The Export-Import Bank in the New Global Environment
FOR IMMEDIATE RELEASE April 9, 2002
Bo Ollison 202) 565-3200
Thank you for that kind introduction. It's great to be back home in Houston. But it's especially gratifying to be in Houston representing the Export-Import Bank of the United States and the Bush Administration. Today, I'd like to talk about the agency that I'm proud to serve and the complex global environment that we operate in.
I am still adjusting to the transition from being an old banker to my new job at the Ex-Im Bank and the Federal Government. At first blush it may seem that the public and private sectors don't match perfectly. But I'm finding that many things about my background in commercial banking match the way that Ex-Im Bank does business. I've always wanted to keep my customers in mind, to serve them with a winning team. And I believe that keeping those elements in harmony leads to success.
At Ex-Im Bank, our customers are U.S. exporters and the banks that serve them. I am pleased to say that we have a winning team of well-versed professionals eager to carry out the Bank's mandate of supporting U.S. exports and U.S. jobs. We are responsible to the taxpayers. Because we cannot address each of them by name, we identify them by their representatives -- the Administration and Congress. We all share a common passion: to support jobs and the US economy.
My values and personal philosophy have not changed. I've always made myself accessible to my customers, and been interested in hearing all sides of an issue before making a decision. I intend to make Ex-Im Bank as accessible, inclusive and user-friendly as possible to all of our constituencies.
Although Ex-Im Bank is a small agency, it is a key player on the Bush Administration's trade policy, foreign policy, and economic stimulus policy teams. As many of you know, Ex-Im Bank has been in the business of supporting U.S. jobs by backing U.S. exports to challenging markets since the 1930s. In fact, one of the Bank's first chairmen was the great Houstonian, Jesse Jones, who established the Houston Endowment and under President Franklin Roosevelt was so powerful that he was known as the fourth branch of government.
But the world of 2002 is a very different world from the one that Jesse Jones confronted in the 1930s. The biggest change is this: Trade and cross-border investment flows have grown so rapidly in the last few decades that there is hardly a business, much less a country or even a community that is not touched by globalization. Let me give you one example: A recent PBS special about Jesse Jones was titled Brother, Can You Spare a Billion? Well, a billion dollars was a staggering amount of money during the Depression. When Ex-Im Bank was founded, the United States exported less than $2.5 billion worth of goods and services. In 2000, U.S. exports passed the trillion dollar mark for the first time. Moreover, as much as $1.5 trillion of capital flows through global capital markets every day.
One hallmark of globalization is a heightened degree of economic interconnectedness. A financial crisis in an emerging market could just as surely affect the United States, as a slowdown in the U.S. will impact growth prospects in Latin America, Asia, or other regions of the world.
Today, Ex-Im Bank stands at the confluence of powerful forces that are changing the business environment throughout the world. Not only has global commerce been rapidly growing in recent years, but American exporters face increased competition for overseas markets. At the same time, emerging markets, where Ex-Im Bank primarily finances transactions, appear to be riskier. From the onset of the currency devaluations in Thailand to the crises in Russia in 1997 and 1998 and most recently Argentina, emerging markets have been battered by swiftly moving capital flows. Today, most private-sector lenders are reluctant to provide long-term financing to emerging markets, and most investment flows are seeking short-term gains. The events of September 11, of course, have dampened investor confidence. According to the IMF, 2001 marked the lowest level of net private capital flows- including bonds, equity and loans- to emerging markets since the early 1990s. At the same time, world trade growth was flat last year, after years of steady growth.
While there is still weakness in the global economy, there are unmistakable signs of recovery in the U.S., Europe, and some emerging markets. If this recovery takes hold, trade growth will probably be 4 percent this year, according to the World Bank. The rebound should be rapid after the upturn, due to aggressive interest rate cuts, low inflation, technology-driven productivity growth and high depreciation rates of investment goods in both the U.S. and Europe.
Throughout the 1990s, many developing countries instituted structural changes, diversified into manufacturing, and gained global market share that will position them to expand in 2003 and beyond. But countries that remained primarily dependent on commodity exports will not fare as well. At the same time, there has been a flight to quality among lenders and investors and away from many emerging markets. Net capital flows to emerging markets will probably decline again this year.
Emerging markets hopefully will see stronger growth next year. By 2003, low interest rates, a global recovery, increased confidence and reduced risk perceptions could spur the return of private capital flows to emerging markets. However, capital flows are likely to be more selective and more discriminating than they were in the mid-1990s. East Asian and Pacific emerging markets are expected to see GDP growth rates of about 5 percent this year and nearly 7 percent in 2003, according to the World Bank. While Latin America-s high debt will keep risk perceptions high, the World Bank forecasts that- because of sound macroeconomic policies in a number of Latin American countries- there will be growth of about 4.5 percent next year. Likewise, World Bank forecasters predict that Central and Eastern Europe should see about 4 percent GDP growth in 2003.
Despite these improving prospects, many investors and businesses are likely to continue to shy away from emerging markets because of the perceived risks. But, where others may see danger and insurmountable risks, we at Ex-Im Bank see opportunity. Emerging markets are home to nearly 90 percent of the world's people, and are where much of the economic growth in the coming years is likely to be.
