Today, the Subcommittee on International Finance will review the Export-Import Bank's work in enhancing export opportunities for America's large and small businesses in emerging markets. With the authorization for Ex-Im Bank expiring at the end of September, it is my hope that the Banking Committee will, prior to August recess, report out a clean bill to provide for a four year reauthorization of Ex-Im Bank.
At this point, I would like to provide a warm welcome to our first witness, James Harmon, the new President and Chairman of the Export-Import Bank. Mr. Harmon, I look forward to hearing from you today and look forward to working with you in the future as this Subcommittee conducts its oversight of the Bank.
Around the world, markets in developing countries are expanding at an exponential rate. Developing countries such as China, Indonesia, Argentina and Brazil are currently lucrative markets for U.S. exporters of capital goods and promise to be major markets for a wide variety of American exports in the future. To gain the full benefit of these markets, U.S. exporters must be able to enter them today.
Unfortunately, the markets of developing countries are risky. They sometimes lack adequate infrastructure, generally have not yet developed the necessary legal structure to enforce contractual obligations and protect private property, and are sometimes wracked by political and economic instability. Because of these risks, America's commercial banks and insurance companies are reluctant to provide financing and credit risk insurance to facilitate exports to these emerging markets. Through its loan guarantee and credit insurance programs, the Export-Import Bank has provided U.S. exporters with the opportunity to obtain commercial bank financing so they can establish themselves in these emerging markets. Ex-Im Bank also levels the playing field with European and Japanese companies, which often receive government guarantees and insurance from their own export credit agencies.
Since its creation in 1945, Ex-Im has developed a comprehensive array of export finance programs to serve U.S. exporters. I would briefly like to touch upon the types of export assistance that Ex-Im offers and the process that Ex-Im uses when reviewing requests for assistance from U.S. exporters.
As you can see by the chart, Ex-Im offers U.S. exporters five primary types of assistance.
First, Ex-Im provides an unconditional guarantee for both the principal and interest on commercial loans. Ex-Im provides guarantees for both term loans and working capital loans for short-term funding of production, inventory and receivables.
Second, Ex-Im provides loan guarantees and direct loans for project financings. When a bank provides a project finance loan, it does not receive a guarantee of repayment from a foreign government and does not secure the financing through collateral. Instead, the bank relies solely on the expected cash-flow of the project for repayment. Large projects such as power plants are financed this way.
Third, Ex-Im offers several different types of credit insurance policies, which insure commercial credit risk and political risk.
Fourth, in cases where commercial bank loans are unavailable, Ex-Im offers direct loans for the purchase of U.S. exports.
And finally, Ex-Im Bank uses its Tied Aid Credit Fund to combat other nations' use of "tied aid," which is concessional financing provided by one nation to another that is linked to the purchase of goods or services from the donor nation.
Looking at our second chart, I want to briefly discuss the process that Ex-Im uses when it reviews requests for financing from U.S. exporters.
While Ex-Im bank proactively markets its services, it responds to requests by U.S. exporters for assistance on a first-come, first-served basis. Ex-Im will only consider offering assistance if it determines that either a foreign export credit agency is offering financing to a competitor or the U.S. exporter will not be able to receive financing from a bank without Ex-Im assistance.
Ex-Im then applies uniform credit risk criteria to the request for assistance, without giving preference to a specific nation or region. Again, it is U.S. exporters that decide where Ex-Im directs its export assistance.
For each transaction that Ex-Im agrees to provide export assistance, Ex-Im deducts from its program budget an amount to be set aside as a loan loss reserve. Ex-Im sets aside a larger reserve for a nation that has higher credit and political risk.
I should note that I support Ex-Im's current use of objective criteria for reviewing requests for export assistance. I believe that we should not alter Ex-Im's mission, which is solely focused on the promotion of U.S. exports in emerging markets. I do not believe U.S. exporters would be well served by burdening Ex-Im's mission with considerations more appropriate to agencies that are involved in conducting foreign policy.
That being said, I look forward to hearing from our distinguished witnesses today.
I now would like to turn to the Chairman of the Banking Committee, Senator
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