The US is developing new options for international arms customers to prevent allies and partners from cancelling planned defence procurements programmes as a result of the impact of coronavirus pandemic.

One of the options is allowing customers to draw on standby letters of credit (L/Cs) from foreign banks operating in the US according to US banking rules.

Beneficial terms

The Defence Security Cooperation Agency (DSCA) is allowing international customers to finance arms procurement through US bank loans and altering existing payment schedules to stretch the costs over time.

By allowing partners to draw on standby L/Cs from foreign banks operating in the US the DSCA is offering nations an opportunity to draw, for example, on an L/C on one of their domestic banks operating in the US. This modus operandi also ensures there is no fiduciary risk to the US.

Considering the options

DSCA officials had been considering adding such an option for some time, but the economic downturn pushed the agency to start offering it for customer nations.

Similar funding plans have existed for some time in Europe, where specific entities in countries are responsible for guaranteeing loans taken out by arms purchasing states.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.