Tea Party Divided by Export-Import Bank

William Schubert, president of a small infrastructure export firm outside Houston, identifies himself as a Tea Party Republican. Credit Michael Stravato for The New York Times

Their mission: to rid the firebrand Republican senator of his ardent desire to kill the federal Export-Import Bank, which they said would greatly harm the export-driven small businesses that Mr. Cruz of Texas often extols.

The result: failure.

“At the end of the meeting, there were a lot of angry Texans there,” said Mr. Schubert, who identifies himself as a Tea Party Republican. “We didn’t come there to talk the talking points. We were there to talk the complexities of international trade.”

Senator Ted Cruz of Texas. CreditAlex Wong/Getty Images

In the last two weeks, the battle over whether to save it or let it die has begun in earnest.

For conservatives, frustrated by their failure to overturn the Affordable Care Act or stop President Obama’s immigration policies, killing the Export-Import Bank has taken on enormous importance. They do not have to overcome a presidential veto or beat a Democraticfilibuster. They simply have to refuse to bring it to a vote. Republicans have no excuse, warned Michael A. Needham, chief executive of Heritage Action for America, one of the groups demanding the bank’s demise. “All Congress has to do is nothing, which they have proven themselves to be pretty good at,” he said.

The business leaders who seek a reprieve, many of them Republicans, are in disbelief and are promising retribution.

“Crony capitalism, crony capitalism, that’s all they ever say, over and over again,” said Randy Barsalou, a Republican and an owner of BCH Trading Company, a small lumber exporter in Hot Springs, Ark. Mr. Barsalou is pressing his state’s congressional delegation to support the bank. “If my guys don’t get behind this, I can tell you I won’t be voting for them,” he said.

For Republican lawmakers, the calculation is that killing the bank is not likely to hurt them politically. Powerful business groups like the U.S. Chamber of Commerce and the National Association of Manufacturers might say they ardently support the Export-Import Bank, but other Republican positions on low taxation and light regulation will keep them from exacting a price on Republican lawmakers for the bank’s death. That is one reason Republican presidential hopefuls like Jeb Bush, the former governor of Florida, who once supported the bank, and Gov. Scott Walker of Wisconsin have recently joined Senators Cruz, Rand Paul of Kentucky and Marco Rubio of Florida in embracing its demise.

Still, the chamber, the National Association of Manufacturers, the Aerospace Industries Association and 46 other business associations assembled the Exporters for Ex-Im Coalition. The coalition flew in more than 650 small-business leaders, suppliers and local chambers of commerce members for 400 meetings with representatives, senators, staff members and committee aides on Capitol Hill on Feb. 25.

On Jan. 28, Representative Stephen Fincher of Tennessee introduced legislation to reauthorize the bank for five years, gathering 57 Republican co-sponsors. Heritage Action responded last month with automated telephone calls in the districts of 31 of those Republicans, blasting them for supporting “a slush fund for corporate welfare.”

Business groups and the bank’s biggest beneficiaries, like Boeing, General Electric and Caterpillar, have hired lobbyists and consultants. Conservative groups like the Koch brothers’ Americans for Prosperity are rallying the Tea Party grass roots.

Starting this month, Americans for Prosperity has committed to spending “well into the six-figure range” to kill the bank, said Levi Russell, a spokesman for the group. That will go for television and digital advertising, phone banks, direct mail and activist visits to lawmakers’ Capitol Hill and district offices. The targets are 93 House Republicans who they see as willing to block action on the bank’s reauthorization, enough to commit a majority of the Republican majority to the bank’s demise.

“Before, there were two kinds of people: people who didn’t know it exists and people who love it because they use it,” Mr. Russell said of the bank. “This year, the education component is done. We’re now in position to ramp up the grass roots side.”

Randy Barsalou, an owner of a lumber exporting company, is pressing for support of the bank.Credi tJacob Slaton for The New York Times

So will Club for Growth, a well-financed conservative political action committee, which vowed on Wednesday to back any members of Congress who opposed the Ex-Im Bank if they were attacked by any establishment groups.

