CEE Commentary

Mercatus Scholar Veronique de Rugy Misrepresents the Ex-Im Bank’s Numbers and Programs

In her pie chart, Ms. Rugy reports that the Ex-Im Bank’s own numbers do not support a key justification for its existence. Her misunderstanding of the Bank’s numbers actually disproves her attack and, when clarified, demonstrates that the Bank’s activities fully support its three stated goals. The numbers used in her chart mixes up loans approved with total export value supported and show a fundamental lack of understanding of the Bank’s programs.

The 50.1% being used to justify her argument represents two segments:

  1. the export value of small and medium term program business loans which would not otherwise happen without Ex-Im support, and therefore should be added to the “private sector limitations” slice of the pie chart,
  2. the value of the portion of the loans and guarantees which under OECD rules must be financed outside of Ex-Im Bank, but would not occur without Ex-Im support of the 85% of the loan.

She doesn’t understand that a small business working capital loan is a revolving line of credit that can turn over several times per year and result in higher exports than the loan exposure amount. A small business that extends ninety-day terms to a customer may report four times the exposure amount in actual exports over a 360 period. This number represents $15.4 billion in small business exports under credit insurance and working capital programs. These numbers appear on the left side of her chart and demonstrate a fundamental justification for the Bank since bank regulations prevent commercial banks from doing these transactions without Ex-Im Bank.

Secondly, the OECD only allows Ex-Im Bank to finance 85% or less of a contract. The Bank reports the full export amount but is only exposed to risk for the loan portion, not the customer’s down payment. This number was $3.4 billion in exports supported but not financed by the Bank. This number also appears on the left side of her chart for no reason (no taxpayer exposure).

The remaining $18.4 billion in transactions going to the Board were fully justified by the applicants: competition, market failures, or regulatory restrictions. The right side of her chart is the required reported numbers. The percentage of Bank justification is 100%. Don’t use small business exports and customer down payments to prove the Bank is not needed. That’s sloppy statistics.

It’s unfortunate that the Bank’s critics don’t seem to understand the Bank’s basic programs. Before they throw stones, they should get their facts straight.

When Ms. Rugy’s pie chart is corrected to properly reflect the Bank’s transactions, such as in the pie chart shown here, it is clear that 100% of the Bank’s portfolio supports the three stated goals of the Ex-Im Bank.

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