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The Export-Import Bank of the United States (Eximbank) was established in 1934 as a District of Columbia bank corporation to assist in developing U.S. trade interests. From inception, Eximbank's role has been to finance U.S. foreign trade, but its manner of operations has varied depending on the world situation. Early in its history, Eximbank provided only direct assistance to U.S. exporters; in the post World War II era it provided financial assistance to reconstruct war-torn economies of foreign countries; and recently it has been the principal Government agency providing financial support to foreign borrowers to buy U.S. goods and services. (See app. I.)

Eximbank loans are provided at an interest rate usually below commercial bank rates at home or abroad and with longer repayment periods than available commercially. Availability of this concessional financing gives U.S. exporters an advantage in selling when foreign importers are unable or unwilling to pay cash or to arrange credit from other sources. Eximbank reported that its loans, guarantees, and insurance programs in fiscal year 1971 supported $6.87 billion in U.S. export sales.

Under Eximbank's capital loan program, U.S. exporters compete more effectively with foreign competitors supported by subsidized government financing. Expansion of exports helps the U.S. balance of payments, promotes employment, and increases development of productive resources.

The United States gains immediate balance-of-payments benefits from exports sold for cash or financed by the importer from foreign sources. Eximbank financing resulting in exports that otherwise would not have been made--that is, additional U.S. exports-- benefits the U.S. balance-ofpayments position through interest income and installment receipts. Eximbank points out that:

"The inflow of principal, interest, and fees on
long-term and other credits extended directly to
foreign borrowers by Eximbank *** contributes

annually in enormous measure to the favorable
side of the United States balance of payments."


The Export-Import Bank Act of 1945 states that Eximbank, in the exercise of its functions, should supplement and encourage, and not compete with, private capital. Policy guidelines also set forth this requirement. Implicit in the legislative and policy instructions is the need to determine that Eximbank financing does not compete with private capital and results in additional exports or offers opportunities for market development--referred to in this report as "essentiality determination.

With program management as the central viewpoint, we examined the information available on the judgments exercised by Eximbank in making loans. Japan was selected as a case study of the capital loan program because of the large number and value of loans made to borrowers in Japan. Also, Japan's foreign exchange reserves have increased at a tremendous pace which indicates it can finance its own imports. We focused on the likelihood that capital loans were increasing exports and sought answers to such questions as:

-- What guides Eximbank's loan policy?

--How does it determine whether to participate in a


-- Are market research studies made to pinpoint countries

and product areas needing financing?

--How does it measure accomplishments in terms of in

cremental exports?

Japan historically has been one of the largest recipients of Eximbank loans. Loans have been concentrated in two product areas, thermal and nuclear power plants and commercial jet aircraft, comprising $371.2 million, or 95 percent of the $386.9 million in capital loans for Japan authorized during fiscal years 1969-71. Of the 26 loans covered by our review, 19 were made in these two product areas to five recipients.

Japan's great economic growth is reflected in the buildup of its foreign exchange reserves. These reserves rose from $1.5 billion in 1964 to $3.2 billion in 1970, and to $16.5 billion in April 1972. A Japanese official commented in May 1972 that private Japanese firms had contributed to Japan's inflated foreign exchange holdings by borrowing a total of $8 billion from foreign banks because of lower interest rates overseas.

Worldwide, Japan has enjoyed a trade surplus (exports over imports) which has risen from a relatively small $377 million in 1964 to $3.96 billion in 1970, and $7.9 billion in 1971. The United States, on the other hand, has seen its trade balance fall from a surplus of over $7 billion in 1964 to a deficit of over $2 billion in 1971, a swing of about $9 billion in 8 years. In 1971 the $3.2 billion trade deficit with Japan contributed heavily to our worldwide deficit. The seriousness of this situation was underscored by a recent meeting between the President of the United States and the Prime Minister of Japan to discuss the trade imbalance between the two countries.


We examined capital loans made by Eximbank to Japanese borrowers from July 1, 1968 to June 30, 1971. We did not examine guarantees, insurance, or other types of Eximbank credit.

Eximbank's management during the period of our review was under two different administrations. The present administration (see p. 70) took over in March 1969 and implemented its new policies about July. Major policy changes for capital loans were (1) broadened commercial bank financial participation in Eximbank loans and (2) a preliminary commitment procedure under which Eximbank support is assured for later business transactions. Recognition has been given to these changes in the report, where appropriate.

We interviewed representatives of selected U.S. commercial banks in New York, N.Y., participating in Eximbank export financing and government and business officials in Boston, Massachusetts; New York; Washington, D.C.; Seattle, Washington; and Tokyo and Osaka, Japan.

We reviewed agency files and records and testimony of officials in congressional hearings. We also used the extensive literature available on export financing and Japan's trade and financial practices.

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