Speech

Jeffrey L. Miller
Senior Vice President - Export Finance
Export-Import Bank of the United States
Euromoney Structured Trade and Export Finance in the Americas Conference
Miami, FL-February 25, 2003, 9:50 a.m.

Latin American Prospects and Ex-Im Bank Engagement 

Thank you, Jonathan [Bell], for that kind introduction. It's a pleasure to be with you in Miami today. I say that not only because I'm here to talk about two subjects near and dear to my heart - the Export-Import Bank and supporting trade with Latin America, but also because just last week I was digging out of two feet of snow after Washington's great blizzard of 2003. So, I thank you for this respite from winter and for the opportunity to talk about Ex-Im Bank's activities in Latin America, our perspectives on the region, and some of our ideas for the future. 

I am especially pleased to be here because I am an old Latin America hand. I started my career back in the 1980s doing workouts at the height of the Latin American debt crisis. I witnessed firsthand the problems that overzealous lending created across the region. 

Latin America has gone through many ups and downs since then. Many governments have embraced free-market ideas - cutting tariffs, privatizing moribund state industries, and attempting fiscal discipline. NAFTA has generated a veritable revolution of trade-based growth for Mexico. Of course, we'd like to see a Free Trade Area of the Americas do the same for the entire hemisphere. 

On the other hand, Argentina and Venezuela are reeling from double-digit negative growth. Latin American economics is nothing if not a roller coaster - with dizzying highs and gut-wrenching lows. We understand this is a tough time. 

I'd like to make three key points today. First, we are open for business in Latin America and are hopeful that the current economic difficulties that some countries in the region are experiencing will be surmounted. Second, like financial institutions around the world, we do not view Latin America as a single entity. We tailor our activities in the region based on the risks we see in individual markets.

Finally, we want to do our part to ensure that certain Latin American governments do not retreat into protectionism in response to the current economic difficulties. We want to be able to help keep trade lines open where possible and to encourage financial flows to Latin American industries that earn hard currency. Such flows will help the balance of payments situation in the region and help ensure that we get repaid.

Ex-Im Bank's Role

At Ex-Im Bank, however, it's our job to finance exports, whether in difficult times or difficult markets, to enable creditworthy national governments, municipalities and private-sector borrowers in emerging markets to buy goods and services from U.S. exporters. We are chartered by Congress to support U.S. jobs by financing the sale of U.S. exports that would not otherwise be possible without our backing. We are the lender of last resort. We're the first ones in to difficult markets, and we're the last ones to leave. In fact, we are the bookends of export finance. 

Export credit agencies (ECAs) such as Ex-Im Bank have consistently played a critical role in filling the financing gaps to emerging markets. In fact, between 1998 and 2000, Ex-Im Bank provided more than one-quarter of all medium- and long-term export credits (repayment terms of more than one year) provided by the ECAs of the Organization for Economic Cooperation and Development (OECD). Altogether, ECAs provided about $81 billion in medium- and long-term export credits during these three years. Keeping trade flowing is what ECAs are all about.

ECAs have a crucial role to play in the current market because, as we all know, commercial banks simply do not have a large appetite for placing emerging market risk on their books. Net commercial bank lending (disbursements minus repayments) to emerging markets are at historic lows. Between 1979 and 1984, net bank lending averaged $38 billion per year. This figure dropped to $-.3 billion during the Latin American debt crisis 1985-1990 and rebounded to $56 billion during the period 1991-7. The Asian debt crisis marked the beginning of the current period in which repayments outstripped new disbursements by an average of $40 billion per year from 1998 to 2001. This pattern is replicated in Latin America.

There are probably many reasons for these cycles. Risk perception is among them. Commercial banks have become more sensitive to risk and have instituted sophisticated risk management systems to control the risk in their portfolios. This conservative trend is likely to continue as the Basle 2 requirements come into play. 

Meanwhile, other forms of finance are filling the gap to emerging markets. Direct investment, bond and portfolio investment in emerging markets are on the rise, but usually do not add directly to general export finance. Whereas the typical international loan for a commercial bank is to a private firm purchasing an import, bond finance typically goes to sovereign entities or increasingly to one of the strongest local corporations, and foreign exchange becomes available for general purchases of imports only indirectly. Direct investment is beneficial to emerging markets, but only contributes to export finance when capital goods are associated with greenfield projects.

