To Be Self-Sufficient or Competitive? Eximbank Needs Congressional Guidance
ID-81-48: Published: Jun 24, 1981. Publicly Released: Jun 24, 1981.
- Full Report:
The Export-Import Bank (Eximbank) was created in 1934 to provide financing support to aid U.S. export sales. Today, its financing programs include direct loans, financial guarantees to private lenders, and commercial and political risk insurance. Eximbank does not receive appropriated funds. It received $1 billion in capital from the Treasury and uses mainly Federal Financing Bank borrowings to sustain its lending operations. Traditionally, Eximbank has been self-sustaining and was able to charge more interest on loans than it paid on its borrowings during the 1934-66 period. Although it has generally had a negative spread between the average interest rate on its loan porfolio and the average rate on outstanding debt since 1966, it has continued to show a profit through 1980 because of the interest earnings on its $2.2 billion reserve and the $1 billion capital. The Eximbank's self-sufficiency is now being jeopardized by continued concessionary lending in the face of high interest rates. Current borrowings at 13 percent are being reloaned at 9 percent or less, and the average cost of the Eximbank's debt is now more than 2 percent above the rate earned on all outstanding loans. Earnings on Eximbank's reserve and capital are no longer sufficient to offset the widening negative interest rate spread on outstanding debt and loan investments. GAO was requested to investigate the financial implications of Eximbank's use of very low interest direct credits to achieve low blended interests rates for export financing.
Eximbank loans are being used to cover a larger segment of each financing package to produce a lower blended, and thus, more competitive overall export credit rate. In September 1980, Eximbank formed an arrangement with the Private Export Funding Corporation (PEFCO) to discharge certain of its loan commitments. The PEFCO arrangement is unique in that it obligates Eximbank to make up the difference between the borrower's interest payments and the PEFCO interest charges. GAO examines Eximbank's financial statements annually. For some years, GAO has qualified its opinion on the adequacy of Eximbank's reserves because the increased risks resulting from higher lending levels have not been accompanied by corresponding increases in income. The U.S. Government and other governments have entered into an agreement to eliminate or reduce the subsidies for officially supported export credit. Under the arrangement, interest rate minimums are both fixed and identical for all currencies. Negotiations to correct these problems have failed. Recent Eximbank practice has been to meet foreign subsidies agressively to compel intransigent governments to reduce the subsidy element of financing. GAO believes that, by clarifying legislation, Congress should either direct Eximbank to emphasize: (1) its statutory mandate to be competitive over its longstanding and congressionally accepted policy of remaining self-sustaining, or (2) this congressional understanding to remain self-sustaining over its statutory requirement to be competitive.