On the day of the pro-bank “fly-in,” Representative Jeb Hensarling of Texas, chairman of the House Financial Services Committee, which has jurisdiction over the bank, wrote a letter to all Republican members proclaiming his opposition to its reauthorization and, in effect, telling them not to listen to the business leaders at their doors. Less than 1 percent of 1 percent of small businesses benefit from Export-Import Bank, he wrote, while American taxpayers’ money goes “to help foreign corporations, including businesses that are owned by the governments of China, Russia, Saudi Arabia and the United Arab Emirates.”

“The best way to level the playing field for American exporters and manufacturers is not with taxpayer subsidies, guarantees and politically driven lending, but instead with more opportunity,” he wrote. “A pro-growth agenda — including fundamental tax reform, American energy independence, cutting burdensome red tape and reducing abusive lawsuits — will do more to help our exporters, manufacturers and small businesses than the Export-Import Bank ever could.”

The business leaders who use the bank say they are baffled at such vehemence. The bank operates on fees it charges its users and, so far, has made money for the government. More important, it has created jobs — many of them. The bank contends that through its export financing, it has helped maintain 1.2 million private sector jobs since 2009.

Acrow Corporation of America makes the modular, prefabricated bridges that helped win World War II and now proliferate in developing nations. But customers in countries like Cameroon and Zambia cannot readily get private bank loans for large infrastructure projects without backup. European and Chinese competitors have their own government-backed export credit agencies. Acrow, which is based in Parsippany, N.J., has the Export-Import Bank, said Paul Sullivan, the company’s director of international business development.

“We are already hearing from customers that our competitors are in their offices saying, ‘You cannot rely on an Acrow bridge deal because their financing mechanism is not likely to stay alive,’ ” Mr. Sullivan said. He suggested that the death of the bank would cost 200 jobs, many at Acrow’s manufacturing plant in Pennsylvania. “For us to pull another arrow out of our quiver, it’s irrational, it’s terrifying and it’s inappropriate when one considers the reality of the global marketplace today.”

Mr. Barsalou of BCH Trading uses the Export-Import Bank differently. To finance lumber exports, his company needs upfront cash that customers in Greece and Egypt will not provide, nor will his Wells Fargo Bank, without the Export-Import Bank’s guarantee.

“They say banks should do that,” he said, referring to opponents of the Export-Import Bank. “Well, banks don’t do that, and that’s the reality.”

To the bank’s opponents, such opinions are almost beside the point. Supporters might trot out small-business owners like Mr. Barsalou, but the bank’s big efforts are on behalf of big companies. It is, after all, derisively called the Bank of Boeing.

“I have no doubt Boeing, G.E. and Caterpillar will continue to thrive as great American companies if Ex-Im goes away,” Mr. Needham, of Heritage Action for America, said.

Mr. Hensarling, the chairman of the House Financial Services Committee, has taken to posting the “Egregious Ex-Im Bank Deal of the Day,” like one aiding mining projects in the Democratic Republic of Congo, which he said one human rights group had labeled the “rape capital of the world.”

Mr. Russell, of Americans for Prosperity, said, “Sometimes when you’re the beneficiary of something that’s helping your business, you personally, it’s hard to look at something objectively.”

Here’s how to properly shake hands in 14 different countries

 Business Insider

In Brazil and the United States, a firm handshake is expected. This would be off putting in the UK, as the British like to greet each other with a lighter handshake.

Every country has a unique set of customs, and it is important to recognize and respect cultural differences, especially when conducting business around the world.

We created a helpful guide for handshake etiquette across 14 countries, thanks to information from BBC and Mental Floss:

BI_graphics_handshaking (1)

(Business Insider)

Maintaining Export Advantage in the Face of a Rising Dollar: Part 2

The path to becoming competitive in the international export space.In my previous post, I outlined the first two steps of the five-step framework that would enable U.S. exporters to maintain their competitive edge in the face of rising U.S. dollar, which makes all U.S. goods and services more expensive abroad. Those first steps were to recommit to exports and expand markets served.

