EXPORT-IMPORT BANK

December 10, 2015


In recent weeks the Export-Import Bank has been in the news—some positive and some negative.  I have never interfaced with the bank or had cause to contact the bank so I was very interested in doing cursory research to see just what services they give.  Here is what I found.

The Export-Import Bank of the United States (EXIM Bank) is an independent, self-sustaining agency with an eighty-one (81) year record of supporting U.S. jobs by financing the export of American goods and services. Established in the wake of World War II, when crippled foreign markets were strong enough to purchase American products, the Export-Import Act of 1945 has been renewed by Congress sixteen (16) times without a political fight.  This year (2015) that fight has been intense due to some feeling the bank is unnecessary and caters to the largest of corporations.  According to some, the bank is unsustainable, and, according to the Congressional Budget Office, is set to cost taxpayers $2 billion over the next ten years.  This figure doesn’t take into account the opportunity cost of diverting these taxpayer dollars, money which could be utilized elsewhere in the economy.  Tax dollars should go toward fixing roads and infrastructure, funding troops and national security, not toward funding private transactions for America’s largest Fortune 100 corporations.  After a five-month hiatus–one that cost businesses billions of dollars worth of credit guarantees and insurance for overseas business opportunities–the 81-year-old agency regained authorization to once again begin supporting the export operations of thousands of its business customers. The bank had been forced to suspend operations following a long campaign by Republican lawmakers, who want to close the financing agency because they see it as an example of “crony capitalism” that assists only the nation’s biggest businesses.

With that being the case, on December 4, 2015 President Obama signed legislation reauthorizing the charter of the Export-Import Bank of the United States (“US Ex-Im Bank”) through 2019. The reauthorization is part of a 5 year, US $305 billion transportation funding approved by both houses of the US Congress. As a result, US Ex-Im Bank will begin doing new business again, ending for now a long and well-publicized debate about the future of the US’s official export credit agency.  There still is controversy.

On the plus side, by financing the export of American goods and services, EXIM Bank has supported 1.3 million private-sector, American jobs since 2009, supporting 164,000 jobs in FY 2014 alone.

With nearly sixty (60) other export credit agencies around the world trying to win jobs for their own countries, EXIM Bank helps level the playing field for American businesses. “Made in America” is still the best brand in the world, and EXIM Bank ensures that U.S. companies never lose out on a sale because of attractive financing from foreign governments.

In FY 2014, Export-Import Bank financing supported $27.5 billion worth of U.S. exports. $10.7 billion of that total represents exports from U.S. small businesses, making small business exports the top category for EXIM Bank supported exports last year.

While the Ex-Im Bank projects to save the US government $14 billion over ten ( 10 ) years, an alternative analysis from the Congressional Budget Office found that the program would lose about $2 billion over the same period, partly due to discrepancies how credit risk is accounted for. Both conservative and liberal groups have been critical of the bank, and some continue to call for its closure.  President Barack Obama was critical of the bank during his presidential candidacy, but has since become a supporter of the program. Let’s take a look at where the money goes by  category.

Bank Segments

The three largest beneficiaries of Ex-Im financing are Boeing, General Electric and Caterpillar, not small businesses by any definition of the word.  In fact, those three are multinational conglomerates that can most certainly find private financing elsewhere.  That goes directly against the bank’s own charter, which states that the bank should provide export financing only for “export transactions that are unlikely to proceed without Ex-Im support.”  In 2012, Boeing alone received 83 percent of all loan guarantees, and in 2013, just five corporations received 93 percent of all Ex-Im loan guarantees.

Private lenders, like JP Morgan Chase, and Citibank, benefit as well.  When Ex-Im finances transactions, a private lending institution holds the debt for the transaction and is able to charge an interest rate to the borrower.  Because the transaction is backed by the full faith and credit of the United States, they hold this debt practically risk-free.  These giant lending institutions churn a profit, without housing any of the risk.

Nearly 99 percent of all U.S. exports are financed without the bank’s help. In fact, the bank penalizes those other 99 percent of U.S. exports by distorting the market and putting them in an anti-competitive position, forcing them to compete with companies who do receive federal loan subsidies at more favorable rates.

I’m not a finance “guy” so I can’t pass judgment on the bank and its operations.  I do know much greater “advertising” needs to be accomplished to alert small businesses that financing is available through the bank.  You would think the U.S. Chamber of Commerce would lead this effort and spread the work.   If we consider our trade deficit, we find a huge imbalance. The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $43.9 billion in October, up $1.4 billion from $42.5 billion in September, revised. October exports were $184.1 billion, $2.7 billion less than September exports. October imports were $228.0 billion, $1.3 billion less than September imports. The October increase in the goods and services deficit reflected an increase in the goods deficit of $2.1 billion to $63.1 billion and an increase in the services surplus of $0.6 billion to $19.2 billion. Year-to-date, the goods and services deficit increased $22.2 billion, or 5.3 percent, from the same period in 2014. Exports decreased $84.7 billion or 4.3 percent. Imports decreased $62.5 billion or 2.6 percent.

Exports of goods decreased $3.1 billion to $123.8 billion in October. Exports of goods on a Census basis decreased $3.0 billion.  Industrial supplies and materials decreased $1.6 billion.

  • Fuel oil decreased $0.4 billion.
  • Other petroleum products decreased $0.4 billion.
  • Capital goods decreased $0.9 billion.
  • Industrial engines decreased $0.5 billion.

As you can see, we are losing the trade balance battle.  As I mentioned, maybe greater emphasis should be placed on alerting small businesses that the “bank” is ready and willing to work to enhance exports from small and mid-cap companies.  Just a thought.

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