How Useful is the Export-Import Bank?

June 6, 2006
BY DR. PAUL FREEDENBERGVice President-Government Relations AMT - The Association For Manufacturing Technology TWENTY-FIVE YEARS AGO, I WAS the staff director of the Senate Banking Committee's Subcommittee on International Finance. One of the major ...

Vice President-Government Relations
AMT - The Association For Manufacturing Technology

TWENTY-FIVE YEARS AGO, I WAS the staff director of the Senate Banking Committee's Subcommittee on International Finance. One of the major questions before the subcommittee was to what degree the Export-Import Bank of the United States (known as the EximBank) was useful to U.S. exporters, particularly those who could be categorized as small to mediumsized businesses. The interest rates at the time were in the 12 percent range, and the United States was beginning to be seriously challenged in the manufactured goods arena by the upstart competitor Japan. The U.S. was already running an unprecedented bilateral trade deficit in the tens of billions of dollars.

We also were being challenged by European companies backed by aggressive official export credit agencies from their home countries. Of course, our trade with China was virtually non-existent, but America's trade dominance, which had been unchallenged since the end of World War II, was beginning to erode.

The question before the subcommittee was what role EximBank could play in that scenario. Then, as now, the EximBank was in a supporting and facilitating role, allowing large U.S.based companies such as Boeing, General Electric, Westinghouse and Bechtel to match their foreign counterparts and obtain competitive export credit for their projects abroad. As their spokesmen were quick to point out, Boeing may have dominated the direct credit program at the EximBank, but it was only by matching the credit proposals of Airbus that Boeing could hope to win the contracts that would provide business for Boeing's 25,000 subcontractors, the vast majority of whom were small-to medium-sized businesses. At the time, that was the only way these businesses benefited from the EximBank, because programs designed to help smaller firms utilize the bank failed to achieve many positive results.

That was unfortunate, because — then as now — few commercial banks in the United States offered trade financing. As James Morrison, President of the Small Business Exporters Association recently put it, "Without Ex-Im, small company access to foreign buyer financing would be effectively zero." For some, the EximBank is not the bank of last resort, it is the only resort.

That is why many programs have been introduced to make the Exim-Bank more accessible to smaller companies. The most obvious example is the requirement that the EximBank devote at least 20 percent of its financing dollars directly to small businesses. This mandate has forced the Bank to develop programs and devote staff to the needs of small companies.

Why then are smaller companies among the strongest critics of the EximBank? The answer is simple. The bank has never been able to devote enough resources to its small company obligation because Congress has consistently under-funded the administrative and operating budget of the bank. Despite turning a profit, the EximBank is required to return its profits to the U.S. Treasury. EximBank, therefore, is dependent on the judgment and the generosity of Congress to provide appropriations for staff sufficient to fulfill its mandates.

Despite rhetoric about the importance of funding small business export financing, Congress has been consistently unwilling to provide funds to staff the additional positions that would administer those small company services. For the past five years, Congress has increased the EximBank's budget by only a few million dollars, allowing the bank to stay even with inflation but not provide the additional staff needed.

EximBank turns a consistent profit. Exporting is vital to American prosperity. Smaller companies could join in the export arena to a greater degree with additional export financing. It is time for Congress to put their money where their rhetoric is, and for smaller companies to let their Congressional representatives know that additional EximBank funding would have a bottom line pay-off in their ability to better compete internationally.

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