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09 October 2019

US Exim: Politics vs profit

Managing Editor
US Exim’s full reauthorisation was expected at the end of last month as glimmers of bipartisan support returned to the US ECA. But now big ticket business is under threat once again as the agency’s latest expiry date for congressional authorisation emerges.

The Export-Import Bank of the United States (US Exim) is back to big ticket business. After returning to a full board quorum in May, US Exim wasted no time in sounding out large-scale project finance deals around the world. The US ECA went from eyeing up a $10 million loan (its transactional limit from July 2015 to May 2019) to Carbon Holdings’ $10.9 billion ECA/DFI-backed Tahrir Petrochemicals Corp in Egypt in March this year to announcing a $5 billion loan to the $20 billion Area 1 Mozambique LNG project last month. However, Congress still has the power to shackle the US ECA back to doing deals in increments of millions rather than billions.

On 21 November 2019 the congressional authorisation for US Exim is set to expire. If congress fails to reauthorise US Exim before then, or extend its operating authority (the previous expiry date was 30 September), the agency can continue to service its existing obligations; however, no new loan, guarantee, or insurance commitments can be approved. 

Today neither the House nor Congress has moved a bill that would reauthorise the bank and therefore, the agency’s forward-looking business is looking uncertain, again. Conservatives in Congress that have dubbed Exim as ‘corporate welfare’ believe reform is paramount. But US Exim is still a long way from rallying bipartisan support, something it had enjoyed since it was established in 1934 during President Roosevelt’s New Deal. 

A decade of renewal or axe completely?

US senators – Arizona democrat Kyrsten Sinema and North Dakota Republican Kevin Cramer – put forward a bill this summer that proposed US Exim renewed for 10 years over the traditional four, as well as increasing its exposure cap over seven years to $175 billion from $135 billion. 

However, while the measures warranted consideration, many Exim critics claim the reauthorisation bill aimed to shield the agency from congressional oversight and reform. As one such critic tells TXF: “Exim related legislation would likely almost never appear on the congressional calendar if occasional reauthorisation did not require it to.”

Firstly, Exim should only ever get a five-year charter. That will allow each Congress a chance to reform it or else wind it down. Ten years is outrageous. Secondly, the Kramer-Sinema bill enables Exim to operate under a board that has not been confirmed by Congress. This undemocratic move is an effort to prevent the conditions that caused the recent lull in big ticket business from reoccurring at what was once one of the most active ECAs in the world.

Also under the deal, US Exim would have to address concerns of Congress, regarding the Chinese government, by restricting the access that state-owned Chinese businesses have to the ECA’s export credit products. Congress may just approve of this. 

Politics before profit

For Exim’s staunchest critics, these undemocratic provisions are perfectly fitting in a way. The corporatist industrial policy embodied by US Exim is by its nature tied up with an elitist mindset. The very idea behind Exim is that government can allocate financing with more wisdom than the market, while promoting its exporters. 

Recent years have shown that without government, Boeing airplanes, GE engines and power equipment, and all kinds of US exports have tapped private financing without great difficulty or expense. In fact, major US manufacturers – like GE and Boeing, which are historically darlings of US Exim support – now have new manufacturing strongholds globally, like GE China for example. As a result, these multinational US exporters can now tap new export finance solutions for its overseas buyers, with the more flexible, cheaper non-OECD ECAs, like Sinosure and Chexim, now proving more attractive than Exim’s current product offering. 

The introduction of the US International Development Finance Corporation (IDFC) by Congress in October 2018 led to rumours that US Exim would eventually be incorporated into the IDFC, as the US attempts to take on Chinese developments banks at their own game. Both the IDFC and US Exim have strikingly similar mandates – but until Exim is fully reauthorised, it is unlikely the two agencies will be linked. 

While there are signs of progress for US Exim’s reauthorisation, Congress and the White House are currently busy negotiating an increase in the government's borrowing limit and new spending levels. Therefore, Congress is likely to fail to reauthorise the bank prior to 30 November, unless it is wrapped up into the debt limit/spending deal. If reauthorisation fails to make it in to the debt limit spending deal, then the bank's authorisation will likely lapse because Congress will only have under two months, while in session, to reauthorise the bank before the new expiry date deadline. 

Additionally, if Congress can't get US Exim's reauthorisation into a must-pass vehicle like the debt limit/spending deal, then they probably can't reconcile their differences over the agency in a mere six weeks. In short, another extension to Exim’s operating authority looks like it is on the cards. Unless of course Congress finds enough time before the end of the year to work out their differences and pass a bipartisan reauthorisation of the agency. Unlikely. Especially given the current political climate in the US.

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