IN THE mid-1970s the United States greatly increased its foreign aid, especially military and military related. Most of the increase went to Israel and later also Egypt. For fiscal as well as political reasons, the amount was blurred. In the first of what became a series of such contrivances, a substantial part of the aid was given as "guaranteed loans" for which, unlike grants and direct loans, only partial appropriations then needed to be made. The understatement was the greater because most of these were not the usual guaranteed loans from a private source. Here the government itself provided the money; the Defense Department then promised the Treasury to make good if the client country failed to repay. The transaction was a direct loan by another name.
By the mid-1980s the debt so easily entered into had become too great for some of the borrowing countries to sustain -- and for the executive branch and Congress to continue to obscure. A profound change in policy occurred -- a shift back from loans of any kind to grants. But once again there was a blurring. The accounting rules were stiffened so that guaranteed loans (genuine and confected) had to be included in the budget and confronted in appropriations bills. But Congress also took a half step back. Instead of admitting it was giving grants, it began to dispense much of the aid in what are called forgiven loans: made and forgiven in the same utterance, but loans they remain.
The nonloan loans deal with the problem prospectively, but not with the $20 billion in old loans left behind. Some recipient countries can't repay. Others say -- and some in government agree -- that while they can repay, the burden would be too great and they shouldn't be required to. It is pointed out that these countries are armed for U.S. purposes as well as their own.
By another roundabout device, the government is already helping these countries defray their military loans. It gives them so-called economic support funds. Technically these civilian funds cannot be used to satisfy military debt, but money is fungible, and in the case of Israel Congress has explicitly said that economic support shall never fall short of military debt service.
Now steps have also been taken to lower the interest on these loans, some dating from the high-interest 1970s and early 1980s. One of the plans is similar to a favor Congress struggled to do last year for the nation's rural electric cooperatives, which also have high-interest debt. The administration vigorously opposed help for the coops on the grounds that it would add to future deficits. It was much less vigorous about the parallel step in foreign aid.
Many of the debtor countries, especially Egypt, say the easing of interest won't be enough. They want a broader form of forgiveness. That would amount to recognition that much of this aid has consisted of disguised grants all along. Perhaps it has. It would be useful to discuss this extensive program -- now about $10 billion a year, much of it vital to the national interest -- in something other than beclouding aidspeak.