Below, I describe the remaining three steps: READ MORE

Faeroe Islands Boom by Selling Salmon to Russia

Tiny territory dodged sanctions between Moscow and West over Ukraine

SØRVÁGUR, Faeroe Islands—As the tit-for-tat economic confrontation between Russia and the West nears its first anniversary, there are plenty of losers: associates of PresidentVladimir Putin barred from going to the U.S., European farmers banned from selling fruit to Russia, and German electrical-equipment companies that have lost a fifth of their Russian sales.

But one winner can be found in the rough sea between Iceland and Scotland: the tiny Faeroe Islands.

Because these 18 wind-swept rocky islands aren’t part of the European Union, the volleys of sanctions and counter-sanctions have passed them by. Russia’s food-import embargo last year retaliating against countries that sanctioned it thus handed the fishing-dependent Faeroes a virtual monopoly in Russia for their biggest export: fresh salmon.

“We are the lucky ones,” said Atli Gregersen, an owner of salmon farming brand Hidden Fjord, who has only been able to supply four of a dozen Russian importers who came to his factory looking for fish.

 Russia’s retaliation against Western sanctions over Ukraine left the Faeroe Islands, a non-EU country, as the only place in the world able to sell Russia large amounts of fresh salmon. Photo: Gareth Phillips for The Wall Street Journal

As Russia and the West descend deeper into a Ukrainian standoff with echoes of the Cold War, countries not involved in the fight are taking advantage of a shifting world order and the Kremlin’s push for new alliances. China has been securing more natural gas from Russia, Turkey might benefit from a new energy pipeline, and Mr. Putin personally promised last week that Moscow would help Egypt develop its nuclear-energy program.

Perhaps the starkest demonstration of just how far-reaching the global economic shifts wrought by the Ukraine crisis have been can be found here in the North Atlantic. The Faeroe Islands are the only major salmon producer in the world that wasn’t hit by Russia’s counter-sanctions last August and is close enough to send fresh fish to Russia by boat and truck.

Since September, Russia, a salmon-loving country of 145 million people, has been importing just about all of its fresh salmon from the Faeroe Islands, which has a population of 50,000. The Faeroes’ salmon sales to Russia totaled 27 million pounds or $79 million from September to December, according to data released Thursday, representing more than 40% of its total salmon exports by value and up from just 7% in that period of 2013. The average price of fresh salmon sent to Russia—around $3.13 a pound at the current exchange rate—was about 25% higher in those four months than the average price of the fresh salmon the Faeroes sold everywhere else, according to government data.

Behind that lucrative spike in exports were months of diplomatic and business maneuvering by the both the Faeroese and the Russians, telling a story of one nation’s scramble to feed its people while it confronts the West—and another’s push for economic gain from the new East-West standoff. The Faeroes’ tale shows that the showdown over Ukraine has turned into a confrontation with global consequences, redrawing trade routes, scrambling alliances, creating new economic winners and losers, and touching off national debates over countries’ allegiances and values.

“People need to have food. Russia needs to have food,” Kaj Leo Holm Johannesen, the Faeroese prime minister, said in an interview, rejecting criticism at home and abroad that his efforts to build ties with Russia amid the crisis have undermined the islands’ traditional bonds with the West.

Hunching forward in his chair and swinging his fist through the air, the 50-year-old former fish salesman added: “Other people can think about something else, but they will never stop us to deliver food. Never.”

The Ukraine crisis brought a new opportunity—and a new test of Faeroese independence and of how it balances trade interests with its Western ties.

A year ago—the night of Feb. 21, 2014—the pro-Russian president of Ukraine, Viktor Yanukovych, fled Kiev after huge protests calling for closer ties with the European Union culminated in deadly violence. As the new government took a pro-European tack, Russia claimed that Russian speakers in eastern Ukraine were threatened. Russia annexed the Ukrainian peninsula of Crimea and, Western leaders say, started fomenting a separatist war in eastern Ukraine.

On July 17, Malaysia Airlines Flight 17 was shot down over eastern Ukraine with 298 people on board. Western governments believed pro-Russian separatists were responsible. The rebels have suggested Ukrainian forces downed the plane. On July 29, amid public outrage over the tragedy, the U.S. and Europe dramatically expanded their sanctions against the Russian economy. Among other things, the U.S. limited transactions with three major Russian state-owned banks while the EU banned trading in certain military-related goods and stopped exports of oil-production technology.

