The U.S. rescue package is (rightly) focused on shoring up our domestic financial markets, ground zero in the global credit crisis. Even if this effort is successful, the United States and other global financial leaders cannot ignore the impact on emerging markets. As the crisis has now spread to Latin America, Asia, and elsewhere, we need to ensure that all available tools are used so that the downturn doesn't eventually boomerang back to us. This makes the participation of China, India, Brazil, and others at the upcoming financial summit this weekend not just good optics, but substantively critical.
Jim Harmon makes this point nicely in today's Washington Post and warns that trade finance is also drying up, which will soon begin to freeze global commerce. Harmon, former head of the U.S. Export-Import Bank (and CGD board member), urges policymakers to take a page from lessons learned during the Asian financial crisis and use official export credit agencies to keep trade finance flowing through new special credit lines.
In late 1997, banks were unwilling to provide credit to Asia after currency and equity markets there plunged. The U.S. Export-Import Bank confirmed letters of credit issued by 15 South Korean banks… [and] supported 2,460 transactions worth more than $1 billion for U.S. exporters to sell to Korean firms (up from only $40 million the year before). Similar trade credit programs were launched for Indonesia and Thailand. These special short-term lending and trade credit insurance lines played a catalytic role in helping to build confidence in Asia at a critical time -- and helped the region rebound quickly. None of the Korean banks defaulted, and the entire Export-Import Bank Korean program cost American taxpayers not one dime.
U.S. Ex-Im Bank authorized about $12 billion in support for U.S. exports last year, but seems to have been losing prominence recently, especially relative to its sister agency, the Overseas Private Investment Corporation, which has been churning out innovative new programs and projects. (OPIC has been especially creative in generating new investment funds for Africa.) Maybe the current crisis is an opportunity for U.S. Ex-Im Bank to step forward again and play a substantive role in U.S. economic leadership?