CONGRESSIONAL RECORD -- SENATE
June 17, 1968
Page 17408
EXTENDING AUTHORITY OF EXPORT-IMPORT BANK IN ORDER TO IMPROVE THE BALANCE OF PAYMENTS
Mr. MANSFIELD. Mr. President, I ask unanimous consent that the unfinished business be laid before the Senate.
The PRESIDING OFFICER. The bill will be stated by title.
The ASSISTANT LEGISLATIVE CLERK. A bill (S. 3218) to enable the Export-Import Bank of the United States to approve extension of certain loans, guarantees, and insurance in connection with exports from the United States in order to improve the balance of payments and foster the long-term commercial interests of the United States.
The PRESIDING OFFICER. Without objection, the Senate will proceed to its consideration.
Mr. MANSFIELD. Mr. President, I ask unanimous consent that the vote on the pending business take place at 2 o'clock tomorrow, notwithstanding rule XII.
Mr. BYRD of Virginia. Mr. President, reserving the right to object, may I ask the majority leader a question?
Mr. MANSFIELD. Yes, indeed.
Mr. BYRD of Virginia. Mr. President, how does that affect the time limitation presently in effect?
Mr. MANSFIELD. It affects it in no way. We can, if the Senator wishes, vacate that time limitation, or we can extend it, whichever is his wish.
Mr. BYRD of Virginia. As I understand it, under the unanimous-consent agreement of last Thursday, the time limitation on the bill is 1 hour on each side.
Mr. MANSFIELD. That is correct.
Mr. BYRD of Virginia. Now, under the unanimous-consent agreement that the Senator from Montana proposes at this time, where is the time limitation?
Mr. MANSFIELD. Just to keep within the confines of the agreement announced; and I further ask unanimous consent that the time from 1 o'clock until 2 o'clock tomorrow be equally divided between the majority and minority leaders, or by whomever they may designate.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BYRD of Virginia. We have not gotten to the other unanimous-consent agreement yet.
Mr. MANSFIELD. Yes. That would still hold, and be extended; or, if the Senator insists, it can be vacated.
Mr. BYRD of Virginia. No; I do not wish to insist, Mr. President, as long as I am clear on how it is to operate. Suppose the Senator from Virginia wishes to speak an hour and the Senator from Iowa wishes to speak an hour in opposition. How do we do that?
Mr. MANSFIELD. Just extend the time; and I can assure the Senator there will be no trouble.
Mr. BYRD of Virginia. I thank the Senator from Montana. I have no objection.
The PRESIDING OFFICER. Without objection, the provisions of rule XII will be waived, as requested by the majority leader, and the unanimous-consent agreement is entered into.
The unanimous-consent agreement was subsequently reduced to writing, as follows:
Ordered, That on Tuesday, June 18, 1968 the Senate proceed to vote not later than 2 o'clock p.m. on the final passage of H.R. 16162, to enable the Export-Import Bank of the United States to approve extension of certain loans, guarantees, and insurance in connection with exports from the United States in order to improve the balance of payments and foster the long-term commercial interests of the United States.
Provided, That debate on any amendment, motion, or appeal, except a motion to lay on the table, shall be limited not to exceed one-half hour, to be equally divided and controlled by the mover of any such amendment or motion and the Senator from Maine [Mr. MUSKIE ] .
Provided further, That debate between 1 and 2 p.m. on June 18 be equally divided and controlled by the Senator from Maine [Mr. MUSKIE] and the minority leader. Provided further, That no amendment that is not germane to the provisions of the said bill shall be received.
Mr. MUSKIE. Mr. President, I ask unanimous consent that the Senate proceed to the consideration of Calendar No. 1214, H.R. 16162, and that the unanimous-consent agreements that have been reached apply to H.R. 16162.
The PRESIDING OFFICER. The bill will be stated by title.
The ASSISTANT LEGISLATIVE CLERK. A bill (H.R. 16162) to enable the Export-Import Bank of the United States to approve extension of certain loans, guarantees, and insurance in connection with exports from the United States in order to improve the balance of payments and foster the long-term commercial interests of the United States.
Mr. BYRD of Virginia. Mr. President, reserving the right to object, as I understand it, the Senator from Maine proposes to substitute the bill passed by the House of Representatives for the Senate bill.
Mr. MUSKIE. The Senator is correct. This would make the House bill the pending business, subject to amendment and debate.
The PRESIDING OFFICER. Is there objection to the request of the Senator from Maine? The Chair hears none, and it is so ordered, and the unanimous-consent agreement will be applicable to H.R. 16162 instead of to the Senate bill.
There being no objection, the Senate proceeded to consider the bill.
Mr. MANSFIELD. Mr. President, I ask unanimous consent that any time allotted under the agreement to the majority leader be allocated to the Senator from Maine [Mr. MUSKIE].
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. MANSFIELD. Mr. President, on behalf of the joint leadership, I assure the Senate that if any extensions of time are needed, those extensions will be forthcoming without objection.
Mr. BYRD of Virginia. Mr. President, I thank the Senator.
The PRESIDING OFFICER. The bill is open to amendment. The Senator from Maine is recognized.
Mr. MUSKIE. Mr. President, today we consider H.R. 16162, a bill which is a part of the administration's overall legislative and administrative program to restore equilibrium to our balance of payments. This legislation, which is a companion bill to S. 3218 recently reported by the Senate Banking and Currency Committee, was passed by the House last Wednesday.
However, several substantive changes were included in the House bill which are not part of the reported Senate bill. With the exception of one of these amendments which needs clarification, I think the House has made constructive changes. I understand that the minority leader will offer an amendment to clarify the meaning of that House amendment. I plan to discuss briefly the other changes made by the House.
This legislation seeks to help our balance of payments by creating a special fund for loans, guarantees, and insurance within the existing statutory authority of the Export-Import Bank. The bill would stimulate the export of U.S. goods to foreign buyers which do not meet present Eximbank statutory criteria but, nevertheless, should be financed in order to improve the balance of payments and foster the long-term U.S. commercial interests.
As Senators are aware, the United States has experienced a deficit in its balance-of-payments position for 17 of the last 18 years. The administration has placed a very high priority on measures which would contribute to the improvement of this situation. The extended period of deficits in our balance-of-payments accounts has shaken world confidence in our ability to maintain the soundness of the dollar. Foreign countries have begun to doubt whether the United States will take constructive steps to reduce these deficits.
The recent gold crisis has again highlighted the fact that our friends abroad have serious misgivings about our intentions to bring about improvement in our accounts. While the situation in the gold markets has been temporarily eased with the establishment of the two-price system for gold, I think it is fair to describe conditions in these markets as remaining uncertain. And while we can take encouragement in the fact that the world's major international bankers only recently agreed to proceed expeditiously with the special drawing rights system which, hopefully, eventually would replace the dollar as the principal reserve currency of the world, it is imperative that we still take action to protect the dollar. Congress has recently approved legislation authorizing U.S. participation in the special drawing rights plan.
It is true that the strength of the dollar abroad depends to a very great extent on our payments system. The international monetary system which rests so largely on the dollar would be greatly strengthened by elimination of the U.S. payments deficit. A stable international monetary system is essential to assure expanding world trade and a prosperous international economy.
Senators will recall the comprehensive balance-of-payments program that was undertaken by the President on January 1 of this year. Many of us did not feel that some of the proposals that were recommended would be in the best interests of the United States. For instance, there has been quite a bit of controversy surrounding the administrative program to cut back foreign investment by American industry and foreign lending by our banks. It has been argued by many of our major exporters and bankers that these measures will be counterproductive in terms of contributing to our payments position. I am informed, however, by the Commerce Department that certain aspects of the program to curtail foreign investment are being reconsidered.
The administration has also announced that it would cut back on Government expenses by reducing the number of U.S. personnel working overseas and trips made to other countries by Government employees. We have also embarked upon a program to encourage increased foreign investment and travel in the United States.
In addition to the tourist tax which appears stymied in the House, the President recommended legislation to authorize a $2.4 million supplemental appropriation to enable the Commerce Department to launch a 5-year program to promote American exports in trade fairs and shows.
Legislation has also been introduced to extend the present authority which allows domestic banks to pay interest rates to foreign government depositors without regard to interest rate ceilings applicable to domestic depositors. The President also proposed a more liberal rediscount program by Eximbank to enable banks further to help firms increase their exports.
However, the thrust of the present legislation is to stimulate the export of U.S. goods and services to foreign buyers. It has been most disturbing to observe that our trade surplus has been decreasing rather rapidly in the last few years. While we enjoyed a trade surplus of $6.6 billion 4 years ago, the surplus dropped off to only $3.6 billion last year. In 1967, we exported some $30 billion worth of products -- the highest in our history -- which must be increased in order to meet foreign competition if we are to expect improvement in our balance of payments.
The Commerce Department has reported disappointing trade results for the first quarter of 1968, when imports rose by 17 percent while exports increased by only 3 percent over the same period of 1967. Should the trend of the first quarter be extended through the entire year, the trade surplus for 1968 would be considerably less than the surplus of $3.5 billion for 1967. Figures for March indicate that imports exceeded exports by $157.7 million, the first time since 1963 that the United States in any month failed to send abroad more merchandise than it purchased abroad.
