To keep arms sales in place, US offers new payment options
WASHINGTON – United States develops new options for arms customers to secure allies and partners don’t give up supplies forecast as the global economy remains reeling from the effects of COVID 19.
Among the options, according to the outgoing head of the Defense Security Cooperation Agency Lieutenant General Charles Hooper, allow foreign countries to finance the purchase of weapons through US bank loans, and modify existing payment schedules to increase costs over time.
“The bottom line here is that we are ready to work with our allies and partners, when they take on the challenge that they have, to find ways for them to keep buying from Americans and to make sure they can pay for the equipment on a payment schedule that reflects their own economic conditions, ”Hooper said.
In an exclusive exit interview with Defense News, Hooper declined to say which countries had already contacted his agency about the economic impact of the disease, but said there were “certainly” client countries. who had extended their hand.
“There are partners who, we are already seeing that they have challenges. We are therefore ready to work with them. As soon as we can gain an appreciation and understanding of the challenges, we can find ways to help them, ”Hooper said.
Hooper spoke to Defense News two weeks before his retirement on August 3. He is replaced by Heidi Grant, head of the Defense Security Technology Administration, a movement that marks the first time a civilian has been running the office since a previous agency was recognized in the current DSCA structure in 1998. The general expressed no concern about this decision, in large part, he said, because of Grant, an essential element in the world of international security cooperation.
Grant will need to start, given the potential impact of COVID on global economies. The good news, said Hooper, is that in March, DSCA concluded that the global economy would be affected by the disease and set up an interagency working group, called the Operations Planning Group, to study the impacts at program level global trends and develop solutions.
The first step that the Hooper team took was to revise the process for collecting foreign payments to make them “a little more flexible, to accommodate partners who may have economic difficulties or who may have redefined the priority of their budgets towards, for example, economic recovery and away from defense.
These options include deferring payments on planned purchases to future years, creating new payment plans for ongoing procurement efforts, and returning funds currently on deposit with the United States to client countries, as well as new financing strategies.
“One of the things we’ve done is allow our partners to tap into standby letters of credit from foreign banks operating in the United States, in accordance with US banking rules,” Hooper explained. “This gives a country the ability to draw, for example, in this case, a standby letter of credit on one of its banks that operates in the United States, in accordance with US banking rules, which ensures that it there is no fiduciary risk for the United States. States. “
DSCA officials had been considering adding such an option for some time, but the economic downturn prompted the agency to start offering it to client countries, Hooper added. Lucie Béraud-Sudreau, director of the Arms and Military Expenditure Program at the Stockholm International Peace Research Institute, said this option sounds different from funding plans that have been around for some time in Europe, where specific entities in countries are responsible for guaranteeing the recipient of the arms. State loans through the public treasury.
“There are a number of economic factors around the world that we believe will likely impact the country’s ability to move forward,” Hooper said. “Obviously, energy prices are lower, and countries around the world that specialize in energy are going to see their income decline. We are seeing countries that due to the pandemic have to shift funds from their defense budgets to more national missions like economic recovery and stuff.
In addition to the oil-dependent nations of the Middle East, Béraud-Sudreau said he was monitoring the Pacific region, where “many countries have already decided to cut their military spending for this year and are planning cuts for 2021”. Indonesia, Thailand, South Korea and the Philippines are among countries that have already announced plans to cut defense spending, while Singapore is experiencing delays in arms deliveries. due to supply chain issues.
“If there are limited orders in 2020-2021, there will be repercussions down the road as these companies are working on long-term projects. Hence the pressure, on both sides of the Atlantic, for the defense sector to be part of economic stimulus plans and high levels of military spending, ”she said.
During his time at DSCA, Hooper oversaw nearly 18,300 overseas military sales actions, including 5,800 new agreements and various amendments and modifications to existing agreements, according to agency figures. He reduced three different supplements on customers, which also saves customers millions of dollars. In addition, lead times have decreased, with DSCA offering 50% of all new FMS cases that pass through the process to partner countries in 49 days or less through the Hooper exit.
And while Hooper did not want to get a snapshot of total arms sales for FY2020, he said the United States remains “on a very positive trajectory… We remain the global partner of choice. And I am very optimistic that we will continue to see positive trends in our overseas military sales this year and in the years to come.