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SECURITY

U.S. fails to reimburse Japan’s excess advance FMS payments promptly

It was learned that as of the end of FY16, the U.S. had not reimbursed the Japanese government more than 100 billion yen in excess advance payments made for defense equipment purchases under the Foreign Military Sales (FMS) program, failing to settle accounts after procurement was completed.

 

The U.S. tends to make higher estimates for required advance payments on account of exchange rate fluctuations and other factors. Japan usually consents to make such payments in most cases, and this often results in delayed reimbursements of billions of yen each year.

 

For a time, the amount of unsettled accounts had dropped, but they have begun to grow again from FY15. As of the end of FY16, the accumulated amount was 107.2 billion yen.

 

The Board of Audit had pressed the Ministry of Defense (MOD) to settle the accounts on at least three occasions between 1997 and 2013.

 

Of the amount due, 62.3 billion yen, or over 60%, has exceeded the Japanese and U.S. governments’ target date for account settlement of “two years after equipment is delivered.” While the Japanese side continues to press for account settlement, no progress has been made in processing on the U.S. side in the current fiscal year. Total FMS transactions more than quadrupled from 111.7 billion yen in FY13 to 488.1 billion yen in FY16, so the amount of reimbursements due may increase further.

 

FMS transactions are conducted on the basis of advance payment of amounts estimated by the U.S. side. Under most contracts, the excess advance payments are reimbursed to Japan after account settlement, and the average annual reimbursements from FY14-16 was approximately 5.3 billion yen.

 

The Japanese government converted its account with the U.S. Federal Reserve Bank from an interest-free one to an interest-earning one in FY05 to reduce losses resulting from reimbursement delays. As a result, this account earned an average annual interest of approximately 270 million yen for the national treasury from FY14-16, while the U.S. side had to make interest payments. The MOD says that it will “redouble efforts to urge the U.S. side to settle accounts at an early date.”

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