Fund but ver­ify Ex­port-im­port Bank

Lend­ing is vi­tal for fi­nanc­ing for­eign sales of U.S. prod­ucts

The Washington Times Daily - - Opinion - By Frank J. Gaffney Jr.

Or­di­nar­ily, a ques­tion of whether to reau­tho­rize the U.S. Ex­port-im­port Bank of the United States (Ex-im Bank) and in­crease its loan limit would be about as un­con­tro­ver­sial a propo­si­tion as one could find on Capi­tol Hill. Ex-im Bank pro­vides an im­por­tant coun­ter­part to the gov­ern­ment­guar­an­teed loans our in­ter­na­tional com­peti­tors use to en­cour­age their in­dus­tries’ ex­ports. And it makes money for the Trea­sury. This year, though, some of my friends among the fis­cal-con­ser­va­tive and strict con­sti­tu­tion­al­ist com­mu­ni­ties are urg­ing that the bank’s au­tho­riza­tion be al­lowed to ex­pire or, at least, that Ex-im Bank not be al­lowed to in­crease the amount of loans it can make with gov­ern­ment guar­an­tees. They ar­gue that we should not be ex­tend­ing credit at a time when we are broke, we should not be pick­ing win­ners and losers, and these sorts of trans­ac­tions amount to crony cap­i­tal­ism and fa­vor big busi­nesses.

De­spite such con­cerns, the out­come is not re­ally in doubt. The U.S. Se­nate surely will vote to reau­tho­rize the Ex­portIm­port Bank, as has the House of Rep­re­sen­ta­tives, and raise its loan limit from $100 bil­lion to per­haps as much as $140 bil­lion. The rea­son is clear: The cur­rent au­tho­riza­tion will ex­pire on May 31, and the bank’s ex­ist­ing loan limit will be reached this month. Most sen­a­tors and their House coun­ter­parts rec­og­nize that re­new­ing Ex-im’s au­thor­ity and ex­pand­ing its lend­ing ca­pac­ity are cru­cial to main­tain­ing the in­dus­trial base and mil­i­tary readi­ness, re­build­ing Amer­i­can man­u­fac­tur­ing and job growth, im­prov­ing our trade bal­ance with other na­tions and re­duc­ing the deficit.

But let’s ex­am­ine the crit­ics’ com­plaints in turn.

First, the Ex­port-im­port Bank is a mon­ey­mak­ing ac­tiv­ity for the U.S. gov­ern­ment. Ac­cord­ing to the U.S. Cham­ber of Com­merce, since 2005, Ex-im Bank loans, guar­an­tees and in­sur­ance pro­grams have re­turned $3.4 bil­lion over and above the bank’s costs and loss re­serves, with a de­fault rate of less than 2 per­cent. That in­cludes $400 mil­lion in 2011 alone. Even if we have to bor­row money from the Chi­nese to make such loans, the net re­turn on in­vest­ment is pos­i­tive. That is money that re­duces the deficit, not adds to it.

Sec­ond, far from pick­ing win­ners and losers, Ex-im Bank loan guar­an­tees sim­ply en­sure that the United States has a chance to have win­ners in the in­ter­na­tional mar­ket­place. By lev­el­ing the play­ing field with for­eign com­peti­tors whose gov­ern­ments are only too happy to pro­vide credit — in­deed, the com­mu­nist Chi­nese have a fa­cil­ity 11 times the size of the U.S. Ex­port-im­port Bank for pre­cisely that pur­pose — the ex­cel­lence of our prod­ucts can be the de­ter­mi­nant, not our ri­vals’ sweet­heart fi­nan­cial ar­range­ments.

Third, thanks to an ex­ist­ing con­gres­sional man­date to fo­cus Ex-im Bank’s lend­ing on small busi­nesses, 87 per­cent of the bank’s trans­ac­tions have gone to such en­ter­prises — the ones that have been hit hard­est by the credit crunch of the past four years. This fact should al­lay con­cerns about “crony cap­i­tal­ism” as the com­pe­ti­tion for such loans is fierce and merit-based.

Of par­tic­u­lar con­cern to those of us in the na­tional se­cu­rity com­mu­nity, more­over, is the fact that more than half of the dol­lar amount of the Ex­port-im­port Bank’s loans sup­port man­u­fac­tur­ing. That is of tremen­dous im­por­tance with re­spect to the for­eign sales of big-ticket U.S. items such as com­mer­cial air­craft. Such sup­port trans­lates into a cost-ef­fec­tive way to help pre­serve an aero­space in­dus­trial base at a time when it is reel­ing and con­tract­ing be­cause of dan­ger­ously re­duced de­fense bud­gets.

Al­ter­na­tively, if Ex-im Bank is not reau­tho­rized with a higher loan level, U.S. man­u­fac­tur­ing will soon be dam­aged by at­tacks from two sides. For one, in a preda­tory global mar­ket, we would be elim­i­nat­ing a fa­cil­ity that con­sti­tutes a vi­tal source of fi­nanc­ing for the com­mer­cial in­dus­trial base for for­eign sales. The com­mer­cial lend­ing in­sti­tu­tions ei­ther can­not or will not fill this void.

For an­other, thanks to the roughly 20 per­cent cuts in our na­tional-se­cu­rity-re­lated spend­ing that the Obama ad­min­is­tra­tion has trans­lated, with con­gres­sional ac­qui­es­cence, into bind­ing statu­tory di­rec­tion, we risk dev­as­tat­ing — pos­si­bly ir­recov­er­ably — the man­u­fac­tur­ing base of our de­fense sec­tor.

Mat­ters will be made still worse for the in­ter­na­tional com­pet­i­tive­ness of Amer­i­can cor­po­ra­tions as they are be­ing bur­dened with the high­est cor­po­rate tax rate in the world at 39.2 per­cent. All of this coun­try’s seven ma­jor trad­ing part­ners — Canada, China, Mex­ico, Ja­pan, the United King­dom, France and Ger­many — have lower rates.

Mak­ing the case for the Ex­port-im­port Bank does not mean we should be in­dif­fer­ent to the need to im­prove its over­sight. Notably, we should not be pro­vid­ing U.S. tax­payer fi­nanc­ing to ac­tual or prospec­tive an­tag­o­nists such as China’s Na­tional Nu­clear Power Corp. (which in 1996 re­ceived $120 mil­lion in low­in­ter­est loans to pur­chase U.S. nu­clear power tech­nol­ogy). Also, it was not un­til 2009 that Ex-im Bank put in place a rule re­quir­ing bor­row­ers to cer­tify they have no op­er­a­tions in Iran’s en­ergy sec­tor.

Grow­ing ex­ports to friendly na­tions through loans that are re­paid is an em­i­nently sen­si­ble public pol­icy, one we should con­tinue through a reau­tho­rized Ex­port-im­port Bank with a larger line of credit. At the same time that a re­dou­bled ef­fort is needed to en­sure that the bank’s op­er­a­tions and loans are sound and well-man­aged, we need to re­sist the temp­ta­tion — and Obama ad­min­is­tra­tion pol­icy — that seeks to grow ex­ports through en­cour­ag­ing the un­li­censed ex­port of mil­i­tar­ily rel­e­vant (“dual-use”) tech­nolo­gies such as “tox­ins for vac­cine re­search.” That will be the sub­ject of a forth­com­ing col­umn.


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