Finbarr Bermingham visits the US Exim conference in Washington DC to find an election campaign in full swing.
National anthems. Whoops and cheers. Booming rhetoric and sloganeering. Hollywood smiles and political grandstanding. A video address from the president and a show-stealing speech from the secretary of state. This year’s US Exim conference in Washington DC had all the hallmarks of a political rally. Essentially, that’s what it was. Except there is nobody waiting in the wings to replace the export credit agency; just political opponents hoping to knock it off its perch. “Exim is a political football,” one of the US Exim press team tells GTR, as we catch a word in one of the dimly lit halls of the labyrinthine Omni Shoreham Hotel. One wonders whether this year will be a toss too far.
The agency’s charter is up for renewal in October, meaning that it must convince policymakers that it has earned the right to continue. Plenty of members of the Republican Party would love to see it crash and burn. It needs to satisfy the requirements of its charter which state that it must not compete with the private sector, that “not less than 20%” of its lending goes to small businesses.
A recent report from the Mercatus Centre at George Mason University, Virginia, however, found that 76% of US Exim’s lending went to its top 10 borrowers. That’s US$8.3bn to Boeing, US$2.6bn to GE, US$1.8bn to Bechtel, US$1.3bn to Caterpillar, and so on. This, says US Exim’s critics, is corporate welfare. This is plugging a non-existent gap in the private sector, goes the argument.
Right wing think-tank the Heritage Foundation has accused the agency of providing unfair subsidies to the oil industry. “While US Exim was designed to promote exports, the reality is that it is corporate welfare benefiting politically connected companies and distorting markets while unnecessarily saddling taxpayers with risk,” wrote Nicolas Loris, a fellow of the Institute for Economic Freedom and Opportunity, on the foundation’s website in May.
US Exim may be a victim of the times. Through and post the financial crisis, the stage was set for export credit. Banks weren’t lending. Markets were volatile and guarantees essential. The private sector needed a boost and the agencies stepped up to the plate.
Now though, the global economic landscape has changed drastically and the view from America is almost unrecognisable.
Rather than bailing out banks and avoiding recession, all the talk is about energy independence and bringing industry back home. The growth story for 2014, granted, has been disappointing – the economy contracted 1% year-on-year from January through March, with the blame being angled at a frigidly cold winter and poor exports performance. Economists, however, expect it to rebound strongly in Q2.
Having spent five years as the darlings of the export finance business, are we coming to a time when people are falling out of love with ECAs?
When Tony Abbott, the recently elected Australian prime minister, came to power, one of the first things he discussed was removing the mandate for Efic, the Australian ECA. Efic has faced similar criticism to its American counterpart, most notably for its financial support of mining giants Rio Tinto and BHP Billiton.
In familiar sounding rhetoric, Green senator Lee Rhiannon described the US$100mn loan the pair received in March as “nothing short of corporate welfare”.
Support from various ECAs of LNG projects in the Great Barrier Reef conservation area (US Exim included) has helped dampen the appetite for export credit down under. And despite the American and Australian economies seemingly going in opposite directions – Australia’s dominant mining sector has been severely affected by the Chinese slowdown, with analysts suggesting that the austerian rhetoric emanating from The Lodge signals the end of a decade-long boom – their respective ECAs are facing similarly challenging times.
Going down with a fight
Come the end of the year, the most bombastic export credit agency on the planet may no longer exist. But if it’s going down, it certainly isn’t going down without a fight. Charismatic chairman Fred Hochberg took to the stage in Washington DC to reel off a list of US Exim’s achievements. “US exports now account for 14% of US GDP,” he said, adding that the US has now achieved record exports for the fourth year in a row. Incidentally, Hochberg has been in the job for just five. He was at pains to point out that this is a government body that turns a profit.
“Other countries salivate at the prospect of a world without US Exim,” he said, and he might be right. Speak to any member of the export community about which ECA has the most impact and they’ll likely say US Exim. “Nobody else comes close,” added one banker, impressed by what he heard from the stage.
His support was echoed by Michael Boyle, the CEO of Boyle Energy Services, who GTR spoke with at the conference. Boyle has become something of a poster-boy for US Exim’s small business lending. Exports backed by US Exim now account for 60% of the company’s US$15mn turnover, with export credit and guarantees allowing it to enter markets such as Colombia, India, Saudi Arabia and Lithuania. “I don’t know what the business would look like without them [US Exim],” he told GTR.
It wasn’t only small businesses voicing support. Hochberg wheeled out some big names too.
Jon Huntsman ran for the Republican Party presidential nomination for 2012. Despite many of his partisan colleagues actively seeking a demise for US Exim, he took to the stage here to not just defend the agency’s right to exist, but to underline its necessity. As former US ambassador to China, his views on global trade are more nuanced than most. He argued that the swell of distrust for US Exim is part of a wider trend in which Americans oppose anything ‘foreign’, from immigration to exports and imports.
“Externalities make it difficult for US citizens to get behind export policy. When unemployment is 7%, it’s hard to focus on exports, there is no confidence. 50% of graduates at Caltech (California Institute of Technology) have to leave the country. We need these educated people.”
He encouraged policymakers to be more progressive and to embrace overseas opportunity, saying: “China will be the biggest export market for every city and state in the US. Reform in China will bring huge opportunities for the US.”
Jane Harman is a former Democrat Congresswoman and now CEO of the Woodrow Wilson International Centre for Scholars, a renowned think-tank. She said she was worried over the state of political discourse in the US, particularly when discussing international trade.
“I’m very concerned about the midterm elections. We need more people in elected office that put the US first,” she said. “We’re going to be left out if we don’t step up. There are not many pro-trade in Congress. The best pivot to Asia is trade. The best economic policy with Europe is trade. Economic power is the best foreign policy,” she said, throwing her support behind US Exim.
The final heavyweight on the bill was John Kerry, who praised Hochberg for his work since taking over five years ago and regaled delegates with tales of his former life as a cookie shop owner.
The message was clear: he understands how business works, particularly SMEs. His support for US Exim is political, sure, but it holds when he dons his business-owner’s hat. It was a clever angle from which to attack opponents, but he needn’t have worried. Looking around the hall it was pretty clear that almost everyone in attendance supports extending the charter.
When US Exim’s charter was last up for renewal in March 2012, it had hoped to secure a four-year extension and to increase its lending capacity to US$140bn.
Instead, after an intense period of political wrangling, it was given a two-year stay of execution. The Republican Party has been divided in recent years, torn by in-fighting and more prone to obstinance than ever before. That US Exim will continue to operate as it currently does is not a given. Come October none of this may matter and the feel-good factor of Easter week in Washington DC may be no more
than a distant memory.