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borrowers, and nature of proposed projects. Commitments were not finalized in several cases because Eximbank's exposure in some countries would be increased, terms requested by borrowers did not meet Eximbank's standards, or projects were not the kind in which Eximbank wished to be involved.

A report compiled by the Chamber of Commerce of the United States prior to the above legislation presented examples of sales lost in Latin America due to Eximbank's insistence on bank guarantees to insure repayment of loans. The report pointed out the lack of available Government concessional financing for transactions requiring terms of 7 to 20 years--except Eximbank's participation in aircraft and power plants.

Regarding infrastructure projects reported by overseas post', an Eximbank official stated that these would not be of interest to it because of long repayment terms. An important factor that Eximbank's Board of Directors considers in loan applications is that the projects be financially self-supporting. Eximbank, therefore, does not usually provide financial assistance for social or civic projects, such as health, housing, and welfare programs, in which links to productivity and earnings are indirect.

We are mindful of congressional stipulation that Eximbank loans be made when there is reasonable assurance or sufficient likelihood of repayment. However, transactions involving greater risk or which are not now Governmentsupported are often those truly incremental; if these transactions are not financed by Eximbank, they likely will not be consumated for the benefit of U.S. business and balance of payments. Eximbank's consideration of a greater range of commodities and transactions which are not now Governmentsupported might well broaden Eximbank's participation. Its assistance in long-term transactions might be expanded to include financing of items other than aircraft and power plants and to countries more in need of its assistance.

MEASURING RESULTS OF PROGRAM

Procedures for measuring results of using capital loan funds had not been established. Eximbank's contention in testimony by its President before the Congress was that, in

the judgment of the Board of Directors, the export sale would not have been made unless Eximbank participated in a transaction. Therefore, all such sales were incremental U.S. exports.

Eximbank provided us with endorsements by U.S. aircraft and power plant manufacturers and Japanese loan recipients as evidence of the decisive role it played in these transactions, (See app. II.) Accepting the fact that aircraft and power plant sales generally need financing assistance, we believe it should be provided on a selective basis when there is a demonstrated need. In our opinion, this need has not been properly documented.

Subsequent to bringing the results of our review to its attention, Eximbank advised us of two studies it had obtained to assist in making decisions on requests for assistance, One study, prepared by a consulting firm under contract to Eximbank, reported on the terms and types of financing for U.S. exports made in the second quarter of 1971 through four U.S. customs regions. The study showed that, during the test period, only about 5 percent of U.S. exports were financed on repayment terms longer than 5 years as provided for under Eximbank's long-term capital loan program.

The second study summarized results of a survey taken by Eximbank of applicants during the first quarter of 1972 whose transactions had been formalized. The borrowers receiving Eximbank's services were well pleased and reported that these services were essential to their needs.

CONCLUSIONS, AGENCY COMMENTS
AND OUR EVALUATIONS

Exports are the cornerstone of U.S. efforts to achieve a favorable balance of trade. The Export-Import Bank Act of 1945 set forth the policy of the Congress that Eximbank should supplement and encourage, but not compete with, private capital. Policy guidelines further amplified Eximbank's role by requiring it to determine that its financing resulted in additional exports or offered opportunities for market development, referred to in this report sentiality.

By enacting the Export Expansion Finance Act of 1971, the Congress reaffirmed and made possible an even broader Eximbank role in increasing exports. Eximbank's loan, insurance and guarantee authority was increased from $13.5 billion to $20 billion. The act further provided that no limitation or restraint be placed on commercial financial institutions for the purpose of financing exports of the United States.

Conclusions

An improved management information system would aid Eximbank in judging the essentiality of its financing. Such a system would identify the financing needs of products and countries most likely to result in incremental sales, provide data for evaluating the results of its financing and accumulate documentary evidence to support its actions.

Our efforts to evaluate Eximbank measures to maximize other sources of financing and to determine whether its financing was essential to consummate the sale was hampered by lack of documentary evidence. Little documentation was found assessing such important factors as availability of U.S. commercial or foreign funds; extent of foreign competition; and the price, delivery, terms, and nature of financing available to such competition.

In our Japan case study we believe that some participation by Eximbank may have been necessary, but we could not establish whether Eximbank had thoroughly explored other available sources of financing. In some loans, the evidence

indicates that purchases would have been made from the United States without Eximbank financing.

An important consideration is the consequence of Eximbank financing of questionable sales. Eximbank must be selective because, in addition to possibly displacing private financing and impacting unfavorably on the balance of payments, there is a grant element in its financing. This grant portion represents a permanent transfer of real income to the borrower and/or the exporter, depending on the terms of the sales transaction. To illustrate, a $27 million, 15 year, 6-percent loan contains a grant element of $3.8 million, based on a comparable market rate of 8 percent.

Embassies can play a more significant advisory role in Eximbank's decisionmaking process, but this advice must be provided in the early stages of loan consideration. Treasury attaches and economic and commercial counselors assigned to Embassies abroad could be valuable intelligence sources because they are on the scene in-country and in a position to gather needed information. Consultation and coordination with these representatives could assist Eximbank in better determining the merits of loan applications.

We believe that the capital loan program could be more effective if Eximbank improved its management system to determine the products and markets in need of financing assistance. If credit is as important to facilitating exports as many business and Government leaders assert, the product lines and countries most in need of credit could be determined. Subsidies, such as are involved at times with Eximbank's concessional interest rate, are most effective with items for which small price differences or extended repayment terms greatly increase or decrease demand.

Eximbank operations could benefit from more effective coordination with State and Commerce. Information in commercial-economic reports could provide officials with more complete management information upon which to base loan decisions. Increased information on future construction projects around the world would provide Eximbank an expanded universe of prospective loans and broaden its participation base. Loans for infrastructure items and other items not

presently supported would be responsive to business needs and compatible with Eximbank's charter to increase exports.

Finally, a management tool for measuring results is needed. 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.

ency comments and our evaluations

Eximbank advised us that its responsibility was to facilitate exports and insure that it did not compete with private capital. Eximbank did not accept responsibility to prove that its assistance resulted in additional U.S. exports. It did not foresee providing any documentation concerning the nonavailability of other capital.

Eximbank takes sharp issue with our contention that it does not have an adequate system for evaluating essentiality. It contends that it has frequent and intensive contacts with importers, exporters, bankers, government officials, and other appropriate parties. It believes these contacts, plus the knowledge and experience of its staff, permit it to make informed judgments and that its research unit, which gathers facts from many different sources, gives Eximbank's Board of Directors current and pertinent data for each individual export transaction.

A basic question is whether these contacts and the information are complete, reliable, and impartial. . The endorsements Eximbank provided us from Japanese borrowers and American suppliers were not completely objective because these sources are parties to the transactions, who stand to benefit or lose from Eximbank financing. What seems more important are the views of other U.S. Government agencies on the question of essentiality, since they would provide the kind of objective analyses appropriate for determining the need for Eximbank financing in specific transactions.

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