Eximbank's curious loan guarantees

What kind of financial legerdemain or improvisation is the US Export-Import Bank undertaking these days with its proposed $2 billion worth of loan guarantees to Brazil and Mexico? Eximbank, founded back in 1934, makes direct low-interest loans to overseas governments and firms that buy US goods. Almost invariably, the loan guarantees are linked to a specific sale. In the case of the guarantees to Brazil and Mexico, however, the guarantees apply to no specific product or sale but, rather, possible future sales of US products.

Apparently Eximbank loan guarantees have now become part of the broad initiative worked out by the Reagan administration and the Federal Reserve Board to ease the world debt crisis. There is certainly nothing wrong with hammering out such a long-range strategy. Indeed it is to be welcomed. The initiative also includes the administration's effort to increase the US commitment to the International Monetary Fund by $8.4 billion (a matter now being dealt with in a House-Senate conference committee). Another aspect is the effort to persuade commercial banks to continue making loans to troubled debtor nations.

But does using Eximbank properly belong in such a broad plan? Does offering all-purpose loan guarantees to help bail out an overseas nation's debt problems add a political distortion to the export bank's original purpose - expediting the sale of American goods abroad? These are the questions that lawmakers will now have to ask, since Congress must review all loan guarantees over $100 million. Earlier this year William Draper, president of Eximbank, said that the bank had already written off $240 million in bad loans to Latin America and that the amount could well reach $500 million by the end of September, when the 1983 fiscal year ends. Given such large losses, would providing guarantees on an additional $2 billion in loans make good sense?

One issue that lawmakers will surely want to resolve is the extent to which the Eximbank guarantees may undercut austerity measures that have been worked out by the IMF for both Brazil and Mexico.

Brazil, which owes some $90 billion to foreign lenders, is being granted up to $1.5 billion in new loan guarantees under the Eximbank proposal. Mexico, which owes about $80 billion to foreign lenders, will get $500 million under the proposals.

The world debt crisis is admittedly serious, requiring bold government action. But to what extent should such a strategy be allowed to change the purpose and mandate of United States governmental agencies like Exim-bank? Perhaps it would now be in everyone's best interest to have from Washington a forthright statement about what the government's overall policy is for dealing with the world debt problem.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.