America's Export-Import Bank will pay out $554 million this year to cover bad loans it guaranteed to private companies in debt-ridden Third World countries, especially Mexico, Ex-Im Bank President William H. Draper III told a Senate subcommittee yesterday.
The amount is far more than the bank's usual losses on guaranteed loans, which must be made up from the U.S. Treasury. Until 1982, losses averaged about $20 million a year to be made up from the U.S. Treasury. Losses for 1982 may jump to $57.7 million because of a write-off on DC10s purchased for Freddie Laker's defunct airline.
But Draper said he believes the bank will be able to recover this year's escalated losses when the finances of countries such as Mexico, Argentina, Venezuela and Guatemala take a turn for the better. All have loans on which the bank is facing potential losses.
"Many of them arise from transactions involving private buyers who will continue to remain in business," Draper said in justifying hopes of eventual repayment. Aides explained later that the companies were barred by Mexican government currency restrictions from paying off loans used to finance purchase of U.S. exports.
Draper said the bank already has received $240 million in claims. "Claims will be arising because countries like Argentina and Mexico are experiencing balance-of-payments and debt-service difficulties, which prevent them from making payments when due on their debts," he continued.
He said the bank is not writing off loans to countries that he believes will repay their debts "once they are financially able to do so."
Despite the losses, Draper said the Ex-Im Bank is continuing to make loans to companies in Mexico--including two recently approved lines of credit of $100 million each to be used to support purchases of American exports. It now has more than $2.4 billion worth of exposure in Mexico.
"The Ex-Im Bank has no choice but to bear the responsibility for leadership in these troubled markets," said Draper.
"If credit is turned off in these countries, they will be unable to buy U.S. goods and services, which could endanger the U.S. and world recovery. The private financial market is doing its part to help out these countries, but they cannot assume all of the risks. Consequently, Ex-Im Bank's financial support must be an important element in the total U.S. government effort to combat protectionism by providing a 'credit bridge' across which trade can flow until recovery begins," he said.
The Export-Import Bank was designed to help promote American sales abroad by supplementing normal, commercial financing for U.S. exports through loan, guarantee and insurance programs.
Under sharp questioning by Sen. Robert Kasten Jr. (R-Wis.), chairman of the Senate Appropriation Committee's subcommittee on foreign operations, Draper said the bank's business dropped last year as the worldwide recession cut the market for American exports. Although Congress authorized $4.4 billion for the bank, it spent only about $3.8 billion--which Kasten complained was just what the Reagan administration said the bank should get.
Draper, however, said the bank was not trying to thwart the will of Congress. Instead, he explained, "We had plenty of authorization. We just couldn't use it. There just weren't enough applications."
But he said the current economic upturn should increase the demand for U.S. goods by next year.