International -- Int'l Business: COMMENTARY
COMMENTARY: DON'T LET ELECTION FEVER HURT U.S. EXPORT FINANCING (int'l edition)
Tex Guthrie, a U.S. businessman, considers himself a free-market Republican. He'd never take a government handout. But government loan guarantees? Now that's a necessity. The director for international sales at Ayres Corp., a small manufacturer of crop-spraying airplanes in Albany, Ga., just secured guarantees from the U.S. Export-Import Bank (Ex-Im) on $1.8 million in loans from AmTrade International Bank of Miami. The funds will enable Ayres to offer financing on four planes sold to a private agricultural company in Argentina. Without them, says Guthrie, "our chances of getting the order were zero."
America's budget hawks on Capitol Hill should take note. They're trying to end government support for exports and overseas investments on the grounds that such aid amounts to corporate welfare. They also argue that private financial institutions--rather than U.S. taxpayers--should handle the risks of global trade. At their urging, politicians are mulling whether to slash funding for the U.S. Overseas Private Investment Corp. (OPIC), which offers loans, guarantees, and political-risk insurance to U.S. ventures in emerging markets. Next on the target list: Ex-Im, scheduled for reauthorization in a year, and the U. S. Trade & Development Agency.
SHRINKING SHARE. Such moves may have populist appeal. But the result would be a major blow to America's position in world trade--and not just for companies such as Ayres. Without publicly funded financing agencies, U.S. corporations would ship fewer goods and services overseas. That means fewer jobs at home and diminished U.S. influence in growing and strategically important markets around the world.
True enough, publicly funded export-financing agencies usurp the role of private institutions. Indeed, there is a small but growing private market in political-risk insurance as private insurers grow more skillful at assessing emerging economies. Big players include American International Group (AIG), EXEL Ltd., and Mid Ocean Ltd.
But leaving export and investment financing entirely in market hands isn't a viable solution for now. Political-risk insurers shun many hot spots, such as Israel's West Bank, and none writes policies for up to 20 years as OPIC does. Small exporters such as Ayres typically get a cold shoulder from the relatively few U.S. banks that finance exports. "The market needs OPIC as well as the private sector," says Hank Greenberg, chairman of AIG. "The two can work hand in hand."
Critics make another valid point. Taxpayer dollars should not be used to fund deals that create more jobs abroad than they do at home. That's getting trickier as companies spread production around the globe. So Ex-Im should resist corporate pressure to ditch its domestic-content rules. Even so, the financial risks to taxpayers are minimal. Ex-Im's budget amounts to less than 0.05% of the federal budget, and OPIC has earned a profit in each of its 25 years.
The fact is, free-marketeer critics of OPIC and the Ex-Im bank are ignoring a harsh reality. America's major trading partners are all in the export-credit business. If OPIC's window is shut, U.S. companies will shop abroad. But foreign agencies will insist they purchase from local--not U.S.--suppliers.
Without Ex-Im and OPIC financing for the first phase of its $2.5 billion power project in Dabhol, India, for example, Enron would likely have bypassed General Electric and Bechtel for equipment and construction knowhow, says Chairman and CEO Kenneth L. Lay. "If OPIC is put out of business, and Ex-Im follows, we will increasingly be sourcing our equipment from the Siemens of the world, the ABB Asea Brown Boveris, and the Japanese," warns Lay. Uncertainty over OPIC's and Ex-Im's survival already has Enron scouting export-credit agencies in Japan, Germany, and Switzerland for a proposed power plant in Turkey.
RISKY BUSINESS. U.S. political interests would suffer, too, if the agencies shut down. Trade and investment initiatives can help extend American influence even as U.S. foreign-aid budgets shrink. "Our mandate is to promote our foreign-policy aims in unstable countries," says OPIC President Ruth R. Harkin.
In an election year, it's politically tempting to target agencies that help U.S. companies expand overseas. While some foreign ventures do eliminate jobs in the U.S., globalization provides plenty of opportunities for job creation at home, too. In the past five years, as U.S. direct investment abroad has surged, so have exports and American employment. To jeopardize further gains in these areas in the name of politics or ideology isn't just misguided. It's dangerous.By Amy Borrus