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Since 1991

In fact, during FY96, the government spent

As a result of those budgetary anomalies,

more than $7.9 billion to help U.S. companies

the Pentagon uses billions of taxpayer dollars

U.S. taxpayers

secure just over $12 billion in new internation-

on behalf of U.S. arms-exporting firms but

have been forced

al arms sales agreements. Table 1 gives figures

rarely pays a price (nor do the exporting firms

to pick up the

for FY96, the last year for which data on all cat-

that benefit from those subsidies) when any

egories of subsidies were available; figures in

of those subsidized arms deals goes bad. In

tab for roughly

the text for some of the categories may be

fact, to finance the budget of the Defense

$10 billion in

more recent. Thus, more than half of U.S. arms

Department's Defense Security Cooperation

loans for arms

Agency (DSCA), formerly known as the

sales are now being financed by U.S. taxpayers--not

Defense Security Assistance Agency, the

by foreign arms clients.9 That directly contradicts

sales and military

Pentagon takes a percentage off the top of

claims by U.S. arms-exporting firms that

technology.

major arms deals brokered through the

weapons exports provide a significant benefit

department's Foreign Military Sales pro-

to the U.S. economy.

gram. An analysis by the Office of Technolo-

As Table 1 shows, the U.S. government

gy Assessment has charged that such an

supplies arms export subsidies through vari-

arrangement gives the Pentagon an un-

ous programs administered by separate agen-

healthy economic incentive to promote major

cies. Those subsidies are frequently listed

weapons exports to fill its own coffers,

under innocuous budget titles that don't

regardless of the effects of those sales on U.S.

seem to have anything to do with weapons

security.10

exports: excess defense articles, emergency

drawdowns, and Economic Support Funds

A key question throughout the analysis of

(ESF), for example. That budgetary sleight of

corporate welfare programs for arms makers

hand has made it difficult to keep track of

is whether current financing arrangements

U.S. arms export subsidies, much less reduce

for weapons development, procurement, and

them. As a step toward introducing greater

export provide adequate incentives for the

transparency and accountability to the gov-

Pentagon and its contractors to make pru-

ernment's arms export subsidy programs,

dent choices about how to spend taxpayer

this paper will examine the details of the pro-

dollars. Have the financing arrangements

grams, beginning with those at the Pentagon.

created a "risk-free" environment in which

neither the government nor the corporate

Financing Weapons Exports: Pentagon

bureaucracies involved have any economic

Grants, Loans, and Giveaways

incentive to seek effective solutions at an

Of the $7.9 billion in arms export subsidies

affordable cost? The arms export financing

provided by the U.S. government, only a tiny

programs administered by the Pentagon pro-

fraction comes out of the Pentagon bud-

vide a good case in point.

get--about $1.2 billion. That sum consists of

The Foreign Military Financing Program. The

$400 million per year for the promotion of

largest single subsidy program for U.S.

arms exports plus about $800 million in free

weapons exporters is the Pentagon's Foreign

leases and giveaways of surplus weaponry. The

Military Financing (FMF) program, which

$3.3 billion Foreign Military Financing (FMF)

received $3.35 billion in taxpayer funds in the

program is administered by the Department of

FY99 budget to support grants and loans for

Defense, but the funds come out of the foreign

the provision of U.S. military equipment and

operations budget. The Defense Department's

services to more than two dozen countries.

annual $1.2 billion costs for arms export loans

Although the bulk of the FMF funds goes to

that were written off and royalty fees for arms

Egypt and Israel, which received $3.16 billion

technology (known as "recoupment fees") that

of the program's total allocation of $3.35 bil-

were waived are charged against the federal gov-

lion in FY99, other recipients of FMF grants

ernment's general accounts, not the Penta-

and loans during the past few years have

gon's budget.

included Albania, Bulgaria, Cambodia, the

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