Export-Import Bank.

The Export-Import Bank (Eximbank) is an independent U.S. government agency established in 1934 to create jobs through exports. According to Eximbank, its programs annually sustain an estimated 200,000 U.S. jobs directly among exporters and suppliers and another one million jobs indirectly among subsuppliers. To carry out President Clinton's strategy for export growth, Eximbank is focusing on "emphasizing exports to developing countries, aggressively countering trade subsidies of other governments, stimulating small business transactions, promoting the export of environmentally beneficial goods and services, and expanding project finance capabilities." In October 1997, Congress reauthorized Eximbank's operations until the year 2001.

Eximbank offers a number of insurance and financing programs that are supposed to increase U.S. exports, such as: (1) working capital guarantees that cover 90% of the principal and interest on commercial loans to creditworthy small and medium-sized companies needing funds to buy or produce U.S. goods or services for export; (2) export credit insurance policies that protect against both the political (e.g., nonpayment as a result of war, expropriation, cancellation of an export or import license) and commercial (nonpayment due to unanticipated competition or deterioration of markets) risks of a foreign buyer defaulting on payment; (3) guarantees of commercial loans (including both principal and interest) to foreign buyers of U.S. goods or services; and (4) direct loans that provide foreign buyers with fixed-rate financing for their purchases from the United States. To qualify for Eximbank support, a product or service must have at least 50% U.S. content and not affect the U.S. economy adversely. Eximbank has also cofinanced projects with the U.S. Agency for International Development (AID), the World Bank, and regional development banks.

In 1998, Eximbank authorized loans totaling $103 million, guarantees of $6.2 billion, and insurance of $4.3 billion for total authorizations of $10.6 billion. This financing and insurance subsidized $13 billion in exports by 2,060 U.S. exporters in 1998. Eximbank claims to have supported nearly 11,000 transactions with $65.5 billion in authorized financing from 1994 through 1998, directly benefiting more than 2,000 communities in the U.S.

Eximbank generated a net loss on its operations of $1.7 billion in 1998, compared to income of $390 million in 1997. A large portion of that loss came from an increase in the provision for credit losses, especially due to off-balance sheet risks for financial instruments (guarantees and insurance) not included in Eximbank's statement of financial position. The loss provision reflects the fact that the collection of some loans is doubtful and that Eximbank will most likely need to pay insurance claims and redeem defaulted loans it had guaranteed. Most of the commitments at risk are in China, Mexico, Indonesia, and Brazil, especially in the air transportation sector. Eximbank authorized more loans, guarantees, and insurance for exports to China and Mexico--over $1 billion to each--than to any other countries in 1998. Runners-up included Russia, Uzbekistan, Turkey, Chile, and India.

More than 40% of Eximbank's 1998 financing and insurance authorizations supported four industries: (1) "key linkage industries," including mining, petroleum, and steel companies, which produce inputs for durable goods; (2) manufacturers of high-value-added products; (3) exporters of new capital goods, such as computers, telecommunications equipment, aircraft, and automotive equipment; and (4) companies that employ highly-skilled workers, including the chemical, engine, and railway industries. By far the major beneficiary of Eximbank's programs is Boeing, prompting some activists to refer to the agency as "Boeing's Bank." In 1998, $2.6 billion of Eximbank's authorizations assisted Boeing's exports. All of Eximbank's more than $1 billion in authorizations for exports to China involved Boeing. Some of the other large transnationals whose exports received Eximbank subsidies in 1998 include Northrop Grumman, General Electric, Lucent Technologies, Westinghouse, and General Motors.

Key Points

* Eximbank was established to create U.S. jobs by increasing U.S. exports.

* Eximbank provides loans, loan guarantees, and insurance to assist the production and export of goods and services with at least 50% U.S. content.

* Eximbank estimates that it (and ultimately U.S. taxpayers) has billions of dollars in exposure to losses on defaulted loans and insurance claims.

Janice Shields is coordinator of the Corporate Welfare and Tax Watch projects of the Institute for Business Research.