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Remarks of James A. Harmon, Chairman of the U.S. Export-Import Bank, To the Export-Import Bank Annual Conference


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Because this is my last time speaking to this group, I consider this an exit interview--an opportunity for me to report one last time to the stakeholders of Ex-Im Bank. I have given a great deal of thought to what I would say today. Most of it has to do with where I think this Bank needs to go & if we are to maximize our support for U.S. exporters and U.S. jobs in the face of more aggressive foreign competition. I also would like to spend some of my time talking about recent events because the lessons of the Asian economic crisis, of our success in opening new markets, of our initial efforts at reforming Ex-Im Bank'all impart important lessons.

As I thought about how these pieces fit together, I looked back to the words of my predecessors, as they prepared to leave this agency. In some ways, we all said the same thing - exports fuel economic growth, we need this agency to ensure a level playing field and to keep and create jobs in the U.S. In other ways, you see a series of reactions to a world in transition. In the early 1990s, the fall of communism started a domino effect of capitalism and democracy around the globe. With each change, the Bank responded with incremental steps -more private sector loans, more project finance risk, more focus on small business. But while the Bank and the world changed, one thing remains noticeably unchanged & the arguments of our critics-the so-called Greek chorus of corporate welfare. It greeted me when I arrived at Ex-Im Bank as we went into reauthorization. Now, it is here again as I depart, and we once more approach reauthorization.

Ex-Im Bank does not exist to promote exports by throwing subsidies at U.S. companies engaged in fair and open fights for business. We exist to defend U.S. companies engaged in an unfair fight & to neutralize the efforts of other governments seeking an advantage for their exporters.

So to those who would like to see Ex-Im Bank retire along with me, I say: take another look at the world. It's a whole lot different than it was 25 years ago. For one thing, our nation is far more dependent on trade. Trade today represents about 30% of our GDP-up from less than 10% 30 years ago. Trade today fuels our jobs, our economy and our quality of life. What else has changed? While we fight to justify the very existence of this agency, export credit agencies in other G7 countries have restructured to maximize support for their exporters.

Partly as a result, the U.S. share of global markets is in decline. When it comes to trade finance, we in the United States are usually playing catch-up. Yes, we have the strongest economy and the most innovative companies. But in today's world, even the strongest will move their plants and jobs to where the most attractive credit is available. To keep those economic opportunities in the U.S., we as a nation need to wake up before the fourth quarter. We start by recognizing that Ex-Im Bank is the most underestimated and undervalued tool in the U.S. trade arsenal.

If the global economy softens, Ex-Im Bank will play an even more critical role. Already the appetite of the international lending community to invest in emerging markets is declining. Banks are increasingly faced with a low risk-reward ratio for trade finance loans. Private capital flows to emerging markets are highly volatile, concentrated in just a few markets and overwhelmingly short term in nature. Therefore many transactions in emerging markets face a serious lack of trade finance liquidity.

If I divided my time at Ex-Im Bank into three chapters, they would be: our role in the Asian-Russian economic crisis of 97-98; our work opening up new markets; and, our efforts to build a strong Ex-Im Bank for the 21st century. I am pleased with the first two chapters, but I will leave this agency with the third chapter still a work in process-a draft for all of you to complete.

Many of you already have heard me talk about our experience in Asia where we stepped up at a time when all of the world's creditors had abandoned the region. As a result, we did 2,460 transactions in Korea alone in the nine months, from March to December of 1998 & compared to 50 the prior year. We were able to secure business for our exporters and to help stabilize global markets & and we did it without losing a single dollar in Korea. Our experience could be very useful the next time we face that kind of global economic uncertainty. People will be able to look back at what we did and respond even more quickly to calm the waters.

When the signals of recovery began in Asia and Latin America, we turned our attention to opening new markets - from Africa, to India, to Russia. These kinds of efforts will be more challenging in the future. But there are lessons that can be learned from our success. We developed new tools to aid our efforts & from financing in local currency to sub-sovereign guarantees. As a result of our focus on new markets, we saw U.S. exports to sub-Saharan Africa increase from about $50 million in 1998 to nearly $1 billion in 2000.

In 1999, Ex-Im Bank also fought to finance the $500-million Tyumen Oil purchase of oil and gas drilling equipment for Russia. It was a bear of a fight. At the time, doing business with Russia was not very popular. But we took a hard look at our charter - to create jobs through exports by financing creditworthy transactions. We did our homework and found the project to be creditworthy and appropriate for our support. Most importantly, we stuck to our guns. When others, even within our own government resisted, we pushed back with the facts and with our charter, and ultimately our position prevailed. That truly was Ex-Im Bank at its best.

What is Ex-Im Bank at its best? It is an independent agency with a single-minded focus - to support creditworthy U.S. exports into high-risk, emerging markets. As we head into reauthorization, we again hear calls to rein in Ex-Im Bank's independence - to use our resources to advance broader foreign policy goals. This would be a grave mistake & one that would only muddle our mission and make us less effective in ensuring a level playing field. The more we keep the Bank separate from U.S. foreign policy, the more we keep this Bank focused on promoting exports - the better a job we do defending the interests of a strong U.S. economy.

After helping U.S. companies establish a foothold in these emerging markets, it was time to focus on Ex-Im Bank itself--to ensure that it remains competitive. Over the past year, we made the first major reforms to Ex-Im Bank foreign content procedures in 15 years, making them more flexible, while keeping our commitment to protect U.S. workers. We responded to the requests of U.S. exporters to overhaul our reporting requirements, so companies can avoid inadvertent tax consequences in other countries. These reforms allowed us to begin co-financing&even when we represent less than 50% of the transaction. We entered into our first co-financing arrangement with Great Britain in January of 2001. We expect soon to have agreements with many other countries. I predict that in 5 years, co-financing will represent a major part of our business.

