November 16, 2009
Ex-Im Bank Enhances Small Business Insurance Policies and Lender Benefits
Washington, D.C. - The Export-Import Bank of the United States (Ex-Im Bank) has raised the upper limit of its small business multibuyer export credit insurance policy. This will allow more small businesses to export their goods and services more easily.
U.S. exporters designated as small businesses under Small Business Administration standards, and with annual export credit sales of $7,500,000 or less, now are eligible for enhanced coverage under Ex-Im Bank's short-term small business multibuyer insurance policy. Previously the eligibility ceiling was $5,000,000.
The policy enhancements include: 1) no first loss deductibles, 2) discounted insurance premiums, and 3) the receipt of cost-free, exporter performance risk protection for lenders financing receivables for qualified exporters.
"This change is designed to increase U.S. small business exports by expanding the availability of financing to them," said Ex-Im Bank Chairman and President Fred P. Hochberg. "Exporting is critical to creating and preserving American jobs, especially while the current global financial crisis is being resolved."
The broadened program eligibility will be effective December 1, 2009 for new small business multibuyer policy applicants. Current Ex-Im Bank multibuyer policyholders, who previously were ineligible for coverage enhancements but are eligible under the new ceiling, will be offered conversions to the enhanced policy.
Ex-Im Bank's short-term multibuyer insurance policies protect the exporter's portfolio of export credit risks. These policies are effective tools in helping U.S. exporters to mitigate foreign credit risk, expand their marketing through extension of liberalized selling terms, and promote access to foreign receivable financing.
Over the past year, Ex-Im Bank has launched a number of other initiatives to strengthen support for small business exporters in the face of the economy's tightened liquidity.
For example, the Bank opened its working capital guarantee program to indirect U.S. exporters. Companies that produce goods or services that are sold to U.S. companies, and are subsequently exported, are now eligible to apply for working capital loans guaranteed by Ex-Im Bank.
In fiscal year 2009, Ex-Im Bank achieved its highest financing level since its establishment in 1934, authorizing more than $21 billion in support of U.S. exports. The Bank also set a record for financing of U.S. small business exports at $4.36 billion.
Ex-Im Bank is the official export-credit agency of the United States. The independent, self-sustaining federal agency, now in its 75th year, helps create and maintain U.S. jobs by financing the sale of U.S. exports, primarily to emerging markets throughout the world, by providing loan guarantees, export credit insurance and direct loans.
FCIA Major Country Developments
Economic conditions continue to improve. Most countries in the developed world appear to have moved out of recession (with the exception of the UK). Several emerging markets outside of Eastern Europe are recovering relatively well. Global GDP is now expected to grow by 3.2% in 2010 and by 3.4% in 2011. Nonetheless, the recovery is fragile, mainly because it is almost wholly dependent on temporary factors. Massive fiscal stimulus in many countries is playing a key role. Interest rates are exceptionally low, unorthodox policies such as 'quantitative easing' are flooding the financial system with money and public spending is helping to support demand. In China, the authorities are investing massively in infrastructure. Indeed, China's economic growth is carrying other parts of the world along with it, in particular, some commodity-exporting countries.
At the peak of the crisis, many manufacturers and retailers stopped producing or ordering new goods in anticipation of lower sales. Now these businesses have begun restocking, thereby improving overall economic activity. The more positive outlook assumes that developed countries will restock more vigorously in 2010 than previously expected and that international trade will rise as a result.
Now the attention is turning to what will happen after government stimulus programs are withdrawn. Most governments cannot afford to keep their economies on life support indefinitely and there are concerns that some economies could “double dip” without government support.
The questions increasingly being asked are what will the global recovery look like and how durable it will be? The answers will vary depending on the region. There is a fair chance that some emerging countries will perform well, thanks to abundant liquidity, relatively high commodity prices and a rise in trade. While financial markets have stabilized and economic conditions are improving, bank lending, one of the key engines of growth for any economy, remains anemic. Demand for loans is weak as companies and households remain cautious. At the same time, the supply of credit remains tight as banks react to rising non-performing loans. It is the combination of the weak lending numbers and the expected withdrawal of government stimulus that makes the durability of this recovery less predictable than would normally be the case.
The US GDP growth projection for 2010 has been upgraded to 2.4% (from 1.9% previously) but there is a strong possibility that US economic growth could fade in 2011 as stimulus spending is inevitably reduced. The structural problems that still need to be tackled to return to health will then become more visible.
Households and financial institutions still have to reduce the debts they racked up before the crisis and the high unemployment rate increasingly appears to be a longer-term challenge.
Also, according to recent government estimates, the US will have to borrow an additional $3.5 trillion over the next three years. On top of that, the Treasury has to refinance, or roll over substantial amounts of short-term debt that was issued during the financial crisis. As much as 36% of the US government's marketable debt (approximately $1.6 trillion) will mature in the months ahead.
As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates. Even a small increase in interest rates has a big impact on the US Treasury's cost of borrowing. To lock in low interest rates in the year ahead, Treasury officials are trying to replace short-term bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run but it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.
The US will not be the only government attempting to refinance huge debt over the next year. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of GDP. Like the US, these countries also borrowed heavily to combat the financial crisis and economic downturn. Several developing countries face similar refinancing challenges and they will all be competing in the debt markets.