While there may be a number of factors which account for the sharp downswing in exports, such as the longshoreman's strike, the copper strike, the buying of foreign steel as a hedge against a domestic steel strike, and the inflation of prices of U.S. goods, these latest figures are cause for grave concern. As our trade surplus diminishes, we will likely again have an unfavorable payments balance. While the April figures from Commerce show some improvement in the volume of U.S. exports, our overall trade is still not good.
Clearly, Congress must take action to reverse this undesirable trend by authorizing appropriate legislation to expand trade. The Export-Import Bank has done a most commendable job of helping to finance the export of U.S. goods and services. During its over 30 years of operation, the Bank has been involved directly in billions of dollars of loans and has made possible by participating in other loans with banks and by guarantees and insurance a much greater amount of exporting.
However, I do detect a feeling on the part of many bankers and exporters that Eximbank may have been a little too conservative in carrying out the intent for which the Bank was originally created -- that of expanding the sale of American goods to other countries. Complaints have been expressed by exporters that Eximbank has appeared overly concerned about the record of its own losses, rather than the active pursuing of the objective of expanding exports. It may well be that many opportunities for trade have been lost for want of an aggressive, positive stance on the part of Eximbank.
The proposed legislation would provide that within certain prescribed limits, Eximbank may relax its present standards for financing. The new export expansion facility would permit financing for transactions with a distinct but acceptable credit risk. Under present law, Eximbank may not become involved in financing transactions, unless there is a "reasonable assurance" that the loan would be repaid. That phrase, to me, has acquired a very specific and demonstrable meaning in terms of the precedents which have been established by the Bank and its Board of Directors -- a meaning which is binding upon the Bank in the exercise of its present policy, and which we have taken into consideration in reporting the proposed legislation.
The bill as introduced would have permitted Eximbank assistance under the new facility when the Board of Directors felt that in their judgment such transactions would contribute to improvement of our balance of payments. The House amended this part of the legislation so that Eximbank would be required to determine that any transactions pursuant to this legislation would offer a "sufficient likelihood of repayment." This amendment would tighten up the standard that Eximbank would be required to follow under the new program, and in my judgment, would tighten it up consistent with the testimony which the Bank gave to the committee.
Mr. BYRD of Virginia. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield.
Mr. BYRD of Virginia. Would the Senator indicate what he means by "tighten up"? It would tighten up the Senator says, the Bank's obligation. Does the Senator mean tighten it up beyond what it is now?
Mr. MUSKIE. No. Tighten it up beyond what some fear might be the interpretation of the language reported in the Senate bill.
Mr. BYRD of Virginia. Would the Senator indicate the difference between "offer sufficient likelihood," on the one hand, and "meet reasonably tests of assurance," on the other hand?
Mr. MUSKIE. I will undertake to discuss that feature of the bill in my prepared remarks, and will be happy to go into it further to any extent to which it may be desired by the Senator from Virginia.
Mr. BYRD of Virginia. I thank the Senator.
Mr. MUSKIE. Applications would be reviewed by Eximbank to determine if the transaction could be supported under the regular direct loan, guarantee, or insurance program, or from private sources. A transaction that did not meet the traditional criteria used by Eximbank could then be considered in light of the new authority. These transactions would be specially designated on the books of the Bank.
Mr. President (Mr. PELL in the chair), the bill provides that for purposes of calculating charges against the Bank's $13.5 billion statutory authority, the full amount of loans and 25 percent of Eximbank's contractual authority under guarantees and insurance would be taken into account under the new authority. The total of loans would be limited to $500 million, or, theoretically, the Bank could have outstanding $2 billion in guarantees and insurance if no loans were involved.
However, since some portion of the $500 million would be used for loans which are chargeable at 100 percent, the portion used under the new program should not approach the larger figure.
Under the amended House bill, loans in default under the new program would be charged off against the reserves of the Bank up to $100 million. The next $100 million of losses would be borne by the Treasury. There is some uncertainty under the House bill as to who would be responsible for any losses above $200 million, if the losses should ever reach that amount.
Senator DIRKSEN, I understand, has some language to clear up any ambiguities about this particular House amendment.
It should be made clear that while the successful operation of the new program will undoubtedly be beneficial to the balance of payments, we should not expect it to work miracles in the early years of its operation. This program is the type of long-range farsighted approach that over time should yield substantial benefits to our payments accounts by stimulating additional trade.
Hopefully, the new authority would permit our products to become established in new markets where the potential for follow-on sales is promising. It should help the United States more effectively to meet competition from other countries that push their exports aggressively.
Unfortunately, many U.S. companies are not now involved in the exporting of their products.
Many others are only involved in exporting to a limited extent. The major reason for the lack of enthusiasm by many of our companies concerning the expansion into foreign markets has been that they have been able to sell their products relatively easily in domestic markets. It is hoped that this legislation will provide an incentive for many U.S. businesses to become more active in the exporting field.
Over the last decade, Mr. President, our exports have averaged about 4 percent of the gross national product. The level of imports as a percentage of GNP has been steadily rising in the last few years, and for 1967 it was 3.4 percent.
The objective of this legislation is to raise the level of U.S. exports perhaps to 4.3 percent or even higher over the next 5 years by penetrating new foreign markets and encouraging new exporters in the U.S. industrial ranks. We will have to count on the Export-Import Bank, which now finances about 10 or 11 percent of all exports sold on credit, to help us reach that objective.
The Export-Import Bank recognizes that it is only repayment of principal and interest, and not credit sales, as such, that will contribute to our balance-of-payments position.
Mr. President, I wish to emphasize that statement as it was emphasized over and over again in the hearings before the committee. The Export-Import Bank recognizes that it is only repayment of principal and interest, and not credit sales, as such, that will contribute to our balance-of- -payments position.
Consequently, the Bank will by no means approve every loan application which it receives. The Eximbank has never been a soft loan agency, nor do we intend that the new export facility would be used for that purpose.
Mr. SYMINGTON. Mr. President, will the Senator yield at this point?
Mr. MUSKIE. I yield.
Mr. SYMINGTON. Is this, in effect, a softening up of loan requirements of the Export-Import Bank?
Mr. MUSKIE. It has nothing to do with the softening up of terms with respect to payment of principal or payment of interest. It would permit the Bank to consider credit risks, which, under its current authority, are excluded from support.
Mr. SYMINGTON. The Senator knows we had the World Bank, where we put in the soft loan window of IDA. Then we had a Bank for South America, in which we put in the social progress soft loan window, then we formed the Asian Bank. That one at least started out without a soft loan window, but now a major effort is going to get into it a soft loan window.
The one international setup we had that was apparently proceeding on what might be called a normal business basis under sound accounting and loan principles, like any other reputable private bank, was the Export-Import Bank.
I am not on the committee involved, although as a member of the Committee on Foreign Relations I have watched with increasing apprehension all this desire to install soft loan windows everywhere, so as to, in effect, "tap the till" of the United States for the benefit of those outside of this country.
I was interested in the Asian Bank, into which we agreed to put money in December 1965.
This year, when the question of a soft loan window came up, we asked how much of that $1 billion in the Asian Bank had been loaned out; and found not one cent had been loaned.
I do not use the word in a derogatory sense, but if we "infect" also the Export-Import Bank with the same type and character of soft loan potential by saying, "You do not have to be reasonably sure that the loanee will repay," do we not, to some extent, destroy the last really business-like international bank we have in this Government today?
Mr. MUSKIE. As I understand the characteristics of the so-called soft loan to which the Senator referred, those characteristics have to do with terms of repayment, interest rates, down payment required, and periods of grace where no payment of principal and interest would be required, and the like. There is nothing of that kind involved in this legislation. There was nothing of that kind involved in the form in which the Senate committee reported the legislation to the floor, and certainly that was not the intent. The amendments of the House of Representatives clarified that intent even more than the Senate version of the legislation.
For example, there is a House amendment before us, of which the committee approves, to the effect that the usual Export-Import Bank terms and interest rates would apply under the new program. There is no suggestion or hint m any testimony on the part of President Linder, or those representing the bank, that soft loans or any characteristics associated with that phrase would be intended under the bill.
Mr. SYMINGTON. May I make a short observation. I have served on many bank boards, as I know also has the Senator from Maine in his career.
There would appear to be no real difference between the softest of terms to somebody capable of repaying, and harsh terms to somebody incapable of paying.
Therefore, I do not think it entirely right to talk about the fact that, because the terms are not soft, the loan is automatically not a soft loan. The one thing any banker wants to know about first, when he lends, is: Will the loan be repaid?
Mr. MUSKIE. The Senator is absolutely right. However, again, it is a question of degree and semantics. We could describe the Export-Import Bank in its present authority as involving soft loans since in the sense it is intended to cover risks which are not conventional in conventional banking circles. To that extent, one might say they are softer than bank loans.