In August, Moscow retaliated, insisting Kiev was at fault for Ukraine’s bloodshed. It banned the imports of a wide range of food products, including fish, from the U.S., Canada, the EU, Norway and Australia. European economies felt the brunt of the pain from the sanctions volley and Russia’s broader economic woes. Germany, for instance, saw its exports to Russia in 2014 fall by around $7 billion—a decline of 18% from 2013. U.S. exports to Russia fell by just $369 million, a 3% drop.

When news of Russia’s retaliation came in, the Faeroe Islands’ Mr. Johannesen said he directed his staff to get an urgent message to Moscow: “We are not part of EU—we are totally outside.”

Faeroe Islands Prime Minister Kaj Leo Holm Johannesen, shown in his office, lobbied hard to expand salmon sales to Russia after Moscow stopped buying the fish from Norway, as part of tit-for-tat sanctions over the Ukraine crisis.
Faeroe Islands Prime Minister Kaj Leo Holm Johannesen, shown in his office, lobbied hard to expand salmon sales to Russia after Moscow stopped buying the fish from Norway, as part of tit-for-tat sanctions over the Ukraine crisis.PHOTO: GARETH PHILLIPS FOR THE WALL STREET JOURNAL

The locals here still speak Faeroese, a Nordic language derived from the tongue spoken by Vikings who settled the islands 1,200 years ago. The islands have been under Danish rule for almost all of the last six centuries, but negotiated a home-rule agreement with Denmark after World War II that grants the Faeroes trade independence while giving Copenhagen control of other aspects of foreign policy, the currency and the legal system. The islands chose not to join the European Union and to make trade policy on their own.

Selling fish through peace and war has long been the Faeroe Islands’ economic lifeblood. The tiny country supplied Great Britain in World War II and signed a fishing agreement with the Soviet Union in the 1970s.

These days, a grid-like underwater glow visible from the coastline highway in the winter darkness is evidence of a more recent boom: salmon farming. The circular pens are sometimes lighted from below to speed up the fish’s internal clocks. The choice salmon specimens sometimes end up sliced into sushi in Midtown Manhattan. The less attractive salmon often goes to fish processors who salt or smoke it. In all, the Faeroes are perhaps more reliant on fishing than any other country. In 2013, fish sales abroad represented 95% of exports and 40% of total economic output.

After Mr. Johannesen’s urgent message, it quickly became clear to the Faeroese that Moscow had no intention of boycotting them. Critical Russian food imports, including around a billion dollars a year of Norwegian fish, had just come to a halt. Trucks filled with fresh salmon were turning around on their way to the Finnish-Russian border.

The Kremlin needed the Faeroe Islands to feed its people—and to underscore the point frequently heard from government officials and state media that Russia could thrive even with reduced ties to Europe and North America.

 
“We had no way out,” said Azamat Yusupov, a supplier to high-end Russian restaurants who had previously relied on Scottish salmon and flew to the Faeroes days after the ban was announced.
Hidden Fjord welcomed Mr. Yusupov with a spread of sashimi and took him out to their marquee salmon farm, a set of roughly 500-foot-diameter rings of netting off the island of Vágar, framed by dramatic, rocky crags.
Mr. Yusupov was sold. He calls Faeroese farmed salmon some of the best he’s eaten and says he would consider staying with it once sanctions lift.
There was just one problem: Hidden Fjord still had no approval from Russia’s veterinary inspection agency, even though the company had first applied back in 2011.
A worker processes fresh salmon at the Hidden Fjord factory in Sørvágur. E
A worker processes fresh salmon at the Hidden Fjord factory in Sørvágur. PHOTO: GARETH PHILLIPS FOR THE WALL STREET JOURNAL

To try to smooth things over for Faeroese exporters, Mr. Johannesen decided to go to Moscow himself. He flew there with two aides on Sept. 7, kicking off one of the more unusual trips in Faeroese diplomatic history. Danish officials lived up to their legal obligations by helping organize the visit—even though the talks would help the Faeroes benefit from Russian sanctions targeting Denmark and others in Europe.

