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years 1969-71. Also, Japan's

foreign exchange reserves rose from $1.5 billion in 1964 to $16.5 billion in 1972. (See pp. 6 and 7.)

FINDINGS AND CONCLUSIONS

Eximbank needs to improve its management information system to aid it in making judgments crucial to its financing operations.

Such a system would assist the
Bank's management in

--determining whether its financial assistance is essential to an export sale,

--selecting products most in need of its financial assistance,

--documenting the basis of its actions, and

--evaluating the effects of its financing on exports.

Attempts to evaluate Eximbank efforts to maximize private sources of financing were hampered by lack of documentary evidence. The Bank's records showed that loan approvals were based primarily on economic viability. Little documentation was found of Eximbank assessments of other factors essential to a sale, such as price, delivery, competition, or the availability of private financing, and the effect that these factors could have on the need for Eximbank financing to secure the sale. Although Eximbank participation in financing export transactions may have been necessary to consummate a sale, GAO could not establish that Eximbank had made a

concerted effort to maximize private financing in these transactions. (See pp. 18 and 42 to 61.)

Also, information obtained from Japanese borrowers and government officials and examination of records at the Embassy in Tokyo showed that the need for Eximbank participation in some export transactions was questionable. Information to resolve these questions was not available in Eximbank loan files. Specifically, Eximbank financing seemed unnecessary for four loans totaling $10.1 million. Prestige, patented materials, the compatibility of U.S. equipment, and a stated preference for U.S. products by borrowers suggested that purchases would have been made from the United States without Eximbank financing assistance. (See pp. 18 and 61 to 64.)

GAO believes that Eximbank's involvement in loans to Japanese borrowers facilitated exports but the question of whether all loans were necessary to insure U.S. sales was unresolved. The difficulty in measuring the effect on exports resulting from Eximbank's activities and the fact that Eximbank is a Federal Government entity accountable for its actions argue strongly for clear documentation of why loans. were made and the reasons Eximbank participated to the extent it did. This documentation can be accomplished without creating a large administrative workload or unduly delaying loan applications. Moreover such management discipline would provide Eximbank with greater assurance that its assistance was being applied to those transactions most likely to benefit the United States.

Eximbank loans are provided at an interest rate usually below commercial bank rates at home or abroad and with longer repayment periods than available through commercial channels. Under its policy of participation financing, Eximbank's 6-percent interest rate is combined with private funds at generally higher market rates to establish a financing package competitive in rate and terms to permit U.S. suppliers to sell abroad. (See pp. 5 and 9.)

Although Eximbank sees its role as a lender of last resort, because its interest rate has been lower and its repayment terms longer than comparable commercial financing, borrowers tend to seek Eximbank financing as a first resort. Thus Eximbank's management is faced with the difficult task of deciding when its financing is essential to an export sale. (See pp. 14 and 16.)

Eximbank needs to be selective because its financing can displace cash sales and sales financed by other sources, and the immediate balance-of-payments effect of the sale is lost. Another consideration of Eximbank financing is the transfer of real income to the foreign borrower and/or the exporter. This is represented by the difference between the equivalent appropriate market interest rate and the lower Eximbank rate computed over the life of the loan. (See pp. 15 and 16.)

GAO knows of no system that can be devised to insure absolutely that regular commercial financing is not displaced, or that the availability of Eximbank financing is the crucial factor influencing the sale. It is possible, however, for Eximbank to develop a system for acquiring and analyzing information which will

increase the probability of its assistance resulting in increased exports. Other Federal agencies have developed processes for insuring that their financing is necessary in their particular circumstances. For example, the Department of Agriculture has developed a system for determining that additional exports of agricultural commodities are made under its concessional barter export program. (See pp. 19 and 20.)

Although Embassies are regularly requested to comment on proposed Eximbank loans, their comments are usually directed to broad political or economic objections. To a large extent their potential contribution in assisting Eximbank on loan decisions is not realized. Some Embassy officials in Tokyo considered that Japan was capable of and should be encouraged to finance more of its imports and that such financing would achieve more positive U.S. balance-of-payments effects for existing and future U.S. exports to Japan. (See p. 22.)

More effective coordination with the Departments of State and Commerce is needed. Better information on commercial-economic reports, future construction projects, and infrastructure and other requirements abroad would be responsive to business needs and could enhance Eximbank's export assistance role. (See pp. 26 to 29.)

Although Eximbank has not established a formal measurement system, its recent studies on export financing and customer appraisal of its services could be expanded to provide management with information helpful in evaluating the effectiveness of its program. (See pp. 29 and 30.)

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