Muddying the export waters

Muddying the export waters The row boiling up in Washington over the „no‟ vote on America‟s ExIm Bank charter and lending cap extension has made headlines in a debate that is hardly new. Democrats are accusing Republicans of holding US jobs to ransom and, in the words of US Chamber of Commerce international affairs chief John Murphy, “picking foreign companies as winners and American companies as losers”!

The definition of trade finance, Murphy reminds readers of The Hill‟s Congress Blog, is “one of the safest kinds of finance because the goods sold serve as collateral, and the buyer, the seller and the price, have already been set”. Not enough US senators have grasped this basic truth.

Part of the problem is that accusations the US export credit agency (ECA) is distorting the export playing field are hard to bat off when ExIm‟s biggest single customer is Boeing.Legal action between the aircraft manufacturer and the airline lobby group, Airlines for America, over the ECA‟s US$2.4bn deal to „support‟ the sale of 30 aircraft to Air India – pricing Delta airlines out of the New York to Mumbai route – has not helped public relations.Republican house majority leader Eric Cantor has called for the winding down of the bank‟s clout, saying its activities are “improper government interference into the private marketplace, putting taxpayers at risk.”           

Trade needs its export credit agencies and, without them, trade finance would be even tougher than it is already.

Dealogic confirmed that 2011 ECA activity reached a record 409 deals at US$68bn. Given that total trade finance recorded for the same period was US$168.8bn, 40% of deals done with ECAs add up to a hefty level of underwriting.

Will it be possible to persuade governments to stop meddling? Government finance that forces importers to choose suppliers on price alone does nobody any good in the long run and is a questionable use of taxpayers‟ money. And by the look of things in Washington, the distraction from the spirit of true trade has been deeply damaging all round.

On the bright side, innovative deals that enable a region to become self sufficient demonstrate how ECAs reach parts of the world other banks can‟t – at least not on their own. One of these won a TFR Award – only the other day JP Morgan‟s Dani Cotti reminded me at the US bank‟s very enjoyable press party how the Aberdeen Angus cattle deal with HSBC and EFIC was “totally out there!”

And while we are on the subject of awards, don‟t forget that voting for the TFR Excellence Awards is now open on our brand-new website. Perhaps readers could take this opportunity to look closely at which ECA deserves the winner‟s gong for 2012?