the depth of support or the type of support. Interest rate subsidies, for example, vary widely and appear to have little relationship to current national objectives. Development of a criteria for granting credit support should be able to assist us in answering questions such as, what are the beneficiaries' credit problems-access or ability to pay? Is the existing interest rate subsidy appropriate in light of the changed financial market conditions? Are the programs equitable? Has the original program objective been met? Where an interest rate subsidy was once offered, will a guarantee be sufficient now? Given the vast scope and complexity of the Government's credit market involvement, such criteria will be essential to making informed decisions on the needs for existing and proposed credit programs? Our fourth recommendation is to limit interest rate subsidies on direct loans and on guaranteed loans that are converted into direct loans. Many program interest rates were set by statute in the distant past when market rates were much lower. Programs that once offered modest subsidies now offer deep ones. The failure to change these rates in response to changed market conditions has contributed both to rising program costs and excessive program demand. Finally, we urge that in reviewing the existing programs, Congress consider modification, reduction or elimination of those programs and program objectives that can now be met by private sector sources. Many Federal credit programs have provided important benefits to our economy by either demonstrating the commercial viability of a certain type of loan or enterprise, or by providing credit for important segments of our economy when financial and economic stress immobilized the private financial system. But as times change, the initial justification for establishing the program may no longer exist. In conclusion, the chamber believes that the reforms included in S. 1679, the establishment of a formal credit budget and the three additional proposals discussed in our statement would make an important contribution to limiting the growth in Federal credit programs. We urge this committee to carefully consider these proposals and recommend that Congress enact the appropriate legislation to put them in place. [The complete statement follows:] 26-196 0-83-9 The Chamber of Commerce of the United States is the largest federation of business and professional organizations in the world, and is the principal spokesman for the American business community. The U.S. Chamber represents more than 207,000 members, of which more than 203,000 are business firms, more than 2,600 are state and local chambers of commerce, and more than 1,200 are trade and professional associations. More than 85 percent of the Chamber's members are small business firms having fewer than 100 employees. Yet, virtually all of the nation's largest industrial and business concerns are also active members. We are particularly cognizant of the problems of smaller businesses, as well as issues facing the business community at large. Besides representing a cross section of the American business community in terms of number of employees, the U.S. Chamber represents a wide management spectrum by type of business and location. Each major classification of American business manufacturing, retailing, services, construction, wholesaling, and finance numbers more than 15,000 members in the U.S. Chamber. Yet no one group constitutes as much as 23 percent of the total Chamber membership. Further, the Chamber has substantial membership in all 50 states. The Chamber's international reach is substantial as well. It believes that global interdependence provides an opportunity and not a threat. In addition to the 47 American Chambers of Commerce Abroad, an increasing number of Chamber members are engaged in the export and import of both goods and services, and have ongoing investment activities. The Chamber favors strengthened international competitiveness and opposes artificial U.S. and foreign barriers to international business. STATEMENT on AMENDMENTS TO FEDERAL FINANCING BANK before the SENATE BANKING, HOUSING AND URBAN AFFAIRS COMMITTEE for the CHAMBER OF COMMERCE OF THE UNITED STATES by Dr. Ronald D. Utt I am Dr. Ronald D. Utt, Deputy Chief Economist for Economic Policy at the Chamber of Commerce of the United States. On behalf of the Chamber's over 207,000 business, trade association and local and state chamber members, I welcome this opportunity to present our views on federal credit programs, their rapid growth in recent years, and the existing and proposed efforts to control them, including S. 1679, a bill that would require that programs financed through the Federal Financing Bank (FFB) be included in the federal budget. The Chamber endorses S. 1679, enactment of which would be an important step toward gaining better control over those portions of the federal credit programs that are ultimately financed by the FFB. However, by itself, inclusion of these programs in the budget is no guarantee that such a control mechanism will be effective or that program growth will be limited. The need for better control is obvious. Since the late 1970s, federal loan and loan guarantee programs have expanded at a rate in excess of the direct federal spending. As a consequence, federal credit program activity has risen to record levels of intrusion in U.S. financial markets, leading to an unprecedented degree of government credit allocation. Combined with the borrowing needed to fund the deficit, total funds raised under federal auspices absorbed nearly 50 percent of all funds raised in credit markets. Given the current state of our financial markets, the expectation of continued large budget deficits and the private sector's need for investment capital, the Committee is to be commended for focusing its attention on this important but often ignored aspect of federal credit market intrusion. i Typically, concern for the extent to which the federal government "crowds out" private borrowers has been expressed solely in terms of the size of the budget deficit. The deficit does, of course, interfere with financial markets, but it is only one aspect of federal credit pre-emption, because it does not reflect the activities of the loan and loan guarantee programs of federal agencies and federally-sponsored enterprises. Indeed, in fiscal years 1980 and 1981, these programs pre-empted an even greater share of domestic credit resources than did the budget deficit. Scope of the Federal Credit Control Problem Defined as direct loans and loans guaranteed by federal agencies and federally-sponsored entities, these lending programs have exhibited all of the growth and control problems usually attributed to federal spending. In recent years, these loans and loan guarantees have grown at a much faster rate than have the more widely considered measure of budget outlays. From 1976 through 1983, budget outlays rose 122 percent, compared to 387 percent for net federal loans and loan guarantees and federally-sponsored credit advances. Compared to the attention devoted to the deficit, the relative neglect of this lending activity is rather surprising inasmuch as these programs have essentially the same effect on our economy and its financial markets as does the more visible deficit. Both lay claim to scarce domestic resources and reallocate them to a vast array of beneficiaries. Moreover, these programs are not negligible in size. During FY 1982, the federal government and its sponsored enterprises made $182.8 billion in loans to various private and quasi-private entities, and guaranteed another $85.8 billion in loans, for a total of $267.6 billion in federal credit market intervention. After netting out repayments and double counting, net new lending and guarantee support reached $87.5 billion in FY 1982. As a result of the recent rapid growth in these programs, federal lending activities in the first three years of this decade accounted for more than 20 percent of total funds advanced in U.S. credit markets, up from 17.1 percent in FY 1979 and 11.9 percent in FY 1977. When the borrowing needed to fund the deficit is added to this, total government credit demands amounted to 48.9 percent of all funds raised in U.S. credit markets during FY 1982. 26-196 0-83--10 |