Financial and Other Constraints Prevent Eximbank From Consistently Offering Competitive Financing for U.S. Exports

The Export-Import Bank of the United States (Eximbank) finances the sale of U.S. exports. Legislation requires Eximbank to provide export financing at interest rates competitive with other countries' government-supported rates. However, financing supported by Eximbank normally includes both Government and commercial loans, and the blended interest rate depends on commercial interest rates as well as Eximbank's lending rates. In some cases, these factors put U.S. exporters at a competitive disadvantage and Eximbank's loans are more expensive than government-supported financing offered by other countries competing for a sale.

The normal blended rates on long-term loans supported by Eximbank are about 2 to 3 percentage points higher than the normal rates charged by other countries on government-supported export financing. On an average loan, this means as much as $5 million in added interest expense to the borrower. Although Eximbank has taken actions to make its financing more competitive, there are constraints which limit its ability to consistently offer competitive financing. These constraints include the fact that Eximbank operates as a self-sustaining institution. In setting its lending rates, Eximbank attempts to cover its borrowing costs, other expenses, and potential loan defaults. However, Eximbank's foreign counterparts set their normal interest rates at the minimums established by voluntary international guidelines and offer even lower rates by mixing foreign assistance funds with export loans. But, without access to foreign assistance funds, Eximbank tries to compete by selectively lowering its lending rates and by financing portions of a sale normally financed by commercial banks. Consequently, GAO believes Congress should: (1) reexamine the framework and financial constraints within which Eximbank operates; (2) clarify the Export-Import Act to allow Eximbank greater flexibility; (3) provide Eximbank with annual appropriations to subsidize the difference between Eximbank's normal lending rates and rates offered by other governments competing for a sale; and (4) determine whether eligibility restrictions for Eximbank's financing should continue to take precedence over U.S. exports.

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