Backing the Eximbank

October 8, 1981

The wolf is not yet quite at the door of the US Export-Import Bank, but to many American manufacturers engaged in overseas trade it must appear that it is getting dangerously close. Trapped between high borrowing costs (at market rates) and low preferential lending rates to overseas customers, the bank this year for the first time will post a loss, somewhere on the order of $200 million. Moreover, in proposing a sharp 12 percent cutback in Eximbank's direct loan authority for fiscal year 1982, the Reagan administration is risking the ability of the United States to compete with overseas trading nations.

For that reason, this week's trade talks in Paris among the industrial nations which are members of the Organization for Economic Cooperation and Development must be considered crucial. The US is pressing America's OECD partners to sharply boost the interest-rate floor on export credits while working out a long-range agreement to let rates eventually reach market levels. Competition among industrial firms has grown fierce in the past several years, with US companies put at a disadvantage by the lavish subsidies on lonas by such nations as France, West Germany, and Britain.Japan remains vital to an accord.

The last major changes in the OECD arrangement on export credits occurred in 1980 and ranged from rates of 7.5 percent for goods sold to a poor country to 8. 75 percent for goods sold to a richer country. Given the widening spread between market rates and what is charged customers the administration would like a floor of around 12 percent.

The US should use every persuasive tool at its command to ensure the highest possible minimum rate and bring an end to the intolerable subsidy system which distorts competitive market bidding, gives an unfair advantage to some firms, and in the long run makes the public pay the cost of supporting exports.

At the same time, Congress will want to weight the Reagan budget cuts for Eximbank carefully in terms of the actual details in any new OECD accord. It did examine proposed cuts in the fiscal year 1981 budget, and in fact eventually enacted a higher figure than that sought by the administration. As part of the President's new cutbacks in the 1982 budget, the loan authority for Eximbank would be slashed from the $4.4 billion proposed earlier this year to $3.8 billion -- not enough authority, many businessmen argue, to finance expanding US sales abroad. Preliminary figures show that the bank approved about $5.4 billions in loans for 1981.

Significantly, most of the bank's laons in past years have gone to major US corporations, such as Boeing, General Electric, Westinghouse, McDonnell Douglas, and Lockheed. The Reagain administration, committed to lessening what it considers special government priveleges to interest groups, including the business community, would like to cut back the scope of Eximbank. Lending authority under the Carter administration soared from around $700 million in 1977 to $5.5 billion in 1981. What is now in question is whether firms such as Boeing or Westinghouse could put together the costly financing packages required to ensure sales of "big ticket" items without Eximbank support.

Under new chairman William Draper III, the bank is studying a number of ways to use its loan dollars more wisely. Among them are the possibilities of shifting loans to smaller projects or firms and making loans directly to banks whick, in turn, would provide financing packages. Both ideas warrant consideration.

In the long run, however, the administration and Congress must ensure that by reducing Eximbank's loan authority it is not endangering sales of major manufactured goods abroad. Such sales not only support a large level of jobs within the US but also help to underwrite major US high technology industries such as the commercial aircraft and nuclear power plant industries.