Uncertain Future for U.S. Export-Import Bank, Which Lends to Israeli Companies
JNS.org – For the first time in 80 years, the United States could find itself without an international export credit agency if Congress does not reauthorize the charter of the United States Export-Import Bank, which is set to expire on Sept. 30. A failure to reauthorize the Ex-Im bank by that deadline could have significant financial implications for countries like Israel, which is home to companies accustomed to receiving loans from the bank.
Little controversy surrounded the bank’s reauthorization process before 2012, but the slow recovery from the global financial crisis, the rise of Tea Party politicians in Congress, and allegations of bribery and corruption within the bank by former employees have led a growing chorus of voices to argue for the bank’s abolition.
House and Senate Democrats want to see the charter extended with a $20 billion increase in the bank’s lending authority requested by President Barack Obama, but many Republicans are opposed, including new House Majority Leader Kevin McCarthy (R-Calif.), Majority Whip Steve Scalise (R-La.), and House Financial Affairs Committee chairman Rep. Jeb Hensarling (R-Texas).
The list of detractors also includes members of the Senate, including Sen. Ted Cruz (R-Texas), who called it a “corrupt crony-capitalist fiasco” and urged Republicans to “kill it” in an op-ed for USA Today. Cruz argued that even though the Ex-Im Bank claims to serve American interests, its record shows instances where subsidies may interfere with American companies and are in conflict with American principles.
“Contrary to the values that keep America strong, safe and free, the Export-Import Bank has facilitated lending to governments in Congo and Sudan, countries with horrific human rights records,” Cruz wrote. “It has financed Chinese power plants and backed Russian billionaires buying luxury planes. And, it has provided lots and lots of financing to oil companies in Russia, Brazil, the United Arab Emirates and Saudi Arabia that compete directly with America’s energy companies.”
The bank is what’s known as an export credit agency (ECA)—international, government-run organizations that make loans to companies to help them compete in the heavily subsidized global marketplace.
For example, if a foreign airline needs to purchase additional aircraft, an American firm like Boeing can compete with foreign manufacturers that can undersell Boeing with the use of subsidies from their own countries’ export banks.
In order to give a company like Boeing a fighting chance in these circumstances, the Ex-Im Bank can do the following: make a loan to the foreign company looking to purchase from Boeing; lend money to Boeing to cover production costs of making its planes if the purchase is unable to pay up front; or insure loans made by private lenders to facilitate these deals.
The bank’s goal is to increase exports by U.S. companies, especially to markets in rapidly developing regions such as the Middle East, Asia, and Sub-Saharan Africa. Supporters of the bank argue that it is an essential tool enabling U.S. exporters to compete with growing economic influence from countries such as China, whose outreach in the developing world using its own export credit agency has given it a sizable head start.
According to Ex-Im Bank’s annual report, in fiscal year 2013, Israeli companies received $105.5 million in direct loans and $256 million in loan guarantees from Ex-Im. Most of the loan guarantees went to El Al Israeli Airlines for purchasing planes from Boeing—more than $190 million. The rest of the loan guarantees supported the purchase of General Electric turbines to Mashav-Initiation and Development Ltd., an Israeli construction supply manufacturing company.
The direct loans were given to Space Communication Ltd. for the purchase of satellite launch vehicles and launch insurance from SpaceX, a private space exploration company based in California, but with large offices in Washington, D.C.
Meanwhile, Qatar, which sponsors Hamas, received $775 million in loan guarantees within the same period; $4.3 billion in loan guarantees and $883.7 million in direct loans went to Turkey, whose prime minister, Recep Tayyip Erdogan, threatens Israeli and U.S. interests in the Middle East.
Ex-Im’s 2013 annual report said there are an estimated 60 export credit agencies around the world. With the landscape so skewed by international subsidies, critics here have argued that the federal government should actively engage in ending all international lending subsidies and that Ex-Im only exacerbates the economic arms race.
“There’s a very strong case here for unilateral disarmament,” said Matt Mitchell, senior research fellow at the Mercatus Center at George Mason University. “Basically what we can do is say that we’re going to eliminate our subsidies, and if other countries then eliminate their subsidies, that’s great. If they don’t, we can say that instead of bringing our subsidies to where we’ll do something like put a retaliatory tariff for countries that don’t cooperate.”
But would getting rid of Ex-Im be a prudent move by the U.S. if other nations subsidize their companies’ exports?
“Other export credit agencies throughout the world are supporting their country’s exporters, and those countries are not going to close their export credit agencies if Ex-Im’s charter expires,” said Lawton King, spokesperson for the Ex-Im Bank. “Just the opposite. They’re going to move into our market share and back sales that otherwise would have gone to American companies and therefore would have supported American jobs.”
Another GOP complaint is that the bank favors large companies over small businesses, making it harder for smaller businesses to compete and that the federal government begins to choose winners and losers, something they believe should be sorted by the free market.
Although the Ex-Im Bank is charged with supporting small businesses the numbers show that despite a greater amount of small businesses working with the bank, most of the money goes to approximately 10 large corporations.
According to data compiled by the Congressional Research Service from Ex-Im reports, 90 percent of the bank’s loans in fiscal year 2013 were made to small businesses. But those loans represented a very small amount of money. More than 80 percent of the bank’s funds were disbursed last year to corporate giants such as Boeing and Caterpillar.
“The bank is demand driven. Though 90 percent of our transactions are small businesses, those small businesses are not requesting the large amounts of credit that the larger businesses are,” King said.
According to King, even though it is easy to brand large corporations as not contributing to the strength of America’s small-business environment, the figures exclude the often thousands of small businesses that make up their supply chain, giving Ex-Im a larger footprint.
Mitchell said that despite the bank’s claim of contributing to the growth of jobs and small businesses, there are more who are hurt.
According to Mitchell, subsidized loans to foreign buyers, loan securities, production loans to companies raise prices for American purchasers by increasing demand on the product. “The problem is that there are losers. The first group of losers are anybody else who tries to buy airplanes, they end up paying higher prices. Every other American carrier also buys airplanes,” said Mitchell.
“So Delta, Southwest, United—all of them end up having to pay a higher price because Air India or Air Nauru or whatever foreign buyer” creates greater demand due to the loan those foreign companies received from the Ex-Im Bank, Mitchell explained. That “ends up making airplanes more expensive and it ends up making air travel more expensive for you and I,” he added.
Diane Katz, research fellow in regulatory policy at the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation, a conservative think tank, believes that the economic benefit from the bank on U.S. foreign trade is highly overrated.
“The vast majority [of U.S.-based] exporters, more than 98 percent, don’t get Ex-Im benefits and rely strictly on other financing” from private lenders,” she said.
Congress’s appetite to hinder Ex-Im’s reauthorization is further fed by allegations of corruption, both among employees and borrowers.
The House Committee on Oversight and Government Reform held a hearing to look into the allegations on July 29, with Katz testifying.
“There has been building opposition to the bank and this year it has culminated like it hasn’t before,” said Katz, adding that the opposition “represents general public vexation with cronyism and corporate welfare.”