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US budget plans see Ex-Im remaining – but in what form?

It is now less than three weeks to the annual US Export-Import Bank (Ex-Im) meeting in Washington DC. The Ex-Im bank still does not have full re-authorisation, it does not have a chairman, and it does not have a quorum of board members –

It is now less than three weeks to the annual US Export-Import Bank (Ex-Im) meeting in Washington DC. The Ex-Im bank still does not have full re-authorisation, it does not have a chairman, and it does not have a quorum of board members – meaning that it can only fully approve new export deals under $10 million. What a ridiculous situation! One CFO of a US exporting company, who will be attending the annual meeting, tells me the current position for US Ex-Im is: “Theatre of the absurd!”

Traditionally, at annual Ex-Im meetings around 1,000 people descend on the Omni Shoreham Hotel to hear from the bank officials, take part in panel discussions, network and do business. The people attending include US manufacturers, exporters, foreign importers, project sponsors, financial and project advisers, commercial banks, insurance brokers, insurers, reinsurers, law firms and many others. It is one of the best forums in the global trade calendar. But without even a chairman of Ex-Im??

Last year, Ex-Im was still in this intolerable position with its hands tied behind its back and its legs strapped together – but at least there was hope with the then chairman and president of Ex-Im Fred Hochberg still at the helm. There was still a lot of optimism for US exports and export-led projects at US Ex-Im in April 2016. I even led a panel – with around 300 people in the audience on ‘Opportunities for US Exporters in Middle Eastern Markets’, and there was so much positive interest, even I was surprised at US corporate interest.

Hochberg, as most of you know, resigned in January this year following the election of Donald Trump as US president. As I wrote in my ‘Open letter to Trump’ on 12 December 2016, Hochberg was the best leader of Ex-Im I have seen in my 30 years writing on global trade and project finance.

If you haven’t read my letter (which is open on the TXF News website) it was largely a plea to the then president elect to fully reauthorise Ex-Im and appoint a new member to the board so that it could properly function and serve US exporters.

One market observer, sent in an online response stating: “President-elect Trump recognises the value of generals and investment bankers in driving economic growth. Surely traders, exporters and those who finance them should be held in similarly high regard.”

And further, I pleaded that only by concentrating on exporting (as opposed to business between the west and east coast) can the USA really become great again as a trading nation. The recently elected President Trump is insisting that he is not an ‘isolationist’ – but there appears little evidence to contradict that at this juncture.

Currently, there is understood to be in the region of close to $30 billion worth of Ex-Im supported (primarily financed by commercial banks, but with US Ex-Im guarantees) US produced exports and business just waiting for a new Ex-Im board member to be appointed so that those deals can proceed. It’s a no-brainer in anybody’s book!

The question remains though, just how far is Ex-Im removed from the US president’s priority list. And with the annual Ex-Im meeting now looming, it would seem to most observers that it must be not a major consideration. I hope we are all wrong!

Ex-Im escapes budget cuts, but OPIC gets the chop!

But hold on a minute! The new US budget blueprint has just been released this week (America First: A Budget Blueprint to Make America Great Again), and US Ex-Im has not been positioned within that to be scrapped. So there is obviously still hope for Ex-Im! However, unfortunately the Overseas Private Investment Corporation (OPIC) is one of the agencies which the Budget Blueprint proposes should have its funding eliminated.

Of course, the Blueprint spells out the massive increase in US defence spending, while at the same time emphasising the desire to keep ‘more of America’s hard-earned tax dollars at home’. Some $54 billion in cuts is anticipated, and in his introductory Blueprint remarks President Trump states: “Every agency and department will be driven to achieve greater efficiency and to eliminate wasteful spending in carrying out their honourable service to the American people.”

Spending by US Ex-Im has always helped generate jobs related to exports, and as an agency it actually returns handsome financial returns back to the US Treasury.

The ridiculous statements often spewed out by some Ex-Im opponents that Ex-Im is involved in corporate welfare and only supports big business is pure nonsense from totally misguided (I’m being kind) people with little real idea of the realities and complexities of cross-border trade and more often than not those with political agendas. Get real guys, start being pragmatic and look at the bigger picture!

The supply chain of big corporates, such as Boeing and GE for example, includes many thousands of smaller companies all over the US, employing hundreds of thousands of people. Any export contract won overseas for these big corporates is further job security for many thousands of US workers in smaller US companies and further cementation and growth of the country’s export base.

The US dollar is of course the reserve currency of the world – but that does not mean the country can continue to solely concentrate on trade between the west and east coast! Wake up!

In his introduction to the Budget Blueprint, Mick Mulvaney, director of the Office of Management and Budget (OMB), stated in his last paragraph: “Our $20 trillion national debt is a crisis, not just for the nation, but for every citizen. Each American’s share of this debt is more than $60,000 and growing. It is a challenge of great stakes, but one the American people can solve.” Absolutely, you can – export more, and empower US Ex-Im properly to help support US exports, the economy and work towards a better balance of payments!!