The Danish ambassador invited Mr. Johannesen for dinner at his Moscow residence. Mr. Johannesen brought along Dmitry Dangauer, the chief executive of Russian Sea Group, a fish importing giant. The next day, the Faeroese delegation arrived at the headquarters of Russia’s federal fishing agency to meet a phalanx of government officials and seafood-company executives.

After the meeting, the fishing agency announced that Russia had accelerated veterinary approval of Faeroese fish and promised the customs service would work closely with Faeroese officials.

Mr. Johannesen later told a Faeroese newspaper, “It was an extremely constructive meeting. Maybe one of the best meetings I’ve ever had.”

Danish Foreign Minister Martin Lidegaard said his government understood the Faeroes’ decision to continue exporting fish to Russia. But, he added, Denmark and the EU expected the Faeroes “to refrain from exploiting the situation by significantly increasing their export of goods to Russia that are subject to embargo.”

E

On Sept. 11, Hidden Fjord finally dispatched its first-ever shipment to Russia: 19 tons of salmon bound for St. Petersburg. By thenBakkafrost , the largest Faeroese salmon producer, had received Russian veterinary approval for an additional factory. Its share price on the Oslo stock exchange surged, in part because of Russia, an analyst said. A Danish newspaper noted Bakkafrost’s rally had created the first Faeroese billionaire family as measured in Danish kroner: Bakkafrost CEO Regin Jacobsen and his mother Oddvør, the two largest owners of Bakkafrost stock (although in dollar terms their combined shares are worth just under $200 million).

While Russian imports of frozen Chilean salmon have also surged, just about all of the country’s imported fresh salmon this fall came from the Faeroes, according to Russian government data and research firm Customs Inform.

The future is uncertain: Demand could decline with the fall of the ruble, and Russian officials have signaled they may lift the food embargo in exchange for concessions from the West. The Faeroese hope the premium segment of the market they target will be less affected than the average Russian consumer by economic travails, and that even if Russia ends the embargo, the islands will have won new customers for the long term.

Regardless, for some Faeroese, the sanctions’ economic boon and the prime minister’s efforts to strengthen ties with Russia raised uncomfortable questions. Was the country crossing the line from legitimate economic pursuits to “stabbing the West in the back,” as Sjúrður Skaale, a leading opposition politician here, asked?

Mr. Jacobsen, the Bakkafrost CEO, has said the Russian embargo allowed his company to build up a new customer base and to demand higher prices—but even he voiced concern about actively seeking to boost the Faeroes’ business with Russia during the Ukraine conflict.

“It does not come to the Faeroe Islands to speak out too much in this,” said Mr. Jacobsen. “If we speak out, we should speak out as a part of the West.”

Mr. Johannesen, who became prime minister in 2008, makes no apology for his actions. Asked about Mr. Jacobsen’s criticism, he shot back: “If he should speak as part of the West, then he would not export a kilo to Russia.”

Write to Anton Troianovski at anton.troianovski@wsj.com

Maintaining Export Advantage in the Face of a Rising Dollar – Part 1

It has been a great run for U.S. exporters. The Department of Commerce just announced that our nation’s exports of goods and services were $2.35 trillion in 2014—a record for the fifth year running. Yet clouds are gathering on the horizon, as the economic growth in many foreign markets, specifically those in the emerging and frontier category, has been slowing. Some markets like Russia and Ukraine are set to experience outright GDP contractions brought on by political upheaval.

The single biggest threat facing U.S. exporters is ironically the rising U.S. dollar, which continues to strengthen significantly as the result of the improvement of U.S. economy in the face of the international weakness.

How can U.S. exporters maintain their competitive position and continue to play a leading role in the international export space?strategies for US exporters

While there is no magic bullet and the process is a comprehensive long-term endeavor, below, most U.S. exporters can use the following five-step approach to maintain and expand their exports, while swimming upstream against the rising dollar:

  • Recommit to exports
  • Expand the markets served
  • Offer open account terms and buyer financing
  • Reduce focus on price
  • Use available resources more effectively

Recommit to exports.