In the same way, one could call the Small Business Administration a soft loan agency in the sense it is intended to provide lending authority in those instances where credit is not available from private banking circles. Indeed, a condition of the SBA law is that a showing must be made by the borrower that he cannot get the loan from conventional banking circles. I cite this example not in direct response, but to show the difficulty in spelling out semantically the difference between the application of the bank's present authority -- that interpretative job gained by years of experience -- and the new philosophy in the House bill before us, that of substantial likelihood of repayment.
The bank meticulously reshaped present policies and one has only to study the description of that policy. The phrase "reasonable assurance of repayment" has not only an illustrative effect but it is a positive restrictive effect that may not have been the intent when that legislation was first adopted.
So the bank will not breach here its expressed authority or even its interpretation of that authority because of its commitment not only to the statute but to interpretation of the statute.
If we had the original language "reasonable assurance of repayment" before us in today's world climate without the precedent, it is conceivable that the bank could use that authority in the way it intends to use new authority, if granted, but it is bound by precedents and now undertakes to expand its authority.
Mr. SYMINGTON. Mr. President, let me make another observation. No one is more for the Small Business Administration than I. No one has greater respect for the ability of the Senator from Maine in this field, and in many other fields. But when he describes comparability of this development, the Small Business Administration, I believe he answers the point I was trying to make.
Mr. MUSKIE. I do not think the Senator should draw the conclusion the words might imply. All I am trying to show is that when one is in the process of applying for funds of this kind, case by case, the loan applications, which vary in degree and purpose as to credit risks, represent a degree of subjective judgment in which it is difficult to spell out guidelines for in this legislation.
All I am trying to suggest, by comparison with the Small Business Administration, is that various administrators of SBA have had similar problems in undertaking to apply policy to classes of risks not acceptable to banking authorities. It is that kind of difference that the Bank would be involved in interpreting. It is a vague, subjective kind of thing. I am not trying to suggest that the SBA is the precedent for this legislation.
Mr. TOWER. Mr. President, will the Senator from Maine yield?
Mr. MUSKIE. I yield.
Mr. TOWER. If the Senator from Missouri would forbear for a moment. Under the present language of the act which in bankers' terminology is highly restrictive, we cannot adjust to the Indonesia situation, where Sukarno collapsed the entire economy of the country, expropriated everything, and threw out the entrepreneurs from all over the world who had invested in his country. That regime has been overturned, and still the Indonesian economy is in a state of collapse.
Now there is in existence in Indonesia, under Suharto, a government which has been trying to get Indonesia back on its feet, and to bring back foreign investments to develop the country which has great resources for development. Under the present state of its economy and its monetary system, the old provisions of the Ex-Im law would serve as a restriction on any effort on our part to encourage investment of American capital in Indonesia and to aid in the process of rehabilitating the country which is potentially a great ally of the West.
Mr. SYMINGTON. I do not know of any objection to lending money to Indonesia. But we have already given away over $180 billion -- more than half our debt -- to other countries. I saw recent figures to the effect that the U.S. debt is $43 billion more than the total debt of all the other countries in the world combined. I have watched with a sort of fascination, this operation develop. When we cannot give or soft-loan lend any more on a unilateral basis, we begin to search around on a bilateral basis. That is what happened to the World Bank, to the Asian Bank, and to the IDA Bank.
I was hoping there would be one bank left where the question of how the board of directors decided they would use the taxpayers' money would be comparable to normal business practice.
We often find that the very country we are supporting is the country which shortly turns its political government into a different type and character. In justification of that remark, I would refer the able Senator from Texas to a recent article in the Saturday Evening Post which starts off with a quotation from the head of the Vietcong expressing his gratitude to the United States. He says they never could have lasted if it were not for the materiel and supplies this country had been good enough to send them, even if it was done indirectly. Sarcastic no doubt, but effective.
Mr. TOWER. If I could pursue the point further. I understand what the Senator is referring to. In any case, the point that I was trying to make is, I think there is a good potential in Indonesia for the United States to help develop that country. Under the prevailing language in the current legislation, the lenders and their associates could conscientiously loan money to the extent that it could be regarded as a good risk. Once we get the infusion of capital, we could go ahead and orient it later. Indonesia is devoting 90 percent of its efforts to civic actions rather than to military, so that I think ultimately this is a good risk for us, another potential for us, because this country is so tremendously great in resources that it could be a wealthy country.
Mr. SYMINGTON. Is this legislation based on sending money to Indonesia?
Mr. TOWER. Not entirely. I use Indonesia just as an illustration.
Mr. SYMINGTON. I would hope that just once, we could see some figures showing why it is important for us not to give or lend money to some other country, what with all the gigantic social and financial problems we have here at home, plus all the wars and war preparations we have around the world. Maybe we could withdraw a bit, instead of constantly expanding, to the point where it affects the security of the United States. I believe an economic collapse would, in the long run, be just as serious as a military defeat.
Mr. TOWER. I think the Senator from Maine has answered that question; that what we are doing here is engaging in an exercise in semantics as to what is a risk. We cannot stick by the dogmas of the past. We must make progress and, therefore, we must adjust the language to the times.
Mr. MUSKIE. Mr. President, let me finish my prepared remarks at this point. I emphasize again that the Export-Import Bank has never been a soft loan agency, nor is it intended that the Export-Import Bank's new expansion facility would be used for that purpose. The objective here -- in further response to the distinguished Senator from Missouri -- is directly in our national interest; that is, to improve our balance-of-payments position.
In other words, the new authority would not be in any sense a form of foreign aid -- another AID program -- where long terms and low interest rates are customary. Eximbank's usual repayment terms and standard interest rates would apply under the new program. "Usual repayment terms" are understood to mean the down payments and maturities which are normally used in international trade for goods being sold, unless it is demonstrated that longer terms are necessary to match offers of government-supported credit being extended by our foreign competitors for a particular piece of business. Standard interest rates at the present time are 6 percent for a direct loan to a foreign borrower. A House amendment would write into the law a provision that the usual Eximbank terms and interest rates would apply under the new program.
Eximbank expects normal cash payments and exporter participation in transactions to the same extent as are now applicable under the regular program. Most of the new authorizations will be for short and medium term transactions, usually on terms providing for repayment over a period not exceeding 5 years. Most of the new transactions would be financed by U.S. commercial banks under Eximbank's guarantee, or by the exporter himself under an insurance policy provided by the Foreign Credit Insurance Association in conjunction with Eximbank.
The program would concentrate on short and medium term transactions since the sooner the dollars flow back into this country, the more help will they be in alleviating the balance-of- payments crisis.
Eximbank does not plan to instigate an international credit war by making its terms too attractive.
Eximbank could, under the new authority, consider loans where the credit worthiness of the customer may not be first rate, or where the customer is located in a country in which Eximbank may be overexposed from past loans. Eximbank could give more consideration to making loans in those countries where potential political problems might otherwise deter them. It is also contemplated that credits would be extended to developed countries as well as to the less- developed countries.
The new program could be extended to countries that are being phased out of the AID program.
This could include those countries where the external debt is fairly high and traditional credit terms are not available, and where new businesses appear to be getting underway. Eximbank might also contemplate making additional credit available to foreign buyers who may now have a $50,000 line of credit from our exporters by expanding this amount to $75,000.
The new export expansion facility, had it been in effect, could have been used in a number of different types of transactions, several of which I shall mention:
First. The special account could have been utilized to finance the sale of diesel locomotives to a Latin American country, which would have assured substantial follow-on sales of spare parts thereafter and would have given American firms a favored market position on future orders of locomotives.
Second. The special account could help assure as much as $500,000 annually in sales by an American firm to an African customer.
Third. If available at the time, the special account might have assured approximately $20 to $25 million in sales from the United States to Iran in compressor equipment for a petrochemical plant.
Fourth. The special account could have assured the sale of an electric power generating unit for Korea.
Fifth. The special account would permit Eximbank to increase its financing for priority exports to Brazil.
I ask unanimous consent to insert in the RECORD following my remarks a more detailed explanation of these transactions from the Commerce Department.
The PRESIDING OFFICER. Without objections, it is so ordered.
(See exhibit 1.)
Mr. MUSKIE. Mr. President, these illustrations from the Commerce Department are intended to suggest ways in which the special authority might have been used in the past and in which it might be used in the future if the Bank is given that authority.
In order to provide guidance to the Export-Import Bank in administering the new account, the President announced when he proposed this legislation that he will establish an Export Expansion Advisory Committee, chaired by the Secretary of Commerce. Applications for loans, guarantees, and insurance would be examined, processed and developed by Eximbank personnel.
The Advisory Committee would be available for consultation in connection with those transactions which did not meet the standard Eximbank criteria. The panel would be made up of various experts in this field.
The House amended the bill to prohibit any Eximbank assistance under the new program in connection with the sale of defense articles or defense services. Although Chairman Linder stated in unequivocal terms that the new authority would not be used for such purchases, I think it will be helpful to have this prohibition written into the legislation.