The full Budget will not be released till later this spring, but the Blueprint, as mentioned above, specifies elimination of a number of agencies and reduction in hundreds of existing programmes. OPIC, which provides investment insurance and guarantees for US businesses setting up in overseas markets, has been highlighted as an agency that will lose its funding entirely. Similarly, the US Trade and Development Agency has also been targeted for elimination of funding. The Blueprint is also seeking a $1.5 billion reduction (or 16%) in the funds made available to the Department of Commerce (from the previous year).

The 62 page Blueprint can be seen in its entirety on the website of the OMB. The proposals being put forward will, of course, be discussed in Congress.

What next for US Ex-Im?

So, what about US Ex-Im? What form can we expect it to take? Will it be left in this current state of limbo, or does the new president intend to do something. Will we see a new chairman appointed in time for the annual meeting? Will President Trump surprise us all and turn up to announce that it is all systems go with full reauthorisation?!!

There are some that believe that Ex-Im could end up being changed so that it is made to focus only on smaller companies, providing working capital and guarantees against export contracts. However, Ex-Im would point out that much of its current focus is already set up to support small and medium-sized (SME) companies involved in the export chain. It has many specific SME programmes. And also in reality, it is largely the bigger companies that are the ones able to compete in international markets and win orders. A significant proportion of these hard-won contracts are farmed out to the smaller companies as sub-contractors – this is how those companies often get on the export ladder and end up in the export supply chain.

While the current situation of limbo remains for Ex-Im, further damage is done to the agency’s structure – some people have left, others are massively unsure about their future and engagement on new business is minimal. At the same time foreign competitors are laughing and blessing their good luck - on many big contracts and projects where US firms are at a distinct disadvantage in the competitive stage without US Ex-Im support.

Foreign firms may have access to solid export credit agency (ECA) support from their own countries ECAs. This support, of course, can range from guarantees to direct loans and much more in-between – depending on the agency and country concerned. Much of this competition is from agencies within the OECD and as such follows the guidelines of the OECD consensus. This is not the case with China and the way China Exim operates though.

This whole issue is now one that really irks the US Treasury. If the US can’t play in the same park (because it isn’t fully authorised) – why should the rest of the world be allowed to? Will we start to see the US exert pressure on European and Asian ECAs and agencies or even foreign corporates or banks? In a way, that has already started.

Last year around the fringes of the US Ex-Im annual meeting, global heads of export and project finance units of leading international commercial banks in DC for the Ex-Im annual meet were called into a meeting with US Treasury. There, they were questioned about their activities with other ECAs, and it was made quite clear that certain operations and products being offered by foreign ECAs were now being frowned on by the US Treasury. What was the reaction of the bankers? I will be polite: business must go on of course!

Comments (4)

  • William Laraque
    William Laraque, US-International Trade Services 30 March 2017

    Those versed in global trade and trade finance clearly understand the link between trade, the U.S. Ex-Im Bank, a vital and vigorous export/import sector. and U.S. economic growth. What bemuses me is the new U.S. administration"s idolatry of the wealthy., an idolatry that bestows upon the worshipped an assumption of competence. Churchill reassured us that a U.S. democracy will eventually do the right thing, after having exhausted all other alternatives.

  • Ralph Lerch
    Ralph Lerch, Commerzbank 29 March 2017

    Thank you, Jonathan, for a well balanced description of the mysery and its potential implications for the export industry! It should not be ignored by the new US Administration that the climate for capex investments worldwide is rather weak and in most ermerging markets medium and long term funding for capex - which also amortizes over longer period of time - is not available. If exports from the US shall remain competitive to offers from Non-OECD suppliers a strong and predictable US Exim support is fundamental. Ralph Lerch, Chair of the Export Credit Working Group of European Banking Federation (EBF) and Global Head of Export & Agency Finance, Commerzbank

  • William Laraque
    William Laraque, US-International Trade Services 21 March 2017

    This is a very "fair and balanced" assessment of the need for a U.S. based ECA, an Ex-Im Bank. This exhortation precedes the need for a vigorous U.S. participation in exporting and importing, in providing global trade leadership and in having an informed constituency that clearly understands global trade and all of its repercussions. We don't have any of this in the U.S. at the moment. What we have is the triumph of ignorance and mediocrity and only another cataclysm will provide a change of course.

  • Isabelle Roux-Sharpe
    Isabelle Roux-Sharpe, Société Générale 21 March 2017

    Great article Jonathan. I hope that President-elect will be pragmatic on this topic. The big companies were agile enough to mobilize other ECAs so as you said, the SME are the ones suffering most of the situation. We all remember that last year Acron won USEXIM award for building bridges in Cameroon. This is the kind of deal that is lost for the American companies and the African continent. Isabelle Roux-Sharpe- Deputy Head Export Finance Soci�t� G�n�rale

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