How politics are killing trade finance

GlobalConection: Congress is holding up the Ex-Im Bank’s charter and its ability to finance export deals. Other nations’ export credit agencies are happy to take its place

n a hyper-charged U.S. presidential election year, all bets are off on getting any meaningful legislation through Congress. Especially critical, however, is the refusal of Congress to re-authorize spending authority to one of America’s — and the world’s — most powerful trade financing agencies, the Export-Import Bank.

President Barack Obama has repeatedly pledged to create more jobs at home while expanding foreign markets for American goods and services. It looks to the Ex-Im Bank to help do that.

The Ex-Im Bank is somewhat different from other export credit agencies (ECA) operated by virtually all the G7 group of nations, as well as China and Brazil. The specific goal of the Ex-Im Bank is to provide support financing as a lender of last resort and to create jobs in America.

According to a new report from the U.S. Government Accounting Organization, the Ex-Im Bank has specific mandates to support small businesses and environmentally beneficial exports. Other ECAs typically do not face similar mandates.

Yet politics is blocking any attempt to re-authorize the Omnibus Continuing Resolution bill that would raise Ex-Im Bank’s authorization to $135 billion from $100 billion. Without the authorization, Ex-Im Bank could essentially be out of business this spring.

“The Senate’s failure to renew the Export-Import Bank Charter, which expires in 72 days, is a setback for American workers who produce the high-quality goods and services that are in demand around the world,” stated Ex-Im Bank chairman Fred Hochberg on March 20. “Ex-Im Bank increases U.S. jobs, pays for itself and earns money for the U.S. Treasury, and as a result enjoys strong, bipartisan support,” he added.

Part of Ex-Im’s woes began in December, 2011, when a lawsuit promoted by Delta Airlines complained that financial support for the sale of Boeing Corp. aircraft to Air India hurts U.S. carriers, especially on a key Mumbai to New York route.

“Delta Airlines may have a legitimate grievance about lower cost Ex-Im financing for Air India, but Delta is seeking the wrong remedy,” wrote Gary Hufbauer, an international trade expert at Washington’s Peterson Institute for International Economics. “The right answer is not to block Ex-Im support for Boeing sales to Air India [because that will] throw the global market for big civil aircraft entirely to [the European Union’s] Airbus.”

If the Delta complaint were not enough, the right-wing Tea Party insists that companies such as Boeing can rely on their own credit ratings to finance major purchases.

“But those credit ratings will drop a notch or two if America’s largest exporters are forced to carry an extra $70 billion of export sales on their own balance sheets,” Hufbauer wrote in a two-part series. “In addition, plenty of small U.S. exporters can’t even go to the capital markets for export finance.”

Ex-Im Bank – like other government-supported export financing agencies – is not a minor player in the global export market. And there are strong arguments for increasing its financing commitments from $100 billion to $135 billion

“Since each extra billion dollars of exports creates 6,000 jobs, simple arithmetic suggests that, on an annual basis, the difference between an Ex-Im Bank with $100 billion of lending authority and an Ex-Im Bank with $135 billion of lending authority could amount to more than 200,000 jobs,” Hufbauer argued.

“When America is hungry for exports and jobs, why the delay?”

The Ex-Im Bank approved $32.7 billion in total authorizations such as loans or receivable guarantees in 2011 — an all-time Ex-Im Bank record. This includes more than $6 billion directly supporting small-business export sales. According to the bank, that $6 billion supported $41 billion in export sales and some 290,000 American jobs.

While Congress dawdles, Hufbauer added, other government export credit agencies are boosting their own sales outside their domestic borders. “The two new big boys are Brazil and China,” he told Business without Borders. “They have extremely aggressive programs.”

Canada, France, Germany and the United Kingdom also have large programs, but not necessarily the Ex-Im baggage of having to design programs to create jobs.

Hufbauer said that trade finance will play a crucial role in President Obama’s goal of doubling U.S. exports by 2015. “Almost 90% of exports depend on trade finance in some form — direct credit, credit insurance or loan guarantees,” he said.

There are many ways to increase the effectiveness of the Ex-Im Bank, Hufbauer said, including boosting its funding level to finance 5% of U.S. exports; bringing in more private banks to play a an active role in trade financing; and cutting Ex-Im’s 85% local content requirement to 50% to better reflect global sourcing.

It is time to break the political log-jam. “Quick action will enable the Bank to support U.S. exports during the rest of the year, not only airplanes sold to carriers in Asia, Latin America and Africa, but also a wide range of industrial products exported worldwide by large and small firms alike,” he wrote. “That’s a practical and costless way to create American jobs.”