Stacey Scott doesn’t think that finding international clients for American-made goods is a dying business model. In fact, at the company she works for, West Paw Design, she helps ship eco-friendly pet toys to nearly 30 countries around the world.
International demand for these hemp dog toys and organic catnip has led the company to expand to 70 employees in their Bozeman, Montana plant. Scott, who is the company’s accounting and business analyst, said that in order to supply that demand, they would need insurance on their international accounts receivable. Their local banking partner would not continue to finance them without it.
So in 2011 she reached out to the Export-Import Bank, the government’s official credit agency, for an insurance policy on these accounts.
“When we told our banking partner that we insured our international receivables, they were relieved and it stopped them from looking into it anymore,” said Scott.
But the Export-Import Bank’s charter is scheduled to expire come the fall and that could spell trouble for West Paw Design.
“That would be a huge bummer for us,” said Scott. “We could try to get insurance from a private institution but that would be way too much money and we would have to bear those losses.”
Controversy over renewal of the bank’s charter is brewing along partisan lines. The bank’s charter expires come September and a bill has been circulating that would allow it to operate for five more years. The bill would also extend the bank’s lending limit by $20 billion to $160 billion.
Some conservative Republicans take issue with the premise entirely- that the government is running a bank that helps exporters based more on cronyism than anything else. House Financial Services Chairman Jeb Hensarling (R-Texas) called the plan out.
“In many respects, it’s the face of cronyism,” Hensarling said in a statement. “Only in Washington can a taxpayer-subsidized program whose only purpose is to pick winners and losers ‘fail upward’ by requesting more money.”
Ex-Im Bank’s mission is to help American businesses export their goods and services to international markets. The goal is to assume credit and country risks that private sector lenders are unwilling, or unable, to accept.
The controversy is not new. Two years ago a heated debate raged over how fair the bank is. Conservative groups like The Heritage Foundation said the bank distorts markets and picks winners and losers within the private sector.
But perhaps the most aggravating to critics is that Ex-Im is superfluous- it does what banks in private sector already do.
“We don’t need it,” said Diana Furchtgott-Roth, a senior at the Manhattan Institute for Policy Research, a conservative think tank. “Private banks are falling over themselves to do this.”
This argument calls for more fiscal conservatism to help alleviate a ballooning national deficit and debt. Furchtgott-Roth, who was also a chief economist of the labor department during the Bush presidency, wants to see public institutions that replicate the private sector gone altogether.
“We have major financial problems and we should be looking for ways to cut. This is a prime example of that.”
But Ex-Im Bank President Fred Hochberg is rallying against the pushback. He called the controversy nothing more than “political games” that could hurt American businesses and jobs.
“It’s now in the hands of Congress to review it, debate it, and vote to recharter us so that we give U.S. exporters and their workers and their customers the confidence and security and we are there as a backstop,” Hochberg said in an interview with Reuters.
In 2012 and 2013 the bank approved over $60 billion in export transactions. Since 2008, Ex-Im’s portfolio has increased by 94.8%. And as for the claim that the bank favors some companies over others, President Hochberg says political games will only cost American taxpayers.
“We cannot pull the rug out from under them. We cannot play political games with those American jobs,” Hochberg said at Ex-Im’s annual conference.
One industry has especially benefited from the bank and has been lobbying to keep it alive. Since 2012, Ex-Im has topped $1 billion in support of American aircraft and helicopter businesses. Without the credit support, companies like Boeing would have a tough time in export markets where commercial lending is limited.
For Boeing, Ex-Im is a life-line. Since the financial crisis in 2008, the bank has supported one-third of Boeing deliveries, at about $9 billion dollars a year. And supporters within the sector claim that the export of commercial aircraft supports job growth in the U.S.
“Business aircraft is a great example of a homegrown American industry that is creating jobs in communities across the country, thanks to support from the Export-Import Bank,” said Hochberg.
The Obama administration concurs. In 2010, the president announced a goal of doubling total U.S. exports by 2015. The idea is designed to reduce unemployment and reduce the overall trade deficit. Growing Boeing as one of the largest American exporters will play a crucial role in making this a reality.
For manufacturing, an official credit agency for exports is necessary to keep up with international competitors. With stagnant U.S. growth, companies are looking for clients abroad. Lauren Airey, director of trade policy at the National Association of Manufacturers, explained that foreign manufacturers are competing aggressively.
“Especially in emerging markets, it’s important to use export credit agencies when convincing new customers,” said Airey. “A financing deal might make or break a trade relationship.”
There are at least 59 export credit agencies around the world including big exporters like China, India and Japan. Proponents of Ex-Im say it’s just a part of the global economic system and without it the American trade agenda would suffer.
“We see Ex-Im as essential to competitiveness and that is what is so important for jobs,” said Airey.
But Ex-Im has been lending to many small businesses over the past two years. Most of them are in Texas, California and Florida.
The bank was last reauthorized in the spring of 2012. That fiscal year was the strongest ever for Ex-Im with nearly $35.8 billion worth in authorizations, a 9% increase over the previous fiscal year. About $6 billion went to American small businesses, another record for the bank and at nearly double the 2008 amount. Small business financing was about 17 percent of the bank’s total authorizations in 2012.
The following fiscal year of 2013 was not as busy- the bank authorized a total of $27.3 billion. One in five of the total authorizations supported minority-owned and woman-owned businesses. And after operating expenses and loan-loss reserves, Ex-Im sent $1.057 billion to the U.S. Treasury.
But most of the wrangling is political. Diana Carew, an economist at the Progressive Policy Institute, said renewing the charter this time would be easier.
“At the end of the day the momentum of the tea party is not as strong as it was last time, so Ex-Im isn’t too worried,” said Carew, who is also a former bank employee.
She also characterized the bank as a jobs support program that is self-sustaining and without cost to the taxpayer.
“In this slow recovery, a credit export agency has taken on risk that private banks cannot take on,” said Carew. “That has kept a lot of companies alive.”