Poor Cash Flow Delays Iraqi Deals
Baghdad Weighs Purchase of Non-U.S. Vehicles
By kris osborn
Published: 20 July 2009
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The sale of hundreds of U.S. Abrams tanks, as well as helicopters and other equipment, to the Iraqi Army is being held up by the Iraqi government's poor credit rating, leading the Iraqis to eye vehicles and equipment from other countries, Pentagon and industry officials said.
That's not the only problem with the Pentagon's Foreign Military Sales efforts in Iraq; U.S. officials this month floated a draft paper exploring other ways to accelerate a gummed-up process.
Under FMS rules, Iraq's credit rating is too low to borrow money from banks for large arms purchases. That renders Iraq ineligible for the "dependable undertaking" status that would allow it to pay off such purchases over time.
Iraq could still buy U.S. gear by paying most of the tab up front, but lacks the cash to do so, industry and Pentagon officials confirmed.
"This is forcing the Iraqis to make a decision about what they buy first. Do the Koreans, Russians and French have the same credit requirements as the U.S.? Perhaps the Iraqis can receive different creative financing someplace else?" said an industry official familiar with the process.
Repeated calls to the Iraqi Embassy in Washington were not returned by press time.
Much of Iraq's available cash is tied up in an escrow account, deposited with the Federal Reserve Bank of New York as a down payment on the $2.1 billion purchase of 140 Abrams tanks, plus handfuls of Tank Recovery Vehicles, Shelter Carriers, Humvees and armored ambulances. The U.S. Defense Security Cooperation Agency (DSCA), which oversees arms sales to Iraq, approved the deal in December; it is expected to go through eventually.
But cash-flow problems are holding up many other purchases - for example, a multibillion-dollar deal, approved by Congress in January, to buy 140 more Abrams and 400 Stryker vehicles, the industry official said.
DSCA spokesman Charles Taylor said the proposed Stryker and Abrams sales are progressing.
"There is a detailed process. As far as we are concerned, things are moving along," Taylor said.
Other deals in the same boat include:
■ Last fall, DSCA approved a request to buy Humvees, Mine Resistant Ambush Protected (MRAP) vehicles, 400 M1126 infantry carrier vehicles and 400 M2 .50-caliber machine guns.
■ In December, it approved a request to buy 26 Bell helicopters, 26 Rolls Royce engines, 26 .50-cal machine guns and 26 Hellfire guided missile launchers in a deal worth $366 million.
■ In January, Congress approved the sale of 80 Armored Security Vehicles and 400 Stryker vehicles.
Not every weapons purchase is delayed; Iraq is already taking delivery of 8,500 refurbished U.S. Humvees, for which it is paying $200 million, Army officials said.
But the industry official said it could take several years for Baghdad to establish the kind of credit history that would allow it to borrow enough money to cover these packages.
Alternatives
Meanwhile, possible alternatives to the U.S. gear include refurbished Russian T-72 tanks, Soviet-era BMD infantry fighting vehicles, and French and South Korean vehicles, Defense Department and industry officials said.
"It is not only Russian stuff. They are looking at stuff from many other countries as well, which they can do because they are a sovereign country," said an Army official familiar with the process.
For instance, Iraq may wish to buy certain U.S. equipment in 2009 but won't have the full payment until 2010, raising the question of whether to buy something from another country in the interim. These decisions are likely to unfold in the coming months, industry sources indicated.
Another analyst said he did not think the Iraqis would be inclined to buy Russian vehicles.
"German Leopard 2s would be too expensive for them, but I see them shying away from Russian equipment because of their experience with it. They were primarily a Russian-equipped force under Saddam and their vehicles were getting blown away by American forces," said Dean Lockwood, a policy analyst with Forecast International, a Connecticut-based think tank.
The industry official said large-scale Iraqi purchases of foreign vehicles and equipment could complicate U.S.-Iraqi training.
"What is the impact on training? Training them on our gear is easy. Are we going to train them on someone else's equipment with their radios, weapons, and their command and control? This is about boots to bullets," the industry official said.
One analyst said U.S. officials should help the Iraqis work through their credit glitches.
"One ought to think about extending credit to the Iraqis for something as important as this," said Daniel Goure, vice president of the Lexington Institute, a Virginia-based think tank. "If at the same time we leave Iraq we are heading toward a confrontation with Iran, clearly an Iraq that is capable of self-defense against Iran would be an extremely important ally to have in the Gulf region."
