NOW THAT a bill to renew the lapsed legal authority for the Export-Import Bank has passed the House, over the objections of free-market Republican conservatives, the bank seems likely to survive the stiffest challenge to its continued existence since its founding under President Franklin D. Roosevelt in 1934.
The Export-Import Bank’s mission is to provide loans, loan guarantees and credit insurance to support sales of U.S.-made products abroad. By far the lion’s share of its portfolio (which totaled $112 billion in fiscal 2014) supports big-ticket items such as aircraft and construction equipment. Opponents say Ex-Im’s corporate clients, including such giants as Boeing, are perfectly capable of getting their own financing without putting taxpayer money at risk; supporters argue that, actually, airlines and other major enterprises abroad can’t or won’t buy without Ex-Im’s help, especially given the export subsidies available from competing nations such as Germany and China.
There’s merit in both arguments. The bank is corporate welfare; alas, living by free-market principle would force the United States to disarm unilaterally. The only permanent way out of this dilemma is for the United States to negotiate an end to export subsidies with its trading partners, especially emerging nations such as China, Brazil and India. One good point of the Ex-Im reauthorization bill moving through Congress is that it calls upon the executive branch to engage in those negotiations. The bill also mandates a new chief risk officer for the Ex-Im bureaucracy and boosts its loan-loss reserves.
Other than that, there is precious little in the way of structural reform. The legislation retains the well-intentioned but impractical requirement that the bank devote 10 percent of its resources to renewable energy exports (a goal it has not nearly met in recent years) and ends the protectionist requirement that Ex-Im-financed goods travel on U.S.-flagged ships. It would continue to record the budgetary cost of Ex-Im’s credit activities as if they were no riskier than ultra-safe U.S. Treasury securities. Of course, if Ex-Im’s clients really were as rock-solid as Uncle Sam, they wouldn’t need Ex-Im in the first place, because banks would be competing for their business.
What’s needed is a shift to “fair-value accounting” — in effect, a line in the federal budget recording the true value to taxpayers of the financial risk Ex-Im incurs on their behalf. The Congressional Budget Office estimated that fair-value accounting would show that Ex-Im is a contributor to the federal deficit rather than a net plus for the budget. (The CBO estimated that fair-value accounting changes the House-passed bill’s impact from a $2.3 billion reduction in federal borrowing over the next half-decade to a $300 million increase.) That, in turn, would force the bank to tighten up lending and adopt better risk management. If we’re going to have an Export-Import Bank, at least its true costs should be fully and transparently disclosed.