Got Financing?

Brazil likes the U.S. Export-Import Bank model, and so do big businesses.

BRAZIL WANTS TO DEVELOP EXPORT-IMPORT BANK similar to that of the United States. Sounds like a good idea. Mid-sized and small exporters could use an easy route to overcome financing obstacles, steep expenses and choppy logistics toward opening new international markets. It could be an important institution.

Could be. Ah, the best-laid plans have gone awry with those two words. Brazilians would do well to look closely at their role model, the U.S. Export-Import Bank. Many critics charge that it has become the private ATM of big business, the little guy be--well, you get the picture.

In Brazil, small business rights watchdog Sebrea, a quasi-government agency, fears the country's national economic development bank Bndes is headed down the same path as the U.S. system, with Ex-Im Bank money and guarantees going to large companies, o pequeno be--well, you get the picture.

Bndes officials, of course, say that's not going to happen. And Ex-Im Bank officials resent any suggestion that the bank is part of the International Big Business Boys Club.

But it's a good idea to look at some numbers. According to a recent study by the U.S. General Accounting Office (GAO), the investigative arm of Congress, the Ex-Im bank is applying the old 20/80 rule to its financing. Large and medium-sized companies represented 20% of transactions from 1994 to 1996 but 80% of their total value. Small companies accounted for 80% of the transactions but only 20% of the money. Big business got the big money.

To make this more relevant, let's look at a later time period, the end of the 1990s, and let's train the microscope on a market closer to home--Brazil.

Skewed average. As of mid-1999, the total number of loans, loan guarantees and insurance guarantees--money set aside to cover the insurance costs of shipping goods--in deals between U.S. exporters and Brazilian companies backed by the Ex-Im Bank reached about a half billion bucks. In all, the GAO estimates, the bank has about US$4 billion worth of deals outstanding in Brazil, which consistently ranks among the top recipients of Ex-Im Bank financing.

James Harmon, the bank's president, emphasizes that more than 1,000 companies benefit from Ex-Im Bank support. "Many are small and medium-sized," he said in a recent speech.

Well, that's true. Of the fourscore or so outstanding deals, about 85% were loan guarantees of less than $10 million and 60% of less than $1 million.

The average transaction size, however, was about $4.7 million, according to a Latin Trade analysis of the deals. That's more than a small business would need or want to tally in the debt column, say small business advocates. The GAO agrees, indicating that the figure would be out of line with what small businesses would need.

What skews the average, of course, are the big deals. The big companies are getting the biggest portion of the pot. Rail company Ferronorte received new locomotives with the help of $87 million worth of Ex-Im Bank backing. Phone company Embratel--controlled by MCI Worldcom--pulled in new fiber optic material with about $69 million worth of Ex-Im Bank help. And mining giant Companhia Vale do Rio Doce, or CVRD, was the beneficiary of $53 million in various materials and services--whatever that means--courtesy of the Ex-Im Bank.

Does one of the world's largest phone or mining companies really need Ex-Im Bank help? The bank's officials are cagey when it comes to talking about these big-biz deals. One of its Latin American honchos agreed to talk but only with anonymity. "Yes, we've done some fairly sizable deals," the official says. "But those are the ones that get the publicity."

And that's likely to continue. The same official, for example, says the Ex-Im Bank expects "big activity with Petrobras in the future."

Sem duvida, the mammoth oil company needs the assistance.