Goure said the Iraqis may be eyeing some older foreign vehicles as interim solutions until more U.S. stuff is approved.
He said the U.S. gear would make the most sense for Iraq, particularly the Strykers and perhaps MRAPs and M-ATVs.
But the paramount goal should be improving Iraq's army, Goure said.
"I don't think it should matter to us which vehicle Iraq buys as long as what is going on is the creation of a military that is self-supporting and self-sustaining so we don't have to be holding their hands forever," he said.
Improving FMS In Iraq
Meanwhile, the U.S. Multi-National Security Transition Command – Iraq (MNSTC-I) is working to speed up the Foreign Military Sales process in Iraq.
The Pentagon uses the FMS process to sell defense-related goods and services to foreign militaries. Such sales have moved more slowly in Iraq than in other countries.
"In the past, FMS worked well for the requirements it was up against. Now that we are rebuilding the Iraqi army, we face a whole new set of circumstances the original procedure was not set up to accommodate," Lockwood said.
This month, MNSTC-I produced a draft paper titled "Foreign Military Sales in Iraq." Written by Army Maj. Jay Ware, the program manager and plans officer for the FMS effort in Iraq, the draft paper highlights various proposals to improve the process.
"The FMS program in Iraq has steadily developed into a formalized program that differs from all other FMS programs around the world by the fact that it occurs in a combat environment," the paper says.
One suggestion is to assign one officer to each project undertaken by the FMS office to shepherd programs from "cradle to grave." This person would also help arrange the considerable security measures that are necessary to, for instance, have DSCA officials inspect a prospective construction site.
"In Iraq, movement takes days of planning and coordination with various military staffs, contract engineers and the Iraqi military and police," the paper says.
Another suggestion is to more productively use the 90 days it takes for U.S. Central Command's Security Assistance Office to draft each letter of agreement. Every FMS deal requires such a letter to be signed by the purchasing government. MNSTC-I's paper suggests that procurement plans might be laid out, construction blueprints drawn up, and the path generally prepared for the eventual purchase.
No timeline has been officially produced for reforms.
"We want to move with alacrity in this process, but we must ensure at the same time that we meet the letter of the law and intent of the U.S. Congress," an Army official said. ■
E-mail: kosborn@defensenews.com.
http://www.defensenews.com/story.php...02&c=FEA&s=CVS
Baghdad Weighs Purchase of Non-U.S. Vehicles
By kris osborn
Published: 20 July 2009
Print | Email
The sale of hundreds of U.S. Abrams tanks, as well as helicopters and other equipment, to the Iraqi Army is being held up by the Iraqi government's poor credit rating, leading the Iraqis to eye vehicles and equipment from other countries, Pentagon and industry officials said.
That's not the only problem with the Pentagon's Foreign Military Sales efforts in Iraq; U.S. officials this month floated a draft paper exploring other ways to accelerate a gummed-up process.
Under FMS rules, Iraq's credit rating is too low to borrow money from banks for large arms purchases. That renders Iraq ineligible for the "dependable undertaking" status that would allow it to pay off such purchases over time.
Iraq could still buy U.S. gear by paying most of the tab up front, but lacks the cash to do so, industry and Pentagon officials confirmed.
"This is forcing the Iraqis to make a decision about what they buy first. Do the Koreans, Russians and French have the same credit requirements as the U.S.? Perhaps the Iraqis can receive different creative financing someplace else?" said an industry official familiar with the process.
Repeated calls to the Iraqi Embassy in Washington were not returned by press time.
Much of Iraq's available cash is tied up in an escrow account, deposited with the Federal Reserve Bank of New York as a down payment on the $2.1 billion purchase of 140 Abrams tanks, plus handfuls of Tank Recovery Vehicles, Shelter Carriers, Humvees and armored ambulances. The U.S. Defense Security Cooperation Agency (DSCA), which oversees arms sales to Iraq, approved the deal in December; it is expected to go through eventually.
But cash-flow problems are holding up many other purchases - for example, a multibillion-dollar deal, approved by Congress in January, to buy 140 more Abrams and 400 Stryker vehicles, the industry official said.
DSCA spokesman Charles Taylor said the proposed Stryker and Abrams sales are progressing.
"There is a detailed process. As far as we are concerned, things are moving along," Taylor said.
Other deals in the same boat include:
■ Last fall, DSCA approved a request to buy Humvees, Mine Resistant Ambush Protected (MRAP) vehicles, 400 M1126 infantry carrier vehicles and 400 M2 .50-caliber machine guns.