In conclusion, I believe the new program can make a valuable contribution to our balance of payments. This legislation was supported by all the interested agencies of Government, including Eximbank, Treasury and Commerce Departments, as well as by exporters and bankers active in this field. There appears to be general agreement that the legislation will be helpful in expanding our trade. Mr. President, I urge that the Senate act favorably on this legislation.
EXHIBIT 1
EXIMBANK OVEREXPOSURE IN IRAN
If available at the time, the special account might have assured approximately $20 to $25 million in sales from the United States to Iran in compressor equipment for a petrochemical plant.
An American bidder was invited to supply $20 to $25 million of gas engine compressors and auxiliary equipment in which the firm had technical leadership. In addition to the initial order, follow-on orders of $200,000 in spare parts were expected. Market penetration also was involved in this transaction, since a successful bid would have placed the firm in a position to bid on additional equipment for an Iranian petrochemical plant. European firms allegedly were able to offer favorable credit terms supported by their governments.
Eximbank was unable to respond affirmatively because of its current high level of commitments in Iran, and potential U.S. exports were lost to firms in Europe.
Iran has substantial promise as a market for U.S. exports. If American exporters are to achieve their full potential in this market, it will be necessary to make available more adequate and more flexible financing.
MARKET PENETRATION AND FOLLOW-ON SALES IN LATIN AMERICA
The special account could have been utilized to finance the sale of diesel locomotives to a Latin American country, which would have assured substantial follow-on sales of spare parts thereafter and would have given American firms a favored market position on future orders of locomotives.
A Latin American railroad asked for bids on 60 diesel locomotives worth approximately $10 million. Besides the initial order, follow-on sales of spare parts over the next 17 years would have amounted to approximately 15 to 30 percent of the value of the initial order. Placement of American equipment in this market would, moreover, have assured American companies of a favored position for future diesel orders.
Because of the foreign exchange difficulties of the particular Latin American country involved, Eximbank was able to offer only credit terms that were less competitive in interest and in maturity than that offered by a European firm. The export was lost to the United States.
KEEPING A BUYER IN AFRICA
The special account could help assure as much as $500,000 annually in sales by an American firm to an African customer.
A government bus line in an African country has been buying up to $500,000 of tires a year from a large American manufacturer on a c.o.d. basis. Now several foreign companies are seeking to break into the market by offering 1-year credit.
The American firm countered with six-month credit terms and believed it could have kept the customer because of its superior product. However, for its own protection the American firm asked Eximbank for credit insurance against the possibility of non-payment.
Because the bus line does not operate on a profit-making basis and is partially dependent on a government subsidy, Eximbank was unable to offer the insurance, unless payment was guaranteed through a bank letter of credit. This condition led the bus company to shift its order to a Belgian competitor, with the loss of $500,000 in sales for the United States this year.
SELLING TO A COUNTRY WITH HIGH DEBT-SERVICING OBLIGATIONS
The special account could have assured the sale of an electric power generating unit for Korea.
The Korean Government applied to Eximbank to finance one unit of a two-unit power plant on commercial terms. Another unit was to have been supplied by an American manufacturer under AID financing. The United States is competitive in this type of plant, and it would have been sensible to have an American supplier for both units in order to take advantage of equipment and spare parts compatibility and a unified staff of technical personnel. Eximbank was unable to finance the project because of some uncertainties regarding Korea's foreign exchange position in the 1970's reflecting increased foreign debt repayments. Also, the project would have preempted funds for other Korean projects Eximbank was considering at the time. Subsequently, the order fell to a German firm with financing on commercial terms.
Present indications are that Korea will continue to develop rapidly and to maintain a high level of export earnings and imports. Whether American or foreign suppliers meet Korea's import needs will depend largely upon the availability of financing. Several other Korean power projects have been supplied by foreign competitors on terms varying between 5 to 20 years.
It also is worthy of note that the Japanese have normalized their relationships with Korea, and they have agreed to put in $800 million of tied assistance over 10 years, $300 million of which are on commercial terms. The Koreans would very much like to diversify their sources of supply and have asked us to increase our commercial presence in Korea. The Department of Commerce plans to step up its trade promotion activities in Korea, and it would be most useful if more flexible U.S. credit facilities were available.
EXIMBANK EXPOSURE IN BRAZIL
The special account would permit Eximbank to increase its financing for priority exports to Brazil.
Brazil's international credit standing has taken a turn for the better in recent years, partly as a result of the healthier economic climate fostered by our economic assistance program. Foreign businessmen have taken advantage of the more favorable market situation and have expanded their exports to Brazil, in part through liberalizing their credit terms to Brazilian customers. Due to Eximbank's considerable exposure in Brazil of over $600 million, it has been forced to hold back on financial commitments in this promising market; and export sales have been lost by American suppliers.
Mr. BYRD of Virginia. Mr. President, will the Senator yield?
Mr. MUSKIE. Yes; I am happy to yield.
Mr. BYRD of Virginia. Before the Senator from Virginia can determine whether to support or oppose the legislation, he would need to know how the criteria to meet the test of the likelihood of repayment differs from the current criteria to meet the test of reasonable assurance of repayment. What is the difference between the two?
Mr. MUSKIE. I think I can say to the Senator only that the difference can be perhaps suggested by the kinds of illustrations which I have put in the RECORD.
Let me say this to the Senator: Suppose we had before us, not the present language, but the language of the present law, "reasonable assurance of repayment." Suppose we had that language, without any background in the context of the present world of international finance, and the floor managers of the bill was asked to explain under what situations loans would be made under that kind of language. I think the Senator would have as much difficulty in trying to describe the exact application of that language as the Senator from Virginia and I are having with respect to the language before us.
We went into it at considerable length with Chairman Linder, in the hearings and outside the hearings, to try to get the difference spelled out as explicitly as possible. Unfortunately, that is not possible unless you have the applications before you.
We can say these things about it. First of all, the language as added by the House bill, will be somewhat more liberal than the present language of the statute. We can say, secondly, the present language is somewhat more restrictive than would be the case under the new authority. We can say, thirdly, that the directors of Eximbank, in applying their present policy, have undertaken to do so with great meticulousness and with an exercise of self-discipline and self-restraint in the light of their interpretation that the words of their present authority have a clear meaning in credit terms. Eximbank will consider the new language with the same conservative approach that they use with respect to their present authority.
There is no way for me or anyone else, other than by examples from the Bank's record, to spell out what kind of loans would be approved and what kind of loans would not be approved.
We can say about this authority, further, what I have already undertaken to say in my prepared remarks; that is, that the new language will not mean any relaxation of the down payment requirements; that it will not mean any relaxation with respect to the repayment of loans; that it will not mean any relaxation with respect to the interest charge; and other traditional terms will not be relaxed.
We are talking about situations with respect to foreign countries and businesses purchasing U.S. equipment dealing with exporters, from our country, who are not now in the field, and the Bank considers that there is a promise of improving our payments position while still retaining sufficient likelihood of repayment.
Mr. TOWER. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield.
Mr. TOWER. What the Senator is saying, is he not, is that certainly this is not a soft loan under the terms of the loan. As a matter of fact, the terms remain the same. They are, in effect, hard terms. What we are talking about is the fact that we want to go into the areas that could be considered higher risk areas under the conventional and traditional understanding of the language as it exists in the original bill.
What we are saying here is, that where there is a potential for repayment, and at the same time a potential for development, we do not want to be bound by existing precedent as established under existing language, which precedent might not have existed had that language been created in this session of the Congress. Would that seem to be a fair assessment?
Mr. MUSKIE. I think the Senator has said, in shorter comment than I, precisely what is involved here. It is difficult to be precise in detail with respect to the future application of a policy such as this.
Mr. BYRD of Virginia. Mr. President, will the Senator yield for another question?
Mr. MUSKIE. I yield.
Mr. BYRD of Virginia. I assume the purpose of the legislation is to assist or encourage the Eximbank to make more risky loans than it has made up to date. Is that a fair appraisal?
Mr. MILLER. Mr. President, will the Senator yield to me?
Mr. MUSKIE. In a literal sense, that is true; in the sense that the Bank would be in a position to entertain risks that it is not now willing to undertake in the same way that Small Business Administration considers risks, or the conventional banks of the country; but I do not know that it is fair to say that the words of the Senator imply that the SBA is going off the deep end in some way.
Mr. BYRD of Virginia. Mr. President, will the Senator yield for another question?
Mr. MILLER. Mr. President, will the Senator yield to me to allow me to help partially answer the question propounded to the Senator from Maine? I think it is pertinent. On page 29 of the hearings there is a memorandum to the Senator from Texas [Mr. TOWER] from Harold Linder. It is a memorandum in the form of a question and answer. One of the questions propounded by the Senator from Texas to Mr. Linder was this:
Question: The determination of "reasonable assurance" of the repayment is made by the Bank Board under the basic act and the Board will determine under this bill what transactions do not carry with them "reasonable assurance of repayment." Isn't it true that in its regular operations the Bank has approved transactions that might be classed on the riskier side of "reasonable assurance of repayment?"
Answer: Yes, we believe we have operated at the outer limits of our present authority in respect of some of our credits.
