Congress Brings Export-Import Bank Lending To A Standstill

The U.S. Export-Import Bank has been the source of political schism in recent years, but last week, the future of the government export credit body landed in a new state of jeopardy.

The bank, often known as the Ex-Im Bank, is a government agency that provides businesses in the U.S. and abroad with an array of financial support, including buyer financing, export credit and insurance to businesses buying and selling with others abroad.

Congress reportedly failed to renew Ex-Im’s charter before it left for an 11-day recess on Thursday (June 25), despite the bank’s impending expiration of the ability to provide new loans at midnight on June 30. The inaction has fueled the debate over the role of Ex-Im and its impact on the U.S. position in the global economy.

“After 16 reauthorizations, 81 years without controversy, the support of the last 13 U.S. presidents — Republicans and Democrats — and an admirable record of service to the American people, it’s hard to believe Ex-Im is going to lapse,” said the body’s chairman Fred Hochberg in a speech following lawmakers’ departure.

The bank will not shut down altogether on June 30, reports said. Its staff will continue to monitor outstanding loans (of which Ex-Im currently has $112 billion) and process trade insurance claims — critical, experts say, for small businesses that need assurance they will get paid for selling to oversees buyers. The body will continue to run on its $106.3 million administrative budget through September 30.

But the institution will not be able to accept or process new loan applications, meaning exporters will have to find another source of cash flow to fuel their businesses — or abandon proposed deals altogether, according to reports. Foreign buyers of U.S. manufacturing products and supplies will similarly have to look elsewhere to receive financing for such purchases.

For the bank’s chairman, the lending shutdown could be harmful to the nation’s ability to compete internationally. “Tools like Ex-Im are one major factor [companies] consider when deciding where to do their manufacturing,” Hochberg said. “And if they can’t rely on American export financing, they can head just about anywhere else on the planet — because every industrialized country has a version of Ex-Im.”

The Republican party and other conservative groups have recently launched a campaign against Ex-Im, arguing that the bank exists merely to funnel money into giant corporations as a facilitator of Big Business welfare.

House Financial Services Committee chair Rep. Jeb Hensarling (R-TX), for example, released a statement in favor of lawmakers’ decision not to renew the bank’s charter. “This is a small step toward renewing a competitive free-market economy and arresting the risk of the progressive welfare state and the cronyism connected to it,” he said.

Rep. Jim Jordan (R-OH) has similarly spoken out against the bank. “If we’re ever going to get rid of all the corporate connectedness, all the corporate welfare, you’ve got to start with the most egregious one and the most obvious one and that’s the Export-Import Bank,” he stated earlier this month.

But proponents of the bank argue that the financing Ex-Im Bank provides to both domestic and foreign businesses is critical, especially to SMEs, for successful and profitable international trade. Small businesses, they say, could not otherwise compete because they do not have the finances to absorb hits from overseas buyers’ late payments, for example.

According to reports in Fortune, 40 percent of U.S. exports facilitated by the Ex-Im Bank through its financing are from small business manufacturers.

“While major corporations have the means to offer sellers financing themselves, can absorb the risk of receivables default by foreign customers and can easily obtain loans from traditional banks for working capital needs, small businesses don’t usually have the resources for any of that,” the publication wrote. “That then requires the support of an agency like the Ex-Im Bank, mostly in the form of loan guarantees or insurance, which enables these small businesses to sell profitably overseas.”

For major U.S. conglomerates, the bank doesn’t just provide them with financing — it provides a way to create jobs at home. General Electric Co. CEO Jeffrey Immelt warned earlier this month that if the Ex-Im Bank charter expires without a renewal, he will be forced to move jobs overseas. “We’re not going to lose this business,” he said on June 17 at the Economic Club of Washington. “We’ll build these products in places where export credit financing is available.”

Ex-Im Bank’s Hochberg highlighted GE’s proposed locomotive project in Angola, a $350 million contract that was to create 1,800 U.S. jobs, but which is now at risk, he said.

Another giant, Boeing, also works closely with Ex-Im. Ahead of the funding vote, Boeing CEO Jim McNerney said that closing the bank would amount to “unilateral disarmament” and lead to major business losses for the nation.

While the start of lawmakers’ 11-day break without a budget renewal vote signaled the end, at least temporarily, for Ex-Im lending operations, reports said that there is hope that budget renewal legislation could be passed by attaching language to do so in an upcoming transportation funding bill, which has a July 31 deadline for passing by Congress. Until then, the Export-Import Bank will have to manage its existing loan portfolio as lawmakers and businesses continue to debate about its future existence.