.       The acquisition                  value         of excess          defense         articles            to be made

available          under        this     program        is estimated              by DOD to exceed                    $10 billion.

          Excesses          provided       Vietnam            are    not    included            in     the tabular            figures

for    excesses          since         we have not been able                     to    locate          such figures                within

the Department               of Defense.               Incomplete           figures        for         personal           property,

both      excess      and non-excess,                  transferred              to Vietnamese                forces        are      shown

as a separate               category.           Air     Force        transfers           from April               1, 1966 through

June 30,        1970,        amounted          to $66 million.                   Navy transfers                for        fiscal       years

1966 through             1970 were $185 million.                           We were unable                  to obtain          any

comparable           Army data,           although            we were informed                  that       the Army is beginning

to develop           a system           to record        non-reimbursable                  transfers                to Vietnamese

forces       after       July      1, 1970.

                                                                                                                                                  -13-
          During        fiscal          years      1965 to 1970,                33 ships          were delivered                to recipient

foreign          governments            , 14 on loans                 and 19 on leases.                   The acquisition                costs

of   those        ships        represent          the original                 construction           costs,         exclusive           of

any subsequent                 modernization               programs.             Loaned ships              are major            combatant

types,          such as battleships,                      aircraft        carriers,           destroyers,              destroyer

escorts         , cruisers,             and submarines.                  Specific          congressional              approval           is

required          before         any of these                 types     of ships          can be loaned              to foreign

governments.                The ships            were         loaned     under      the following                 authority:

                   Public         Law      387,        87th     Congress
                   Public         Law      324,        89th     Congress
                   Public         Law      398,        89th     Congress
                   Public         Law      224,        90th     Congress

          Other        types      of     ships,          such as cargo             ships,         tugs,     troop         landing        ships,

and auxiliaries,                  may be leased                 to foreign          governments,              under          the authority

of   10 U.S.C.            2667,         with     the approval             of the Secretary                  of      the Navy.

          All     of    the ships              which      were        loaned     or leased           during         fiscal       years        1965

through          1970 were built                 24 or more years                  ago,     and according                 to Navy

officials           their        life      expectancy            has now been exceeded.

          We have been advised                         by Defense         officials           that        data      regarding           the

transfer          of real         property             in Thailand         and Vietnam               is not available                   in

Washington,             and that          a breakdown                 of data      for    other       countries              is not

maintained             by fiscal          year.           We were informed                 that      the    total         of    $900 million

reflected           their        best      judgment            as to the value              of     real     properties             released

or in the process                   of being             released        from      the period             of a,bout fiscal               year        1965

to November             1970.           This     total         represented          the original                 United        States
                                                                                                                                                            I
investment             and does not necessarily                          indicate         United          States       investment             left




                                                                                                                                                     -14-
in place           at     the time             of release.               Defense         personnel          further         stated        that

their       real        property          accounting               system       does not make it                  possible         to

determine           anything             but      the original                United      States          investment.             Value

of installed               real        property              (heating         plants,         generators,          etc.)         which     may

be removed prior                   to release                 is not      recorded            on their         records.

          The United              States         Code,         title      40,     section          511,     contains         a provision

for     the disposal               of     foreign             excess      property            (real     and personal)              by the

heackof          executive             agencies.               The code,          however,            does not contain               any

specific           provision             for     disposing             of real          property          such as buildings                on

land      that      is not         owned by the United                         States.          We were informed                  in most

instances           that         the     land         for     United      States         bases and installations                        overseas

is not owned by the United                                   States,      but rather            by the foreign               go.vernments

concerned.

          There         are various              executive             agreements             between       the United            States         and

foreign          governments              that         contain          provisions            regarding          the United          States

use and disposal                   of     facilities              overseas,             but    they     differ        in each instance.

We have been advised                           that         the general         trend         is to state          in these          agreements

that      all      buildings             and improvements                     financed         by the United              States         revert

to the foreign                   government,                 and that         the foreign             government          will     not

require          the United              States             to put      the    land and facilities                    back in its

original           condition             prior         to the time             the United             States      started         using      the

land and facilities.                            The agreements                 also      provide        that      the United             States

may take           with     it     all         removable          property.




                                                                                                                                                       -15-
                                                                  TABLE V


                                       U.S.    ECONOMIC ASSISTANCE RELATED TO INTERNAL SECURITY
                                                       AND COMMON DEFENSE PURPOSES                                                             9
                                                        FISCAL YEARS 1965-1970


                                                                1965            1966         1967           1968         1969         1970
                                                                                              (In Millions)

Economic   Security      Assistance:

     a.    Supporting     Assistance   Including
           Public    Safety   Programs                      $   438.7       $   702.7    $    718.4     $   594.5    $   464.4    $   518.1

     b.    Additional         Public    Safety
           Programs                                               10.0            15.3          7.8            7.1          6.7          7.8

Food for Peace Funds           Used for       Common
  Defense Purposes                                               101.2           135.8        105.0         150.3          92.8        108.0

                      TOTAL                                 s    549.9      $   853.8    $   831.2.     $   751.9    $    563.9   $    633.9
U.S. ECONOMIC ASSISTANCE RELATED TO INTERNAL
SECURITY AND COMMONDEFENSE PURPOSES

         Economic           aid     in this             category       includes        commitments             for     economic

security          assistance             administered              by the Agency              for      International            Develop-

ment (AID)              and agricultural                  commodity        shipments           under         the Public         Law 480

program         (Food for           Peace).

         Economic           security             assistance         has been furnished                    from AID’s           appropria-

tion     for      supporting             assistance,           as authorized                 under      the Foreign            Assistance

Act     of     1961.        This        assistance           has been characterized                       as economic           aid

directed          primarily             toward          immediate       political            and security            objectives;           for

example,          economic          assistance             to a country             engaged           in a major          defense       effort.