Question: Isn't it true that under the provisions of both the basic Act of the Bank and S. 3218 the judgment of the Board in determining Bank participation in transactions can run the gamut from no risk to a riskier than usual situation?
Answer: Export transactions supported under the Bank's existing authority do range from those with little real risk to those with a substantial degree of risk, even though the Board concludes that reasonable assurance of repayment exists. However, transactions under the S. 3218 authority will by definition all be on the riskier side, due to either commercial or political factors.
So, I offer this to the Senator from Virginia, because I think his question was very appropriate, to point out this subject has been covered by our colleagues from Texas in those questions and answers.
Mr. LAUSCHE. Mr. President, will the Senator permit me to make a comment on this point?
Mr. MUSKIE. May I say, first of all, there is no attempt on the part of the Senator from Maine or the Senator from Texas or anyone else to suggest that this does not open up the door to supporting riskier loans than those now permitted under the Eximbank's present statutory authority, as interpreted by the Bank over a period extending back to 1934.
Mr. BYRD of Virginia. Does the Senator say it does or does not do that?
Mr. MUSKIE. It does. The question was whether the bill represents a continuation of present policy or more liberal policy. Obviously it is a more liberal policy.
Mr. BYRD of Virginia. The Senator says he does want to emphasize that it does permit the Bank to make more risky loans than it has made in the past?
Mr. MUSKIE. That is correct. There is no question about it. Whether it goes beyond the bounds of a rational policy for our country, in the light of our present balance-of-payments problem, is a question which each of us must answer for himself.
The Bank has demonstrated over the period of its history for 34 years that it could follow a riskier policy, to use the Senator's phrase, than conventional banks were prepared to follow, and still operate within sound limits. It has still not only shown a record of minimal losses, but in addition, has been able to pay to the Treasury $535 million as a profit on its transactions.
The Bank is now saying to us that on the basis of this salutary experience, it is possible, in its judgment, that it is sound to liberalize the risks which the Bank would cover.
Mr. BYRD of Virginia. Mr. President, will the Senator yield?
Mr. MUSKIE. I am happy to yield.
Mr. BYRD of Virginia. What the Senator is saying is that the Bank is a bank of last resort in many cases, that it has taken higher risks, that that is one of the purposes of it, that the legislation was enacted so that it could and would take risks, and it has taken risks. Now, what this measure proposes that it do is go beyond that, and take even more risks?
Mr. MUSKIE. That is right.
Mr. BYRD of Virginia. Mr. President, I commend the Bank. I think it has done a good job.
Mr. MUSKIE. The bill reflects the Bank's recommendation.
Mr. TOWER. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield.
Mr. TOWER. I do not think I would support this recommendation were it not for the fact that the Bank's experience has been very good, even in higher risk areas.
Mr. BYRD of Virginia. It seems to me what we want to do is establish a forward looking policy that will stand for a good many years. I do not believe we can do that on a personality basis. As I say, I commend the Bank; I think it has done a good job.
Mr. MUSKIE. We did not suggest that this be done on a personality basis. Over 34 years, there have been a number of personalities involved. What we have, rather, is a 34-year period of policymaking that has not exposed the country's credit to unusual or unsafe risks, and has returned dividends to the Treasury; and it is on the basis of that experience over 34 years that the Bank now says, "Considering what we have done, the loans we have approved, and also the loans we have turned down, we are saying that we believe there is an area of larger risks into which the country could venture without undue risk."
Several Senators addressed the Chair.
Mr. TOWER. Mr. President; I might suggest since the experience has been so good even under a Democratic administration, it will be even better under the Republican administration that will take over in January of next year.
Several Senators addressed the Chair.
Mr. MUSKIE. Mr. President, may I make one further point lest it be lost? What we are talking about is not the exposure of all the Bank's resources, but of $500 million in a separate fund -- not the full $13.5 billion of the Bank's lending authority.
Mr. LAUSCHE. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield to the Senator from Ohio.
Mr. LAUSCHE. I should like to explore further the quotation read by the Senator from Iowa consisting of questions by Mr. TOWER and answers in response thereto by Mr. Linder. I ask the Senator from Virginia to pay special attention
Question: Isn't it true that under the provisions of both the basic Act of the Bank and S. 3218 the judgment of the Board in determining Bank participation in transactions can run the gamut from no risk to a riskier than usual situation?
The answer to that question, to me, is very important. Mr. Linder answered: Answer: Export transactions supported under the Bank's existing authority do range from those with little real risk to those with a substantial – I repeat, "substantial" -- degree of risk, even though the Board concludes that reasonable assurance of repayment exists.
My question of the Senator from Maine is this: If under the present law the Bank can assume substantial risks, under its definition of reasonable assurance of repayment, how large will the risks be when they go beyond "substantial" risks?
Mr. MUSKIE. I say to the Senator from Ohio that the sentence the Senator has read from the Bank's answer could be descriptive of the policy of many banks -- at least of my bank, because I am borrowing money there, and I would say that I could be a substantial risk in some people's eyes, especially as they look forward to 1970, when I will run for the Senate again.
But let me say to the Senator, obviously there is a range of risks, with respect not only to the Export-Import Bank, but to the First National Bank on Main Street in any community of this country, if that bank is to participate in the life of the community and the life of the area, and engage in making developmental loans.
So the Bank, in using this language in response to the question from the Senator from Texas, is not responding in the sense the Senator interprets the answer at all.
Mr. LAUSCHE. I interpret it according to the language.
Mr. MUSKIE. "Substantial"? What is meant by substantial?
Mr. LAUSCHE. I suppose it means risks beyond what is reasonable. It has been making loans assuming substantial risks, but now it says, apparently: "We want authority to make loans that go beyond substantial risks," and I ask the Senator from Maine what is meant by taking risks that are greater than substantial.
Mr. MUSKIE. Mr. President, when the Senator equates the words "substantial and unreasonable," I have no answer for him. I can only say that, in my judgment, a risk can be substantial and still reasonable. It depends on how the Senator wants to react to those words.
Mr. LAUSCHE. Mr. President, if it is true that it can be substantial and still reasonable, then we need no modification of the law. The law now says that the loan or the risk may be guaranteed if there is any assurance of repayment.
Mr. MUSKIE. The Senator's best protection is exactly in the fact that the Bank will not breach its own policy.
I would agree with the Senator that if we begin all over again to deal with the words "reasonable assurance of repayment" without the Bank's precedents and concept of the limitation on the policies on which it relies, we could begin and go beyond the risk which the Board is now willing to approve, so that the Bank's reluctance to do that without this new kind of authority is the best protection the Senator could ask for, short of denying all authority.
Mr. LAUSCHE. The Senator has not yet answered my question. If the Bank now has the provision that when it finds there is reasonable assurance of repayment, even though the risk is substantial, how much power will it have after we modify this language in the guaranteeing of risks beyond what is a substantial degree of non-repayment? If the Senator can answer that question, I would like to hear it.
Mr. MUSKIE. Mr. President, much of the discussion for the last hour or hour and a half has been an effort to try to give some insight into what judgment the bank will apply to an undefined area of risk.
The only way I could satisfy the Senator, I suspect, would be to anticipate all applications for loans that might be filed with the Bank over the next 5 or 10 years and tell the Senator what the Bank would do under this authority.
We have to keep in mind the fact that the Bank has 34 years of experience in exercising its present authority in a way which, I think, meets with the approval of every Senator. Eximbank has been a sound Bank, a Bank which has sound reserves, a Bank which has contributed $535 million in dividends to the U.S. Treasury, a Bank which has a minimal record of losses.
That Bank, with that demonstrable judgment-making record, a record of having some appreciation of the kind of loan that was considered outside its present authority, comes to us and says, "Here is a risk which we can safely include if you want to give us the authority."
Mr. TOWER. Mr. President, what the new authority would do would be not to liberalize the basis of the judgment on which loans are made, but rather to evidence some relaxation as to where loans can be made.
Let me repair to the last answer of Chairman Linder to my questionnaire. It states:
As my answer to the last question indicates, the new authority will not affect the Board's judgment on whether or not it should authorize a particular transaction under its regular programs, taking into account, among other factors, our existing exposure in the country. By the same token, any decision to increase the Bank's total exposure in a given country by making authorizations under the new authority but not under its regular authority would be made by the Bank's Board of Directors, using its best judgment. In the latter case, however, we would expect to seek and rely in substantial measure upon the recommendations of the proposed Advisory Committee.
The fact of the matter is that under the existing terminology, there is involved in the construction of reasonable reassurance of repayment not only the basis of judgment on the nature of the risk involved, and the likelihood of repayment, but also the amount of exposure a bank has in a given country.
Beyond that, take the case of a country whose economy has collapsed and which has been regarded as an area in which no loans could be made at all. If a sudden coup d'etat is successful, the entire nature of the problem changes overnight. We then have no existing credit rating for that country. The previous experience was very bad.
Are we to be bound to the rule that we cannot go into such a country and make loans that would appear to have a tremendous capacity for repayment and would generate further loans for the enrichment of the Export-Import Bank and would enhance the repayment of the old loans?