Despite its undisputed success in the export arena, the U.S. as a nation has been a very anemic exporter. Unlike in countries such as Germany, the Netherlands or Chile, where exports have for years been part of the business’ DNA due to the small size of the home markets, a great number of companies in the U.S. have been treating exports as an afterthought to their domestic sales strategies. Other than the Fortune 500 companies, the majority of U.S. companies export to fewer than three markets. The primary export drivers are either organic demand from overseas, natural affinity of the owners to a particular country, commonality of language or geographic proximity.
In good times, as we know, the tide raises all boats, yet in the face of the upcoming slowdown, it is vital that U.S. companies recommit to exports in a strategic fashion.

To succeed in this endeavor, U.S. firms must make exports an integral part of their sales mix. Whether through building internal export departments or outsourcing to export management firms, the focus on international sales must be relentless and deep. Companies developing or expanding their in-house export departments should invest in training, product adaptation, international network and market analytics. Managers responsible for exports in organizations, along with top management, must make ongoing efforts to follow events in target markets and understand the culture and business customs and attempt to learn as much of the foreign language as possible.  Departments not directly involved in exports should undergo inclusionary training to ensure that exports do not become orphans within the organization when it comes to issues such as service, exchanges, spare parts supply, collections, payments and financing.  READ MORE

U.S. Export Volume Expected to Climb in 2015

rice-exports
Written by Michael White, GlobalTrade.com

Baltimore, MD –   U.S. exports are expected to grow by $88 billion or 5 percent, in 2015, despite tepid global GDP growth, according to a research report just released by trade credit insurance provider, Euler Hermes.

According to the company’s latest Economic Insight report, the U.S.’s biggest export gains in 2015 will come from Canada, China and Mexico.

The report also projects strong export increases to smaller countries in Asia, Latin America and the Middle East, “reflecting recent rapid growth in these emerging markets, while also providing the U.S. with more diversification in its export composition.”

Export gains will primarily come from the agrifood, chemicals, energy and mechanical sectors. Textiles and ferrous metals show the smallest increases as the U.S. has become a much smaller player globally within these industries.

As U.S. energy companies are expected to start exporting natural gas globally by the end of 2015, revenues from this sector could be significant, growing from $16 billion in 2012 to $42 billion in 2040 or nearly 1 percent of GDP.

The planned 2016 expansion of the Panama Canal, which may double its capacity, “will also boost U.S. trade by allowing larger ships to carry exports from the U.S. through the canal, significantly reducing costs and making those exports more competitive.”

The U.S.’s largest trade deficit is with China, but several factors could shrink it, especially as China pivots toward a more domestically driven economy, and as the U.S. natural gas boon and favorable labor conditions have reduced China’s competitive wage advantage to the point that a growing number of companies are opting to ‘in-source’ their manufacturing.

In the coming year, the value of the U.S. dollar is expected to rise in 2015 making U.S. exports more expensive and less competitive with export financing faces several challenges, including tight lending conditions and risk-averse bankers.

Rising rates in 2015, the report says, “may make financing more costly and/or harder to obtain, especially given fragile global growth and geopolitical uncertainty.”

In addition, global business insolvencies “are expected to fall 3 percent, a much slower rate than 2014’s decrease of 12 percent.”

At the same time, insolvencies still remain 12 percent above 2007’s pre-crisis levels, meaning that exporters will need to continue stringently evaluating their partners for insolvency risk.

To further promote U.S. exports, two major trade agreements – the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership – are currently being negotiated.

Both agreements  are being structured to reduce the burden of Customs, regulations, tariffs and taxes, lower barriers to trade, and allow increased access to new markets.

“Demand for U.S. exports is, of course, dependent on the strength of the global economy,” said Dan North, senior economist for Euler Hermes Americas.

“While the global economy is set to enter its fourth straight year of lackluster growth, the U.S. economy continues to grow and many of our industrial sectors are showing strength both at home and abroad.”

Bracing for Another Storm in Emerging Market

By Kevin Gallagher, Associate Professor of International Relations at Boston University. Triple Crisis

In 2012, Brazilian President Dilma Roussef scolded U.S. Federal Reserve Chairman Ben Bernanke’s monetary easing policies for creating a “monetary tsunami”: Financial flows to emerging markets that were appreciating currencies, causing asset bubbles, and generally exporting financial instability to the developing world.