■ In December, it approved a request to buy 26 Bell helicopters, 26 Rolls Royce engines, 26 .50-cal machine guns and 26 Hellfire guided missile launchers in a deal worth $366 million.
■ In January, Congress approved the sale of 80 Armored Security Vehicles and 400 Stryker vehicles.
Not every weapons purchase is delayed; Iraq is already taking delivery of 8,500 refurbished U.S. Humvees, for which it is paying $200 million, Army officials said.
But the industry official said it could take several years for Baghdad to establish the kind of credit history that would allow it to borrow enough money to cover these packages.
Alternatives
Meanwhile, possible alternatives to the U.S. gear include refurbished Russian T-72 tanks, Soviet-era BMD infantry fighting vehicles, and French and South Korean vehicles, Defense Department and industry officials said.
"It is not only Russian stuff. They are looking at stuff from many other countries as well, which they can do because they are a sovereign country," said an Army official familiar with the process.
For instance, Iraq may wish to buy certain U.S. equipment in 2009 but won't have the full payment until 2010, raising the question of whether to buy something from another country in the interim. These decisions are likely to unfold in the coming months, industry sources indicated.
Another analyst said he did not think the Iraqis would be inclined to buy Russian vehicles.
"German Leopard 2s would be too expensive for them, but I see them shying away from Russian equipment because of their experience with it. They were primarily a Russian-equipped force under Saddam and their vehicles were getting blown away by American forces," said Dean Lockwood, a policy analyst with Forecast International, a Connecticut-based think tank.
The industry official said large-scale Iraqi purchases of foreign vehicles and equipment could complicate U.S.-Iraqi training.
"What is the impact on training? Training them on our gear is easy. Are we going to train them on someone else's equipment with their radios, weapons, and their command and control? This is about boots to bullets," the industry official said.
One analyst said U.S. officials should help the Iraqis work through their credit glitches.
"One ought to think about extending credit to the Iraqis for something as important as this," said Daniel Goure, vice president of the Lexington Institute, a Virginia-based think tank. "If at the same time we leave Iraq we are heading toward a confrontation with Iran, clearly an Iraq that is capable of self-defense against Iran would be an extremely important ally to have in the Gulf region."
Goure said the Iraqis may be eyeing some older foreign vehicles as interim solutions until more U.S. stuff is approved.
He said the U.S. gear would make the most sense for Iraq, particularly the Strykers and perhaps MRAPs and M-ATVs.
But the paramount goal should be improving Iraq's army, Goure said.
"I don't think it should matter to us which vehicle Iraq buys as long as what is going on is the creation of a military that is self-supporting and self-sustaining so we don't have to be holding their hands forever," he said.
Improving FMS In Iraq
Meanwhile, the U.S. Multi-National Security Transition Command – Iraq (MNSTC-I) is working to speed up the Foreign Military Sales process in Iraq.
The Pentagon uses the FMS process to sell defense-related goods and services to foreign militaries. Such sales have moved more slowly in Iraq than in other countries.
"In the past, FMS worked well for the requirements it was up against. Now that we are rebuilding the Iraqi army, we face a whole new set of circumstances the original procedure was not set up to accommodate," Lockwood said.
This month, MNSTC-I produced a draft paper titled "Foreign Military Sales in Iraq." Written by Army Maj. Jay Ware, the program manager and plans officer for the FMS effort in Iraq, the draft paper highlights various proposals to improve the process.
"The FMS program in Iraq has steadily developed into a formalized program that differs from all other FMS programs around the world by the fact that it occurs in a combat environment," the paper says.
One suggestion is to assign one officer to each project undertaken by the FMS office to shepherd programs from "cradle to grave." This person would also help arrange the considerable security measures that are necessary to, for instance, have DSCA officials inspect a prospective construction site.
"In Iraq, movement takes days of planning and coordination with various military staffs, contract engineers and the Iraqi military and police," the paper says.
Another suggestion is to more productively use the 90 days it takes for U.S. Central Command's Security Assistance Office to draft each letter of agreement. Every FMS deal requires such a letter to be signed by the purchasing government. MNSTC-I's paper suggests that procurement plans might be laid out, construction blueprints drawn up, and the path generally prepared for the eventual purchase.
No timeline has been officially produced for reforms.
"We want to move with alacrity in this process, but we must ensure at the same time that we meet the letter of the law and intent of the U.S. Congress," an Army official said. ■
E-mail: kosborn@defensenews.com.
http://www.defensenews.com/story.php...02&c=FEA&s=CVS