Financial and Other Constraints Prevent Eximbank From Consistently Offering Competitive Financing for U.S. Exports
ID-80-16: Published: Apr 30, 1980. Publicly Released: Apr 30, 1980.
- Full Report:
The Export-Import Bank of the United States (Eximbank) finances the sale of U.S. exports. Legislation requires Eximbank to provide export financing at interest rates competitive with other countries' government-supported rates. However, financing supported by Eximbank normally includes both Government and commercial loans, and the blended interest rate depends on commercial interest rates as well as Eximbank's lending rates. In some cases, these factors put U.S. exporters at a competitive disadvantage and Eximbank's loans are more expensive than government-supported financing offered by other countries competing for a sale.
The normal blended rates on long-term loans supported by Eximbank are about 2 to 3 percentage points higher than the normal rates charged by other countries on government-supported export financing. On an average loan, this means as much as $5 million in added interest expense to the borrower. Although Eximbank has taken actions to make its financing more competitive, there are constraints which limit its ability to consistently offer competitive financing. These constraints include the fact that Eximbank operates as a self-sustaining institution. In setting its lending rates, Eximbank attempts to cover its borrowing costs, other expenses, and potential loan defaults. However, Eximbank's foreign counterparts set their normal interest rates at the minimums established by voluntary international guidelines and offer even lower rates by mixing foreign assistance funds with export loans. But, without access to foreign assistance funds, Eximbank tries to compete by selectively lowering its lending rates and by financing portions of a sale normally financed by commercial banks. Consequently, GAO believes Congress should: (1) reexamine the framework and financial constraints within which Eximbank operates; (2) clarify the Export-Import Act to allow Eximbank greater flexibility; (3) provide Eximbank with annual appropriations to subsidize the difference between Eximbank's normal lending rates and rates offered by other governments competing for a sale; and (4) determine whether eligibility restrictions for Eximbank's financing should continue to take precedence over U.S. exports.
Matter for Congressional Consideration
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Matter: GAO believes Congress should reexamine the framework and financial constraints within which Eximbank operates. If foreign governments continue or intensify their use of concessionary financing and/or U.S. commercial interest rates and Eximbank's own borrowing costs continue at current high levels, Eximbank will need increased flexibility and resources if it is to consistently offer competitive financing. Thus, Congress should consider clarifying the Export-Import Act to allow Eximbank greater flexibility. An alternative or supplement to increased direct loan authority would be to lower Eximbank's lending rates. However, its lending rates are already below its borrowing costs and this jeopardizes Eximbank's traditional self-sustaining structure. If Eximbank were to continue or to increase the subsidization of its lending rate with its accumulated reserves, appropriations could be needed in the future if reserves were inadequate to pay loan defaults and claims for which Eximbank is liable. Alternatively, Congress may wish to consider providing Eximbank with annual appropriations to subsidize the difference between Eximbank's normal lending rates and rates offered by other governments competing for a sale. Additionally, in view of continuing U.S. merchandise trade deficits and the importance of competitive financing, Congress should determine whether eligibility restrictions for Eximbank's financing should continue to take precedence over U.S. exports.