Ex-Im Bank Will Do More With Less

One of the most striking lines in the Bush Administration’s Fiscal 2004 budget proposal is the request for the Export-Import Bank: negative $37 million. Despite that, however, the agency will increase its loans to subsidize U.S. exports-it will just back these loans with less money.

The Ex-Im Bank is a federal agency designed to loan money and underwrite loans to foreign companies and governments so they, in turn, can buy American goods.

In the bizarre world of Washington, the agency’s negative budget line does not mean Ex-Im is being abolished or downsized. No, it will continue to draw down the Treasury while increasing its credit activity, accelerating the government’s exposure to foreign-held debt.

An Ex-Im official said the agency has $711 million left over from previous years’ appropriations.

This surplus is not due to decreasing activity, but to less conservative financing of greater activity. In 2002, Ex-Im’s total for loans, loan guarantees and export-credit insurance was $10.1 billion, a 9.5% increase from 2001. For Fiscal Year 2003, Ex-Im expects to support $12.6 billion in credit activity. In 2004, the bank is aiming at $14.6 billion.

How can Ex-Im loan more and underwrite more private loans with less capital? By backing its loans up with less cash.

Every time Ex-Im guarantees a loan (guarantees are steadily replacing direct loans as the agency’s primary activity) it draws from the Treasury a portion of the money Congress has appropriated it and sets it aside in interest-bearing bonds. The withdrawal is a fraction of the dollar amount of the guaranteed loan, based on the perceived risk of default.

For riskier loans, Ex-Im must spend more-that is, buy more bonds.

Recently, the government eased the calculation of risk assessment so less money could be set aside to underwrite more loans. This increases the possibility Ex-Im’s actual liabilities will exceed its bank account. That increases the risk that taxpayer will need to bail out private lenders later on.

The Office of Management and Budget (OMB) rated Ex-Im’s long-term guarantee program "Moderately Effective." OMB noted with disapproval that in 2001, "64% of the program’s total long-term guarantee transactions involved high-risk markets or high-risk customers."

Ex-Im, sometimes called the "Boeing Bank," has been criticized for favoring the most politically connected corporations. In Fiscal Year 2002, Boeing benefited from $4.94 billion in Ex-Im long-term loan guarantees. That represented 79.9% of the long-term guarantees Ex-Im issued that year (short and medium-term guarantees are not itemized).

In the 2004 budget proposal, Ex-Im would receive no new dollars for its program budget (money it sets aside for financing), would get a 10% increase in its administration budget (funds used for staff salary, expenses and equipment), but would expect to bring in enough money through fees to yield a "profit" of $36 million.