firms that were studied were all losing "the competitive battle" because foreign firms were able to get financing as low as 6.5 to 7.5 percent in 1981 and 1982. The resulting loss of exports can be expected to cause at least "a reduction of employment in the small to medium sized-firms and at worst, the demise of superior companies that are producing superior products in the United States."

The Eximbank initiated two new programs in October 1982 to help increase the bank's competitiveness. These new programs are the Small Manufacturers Discount Loan Program for companies which, together with all affiliates, subsidiaries and parent companies, had total gross annual sales of $25 million or less in the previous fiscal year and a new medium-term credit program which provides fixed interest rate support for medium-term export sales which face subsidized officially supported export credit competition from abroad. Small and medium-sized exporters contend that these programs are still not competitive.

Exim Budget. One of the reasons the U.S. export financing systemmedium- and long-term-is so uncompetitive is a misunderstanding about the cost to the U.S. taxpayer of providing adequate funding for the Eximbank.

The Eximbank receives no tax dollars from the U.S. Congress to cover the loans and guarantees it makes or the costs incurred in implementing its programs. Instead of appropriating funds for the Eximbank, Congress establishes a ceiling on the level of program activity that the Bank may engage in for each fiscal year. The bank then borrows the necessary funds from the Federal Financing Bank (FFB), an agency of the U.S. Treasury. All banks, whether commercial institutions or official government agencies, borrow in the credit markets to obtain the reserves necessary to provide loans to customers. In Eximbank's case, it borrows indirectly from the credit markets through the FFB (which borrows in the capital markets for several federal government agencies).

The Eximbank generates resources to repay its borrowings through loan repayments, interest on outstanding loans, commitment fees and insurance

premiums. So far the bank has been able to absorb the cost of its borrowings, repay the FFB with interest, pay the Treasury Department more than $1 billion in dividends and triple its initial capitalization of $1 billion. In short, the Eximbank operates similarly to a commercial bank. It makes loans and charges interest and fees for services. As the loans are repaid and fees collected, the bank repays its own borrowings and the interest due on these borrowings, pays administrative costs and dividends and builds up reserves. Although each year Congress sets a limit on the amount of loans and guarantees that the Eximbank is allowed to issue, net outlays by the bank for its programs are much lower than the authorization figures. There are two reasons for this discrepancy.

First, there is no budget outlay for guarantee and insurance programs. which account for well over half of the annual authorization for the Eximbank, unless a claim is made against the bank. In the bank's almost 50 years of existence. the default rate on its guarantee program has been only three-tenths of 1 per cent of all guarantees issued.

Second, authorizations are made annually while outlays flow from these authorizations over a period of years. Thus, while the direct and discount loan programs are included at full value in the budget authority figures and the bank usually authorizes up to its limit. net outlays (what must be financed by borrowing from the FFB) are much smaller. To measure actual outlays, the schedule of disbursements must be taken into account, with loan repayments and interest payments subtracted from total expenditures.

Chart 1 illustrates how this process works using FY 1982 as an example. Prior year commitments on direct loans payable in FY 82 of $2.07 billion. current and prior year authorizations for discount loans of $.23 billion, and disbursements on new direct loans of $.28 billion required total loan disbursements of $2.58 billion. Operating costs. interest payments, administrative costs and net claims paid out were $1.72 billion.

These obligations were offset by $1.73 billion in loan principal repayments. $1.36 billion in interest charges and $40 million in guarantee insurance premiums and fees. Total

ment in the 1983 State of the Union Address that "we must have adequate export financing to sell American products overseas.." The achievement of this goal could be simplified and perhaps accelerated by certain changes in the Eximbank charter to be made during the 1983 reauthorization process. These changes include those listed below.

1. Language should be adopted that ensures adequate, regular funding of the Eximbank to meet the expanded growth of U.S. based exports in an increasingly competitive world market.

2. The congressional mandate that the bank provide competitive export credit programs in both the mediumand long-term areas should be clarified.

3. A "warchest" should be established using special appropriated funds to counter "predatory financing" by foreign governments which are contrary to OECD guidelines.

4. The U.S.government should press for international agreement on cessation of subsidy credits for exports.

Information Contacts

NAM International Economic Affairs Department

Lawrence A. Fox.
Vice President

Maja C. Wessels,
Associate Director,

International Finance and Monetary
Affairs

March 1983