Almost as important as the end result was the process. Our customers - all of you - pushed us to make these changes. You are true stakeholders and that is a rare thing in the Federal government. It is not easy to go to the State Department or the Treasury Department and tell them what to do differently. But here, you truly are a customer, and you demanded changes to stay competitive.

I also am very proud of our close work with organized labor, particularly in the changes to our foreign content rules. Increasingly, I believe, the business and labor communities will share a pragmatic understanding that we either export U.S. products or we export U.S. jobs. That will help our economy and our workers moving forward.

I am also proud of the work we have done to build a constructive relationship with the environmentalists. Ex-Im Bank has stood alone working to encourage other G-7 export credit agencies to bring their environmental standards up to those we require for projects. Already today on sensitive projects we share environmental impact information. As a result, I believe any future Three Gorges Dam will face a united ECA front. I hope that we continue to build on this foundation. It can have a real impact on our world for years to come.

I feel honored to be a part of these efforts. But I leave knowing there remains unfinished business. In recent weeks, I went back and re-read the Ex-Im Bank charter. One particular sentence stays with me. The Bank exists to ensure that the U.S. is - and I quote--fully competitive with the government-supported rates, terms and other conditions available from the principle countries whose exporters compete with U.S. exporters.

In this regard, we should take note that in 1998 the U.S. ranked seventh in terms of export credits provided. As a proportion of GDP, in 1999 France spent 16 times more on export promotion; Canada, 13 times more; the U.K., 9 times more. These disparities are a wake-up call for all who are concerned about the U.S. economy.

For four years, I observed my G7 counterparts prepare to compete more aggressively with the U.S. Two weeks ago, I spent several days sequestered with my G7 friends & As each chairman talked about the future, it was clear that every ECA had thought carefully through what they want to be when they grow up and made big changes & every ECA, except ours.

Yes, we made some targeted reforms, but we need to pick up the pace to catch the competition. That's something that Ex-Im Bank can't do on its own. It will take your active involvement. It will take the support and leadership of the new Administration, and it will take a Congress committed to keeping Ex-Im Bank competitive. England, Canada and Japan all have benefited from legislatively mandated commissions to study their export credit agencies.

In the history of Ex-Im Bank, most significant change - not incremental change, but truly fundamental reform- did not come from within. Congress played the critical leadership role. Environmental standards and the tied aid war chest are excellent examples of major reforms initiated by Congress. Congress also pressed to make Africa a priority. Once again, we need active leadership. I hope Congress and the new Administration make this a priority. Our status as a sunset agency gives us the opportunity to reevaluate what's happening in the world and make changes to keep us competitive and to protect our economic interests against unfair competition.

We need to do it right, and we need to do it now. If you're an exporter, it's no secret that a more sophisticated competition is coming at you from all directions. The Germans and Canadians are using market windows, powerful public-private financial hybrids with the agility of commercial banks and the resources of a government agency. U.S. businesses also face the threat of billions of dollars in nominally untied aid that is flowing out of Japan every year. Both of these tools amount to backdoor export subsidies. They are, in effect, state capitalism.

But this does not require us to follow our competitors down the path of massive state involvement in export finance. In fact, over the past year we have looked in the opposite direction - toward greater private sector involvement. If I could complete just one thing before my time at the Bank is through, it would be to get our risk-sharing initiative off the ground. This will allow us in time to do more with less budget. I hope that the current Administration will encourage this public-private partnership to get the private sector more involved in the developing world.

We need to take a hard look at what our competitors are up to and come up with an effective response that keeps our companies on a level playing field. We need to develop a better way to recruit and retain financial talent at the Bank. And, we need to get close to the cutting edge of technology. Here in the country that launched the digital revolution, we are behind the curve in how we leverage technology in government. Ex-Im Bank is a very small agency, but in time through the Internet, we could help far more small U.S. companies. I am proud that more than 80% of the Bank's customers today are small businesses. But I know that we can do even more to engage smaller companies in the global marketplace.

These are the areas I think the Bank should focus on: getting the private sector more involved in export finance; neutralizing the back-door subsidies of other countries; finding innovative ways to recruit and retain top talent; leveraging technology; and doing more for small businesses.

I guess all that is left to say is that I am honored and grateful to have had this opportunity to serve all of you. Words cannot convey how much I appreciate the dedicated people who make Ex-Im Bank what it is today. I also want to express my gratitude to the members of Congress who have supported this Bank and its work over the years.

I am an optimist by nature. Yet until we move more aggressively, I am concerned that we will face a more difficult time. But I also know that we are a country that rises to the occasion. The elements that made the 20st century the American century still exist. If they continue to guide our vision for our nation and its unique place in the world, then we will continue to succeed.

I will share one last story of why my optimism remains intact. Last December, I traveled to Russia. I visited a school in St. Petersburg that had very poor fluorescent lighting - the kind that hangs from the ceiling, provides little light and hums all day long. The city wanted financing to purchase modern lighting for the school system from a tiny U.S. company with 30 employees. I couldn't help but be struck by the significance of this deal ... We will bring light to these Russian children. And with this light, they can see not only their lessons, but also a very different perspective on the U.S. than their parents received at that age.

During the Cold War, our nation made the case that freer markets and freer people could advance hand in hand toward an era of unprecedented prosperity and peace. In the past decade, we began to live that reality. Whether you work in the government, in the exporting community, in the financial community, in the labor and environmental communities, I want to thank you for helping build a strong U.S. economy and a stronger future for the developing world ... I appreciate all of the support you have given me and Ex-Im Bank these past four years. It has been a remarkable journey, and I am grateful for having had the opportunity to serve. Thank you.