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In discussing the thrust of our draft report, the Embassy generally agreed that the need to determine essentiality of Eximbank capital loan financing seemed sound as it related to broad considerations of Eximbank policy.

After issuance of our draft report, Eximbank advised posts that their views are considered by it and by NAC in reviews of proposed transactions. In April 1972, diplomatic and consular posts were requested to submit

"*** any information or view on the transaction
in question. The purpose *** is to assist
Eximbank in determining whether the Post has any
information or views which Eximbank should con-
sider in reaching a decision on the credit re-
quest."

The posts were asked to consider the following types of general information in each case.

-- Are there any objections to the transaction from a

political viewpoint?

-- Does the post have information about conditions which

might hamper the borrower's ability to repay the proposed obligations?

--Is there foreign competition for the proposed trans

action and, if so, is any information available on the nature and terms of the foreign financing?

Eximbank's request for any information or views on transactions recognizes the potentially important role of overseas posts. Effective implementation by the posts should provide Eximbank with valuable information in reaching a decision on loan requests. However, we believe posts should also be asked to comment specifically on other credit resources available to prospective borrowers so that Eximbank financing does not compete with available U.S. or foreign financing.

Past GAO recommendation

In May 1969 we recommended that Eximbank document the nonavailability of commercial bank credit prior to approving loans. We stated that refinements were needed in Eximbank's practices to insure compliance with the intent of the legislative mandate that Eximbank not compete with private capital.

Although Eximbank's procedures call for applicants to describe efforts made to obtain other financing, its position has been that a rigid requirement to document the nonavailability of commercial bank credit would not be very effective since it is easy to obtain rejections from commercial banks. Eximbank also believes its position is justified by the fact that its loan officers are generally familiar with commercial bank practices.

The Executive Vice President told us it would be a waste of everyone's time for Eximbank to document the nonavailability of commercial bank credit. Nevertheless, we believe this is a sound management step.

Eximbank should evaluate borrower efforts in providing assurance that other capital sources have been adequately examined.

MARKET STUDIES NEEDED

Market studies, showing products and geographic areas requiring financing, could direct Eximbank's attention to products in need of financial assistance. Products could be identified for which loans would least likely result in additional sales, such as those for which the United States has little competition. Conversely, products could be identified for which Eximbank financing would most likely result in additional sales, such as those likely to be more competitive with financing assistance. Geographic studies could indicate the market areas having the best potential for probable additional sales.

In June 1969 the Bureau of the Budget (now the Office of Management and Budget) in responding to proposals to improve export financing in the United States, stated that Eximbank should try to determine the commodity classes and countries where Eximbank lending would have greatest balanceof-payments payoff, irrespective of the lending volume.

We found that numerous studies had been made by Eximbank, Commerce, and other groups highlighting the prospects for sale of U.S. goods in various parts of the world and pointing up the need for financing assistance. We found no studies suggested by the Bureau of the Budget isolating financing as a competitive necessity by product line and country or demonstrating the incremental exports that might accrue.

In a recent report to the Congress on Foreign Service commercial reporting for Brazil,1 we emphasized the importance of ascertaining reasons for failure of the United States to increase exports.

We showed that competitive credit was a major factor in improving the market position of U.S. manufacturers of scientific instruments. We recommended that State and Commerce implement a system of commercial reporting to identify factors affecting the U.S. market

1.'Improved Foreign Market Analyses Can Increase United States Exports," (B-172255, July 6, 1972).

share and those critical to the buy decision, so that business and Government officials might act to alleviate the situations noted. If, for example, credit was a critical factor, Eximbank could be called on to provide the resources. Such a reporting system, if carried to its logical conclusion, could provide Eximbank with intelligence to increase the effectiveness of its loan programs. However, because of the resource limitations of overseas staffs to do such analyses and the likelihood that such reporting would focus on selected product categories, these reports should complement not substitute for analyses on a broader scale.

Availability of market intelligence reports

Commercial-economic reports and future construction projects reported by overseas posts which often are not disseminated to Eximbank could give Eximbank a more complete view of the economic situation in a country and identify impending projects requiring financial assistance.

Eximbank recognized its need of access to the great variety of reports prepared by overseas posts to complement its information base for dealing with possible loan transactions. By letter dated March 3, 1971, Eximbank reiterated its earlier guidance to State, spelling out its interest in receiving communications on a broad range of topics.

To test the extent to which information from overseas posts was being disseminated to Eximbank, we reviewed two types of reports. The first group of 25 reports selected were from posts in Japan and contained commercial intelligence which Eximbank had requested. The subjects included civil aviation, nuclear power, petroleum and telecommunications expansion plans, textiles, general trade outlooks, and a Government of Japan white paper on trade,

The second group of 45 reports detailed construction projects being considered in various parts of the world, including water wells, steel mills, airports, hotels, shipbuilding and port facilities, food plants, office buildings, roads, and transportation systems.

Our review showed that Eximbank received only 17, or about 25 percent, of the 70 reports tested. The underlying

reason for nonreceipt by Eximbank was that State message centers did not identify the airgrams and telegrams as being of interest to Eximbank.

We noted that, although State's guidelines covering reports on impending projects called for information on financing, the reports submitted usually contained little of this information. An assessment as to who would provide the financing, the importance of financing in determining suppliers, and whether Eximbank might be called on to provide assistance for us, suppliers was lacking. Eximbank advised us that no action was taken on several of the reports because it was not immediately clear that there was any U.S. export potential which would require financing on commercial terms. Eximbank recently has adopted a more positive approach and its representatives visit numerous countries seeking these same types of opportunities for U.S. firms. With appropriate guidelines, an information system addressing these questions could be implemented by the overseas posts and provided to Eximbank at an early stage so that it could assess the need for financing assistance.

BROADENING EXIMBANK'S ROLE

The intent of Congress, expressed in the Export Expansion Finance Act of 1971, is to provide the resources needed to expand export trade. The act, passed on August 17, 1971, directs Eximbank to do whatever is necessary to meet the credit terms offered by foreign competitors and in section 2(b) (1) states:

"The Export-Import Bank is directed in the
exercise of its functions to provide guaran-
tees, insurance and extensions of credit at
rates and on terms and conditions which are
competitive with the Government supported
rates and terms and other conditions avail-
able for the financing of exports from the
principal countries whose exporters compete
with United States exporters."

In the past, U.S. exporters lost sales because of credit terms offered by foreign governments, credit ratings of

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