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How much do American exporters need Ex-Im Bank?

Last Friday, moderate Republicans in Congress formed an unlikely coalition with Democrats to force a vote on reauthorizing the Export-Import Bank of the United States, or Ex-Im Bank. The government-sponsored entity, responsible for promoting American exports with subsidized credit, had lost its congressional authorization to conduct new business on June 30. Denying the authorization had been the culmination of a bitter fight by small-government conservatives to quash what they viewed as an example of crony capitalism at its worst. By contrast, Congressional leadership of both parties supported Ex-Im Bank, as did President Obama—and now they seem set to put the bank back in operation on October 26, when the actual vote will be held.

Ex-Im’s role is to promote exports by lending money directly to the foreign buyers of American products, or else to provide default insurance to American firms who lent out money for the same purpose. (In this, Ex-Im is the complement to the Overseas Private Investment Corporation, or OPIC, which provides political risk insurance for American firms investing in projects overseas.) Ex-Im is required by its charter not to replace the private market, but only to operate where there is a gap in private financing. Given that its operations are on hiatus for now, it is worth asking whether the private market is capable of stepping up and filling in.

{mosads}The vast majority of Ex-Im support dollars go to large firms. The biggest single beneficiary of Ex-Im support, Boeing, received some $8.1 billion in export support in the 2014 fiscal year, over 40 percent of Ex-Im’s total for the year and far more than the 25 percent total provided to small businesses; yet Boeing is quite capable of replacing these amounts internally. Its in-house credit arm, Boeing Capital, had outstanding loans of $12.6 billion in 2002 and only $4.1 billion as of March 2015. Rating agency Fitch argues that Boeing could easily lend out billions more by itself without harming its stability, especially given the present low market interest rates. The rest of the top beneficiaries of Ex-Im, companies like Caterpillar and GE, have similar access to market credit.

Fitch and other observers believe that the major corporations will see little effect from Ex-Im’s absence, except on the margin. The companies themselves disagree, citing overseas competition from foreign firms (often Chinese) with their own state lending support. Perhaps more convincingly, they note that for certain types of major infrastructure projects (particularly nuclear energy), foreign laws require a proposal to have the support of a government-backed export credit agency (ECA) to be valid. No ECA, no bid.

Getting rid of Ex-Im without having something to replace it leaves American firms shut out of these kinds of projects, which is why GE for one has been loud in its support of Ex-Im. Boeing, too, has threatened to move some of its factories to Mexico or Canada, to take advantage of the ECAs in those countries. Unless enough foreign governments suddenly change their minds about requiring ECAs, it is difficult to imagine that the private sector can solve the problem by itself.

Problems are more serious for smaller firms seeking overseas customers. In many cases, particularly in less developed parts of Africa, banks are simply not lending to small businesses at all—in part because of poorly-thought-out international banking regulations that claim to make the banking system more stable, but leave many poorer citizens of developing countries shut out of the banking system entirely. While large firms have access to government credit and tiny enterprises can often secure funding from microfinance banks, many mid-size foreign customers do not have access to the credit they need to buy American goods.

Additionally, Ex-Im is sometimes helpful for small American firms as a source of guidance and expertise when navigating the rocky shoals of international exports. Especially with emerging markets, American firms face many barriers when trying to export their goods, which Ex-Im is able to assist with.

But when it comes to smaller businesses, the major obstacles are not legal, but financial. And here it seems that the private sector should be better able to fill in. Interestingly, a Google search for the Ex-Im Bank presents an ad for CreditEureka, a private firm that offers export-credit products as well as political risk insurance. One of the co-founders is an alum of Aon Risk Services, a well-known political-risk advisory firm. The political-risk industry is relatively young but growing fast; while mainly focused on products similar to those provided by OPIC (indeed, the industry was initially jumpstarted by OPIC veterans), it seems to be branching out into export finance as well as insurance and analysis.

We cannot push this idea too far. CreditEureka actually supports Ex-Im’s reauthorization. But perhaps the lure of a new market niche will encourage more private firms to snag a piece of the Ex-Im pie. After all, there are no legal obstacles to small businesses financing their exports without an ECA, as there are in the case of the large infrastructure projects noted above. All that is needed is an actor with the willingness and expertise to risk its own capital. And the benefits of an expanding universe of private lenders for overseas customers would go far beyond the immediate advantages to American firms; increased access to capital (whether or not linked to purchases from American exporters!) would help these economies develop faster and unleash more entrepreneurial talent than is now possible—surely a worthy goal of American policy.

At the end of the day, Congress should indeed reauthorize Ex-Im – the sooner the better. If the international business environment is structured to expect involvement by ECAs, then the United States needs an ECA to fully participate in the world economy. And Republican conservatives in Congress need to learn to be more thoughtful with their reform efforts, instead of blithely dismantling key components of the international trade regime without a plan to replace them. If reformers are concerned about cronyism and corruption at Ex-Im, they need to figure out a better way to root it out than to leave American exporters out in the cold entirely.

But one can hope that this shock to the export system will provide the impetus for greater private-sector export finance, which will make the international economy more resilient and vibrant. One can also hope that the next time government reformers want to clean up the economy, they look at our stifling banking and securities regulations instead—which would help far more people in the long run.

Litwin is a political risk research fellow with Young Professionals in Foreign Policy, and an associate fellow at the R Street Institute.


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