Mr. LAUSCHE. Mr. President, I concur with everything the Senator has said. However, the questions propounded here have been intended to ascertain what new risks the Export-Import Bank will be authorized to undertake.
Certainly, they have had a good record. It seems to me that Chairman Linder is saying to
Congress, "We have operated this Bank on a sound basis. You are now asking us to assume guarantees on loans and other undertakings that are far more risky than the ones we have been inclined to undertake. Before we do that and undertake risks that are beyond substantial, we want Congress to say that we may do so."
Mr. TOWER. Mr. President, perhaps we are redefining the word "risk." What would change is not the substance of the judgment as to whether or not the loan is substantially repayable. We are trying to break out of the shackles of some conventional application of terms. It is just a matter of semantics.
Mr. LAUSCHE. The terms will be the same.
The Senator from Maine has repeated time and time again that there will be no change in terms, and the interest rates will be identical. The only difference will be in the risk that Congress authorizes the Export-Import Bank to assume.
Mr. MUSKIE. Mr. President, I yield to the Senator from Illinois.
The PRESIDING OFFICER. The Senator from Illinois is recognized.
Mr. DIRKSEN. Mr. President, I should point out that first of all we are considering not the Senate bill, but the House bill.
Mr. LAUSCHE. I understand that.
Mr. DIRKSEN. Mr. President, I point out that in the House bill on page 2 they do not use the word "substantial." It relates to a continuation of loans that offer sufficient likelihood of repayment to justify the Bank's support in order to actively foster the foreign trade and long-term commercial interests of the United States.
I am not too sure that the Bank does not have that much latitude already. However, I am satisfied to see it in the legislation.
There is only one issue really involved. The Bank wanted $500 million, and we got the impression that they wanted to make more liberal loans.
I stated in our policy committee that I thought they were getting ready to open up a soft loan window, and I am against that sort of thing and for a reason. I think we have been decently generous in the whole field of foreign aid for a long time, and that it is about time we call a halt and get these things down on terms that are reasonably favorable to the United States for a change.
So that leaves one issue. The Bank was going to pick up the first $100 million of the loss, and then the Treasury would pick up the other $400 million if it went down the drain. I do not believe in that either. This is an agency unto itself. It is an independent agency, and let them stand on their own bottom. If they have losses, let us put it on them and not on some other department or agency of government. If they have commitments abroad that look shaky, well and good -- not in one sense, but at least they have a reserve of $1.1 billion.
Why should the Treasury pick up their losses out of the people's Treasury? If you make the Bank do it, except for a hundred million dollars, you are going to get some discipline in the Bank, for one thing.
Do not forget that they have to come to Congress and give an accounting of their stewardship, and then we will know whether they have been good servants or bad. And that is the reason for this amendment. Having labored with it, with the distinguished Senator from Texas and the distinguished Senator from Maine and others, we all agree that this is a far better method.
I shall read, for the edification of Senators, a portion of the amendment, and I shall read it slowly:
SEC. 2. In the event of any losses, as determined by the Board of Directors of the Bank, incurred on loans, guarantees, and insurance extended under this Act, the first $100,000,000 of such losses shall be borne by the Bank;
That is the way an agency should be made to operate. That makes them strictly and completely accountable to Congress, and that means accountable to the people of the United States of America; because this is the people's money and the people's credit with which they are dealing, and the people have a right to know and to get as much of a safeguard as they possibly can.
Mr. LAUSCHE. I concur with that amendment.
Mr. DIRKSEN. Mr. President, I offer the amendment at this time, because we have generally all agreed on this.
Mr. LAUSCHE. But may I ask the Senator from Illinois, with his very incisive mind–
Mr. DIRKSEN. I do not have an incisive mind.
The PRESIDING OFFICER. The amendment offered by the Senator from Illinois will be stated.
The assistant legislative clerk proceeded to read the amendment.
Mr. DIRKSEN. Mr. President, I ask unanimous consent that further reading of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered; and, without objection, the amendment will be printed in the RECORD.
The amendment is as follows:
On page 2, beginning with line 18, strike out all through line 13 on page 3, and insert in lieu thereof the following:
“SEC. 2. In the event of any losses, as determined by the Board of Directors of the Bank, incurred on loans, guarantees, and insurance extended under this Act, the first $100,000,000 of such losses shall be borne by the Bank; the second $100,000,000 of such losses shall be borne by the Secretary of the Treasury; and any losses in excess thereof shall be borne by the Bank. Reimbursement of the Bank by the Secretary of the Treasury of the amount of losses which are to be borne by the Secretary of the Treasury as aforesaid shall be from funds made available pursuant to section 3 of this Act. All guarantees and insurance issued by the Bank shall be considered contingent obligations backed by the full faith and credit of the Government of the United States of America.
"SEC. 3. There are hereby authorized to be appropriated to the Secretary of the Treasury without fiscal year limitation $100,000,000 to cover the amount of any losses which are to be borne by the Secretary of the Treasury as provided in section 2 hereof."
The PRESIDING OFFICER. Who yields time?
Mr. LAUSCHE. The Senator from Kansas has been waiting to speak.
Mr. PEARSON. That is all right. I wish to address a question to the distinguished manager of the bill.
The PRESIDING OFFICER. Who yields time?
Mr. MUSKIE. I yield to the distinguished Senator from Kansas.
The PRESIDING OFFICER. There is a time limitation of 15 minutes to a side.
Mr. TOWER. I yield 5 minutes to the distinguished Senator from Kansas.
Mr. PEARSON. One matter that concerns me, I say to the distinguished manager of the bill, is that, as I understand the authority of the Eximbank, it is $13½ billion, and that was increased, actually, in March of this year; was it not?
Mr. MUSKIE. The Senator is correct.
Mr. PEARSON. I do not remember what the increase was, but I suppose at that time the increase was made on the basis that they needed new authority to operate the Bank within section 2 (b) (1), which is the reasonable assurance section. If that is so, I am wondering whether or not, under the authority of this bill, $500 million is to be taken out of this authority, which ordinarily would have been used within the section from which we are going to depart -- which ordinarily would be used under the reasonable assurance section -- and then use it here under a new risk section.
I believe the Senator from Washington, in a statement filed with the committee, made reference in an oblique way to the same matter. His statement reads:
The new account must result in genuine additional exports for the United States. We must recognize the possibility that certain transactions represented to the Ex-Im Bank might simply be shifted to the new account, which, in the absence of this new facility, Ex-Im might have financed in any case under its regular authority.
All of this is by way of putting the question of whether or not we are removing from the $13.5 billion loans which ordinarily would have been made under the old judgment and shifting them over and making them now under a new risk policy.
Mr. MUSKIE. The $500 million authority for this new program would come out of the $13½ billion of existing authority which the Bank has. Whether or not this, as events unfold, would represent a transfer from some of the assurance of repayment loans to the other, I do not believe I can answer.
The Bank's authority in the past has never been geared to a particular term or a particular period of business. They always come to us when they need new authority, when the existing authority is used up.
I believe the net effect would be that this $500 million might expedite by some months the date upon which the $13½ billion would otherwise expire.
Mr. TOWER. We can conceivably generate new sources of importation from the United States or new opportunities for export, and particularly in terms of Indonesia. I do not wish to harp on
that particular example, but here is a country with which we have had virtually nothing in the way of exports during the Sukarno regime. It requires investment of considerable capital.
Everybody knows the investment of American capital abroad has proved to be very good, because we have realized more in the way of dividends than we have actually invested. It has been a favorable balance of trade factor, and the testimony before the Committee on Banking and Currency, time and time again, has brought this out.
Other countries are going to go into these higher risk areas. Japan is going in, West Germany is going in, the Dutch are going in, the French are going in -- the French -- sometimes Mr. de Gaulle is a little uncertain about some of these things.
We are in the situation of competing with these countries, and if we are not prepared to go into some of these higher risk areas, using sound judgment as to the potential for repayment, then I believe we might conceivably lose some potential markets.
Mr. PEARSON. Then, would the Senator say that one of the purposes of this bill is to meet the credit competition of the countries the Senator has named, and in addition to the special funds to the British and the Canadians?
Mr. TOWER. I would say that would be a very legitimate pursuit. We are talking about balance of payments, and one of the basic designs of this bill is to enhance our balance of payments.
I believe adequate legislative history has been made here to make it clear to the Bank that this is what we purport to do, and this is what must orient their judgment as to the nature of the credit they extend.
Mr. PEARSON. The point I was trying to develop is this: There is an authority of $13½ billion. That was increased this year. It was increased on the basis that we need this authority, that we need to make loans. We needed to make loans under the provisions and standards of section 2(b) (1).
The PRESIDING OFFICER. The time of the Senator has expired.
Mr. TOWER. I yield 5 additional minutes to the Senator.
Mr. PEARSON. Now we come in with $500 million. The point has been developed, and expressed very well, that it is not different terms. It is the same interest rates, same down payment, same term for repayment. So there is no increase in the risk at all.
