Special to WorldTribune.com

WASHINGTON — The United States, despite a suspension of major combat weapons deliveries, continues to grant preference to Egypt in military assistance.

The Congressional Research Service reported that the suspension of deliveries by the administration of President Barack Obama has not affected preferred terms of military aid to Egypt.

The terms included allowing Egypt to earn interest on the $1.3 billion in annual aid under the Foreign Military Financing program.

“In FY2012, Congress began to condition the obligation of FMF, requiring the administration to certify certain conditions had been met before releasing FMF funds, thereby eliminating their automatic early disbursal,” CRS said in a report. “However, Congress has permitted Egypt to continue to earn interest on FMF funds already deposited in the Federal Reserve Bank of New York.”

The report, titled “Egypt: Background and U.S. Relations,” said Egypt has benefited from early disbursal. Author Jeremy Sharp said this has allowed Cairo to accrue interest to order additional weapons and services.

“Interest accrued from the rapid disbursement of aid has allowed Egypt
to receive additional funding which it can then use to purchase U.S.-origin
equipment,” the report, dated Jan. 10, said.

Egypt has also been allowed to allocate U.S. military aid for current
payments rather than for multi-year purchases. The report said this allowed
Egypt as well as Israel to extend repayment schedules.

“In recent years, as public scrutiny over U.S. military aid to Egypt has
increased, some observers have criticized the provision of cash flow
financing to Egypt,” the report said. “Critics argue that the financing of
expensive conventional weapons systems is based on an assumption of future
appropriations from Congress.”

The report warned that any change in U.S. aid to Egypt could halt
payment to defense contractors. CRS said the federal government could be
forced to reimburse U.S. companies for any delays in defense projects.

“There are clauses in foreign military sales contracts that stipulate
that Egypt must accept responsibility for the cost of purchased defense
systems even if it no longer receives FMF grants,” the report said.

“However, if Egypt does not make up the shortfall and payments to U.S.
companies are not made, then the U.S. government may be liable and forced to
pay contractors termination liability fees.”

One scenario was that Washington could be stuck with up to $4 billion in
debt to U.S. contractors from any cutoff in military aid to Egypt. The
report said 27 percent of FMF was allocated to Egyptian acquisitions, 39
percent for upgrades and the rest for follow-on support.

“Gauging the financial benefit of U.S. aid for Egypt’s defense
procurement needs is difficult due to the lack of verifiable figures on
total Egyptian military spending,” the report said.

  Congressional Research Service, Foreign Military Financing Program, Report: Egypt buys U.S. systems with interest earned from U.S. military aid