What can you say about a government agency that has allowed itself to be defined by its adversaries as bastion of corporate privilege? That it is a private ATM for the Fortune 500? That it is an institution established by FDR that should be abolished?
The Export-Import Bank of the United States has made itself an easy target for populist, anti-corporate forces. The aftermath of a grim recession adds fuel to the fire. In the absence of broad-based resource allocation and an effective communications strategy, Ex-Im Bank finds itself lacking support in Congress, including some of the GOP.
Once again Ex-Im Bank must fight for survival, with its eighty-one year old charter expiring at the end of June. But the institution needs to be reformed, not abolished. Some of the debate demonstrates a lack of public knowledge about what the institution actually does. However, Ex-Im Bank has not done much to sell itself to the American people who it says it benefits through creating and sustaining jobs — nor has it done enough to broaden its U.S. corporate client base. And a recent guilty plea by a former officer of Ex-Im Bank regarding acceptance of bribes has added intensity to the cries to end it.
Nevertheless, Congress should renew Ex-Im Bank’s charter but demand a more diversified allocation of its resources. It should also demand evidence of tightened governance and internal controls. And in this era of austerity, sequester, and economic recovery, Ex-Im Bank has the special responsibility to convince the American people of its value.
Contrary to how Ex-Im Bank is sometimes portrayed in a blur of criticism, it does not exist to extend low rate financing to major Fortune 500 companies that already have access to banking and capital markets. Typically, Ex-Im Bank makes direct loans to foreign governments and government owned companies, and other foreign firms to support their purchase of American capital goods. Aircraft, construction, and agricultural equipment and electric power systems are examples. The borrowers are overseas government agencies and companies — not leading U.S. corporations. In other instances where it does not lend, Ex-Im Bank guarantees the indebtedness of those foreign borrowers to reduce their cost of debt capital, or it provides insurance of accounts receivable that can then be financed by exporters.
When Ex-Im Bank provides its supply chain finance guarantee to financial institutions, it is doing so to enable typically small companies to finance their accounts receivable and get them off their balance sheet. Further, when Ex-Im Bank offers its working capital guarantee, it does so to financial institutions so that small companies that export can have liquidity. For Ex-Im Bank, a small company has up to 1,500 employees or revenue up to $21.5 million.
For fiscal 2014, Ex-Im Bank affirms that 90 percent of its more than 3,300 transactions assisted small companies. However, total commitments were $27.5 billion of which $10.7 billion or 39 percent was the export volume by small businesses.
Ex-Im Bank also states that it has supported 1.3 million American jobs in the past six years, and it notes that it has contributed profit to the U.S. Treasury of $7 billion in the past two decades — its current default rate is remarkably less than one fifth of one per cent. Ex-Im Bank’s engagement is with a tiny fraction of U.S. exports estimated at $1.6 trillion — the vast majority of which is on open account without official support.
The opponents of Ex-Im Bank make it look like the institution is giving away cheap money to major companies that already have it. This is not the case. What is the case is a concentration of financing volume for the customers of a small group of U.S. corporations, particularly Boeing, Bechtel, GE, and Caterpillar to name some. Some of these transactions are highly visible, such as fleets of commercial aircraft or engineering projects that enhance diplomatic access, particularly in emerging markets. In spite of their prowess, U.S. companies must compete aggressively for foreign sales: there are dozens of export credit agencies in the OECD and other countries.
The demise of Ex-Im Bank would be a particular blow to small companies, which are generally unable to take cross-border risk. Those firms do not have the resources or expertise to assess foreign commercial or solvency risk, as well as political risk — the possibility of war, insurrection, civil disturbances, decrees and change in law, arbitrary or capricious conduct by a foreign government, and currency inconvertibility — things that can prevent payment.
Abolishing Ex-Im Bank would also allow other countries to perceive yet more evidence of a U.S. withdrawal from global affairs — as if leading from behind, a precipitous withdrawal from Iraq, the sudden rise of ISIS, and disenchanted allies in Europe and the Middle East were not enough.
Should a Congress with a Republican majority fail to renew Ex-Im Bank’s charter, it will hand Hillary Clinton, presumably the Democratic candidate for president, the opportunity to say that Republicans are anti-trade and anti-jobs.
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