I am not an economist, but it can be argued that more trade with emerging markets would be taking place if commercial bank financing were more readily available. Clearly, there is still a role for commercial banks in financing general trade, and there is a crucial role for ECAs in facilitating that finance. Ex-Im Bank's guarantees provide coverage for defaults caused by a myriad of problems, including expropriation, inconvertibility, commercial problems, and even acts of terrorism. This is vital protection in the current environment.

Our guarantees, loans and insurance support transactions of all sizes and types - from under $1 million to multibillion-dollar infrastructure and energy projects. Unlike other countries' ECAs, we have no transaction size or country exposure limits.

Prospects and Outlook for the Region

Ex-Im Bank's financing products are tailored to meet almost any market conditions - and, clearly, market conditions in Latin America today remain volatile and uncertain. Argentina and Venezuela are obviously the region's two biggest question marks. We are hopeful that the latest IMF loan package and reform program, announced last month, will bolster President Duhalde's efforts to continue to stabilize the situation in Argentina. Likewise, we hope that the political turmoil in Venezuela will subside so that this strategically important economy can begin growing again. We can only be cautiously optimistic about the expected IMF package for Ecuador. 

Brazil, the region's economic superpower, has also been navigating its own patch of rough water during the last few years. The sharp depreciation of the real last year led to a significant decline in imports, and international investors and creditors remain edgy about what the new left-wing government will bring. Nonetheless, Brazil's economy at least grew by about 1 percent last year - a sharp contrast to the 13 percent and 10 percent declines for Argentina and Venezuela - and President Lula has sent encouraging signals to international financial markets. Lula has set out positive, simple goals, and we are hopeful that Ex-Im Bank and U.S. exporters will contribute to the future that he envisions for his country.

The Dominican Republic is another example where populist political rhetoric and efforts to improve growth have gone hand in hand, under President Mejia, to provide a vision of a better future and the fundamentals for real economic growth. The DR has had one of the region's fastest growing economies in the late 1990s, and economic growth is expected to pick up again after last year's global slowdown. Ex-Im Bank has supported efforts by the Mejia government to improve infrastructure, including housing. 

Mexico, of course, remains one of the best economic performers in the region. Although the U.S. recession has slowed Mexico's robust trade-led growth of the late 1990s, economists expect respectable GDP growth of about 3.5 percent this year. While Mexico has done the right things, both economically and politically to secure its position as an investment-grade risk, structural reforms need to continue and social conditions must continue to improve to blunt the potential for political and social unrest. 

In short, market conditions differ throughout Latin America. We recognize that, and, as I have said, we tailor our activities to the risks and opportunities we see in individual markets. 

Ex-Im Bank's Activities in Latin America 

Ex-Im Bank is open for business throughout the region. We are active in a variety of sectors including transportation, energy, telecommunications, mining, and the environment. We are world leaders in project finance. In FY2002, we provided $1.6 billion in limited recourse project finance. These authorizations included a $1 billion credit facility to Pemex for two oil and gas exploration and production projects. This followed a series of long-term loan guarantees to Pemex during the last few years worth more than $1.4 billion to develop oil and gas resources in the Burgos Basin and the offshore Cantarell Oil Field.

Other recent projects that Ex-Im Bank has supported in Latin America include a 469-megawatt combined cycle power plant in Araucaria, Brazil, and Rio Polimeros, a $1.1 billion integrated ethylene and polyethylene complex in Rio de Janeiro that we are co-financing with SACE, the Italian export credit agency, and the Brazilian National Development Bank.

In fact, Ex-Im Bank has supported a wide variety of transactions of all sizes in Latin America and the Caribbean. These have ranged from the sale of light-rail mass transportation systems to the Venezuelan cities of Maracaibo and Valencia to greenhouses for Mexican farmers, hospital equipment for an Evangelical Lutheran hospital in Sao Paulo and equipment for a wastewater treatment plant in the Dominican Republic. Central America is very much on our radar screen, as two of our directors have recently visited and met with business and government leaders in Panama and Costa Rica. 

Ex-Im Bank's focus on promoting environmentally friendly exports and renewable energy led it to co-sponsor a conference with Banobras, Mexico's development bank, on financing environmental infrastructure projects in Mexico last fall. The sold-out conference, which was attended by dozens of Mexican municipal leaders, yielded literally scores of potential environmental projects. 

The Bank has supported the sale of U.S.-made solar power cells to Argentina and Mexico, as well as water-filtration and wastewater-treatment facilities to Brazil and Mexico. The Bank's efforts to become a leader in supporting renewable energy technologies paid off in an export sale by the Maryland-based BP Solar, the world's leading solar electric company, to an Argentine utility that is installing photovoltaic energy panel systems on homes in rural areas. 

