One Group That Is Pleased With Aid To Egypt: Defense Contractors

The United States supposedly can no longer afford the Supplemental Nutrition Assistance Program and every agency in the government is downsizing thanks to sequestration. It can, however, afford Egypt’s $2 billion yearly aid package, $1.3 billion of which goes to the military. 

The Obama administration argues that Egypt is a stabilizing force in the Middle East and that the results of cutting back on aid would be devastating. That’s why it also refuses to call the overthrow of the Morsi regime by the Egyptian military a coup — labeling it as such would, under U.S. law, require the U.S. to suspend all aid.

But there is another driving force behind the decision to use silence on the issue and that’s the military-industrial complex. Weapons systems manufacturers don’t want to see their contracts with Egypt disappear, especially when defense spending is already being cut because of sequestration.

Politicians, in turn, don’t want to see weapons manufacturing plants in their home states shut down for fear of losing campaign contributions. Senator Carl Levin, for example, who chairs the Senate Armed Services Committee and strongly defends the Obama administration’s refusal to label overthrow in Egypt as a coup, has a General Dynamics plant sitting back home in Michigan, which happens to make M1 Abrams tank parts before shipping them off to Egypt for assembly and subsequent use by the Egyptian military.

The method of payment has also enshrined the aid, making it virtually impossible to cut. Starting in the 1980s, the U.S. gave Egypt the ability to sign multi-year contracts with American weapons systems manufacturers that went well beyond the $1.3 billion Congress appropriated for military aid. The assumption was that Congress would continue the appropriation every year, a system called cash flow financing, which is still in effect today.

“It has gotten us into a situation where we are mortgaged years into the future for expensive equipment,” Senator Patrick Leahy told the Washington Post last week. “It is not a sensible way to carry out U.S. policy toward a country” when “our budget is under stress,” he said. “And yet, we’ve been stuck on autopilot for more than 25 years.”

From 2008 to 2012, for example, the U.S. approved more than $8.5 billion in military contracts between Egypt and weapons manufacturers while Congress only approved $6.3 billion. The Egyptian government received $4.7 billion worth of equipment in that time period, leaving $3.8 billion that still needs to be accounted for.

These unfinished contracts hang over the heads of politicians. If aid were cut, defense contractors would overwhelm the U.S. government with lawsuits demanding compensation for lost profits.

This problem wasn’t unforeseen. Congressional auditors warned in 1982 that cash flow financing could “commit the Congress to large financing programs in future years to ensure that signed contracts are honored.” When State Department officials reassured the auditors, who later became the Government Accountability Office, saying that Congress was not required to continue the yearly appropriations, auditors said that “it would be difficult for Egypt to interpret it any other way.”

Despite the complex nature of U.S. foreign policy towards Egypt, one thing is for certain: defense contractors are quite pleased with it and they’ll do everything they can to keep the system from changing. Cash flow financing puts the U.S. in such a bind that last year, even when the Egyptian government targeted nongovernmental organizations and destroyed their offices, the State Department kept the aid going.

Today, some say things are changing. There is pushback on the issue from Sens. Leahy and John McCain, which has prompted Obama to delay the delivery of four F-16 fighter jets to Egypt. But that is a small concession that amounts to little more than a public relations stunt. It does nothing to address the issue of cash flow financing, which is the real problem.