The Corner

Economy & Business

Did Ex-Im’s President Mislead Senator Cotton During A Senate Hearing Today?

During the course of the Senate Banking Committee hearing on the Ex-Im Bank today, Senator Tom Cotton asked the institution’s president, Fred Hochberg, if I was correct that 30 percent of the bank’s activities are justified as countervailing export subsidies by foreign governments. He said I wasn’t — that, in fact, two-thirds of what the bank does is intended to “level the playing field.”

I have to say that I was surprised by this, since the data I used in my chart comes directly from the Export-Import Bank’s own 2013 annual report. Pages 32 through 38 of the report list all loan and long-term loan guarantee transactions extended in 2013, along with the recipient country, obligor, principal supplier, guarantor, product, amount, and finally, an “additionality code.” A code of (1) means the transaction is justified for assuming political or commercial risk. A code of (2) means the transaction is justified to overcome private-sector financing limitations. A code of (3) means that the transaction is justified to counter foreign export help. (This information was a condition of Congress’s reauthorization of Ex-Im in 2012.)

We extracted and summed the data for each justification, finding a total of $2.06 billion to overcome political risks, a total of $4.07 billion to overcome private sector limitations, and a total of $12.2 billion to meet foreign competition. Adding in the remaining $18.8 billion of Ex-Im transactions for which no justification is provided, Ex-Im’s portfolio totaled around $37.4 billion. That means that the share of transactions justified to counteract foreign competition is (12.2 / 37.4) — 32.7 percent, or about one third.

The number Hochberg provided only seem to look at loans and long-term loan guarantees, which add up to $18.33 billion in business — 49.9 percent of the overall Ex-Im portfolio. Transactions to counteract foreign competition ($12.2 billion of that number) indeed comprise 66.6 percent of of loans and long-term loan guarantees.

But that’s not the question that he and I were asked. It doesn’t make sense to ignore over half of your own bank’s portfolio nor did he make it clear that this is what he was only talking about loans and loan guarantees That Ex-Im’s own chairman appears to not grasp the importance of this distinction — or chooses not to — is concerning indeed.

Now, it is true that the annual report doesn’t include justifications for the other half of the portfolio’s transactions but that’s hardly an argument for ignoring them.

So, to sum up: Sorry, Mr. Hochberg, it’s correct to say that only about one third of the bank’s activities are justified as countervailing foreign subsidies and about two-thirds aren’t.

Update: As it turns out, while the annual report only provides justifications for loans and loan guarantees, there is another report that does provide justifications for the entire portfolio. The dataset isn’t reported in the same way as in the annual report so the numbers don’t match exactly but it is close enough to compare. It also confirms my original point: That table on page 113 called Purpose of Ex-Im Bank transactions shows that for 2013, $8.34 billion of the banks’ activities were justified as countervailing potential competition out of an overall $22.1 billion portfolio.  That’s 37.7 percent, not 66 percent as Hochberg implied, and it is close to my original 32.7 percent. 

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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