All told, Ex-Im Bank authorized more than $3 billion in financing for Latin America and the Caribbean last year. Mexico was our Number 1 market in the world, with $1.6 billion in authorizations. But we also had an especially good year in the Dominican Republic, authorizing $788 million in export financing. And the Trade Promotion Coordinating Committee has identified Mexico and Brazil as two of six markets where U.S. government trade agencies will strive for greater coordination in promoting U.S. exports. 

But Latin America is more than a priority partner and market for U.S. exporters, accounting for 22 percent of U.S. merchandise exports in 2001. Latin America has consistently ranked as Ex-Im Bank's top regional market. In fact, the Bank's very first transaction in 1934 was to support U.S. exports to the region. During the first decade of the Bank's history, 60 percent of Ex-Im Bank authorizations involved Latin American countries such as Mexico, Panama and the Dominican Republic. One of our great strengths is that we have long-established relationships with commercial banks, development banks, and private-sector companies in the region and in the U.S. that do business with Latin America.

While we are not currently processing applications for Argentina, we are monitoring the economic and political situation closely. Although we are closed for routine trade finance transactions, we will consider structured finance arrangements such as Ex-Im Bank's project finance program, asset-based aircraft leases, and other financing arrangements that offer a reasonable assurance of repayment, including reliable access to adequate foreign exchange. But I'd like to emphasize that, once the dust settles in Argentina and Venezuela, Ex-Im Bank will be back in the game and playing to win for U.S. exporters. We want to encourage financial flows to industries that earn hard currencies. Such flows will help the balance of payments situation, thus promoting long-term economic growth. 

New Efforts to Serve U.S. Exporters 

Now, I'd like to briefly describe several new or recent initiatives to better serve U.S. exporters that are starting to bear fruit. Ex-Im Bank has long sought to establish new partnerships and new ways of supporting exports. 

In keeping with our efforts to focus efforts on small business, Ex-Im Bank's foreign currency agreement with NAFIN allows it to offer peso-denominated loans with favorable credit terms guaranteed by Ex-Im Bank to small and medium-sized enterprises buying U.S. exports.

Under our sub-sovereign program, we accept the credit of qualified cities, states and other sub-sovereign governments in emerging markets for the purchase of U.S exports. In Latin America, this program is available in Mexico and in the Brazil states of Bahia and Ceara, and the city of Rio de Janeiro among other places.

Ex-Im Bank's partnerships with other export credit agencies around the world have led to new and flexible financing approaches, such as co-financing and reinsurance arrangements. Co-financing and reinsurance arrangements make it possible for products and services from two or more countries to benefit from a single ECA financing package. Such transactions enable companies in Latin America, for example, to source their foreign purchases from multiple countries while dealing with only one ECA. In Latin America, we have authorized the Marlim Sul oil and gas project in Brazil, which was co-financed with our friends at ECGD, the British export credit agency, as well as the Rio Polimeros project that I mentioned, where we are working with the Italian ECA. 

One idea that we are considering would allow banks and vendors, with offices in emerging markets, to use their own credit standards for small transactions. The process would work as follows: Lenders would submit credit standards to Ex-Im for our approval. After an analysis of the institution and its credit standards, Ex-Im Bank would then grant automatic approval under the guarantee and insurance programs for all transactions that meet those credit standards, along with all relevant Ex-Im policies and procedures. This plan would be designed for individual transactions under $1 million and would be done on a trial basis. We believe that this idea has significant potential in Latin America.

On top of these new programs, as you may know, Ex-Im Bank has recently reorganized to leverage the strengths of our products and staff, enhance our customer service, and learn from the "best practices" of other financial institutions. Our goal is to become more customer-driven and market-focused, and at the same time, to enhance our risk management. 

All of these initiatives are part of our continuing efforts to expand and deepen commercial ties between the United States and Latin America and the Caribbean. We hope - and expect - that we will continue to play a vital role in facilitating U.S.-Latin-American trade as we have for nearly 70 years.

Latin America and the Caribbean is a region of more than half a billion people. Mexico's experience during the last decade has demonstrated that, as more and more countries find the road to sustainable development and prosperity, the entire region has the potential to be a huge consumer of U.S.-made goods. At Ex-Im Bank, we intend to be drivers in that process. Whether we're on the upside of the economic roller coaster or the down, or somewhere in between, I want you to know that Ex-Im Bank will be there to help exporters and lenders succeed in this key region of the world. 

Thank you.