The object              of this         economic          assistance        is      to enable           larger       defense        efforts

to be undertaken                   in     less-developed               nations       threatened              by Communist           expansion

and to avert               situations             of dangerous           instability                in sensitive           areas.

         Supporting            assistance                may include        funds       for         public     safety         programs,

that     is,      for      training,             equipping,         and advising              civil       police,         regulatory

and administrative                      authorities,           and paramilitary                     police     groups         in recipient

programs.              AID has provided                   additional        funds       for         public       safety       programs

from     its      appropriations                  for     Technical        Cooperation,                Development            Grants,      and

Development              Loans.

         Food for           Peace Funds Used for                       Common Defense                 represent        that     portion

of     the     local       currency         funds         generated        by agricultural                   commodity         sales

agreements             allocated           for     common defense             purposes              in the year           the sales

agreement          was signed.                A few agreements                are      for     more than, a year’s

requirements.                These have been prorated.                              Adjustments              have been made for

actual         shortfall          of deliveries               from annual            agreements.



                                                                                                                                                 -17-
          The purpose                of the Food for             Peace Program               as set      forth      in the

Agricultural                 Trade      Development            and Assistance           Act     of      1954, as amended,

(P.L.      480)         is    to increase            the consumption            of U.S.         agricultural                commodities

in foreign              countries,            to improve         the foreign           relations          of the United

States,          and to promote                in other         ways the foreign               policy       of the United

States.

          In order            to carry         out     these     objectives          Title      I,     Section        101, of

the Act          authorizes             the    sale     of agricultural              commodities            for     dollars          on

credit          terms        or for      foreign        currency.            Section         104 lists       a variety          of

purposes          for        which      the foreign            currency       generated         through           these      sales

can        be used.                 One of these         purposes          is the procurement                of equipment,

materials,              facilities,            and services          for      the common defense                   including

internal          security.

          The State            Department            negotiates           the terms          of the      sales      agreements

on a country-by-country                         basis     at prices           acceptable             to the United            States

and the individual                      country.         The U.S.          Government          maintains           fiscal      control

over      all     local            currency     generated         under       P.L.     480 until          such time           as funds

are      released            for     approved         purposes      within      the foreign              country.




                                                                                                                                          - 18-
  L

                                                            **Jr**


          In addition             to the military                    and economic           assistance                 provided        other

countries          by the United                 States,         these      countries            may derive              economic

advantage          from having              sizable          U.S.      military           forces        stationed             there.

Examples          of    such economic               benefits           would       be roads         or other             facilities

constructed             by U :S.          troops,      and dollar               purchases,          for         troop      support,           of

foreign          currencies           at official             exchange            rates     that        may not reflect                  true

market       values .

          Benefits         of     this      sort      cannot          be easily           quantified,             nor      can any

possible          offsetting              disadvantages,               such as the              inflationary               pressures

generated          by large           numbers of U.S.                  troops        in relatively                underdeveloped

economies.

           Following         are      some illustrations                    of economic             benefits             of    this      nature

to another             country.

          U.S.     military           purchases             of Vietnamese             piasters            for     fiscal        years         1965

through          1970 have amounted                   to nearly           $1.5      billion.              By comparing                official

exchange          rates       with        estimated          black       market       rates        the over-valuation                        in

military          purchases           of piasters             for      these       years        can be computed                 as a subsidy

to the Vietnam                economy in the equivalent                            of about         $680 million.                     That        is,

the U.S.          military           did    not     receive           goods and services                   in that            amount,         due to

the amount             of real        purchasing             power       lost      through         the unrealistic                    official

rate       of exchange.               The fiscal             year      breakdown           of    this      estimate            is as follows:

                    1965              $      5    million
                  . 1966                    67    million
                    1967                   186    million                                                          f
                    1968                   116    million
                    1969                   126    million
                    1970                   180   ,million
                                                                                                                                                               f


                                                                                                                                                        -19-
          According            to the Department                   of Defense,            approximately                5,000        U.S.

military           troops       have been used to build,                         rebuild,             and maintain               roads,

bridges,         and railroad                 facilities           in Vietnam.             About         910 miles              of roads

and bridges             have been completed.                        While       the primary              purpose           of    this     work

has been to meet military                           objectives,              the construction                    and maintenance

of these           transportation                facilities           also      has some benefits                    to the Vietnam

economy.

          At    the request             of the Committee                  we have made inquiries                           regarding         the

preparation,             by the Department                       of Defense,        of the annual                  “100         Companies”

report.          This         report      of companies               receiving           the     largest          dollar         volume      of

prime       contract           awards         includes           purchases       by the Department                    of Defense             for

the various             military          assistance              grant      and sales           programs.            The report             is

prepared           from a compilation                      of procurement           actions            of $10,000               or more

involving           appropriated               funds,         contract        authorizations,                    replenishment             of

stock       or revolving               funds,       and appropriated                funds,            such as Military

Assistance             Program         funds,       transferred              to the Department                    of Defense.

           Defense       officials             informed           us that       within         this      framework              the report

includes         all     articles             purchased           by the Department                   through        its        procurement

offices         or through             interagency               transactions            including          articles             furnished

or repaired             or refurbished                and provided              through          grant      assistance              programs

or through             sale     to foreign            countries.

           We are also             submitting,              at    the Committee’s                request,          a list         of the

major       U.S.       suppliers          of weapons and equipment                         for        military        assistance

grant       and sales           programs.

          Mr.      Chairman,           this      completes          my prepared            statement.               We will             be glad

to try         to answer          any questions                  you may have.



                                                                                                                                                   -2o-