Are we taking authority from the Eximbank that they can normally make loans under section 2(b) (1) and now make them under this special fund for a greater risk?
Mr. MUSKIE. Let me put it this way, without trying to evade the question: The Bank's request for authority -- its request for expansion to $13.5 billion -- was based upon its estimate of the amount of business it would do over a period into the future. If we should increase our export sales and our export sales for credit, whether or not this bill is passed, obviously, that authority will run out sooner than the bank estimated.
Suppose, for instance, in 1968 our export sales goods is $30 billion, the highest figure in our history. Suppose that trend were to continue wholly independent of this legislation. Then, the credit sales associated with that growth would grow and the Bank's share of our credit sales which has been 10 or 11 percent for quite some time; so the Bank's share of that business would grow and the $13.5 billion would run out before the 5 years, whether or not this bill were passed. Obviously, since the purpose of the bill is to stimulate the growth of exports, the result would be comparable to the result I have described.
Mr. PEARSON. To get it out quicker and to get a quicker return on the payment.
Mr. MUSKIE. To sell goods and to get a quick return on the balance of payments.
Mr. TOWER. Let me reiterate what the Senator from Illinois said awhile ago. There is congressional oversight. The amount appropriated for this year is somewhat less than authorized.
There is that check and an annual ceiling that is imposed through the appropriation process. Therefore, we will have congressional oversight.
Mr. PEARSON. I have one more question. I understand the $500 million comes within the $13.5 billion.
Mr. MUSKIE. The Senator is correct.
Mr. PEARSON. Within that the limitation upon loans and guarantees is $3.5 billion.
Mr. MUSKIE. Yes.
Mr. PEARSON. Would loans and guarantees out of the $13 billion come out of that limitation?
Mr. MUSKIE. The $13.5 billion as well as the $500 million for loans and guarantees are charged to the extent of 25 percent.
Mr. PEARSON. That is correct.
Mr. MUSKIE. So that if all of this $500 million were used for loans and guarantees the total could be $2 billion.
Mr. PEARSON. Would that be within $3.5 billion?
Mr. MUSKIE. That is correct.
Did the Senator from Ohio wish me to yield to him?
Mr. LAUSCHE. The Senator has answered the question I had in mind.
Mr. BYRD of Virginia. Mr. President, will the Senator yield to me?
Mr. MUSKIE. I yield 5 minutes to the Senator from Virginia.
Mr. BYRD of Virginia. Mr. President, I support the amendment offered by the distinguished senator from Illinois. It seems to me that this proposal greatly improves the legislation which we are considering; and the House bill is superior, it seems to me, to the Senate version which was reported by the committee.
The statement has been made that Congress has legislative oversight and that is correct in the appropriation process.
However, I invite the attention of the Senate to the fact that when we pass this legislation we are declaring it to be the policy of the Congress that the Export-Import Bank should be taking more risk; then, when they lose the money and come back here and say, "Make it up out of the Federal Treasury," we will be in the awkward position to appropriate the funds the Bank has lost, if they do lose.
I support the Export-Import Bank. I commend the management of the Bank. They have had an excellent policy for 34 years. I am wondering if we ought to change that policy. They have made great strides and they have been very helpful to the commercial international transactions of our Nation and have done a good job.
I am doubtful of the wisdom. I do not oppose or support the bill. I am trying to understand the bill. I still do not have a clear understanding of the language which provides "or of sufficient likelihood," but I am assuming, since we took that language, or the last part of the language submitted by the committee; namely, with respect to the policy of the Bank to make loans which do not meet the test of reassurance of repayment, that we do not want to go that far, and the language of the House bill, I assume, does not go that far.
If my assumption is correct this is a far better bill than was submitted to the Senate.
I wish to ask a question of the Senator from Maine. I believe I heard the Senator accurately in his opening statement when he stated that any loans made under this proposal would be specially designated on the books at the Export-Import Bank.
Mr. MUSKIE. The Senator is correct. I believe that language is in the bill.
Mr. BYRD of Virginia. I thank the Senator for clarifying that point.
Mr. MUSKIE. As I indicated in my prepared remarks, the Bank would first consider every application under the reasonable reassurance test of its authority. If it does not meet that test, it would reexamine it.
Mr. BYRD of Virginia. It would keep such loans separate on its books?
Mr. MUSKIE. Yes. This would be necessary because of separate authorizations.
Mr. BYRD of Virginia. That explanation clarifies that point, for which I thank the Senator.
On page 13 of the hearings there is printed a letter to the chairman of the committee, the distinguished Senator from Alabama, from the general counsel, Mr. Burt W. Roper. I wish to read one paragraph from the letter:
The export sales that would be eligible for loans, guarantees and insurance from the new account established under S. 3218 would be those which the U.S. commercial banking system and the Export-Import Bank were not otherwise able to handle because further lending by these banks would be considered imprudent in light of their loans already outstanding and the overall exchange position of the importers' country.
I just wanted to read that one paragraph into the RECORD where this proposed new legislation would permit the Bank to make loans which are now considered imprudent.
Mr. MUSKIE. May I say, in light of the Bank's present authority, some of the loans already on its books would be considered imprudent by commercial banks without a Government guarantee or insurance provided by the bank; imprudent in the light of conventional banking policy.
Mr. BYRD of Virginia. I am aware of that.
Mr. MUSKIE. In the same way the Bank uses the word "imprudent" with respect to departing from application of its present authority.
The PRESIDING OFFICER. The time of the Senator has expired.
Mr. BYRD of Virginia. Will the Senator yield for 1 additional minute?
Mr. MUSKIE. I yield 1 additional minute to the Senator from Virginia.
The PRESIDING OFFICER. The Senator from Virginia is recognized for 1 additional minute.
Mr. BYRD of Virginia. The Bank is speaking not of commercial transactions when they use the word "imprudent" but as I understand the report it would be imprudent in light of its own method of doing business -- it would be imprudent to make them under the present policy.
Mr. MUSKIE. The Senator has defined "imprudent" in light of the policy being applied. If a loan were made that is not within the policy it would be imprudent; if the Eximbank were to approve some of these loans it would be imprudent to do so in the light of its present policy.
Mr. BYRD of Virginia. I thank the Senator.
Mr. MILLER. Mr. President, will the Senator from Maine yield to me so that I may ask a question?
Mr. MUSKIE. I yield myself 2 minutes for the purpose of answering questions.
Mr. MILLER. I think discussion has been helpful up to a point, but any discussion on such a fine line as we are treading here, I think can only be made meaningful by example. I do not know whether it is possible for the Senator from Maine to obtain from the Export-Import Bank people this information but I suggest it would be most helpful for Senators if the Senator could obtain a list of loan applications which under present discretionary policy they feel do not fit within their longstanding record, and which, under the new policy, if we legislate this bill, would fit so that Senators can see, on an ad hoc basis, what kind of loans we are talking about. I think the Senator from Maine has done an excellent job pointing out that we can have a substantial risk and still not be imprudent; but I fail to see, really, when I get down to the line, where we draw the line between the high risk we are assuming under present policy and the high risk that they would assume under the new policy. The Senator from Texas has attempted to cover that in part by saying that it is really more on a country-by-country proposition–
The PRESIDING OFFICER. The time of the Senator from Maine has expired.
Mr. MUSKIE. I yield myself 1 more minute.
The PRESIDING OFFICER. The Senator from Maine is recognized for 1 minute.
Mr. MILLER (continuing). Rather than on each individual loan, but if the Senator from Maine could obtain some kind of list between now and tomorrow when we act on the bill, I think it will be most helpful to all of us. It certainly would be helpful to me.
Mr. MUSKIE. In connection with my prepared remarks, I placed in the RECORD and referred to them briefly, in detail, about five such situations. I would be happy to go into them in any degree.
Mr. MILLER. Are these actual cases?
Mr. MUSKIE. These are actual cases of loans before the Bank that have not been approved under its present policy, which it may or may not approve under the new policy. The Bank is not going to make any hard or fast judgments in advance. These are situations which would be appropriate for consideration under the new authority.
Mr. MILLER. Could the Senator add to that, perhaps, by a list or a number, so that we know whether we are talking about 50 or 100 loans, rather than just five illustrations?
Mr. MUSKIE. I put five illustrations in the RECORD.
The PRESIDING OFFICER. The time of the Senator from Maine has expired.
Mr. MUSKIE. I yield myself 1 additional minute.
The PRESIDING OFFICER. The Senator from Maine is recognized for 1 additional minute.
Mr. MUSKIE. There are other examples of these kinds of transactions.
Mr. MILLER. These are typical examples. If we could have an idea of the volume, I think that would be very helpful.
Mr. MUSKIE. There are five.
Mr. MILLER. These are just typical examples, but if we could have an idea
Mr. MUSKIE. These are illustrative, actual cases. In some cases, the name of the country has been eliminated from the description. But these are actual cases.
Mr. MILLER. That would be helpful, but I still think that if the Senator could obtain from the bank say 50, 75, or 100 loans which probably would fit into the new policy and have not fitted into the old policy, it would be helpful to evaluate the degree to which we are legislating.
