[This piece was published in the April 2015 issue of The Nugget, the periodical of the Nevada County Republican Women Federated.  It is republished here to give RR readers a clear, complete, and concise exposition of the function and conduct of the Export-Import Bank of the United States, which is now wending its way through a congressional review process that will determine its future.  The Ex-Im bank has become a political issue as a result of charges that it is an entrenched vehicle for subsidies that favor a few large exporting corporations.  Congressional disposition is scheduled for this June before which it will again rise into the national attention span.  This is a heads up. gjr]

Jo Ann Rebane

With its charter expiring on June 30, 2015, congressional reauthorization of the Export-Import Bank of the United States will be a hot topic in the next months.  This government owned bank “provides taxpayer-backed loans and loan guarantees to foreign countries and companies for the purchase of U.S. goods” and is the federal government’s export credit agency.  Created by FDR in 1934, taxpayers initially provided $1 billion in capital stock.  Ex-Im’s current mission is to “…aid in financing and to facilitate exports of goods and services, imports, and the exchange of commodities and services between the US and foreign countries and in so doing, to contribute to the employment of US workers.”

The Ex-Im bank, backed by the US taxpayer, has 4 tools it uses to reduce private lending risks against the possible default of a foreign buyer of US goods.

1) Loan guarantees, the bank’s largest activity, allows foreign and domestic lenders to finance foreign buyers of US exports with reduced risk as taxpayers ultimately guarantee 85% of each contract against default.

2) Direct loans to foreign buyers haven’t been used much since 1980 because commercial interest rates are lower than those of Ex-Im.

3) Working capital guarantees are short term loans to US exporters backed by anticipated receipts from foreign buyers whereby a US commercial bank (lender) receives from Ex-Im 90% of the loan balance if the foreign buyer defaults to the US exporter.

4) Export credit insurance can be purchased by a US exporter who extends credit to his foreign buyer, and Ex-Im pays to the exporter any outstanding balance in the case of default by the foreign buyer.

In FY 2013 the bank “authorized” $27 billion to support $37.4 billion worth of US exports, and this, according to its annual report raised the accumulated “exposure” or risk to taxpayers of $113.83 billion.

Moderate Republicans and Democrats, 58 of whom in January signed to co-sponsor legislation to reauthorize the bank for 5 years, contend that the Ex-Im bank promotes exports by financing projects private lenders might reject, creates/maintains US jobs by subsidizing exporting companies and incentivizing large exporters to include US made sub-systems in their projects  and products, by its charter assists small businesses to compete in the global market, and levels the playing field for US exporters increasing their ability to be competitive.  Here the government has decided that helping Boeing, General Electric and Bechtel Corp to export, lets them compete favorably against Airbus, Mitsubishi, etc. and helps the US economy, and is a good deal for taxpayers because Ex-Im is a profit-generating federal program, returning a net $1 billion to the Treasury in 2013.

Detractors, led by Rep. Jeb Hensarling, House Financial Services chairman, The Heritage Foundation and the Mercatus Center of George Mason University have spent the last year refuting those claimed benefits. They argue that it is not prudent for Ex-Im to finance projects rejected by private lenders (think of the Fannie & Freddie recent troubles), and that only 2% of all US exports had Ex-Im involvement,  with 98% of all exports taking place without Ex-Im facilitation.  While subsidizing certain exporters surely maintains the jobs provided by those employers, what is not known are the unseen effects on unsubsidized US firms and how their employees’ jobs were impacted. 

By charter Ex-Im must allocate 20% of its authorizations to support small business defined as firms with 500-1500 employees rather than the “less than 500” employee definition used by the Small Business Administration and Federal Reserve.  Even using its generous definition of “small” the Ex-Im bank authorized only 19% of its 2013 assistance to “small business” activity.  More interestingly, almost 1/3 of all assistance in 2013 went to Boeing Corporation in the state of Washington, hence the accusation Ex-Im is “Boeing’s bank”.

Since 2012 Ex-Im is required to categorize the purpose of each transaction – that is (1) assume risk others unwilling to take, (2) overcome limitations in private sector export financing, and (3) meet competition from foreign government sponsored export-credit financing.  However, today 50% of the bank’s current portfolio remains uncategorized and of the remaining categorized portfolio, only a third is intended to counteract foreign competitive disadvantages.  To the final point, opponents of Ex-Im doubt its claim of generating $1 billion in net revenues for the Treasury or its ability to do that in the future.  Opponents are alarmed by the bank’s dodgy accounting methods, sloppy record keeping, inadequate risk analysis, and default assumptions.  They are joined by the Government Accounting Office, the Congressional Budget Office, and Ex-Im’s own inspector general, all pointing to “under-reserving and underpricing of the portfolio risk.”  Additionally, the aircraft sector represents over 51% of the Ex-Im total portfolio value and could subject the entire enterprise to catastrophic loss in an industry down-turn like that of the recent mortgage market in 2008. 

At the very least, it seems the Ex-Im bank is neither a prudent nor transparent operation and needs more light shed on it.

[Mrs Rebane is the 2nd VP and Legislative Chair of the NCRWF]