There are plenty of excellent reasons why we should shut down the Export-Import Bank: We don’t need it, there is no “market failure” to address, it is inefficient, and it distorts price signals. Even Barack Obama called the Ex-Im Bank “little more than a fund for corporate welfare” in 2008. (He quickly changed his tune after assuming power).
But there’s an equally important but less often discussed argument against the Ex-Im Bank: the moral case.
A major function of the Ex-Im Bank, practically speaking, is to coax foreign companies to buy Boeing airplanes. It’s often overlooked that many of the companies buying these planes are government-owned airlines in poor (or even very poor) countries.
Take Ethiopian Airlines, for instance. The airline is owned by the government of Ethiopia, a country where 78 percent of the population lives on an income below $2 a day, the average life expectancy was 59 years in 2011, and state health expenditures amount to a paltry $3 per person.
And how does Ex-Im encourage Ethiopia to spend its meager public funds? Perhaps on education improvements, health services, or critical infrastructure? Don’t be silly. They sell them Boeing planes, of course! Bad credit, no credit? No problem! The Ex-Im Bank’s creative financing options will allow any country to put shiny new Boeing planes in their national airports — no matter how dire their fiscal position.
Here are the numbers: According to Ex-Im’s FOIA reports, Ethiopian Airlines received a total of $39,564,784 worth of subsidy assistance from FY 2010 to 2013, a combined total face value of $1,934,508,840. On conservative assumptions (that 85 percent of loan value was guaranteed), this means that Ethiopia has borrowed nearly $2.3 billion to buy U.S. products (and even more if the guarantee rate on any loans was lower). This amounts to approximately 5 percent of Ethiopia’s GDP in 2013. That’s an awful lot of money that the Ex-Im Bank felt comfortable encouraging the Ethiopian government to spend, given its modest budget and the many needs of Ethiopian citizens. The Ex-Im Bank knows the allure of its guaranteed loans and credit insurance, and it knows the realities facing the Ethiopian government, but that doesn’t seem to matter.
Now, don’t get me wrong, I am all in favor of Ethiopians flying around the globe in new Boeing jets. If the Ethiopian government desires and can afford to buy Boeing planes, then they are well within their rights to do so. And hey, the Ethiopian government might have whipped out the national credit card to splurge on shiny new jumbo jets even without Ex-Im’s encouragement. People do stupid things on their own without the encouragement of nosy U.S. bureaucrats.
But Ex-Im’s zeal for brokering this deal to encourage the cash-strapped Ethiopian government to spend beyond its means just to beef up Boeing’s bottom line is morally questionable. The funds required to service the Ex-Im-guaranteed debt will have to be collected from individuals who are already so poor. And then it’s U.S. taxpayers, not Boeing, who will be picking up the tab if Ethiopian Airlines can’t make its loan payments and ends up defaulting. Even if the Ethiopian government manages to rearrange finances to pay back its Ex-Im loans, you have to wonder what else isn’t being paid to make these payments.
We’ve seen how the Ex-Im Bank’s “generosity” devolved into ugly avarice after unqualified borrowers defaulted in the past. In the 1990s, the Ex-Im Bank was so excited to “support” the people of the Republic of Nauru by extending financing assistance to Air Nauru to purchase some, you guessed it, Boeings. When Air Nauru defaulted in 2002, the Ex-Im Bank seized Nauru’s only jet straight off of the runway — leaving the country’s athletes stranded on the tarmac after the Micronesian Games.
The whole ugly spectacle is particularly problematic considering how many other U.S. government programs disperse foreign aid in Ethiopia and other poor countries in the name of alleviating poverty. And that is, of course, in addition to the vast amount of IMF lending that has gone specifically to Ethiopia. Why should the U.S. government encourage Ethiopia to borrow billions of dollars to purchase brand-new U.S. manufactured aircraft if it has to turn around and borrow hundreds of millions of dollars just to finance its basic services?
A word to the wise stewards of the U.S. government: First, do no harm. Slow your roll, and maybe don’t encourage these countries to buy planes you know they can’t afford. If you simply must stick your noses in Ethiopia’s business, why not promote Boeing’s profits somewhere else, and focus resources on building better roads and schools or administering vaccines? Boeing at least has access to clean water. Many people who live in countries on which Ex-Im foists their planes do not. Let’s get our priorities straight here.