Mr. MUSKIE. Is the Senator asking whether there are now applications on file?
The PRESIDING OFFICER. The time of the Senator from Maine has expired.
Mr. MUSKIE. I yield myself 1 additional minute.
The PRESIDING OFFICER. The Senator from Maine is recognized for 1 additional minute.
Mr. MUSKIE. Is the question applications on file now, which might be up for immediate consideration?
Mr. MILLER. Not quite. I should like to know whether in the last 3 or 4 years there have been, let us say, 100 applications, or perhaps 50, which would have been approved under the new policy, or even 25, so that we will have an idea of the volume we are talking about. The Senator's illustrations will be most helpful, but I should like to know how many of the applications we are talking about occurred over a 2-, 3-, or a 4-year period.
Mr. MUSKIE. I would be glad to explore that again with the Bank, but let me say this to the Senator, that I have already asked the Bank that question several times. The Bank has given me these illustrations and then has made the point that we are talking about, that in many cases the applications never come to the Bank because of the awareness of the Bank's existing policy; so that any figure, I suspect, may be a figure based on those that will be eligible.
Mr. MILLER. The Senator has done a good job and I would appreciate it if he would try to get that information.
Mr. MUSKIE. I will be happy to do so.
Mr. TOWER. Mr. President, I yield myself as much time as is necessary. We have been debating and holding a dialog on the bill. I think that we had better not lose sight of the fact that the pending business, on which we have a control of time, is the amendment offered by the Senator from Illinois [Mr. DIRKSEN], which would limit the liability of the Treasury, under the provisions of the new authority, to $100 million. I think this is tightening up the provisions. It is a sound amendment which should be adopted. I think that Senators who have been questioning the measure would be in wholehearted support of the amendment offered by the Senator from Illinois.
Mr. LAUSCHE. Mr. President, will the Senator from Texas yield?
Mr. TOWER. I yield 2 minutes to the Senator from Ohio.
The PRESIDING OFFICER. The Senator from Ohio is recognized for 2 minutes.
Mr. LAUSCHE. Mr. President, obviously, the Dirksen amendment will narrow the latitude under which the directors of the Bank will be able to assume increased risk guarantees. The amendment provides that the first $100 million of loans shall be borne by the Bank, the second $100 million will be borne by the taxpayers of the United States, and that all amounts beyond the second $100 million shall be borne by the Bank.
I believe that the proposal is sound. I agree with what the Senator from Illinois has said, that when the directors of the Export-Import Bank know that the final burden will fall upon the Bank and not upon the taxpayers, they will exercise greater care in determining what loans they will guarantee.
On final passage of the bill, to me, there is only one issue, under the present circumstances of the adverse imbalance of payments, and that is: Should we assume the risk of guaranteeing loans in order to sell goods around the world in excess of any program which we have thus far maintained?
We must procure foreign markets. We must do something about solving the imbalance of payments, but I shall want to discuss that subject a bit later. I think it is fitting to see whether the Government has explored to the fullest possible degree other avenues of help to solve our imbalance of payments. We should not try to solve them by allowing the Bank to enter into dangerous guarantees.
There are many other things that have to be done and I will want to discuss them in due time before the bill is passed.
Mr. BYRD of Virginia. Mr. President, will the Senator from Maine yield?
Mr. MUSKIE. I yield.
Mr. BYRD of Virginia. I should like to ask the Senator a question for clarification of the amendment.
The amendment seeks to limit the liability of the Government but, then, in the last sentence of the amendment, it states:
"All guarantees and insurance issued by the bank shall be considered contingent obligations backed by the full faith and credit of the Government of the United States of America."
With that sentence in there, is the obligation, in fact, limited?
Mr. MUSKIE. This language is in here because there is no way to avoid the Bank's relationship to the credit of the U.S. Government. This conclusion was reached by an interpretation of the Bank's authority, by the Department of Justice, as I recall.
Mr. BYRD of Virginia. I am not opposing the amendment, or any part of it. I am wondering whether, with this sentence in it, the amendment is accomplishing what the earlier part of the amendment seeks to accomplish.
Mr. MUSKIE. The language in the bill the Senator has described is from an opinion of the Department of Justice. We are not undertaking to change the current status of the Bank's obligation. The effect of the amendment is to throw the burden upon the Bank's directors and policymakers to recognize the limitation upon their ability to draw directly from the Treasury for any losses under the new program.
Mr. TOWER. Mr. President, if the Senator will yield, this is the standard clause -- that all the guarantees, insurance, and so forth, are backed by the full faith and credit of the United States.
Mr. BYRD of Virginia. So that does not restrict the earlier part of the amendment?
Mr. TOWER. No.
Mr. BYRD of Virginia. Mr. President, I yield back the remainder of my time.
Mr. MUSKIE. I yield back the rest of my time.
The PRESIDING OFFICER. All time on the amendment has been yielded back.
The question is on agreeing to the amendment of the Senator from Illinois [Mr. DIRKSEN].
The amendment was agreed to.
Mr. TOWER. Mr. President, I move to reconsider the vote by which the amendment was agreed to.
Mr. MUSKIE. Mr. President, I move to table the motion to reconsider.
The motion to lay on the table was agreed to.
Mr. BYRD of Virginia. Mr. President, in the discussion with the Senator from Maine a few moments ago, he stated that the books of the Bank will specifically designate these loans and any other loans that may be transacted under this legislation. That brings to mind this point: Would the Senator from Maine be agreeable to an amendment under which the Bank would report quarterly to Congress the loans made under the new criteria? It seems to me that that would be helpful in considering future legislation. Also, we are changing the criteria by which loans should meet the test of reasonable assurance of repayment. We are broadening and lessening the criteria. That being the case, I am wondering whether the Senator will accept an amendment along the line of having the board of directors report to Congress the loans that are made under the new section.
Mr. MUSKIE. Mr. President, I see no difficulty whatever with such an amendment.
Mr. BYRD of Virginia. Mr. President, in that case, I submit the amendment for consideration and ask that it be stated.
Mr. TOWER. Mr. President, I see no objection to the amendment, and I am prepared to accept it for the opposition.
Mr. BYRD of Virginia. Mr. President, I submit the amendment.
The PRESIDING OFFICER. The amendment will be stated.
The assistant legislative clerk read the amendment, as follows:
On page 2, after line 17, insert the following:
"(c) The Board of Directors of the Bank shall submit to the Congress for the calendar quarter ending September 30, 1968, and for each calendar quarter thereafter a report of all actions taken under authority of this Act during such quarter."
Mr. BYRD of Virginia. Mr. President, I yield back the rest of my time.
Mr. MUSKIE. Mr. President, I yield back the rest of my time.
The PRESIDING OFFICER. All remaining time on the amendment has been yielded back. The question is on agreeing to the amendment of the Senator from Virginia.
The amendment was agreed to.
The PRESIDING OFFICER. The bill is open to further amendment.
Mr. TOWER. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. TOWER. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
The bill is open to further amendment. If there be no further amendment to be proposed, the question is on the engrossment of the amendments and the third reading of the bill.
The amendments were ordered to be engrossed and the bill to be read a third time.
The bill (H.R. 16162) was read the third time.
Mr. BENNETT. Mr. President, as a cosponsor of this proposal in the Senate, I made a statement when the bill was introduced expressing my views on it. Let me just repeat that I think it is a positive program which can contribute to bringing our balance-of-payments accounts into equilibrium. Certainly assistance to our private business firms to help them increase their exports is a much better approach than the self-defeating restrictions on export of capital and foreign investment.
The purpose of this bill is to provide financing assistance on similar terms as are now granted by the Export-Import Bank but on which the repayment is somewhat more risky. It is not to set up what are commonly referred to as soft loans which border on foreign aid. Such loans would not contribute to a solution of our balance-of-payments problems but would only aggravate the situation.
Following our committee's approval of the proposal, the House acted on the same proposal and made some changes in the language to reflect the way the Bank witnesses testified the program would operate. These included restrictions on the sale of arms and the terms on which the loans under this new authority would be granted. Certainly there is no problem in my view with accepting the strengthened language adopted by the House. It merely holds the Bank operations to the testimony presented in the hearings.
I think that it is also important to point out that all of the restrictions applying to Export-Import Bank loans to Communist countries or those involved in assisting North Vietnam at the present time, will apply to loans made under this new authority.
Mr. MUSKIE. Mr. President, I have no desire to prolong the discussion today. I think the subject has been pretty well covered for the consideration of Senators who will study the RECORD tomorrow; but there is an additional piece of information relative to the operations of the Bank which might be helpful.
First, the total loan exposure which the Bank has incurred has been $25 billion. Against that exposure, the Bank has experienced losses, actually written off, of $8 million -- an infinitesimal fraction of the total. Loans which are in default total, in amount of principal in default, $100 million.
I make the further observation that the Bank expects the new program to be a break-even one at worst.
Canada and Great Britain, which have programs comparable to that sought under the pending legislation, have found the programs to be moneymakers.
The Bank is more conservative in its estimates and suggests that it would be at worst a break-even program.