Ex-Im Bank's charter directs that we provide financing to support U.S. exports in those markets where the private sector is unwilling or unable to go. We offer loans and loan guarantees to foreign buyers and export credit insurance and working capital loans for U.S. exporters. We do not compete with private lenders. We find opportunities, take risks and try to draw the private sector in, although our mandate also specifies that we must have a reasonable assurance of repayment. We also step up in times of crisis -- as we did during the 1997-98 global financial crisis, and as we did this past fall in supporting the airline industry in the wake of the September 11 attacks. In so doing, we not only foster stability but economic growth in emerging markets as well as in the United States.
Export credit agencies (ECAs) such as Ex-Im Bank play a critical role in filling the financing gaps to emerging markets. ECAs provided approximately one-fifth of the total long-term credits -- of more than one year -- that went to emerging markets in 2000, with most of the funds going to the private sector. In 2000, the ECAs of OECD member nations provided a total of $58 billion in long-term export credits.
Reducing the likelihood of crises brought on by sharp declines in investment flows and keeping trade flowing and growing are central to Ex-Im Bank's mission. They are also key components of the Bush Administration's efforts to re-ignite global economic growth. As the President said last year: Our goal is to ignite a new era of global economic growth through a world trading system that is dramatically more open and more free.
That is why the Administration has sought Trade Promotion Authority, which will help us pursue and complete the best trade agreements for our nation's workers, ranchers, farmers, families, and consumers. This includes the global trade negotiations launched last November in Doha. We know that the 14-fold increase in trade during the last 50 years has meant better lives for literally hundreds of millions of people. We know that similar gains can lie ahead. A World Bank study estimated that completely abolishing trade barriers and coordinating efforts to promote trade and reforms in developing countries could increase global income by $2.8 trillion and lift 320 million people out of poverty by 2015.
Especially important for our hemisphere is the Administration's strong advocacy for the creation of a Free Trade Area of the Americas, which could bring gains of $53 billion a year for the United States and at least as much for the countries of Latin America. All 34 democratic leaders of the hemisphere are supportive of free trade, and there is hope to move the timetable for the Free Trade Area of the Americas up to 2005. In addition, the Administration was pleased that discussions were initiated in September among Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua to establish a free trade agreement with the United States. NAFTA has been a tremendous boon to North America, as U.S.-Mexican trade has doubled since 1993, bringing benefits to both countries.
Last year, Ex-Im Bank authorized $9.2 billion in loans, guarantees, and export credit insurance, supporting $12.5 billion of U.S. exports. We are pleased that the President's budget will allow us to support up to 10 percent more in exports next year.
One-third of last year's total was for Latin America and the Caribbean- a region that is key to the Texas economy. Latin America was the first region that we did business in during the 1930s, and it has consistently ranked as our top market. Ex-Im Bank has supported a wide variety of transactions of all sizes in the region. These have ranged from the sale of jets to LAN Chile and the Panamanian airline COPA to technical services to Petroquimica Colombiana, hospital equipment for an Evangelical Lutheran hospital in Sao Paulo and equipment for a wastewater treatment plant in the Dominican Republic.
Just a few months ago, more than 30 Texas companies were involved in an Ex-Im Bank-backed transaction that involved more than half a billion dollars in oil and gas field equipment and services for projects in Mexico and Algeria. A $300 million Ex-Im Bank long-term guarantee supported exports by Kellogg Brown & Root Inc., of Houston, and a variety of sub-suppliers to PEMEX for the Cantarell Oil Field project in the Bay of Campeche offshore Mexico.
In fact, Ex-Im Bank has been particularly active in Texas. Last year, we supported nearly $1 billion of exports from the state. Here in Houston, we have helped 320 companies export their products or services during the last five years. These have ranged from big companies such as Halliburton, Bechtel, and General Electric to smaller companies such as Technology Ventures, which received an Ex-Im Bank working capital guarantee to help it export mobile drilling rigs to Russia, or IWL Telecommunications, which is building a telecommunications system to support the Chad-Cameroon crude oil pipeline being built in west Africa. Numerous kinds of products and companies in this city's dynamic economy has benefited from our programs. For example, Metacom USA last year used a medium-term guarantee to export ultrasound equipment to hospitals in Romania. And just last month, we approved a working capital guarantee for Jerryco Machine & Boiler Works, also of Houston, to sell industrial furnaces to the Dominican Republic. In fact, we hope to soon have a City, State Partnership agreement with the Greater Houston Partnership which would help facilitate more Ex-Im Bank activity in Houston.
At Ex-Im Bank, we are committed to supporting good deals such as these that benefit people and businesses in the United States and throughout the world. We know that in today's global business environment, the smart business and the successful business is one that can successfully tap into markets foreign and domestic. The world is not going to become any less interconnected, so it pays to understand these connections and profit from them. At Ex-Im Bank, we understand that, and we are here to help American businesses reap the benefits of globalization and to support the jobs that depend on exports to different markets around the world.
Thank you. And now, if time permits, I-d be happy to try to answer a few questions.