Now, as growth increases in the United States and interest rates follow, the tide is turning in emerging markets. Many countries may be facing capital flight and exchange-rate depreciation that could lead to financial instability and weak growth for years to come.

The Brazilian president had a point. Until recently U.S. banks wouldn’t lend in the United States despite the unconventionally low interest rates. There was too little demand in the U.S. economy and emerging market prospects seemed more lucrative.

From 2009 to 2013, countries like Brazil, South Korea, Chile, Colombia, Indonesia, and Taiwan all had wide interest rate differentials with the United States and experienced massive surges of capital flows. The differential between Brazil and the U.S. was more than 10 percentage points for a while—a much better bet than the slow growth in the United States.

According to the latest estimates from the Bank for International Settlements (BIS), emerging markets now hold a staggering $2.6 trillion in international debt securities and $3.1 trillion in cross border loans—the majority in dollars.

Official figures put corporate issuance at close to $700 billion since the crisis, but the BIS reckons that the figure is closer to $1.2 trillion when counting offshore transactions designed to evade regulations.

Now the tide is turning. China’s economy is undergoing a structural transformation that necessitates slower growth and less reliance on primary commodities. Oil prices and the prices of other major commodities are stabilizing or on the decline. It should be no surprise then that many emerging-market growth forecasts are continually being revised downward. Meanwhile, growth and interest rates are picking up in the United States. The dollar gains strength; the value of emerging market currencies fall.

Some analysts predict that emerging-market and developing countries can weather the storm through floating exchange rates, the development of local bond markets, interest rate hikes, or by using some of their foreign exchange reserves. These tools are important, but may not be available or enough.

Floating exchange rates and resulting depreciation can cause the debt burden of firms and fiscal budgets to bloat overnight. Given that most of the capital inflows were in dollars, depreciating currencies mean that nations and firms will need to come up with ever-more local currency to pay debt—but in a lower growth environment.

What is more, most countries didn’t properly invest their commodity windfalls into increasing the competitiveness of their industries. Thus, exports may not pick up at all. An IMF study shows that while Latin America saw one of the biggest commodity windfalls in its history, it has the least to show for it in terms of savings or investment relative to other booms. What is more, the massive exchange rate appreciation that occurred as a result of the tsunami in short-term inflows made many industries uncompetitive and pulled them out of key global commodity chains.

Thus, weak currencies and more debt may be apt to lead to falling confidence rather than surges in exports that will help their countries adjust to the new shocks.

Local bond markets help, but most debt is indeed in dollars and most local debt is held by foreigners who are always the first to dump such debt for foreign shores. Interest rate hikes can also be dangerous. They are often not enough to reverse the flight to the U.S. and can choke off what little growth there is to be had in a downturn. Depleting foreign exchange reserves doesn’t always work, and non-Asian countries whose reserves are a function of the commodity boom will be reluctant to disperse such reserves in the wake of commodity price declines.

The problem is that too many countries failed to regulate during the boom and instead let capital flows storm into their countries to bloat balance sheets and currency values. They are left with increasing debt as currencies slide, and not enough competitiveness to benefit from currency depreciation. The result could be more financial instability that could further threaten prospects for growth and employment.

Emerging-market and developing countries may need to resort to regulating the outflow of capital alongside these other measures. Such moves have traditionally been shunned by international institutions and capital markets alike.

New research on the cutting edge of economics and by the IMF now justifies the regulation of capital outflows to prevent or mitigate a full-blown crisis. The IMF was bold in recommending the regulation of inflows during the surge, but has shied from noting the utility of regulating capital in flight. Worse, new U.S. trade agreements such as the Trans-Pacific Partnership have stripped out balance-of-payment exceptions that would have allowed nations to regulate capital.

If we have learned anything from the global financial crisis it is that nations need as many tools at their disposal to prevent and mitigate financial instability. Instability anywhere can lead to instability everywhere so let’s make sure all tools and hands are on deck.

Should Congress Reauthorize the Export-Import Bank?

Two Experts Square Off on Whether the Bank Really Helps Small Business

WSJ.com

PHOTO: BLOOMBERG NEWS

Over the past few months, one of the most heated debates in small-business politics has centered on the fate of a federal agency: the Export-Import Bank of the United States.

At issue is whether Congress should reauthorize the bank when its current authorization expires in June. The bank’s mission, it says, is to support U.S. jobs by making it easier for domestic firms to sell abroad. As such, the bank says, it provides competitive export financing and ensures a level playing field for U.S. companies.

For instance, the bank encourages lenders to make loans to U.S. exporters by providing working-capital guarantees on the loans. It also provides products like credit insurance so that companies are protected if foreign buyers fail to pay bills. And it makes and guarantees loans to foreign buyers so they source from U.S. companies.

During the debates about the bank, one of the big arguments the bank and its advocates have made is that the institution is particularly valuable to small companies. Nearly 90% of the bank’s deals last year, covering more than $5 billion in financing and insurance, directly served small companies. Overall, the bank authorized $20.5 billion in financing.

Yes: It’s a Lifeline for Small Businesses Looking to Export
By Todd McCracken

Small firms face a host of financing challenges when they try to export. If Congress kills the Export-Import Bank, the challenges will get steeper.

Imagine the situation a small company faces when it approaches a bank for a loan to start selling overseas. The company is starting off with less equity than a big firm, and processing loans for smaller amounts isn’t as profitable for banks.

Exporting is, usually, strike three: The business’s customers are foreign buyers, and most banks won’t consider foreign receivables as collateral.

National Small Business Association data show that over the past five years between one-fourth and one-third of small firms haven’t been able to access adequate financing. And that’s among all small businesses; the number would almost certainly be higher among small exporters.

In light of that, the Export-Import Bank is a critical tool. Because the bank shoulders some of the risk of international deals, more small businesses are able to export today. There’s a larger argument for the bank, as well. There are foreign-export credit agencies around the world that provide substantial support for their country’s exporters. Killing the bank is tantamount to unilateral disarmament and will damage our global competitiveness.

Critics, however, say the bank doesn’t do much for small firms—and mostly helps industrial giants.

Helping the Little Guy
Yes, the bank does a lot of business with large companies. But small-business deals account for more than 85% of its transactions. Small companies did amount to a smaller percentage of the total dollar amount of deals—but smaller firms do smaller deals and represent a smaller total dollar amount. In 2014, nearly half of the bank’s small-business authorizations involved amounts under $500,000.

Let’s run down some of the other arguments made by critics. And refute them.

—Small companies that are helped aren’t actually as small or needy as the bank claims. But the bank uses Small Business Administration size standards, based on industry. Where a restaurant with 1,500 workers would be anything but small, a manufacturer with the same number is considered small by the SBA, which routinely revisits these standards with a good deal of stakeholder input.

—A report found the bank miscategorized 200 small companies. But that was 200 errors out of 6,000 companies examined—a 97% accuracy rate.

—The bank helps only a tiny fraction of small businesses. Less than 1% of small firms export; the bank couldn’t possibly benefit 10%, 20% or more.

—The Export-Import Bank is risky and a drain on taxpayers. The bank doesn’t provide subsidies. Customers pay for its financing and loan guarantees, and 98% of its deals include partnering with a private bank. The bank is a self-sustaining agency that in each of the past two years transferred nearly $1 billion in revenue to the Treasury—and its borrowers have had a very low default rate.

—An NSBA survey showed two-thirds of small exporters had no more trouble landing export financing than regular loans. Those who said that were older, larger and more experienced. We can’t dismiss the concerns of over a third of small exporters.

—The bank’s track record is all thanks to its accounting methods. But it uses the same method all federal agencies do—not some tricky system they’ve cooked up.

—The bank distorts the export market. But the market is already distorted for small firms, whether through the challenges they face or an unfair tax code. The bank helps to level the playing field.

Ex-Im Bank isn’t crony capitalism, it isn’t a drain on taxpayers and it has no private-market alternative. It’s a lifeline to small firms looking to export that otherwise wouldn’t be able to do so.

Mr. McCracken is the president and CEO of the National Small Business Association, a nonpartisan small-business advocacy group. He can be reached at reports@wsj.com .

No: The Bank Is Mainly Welfare for Large Firms
By Diane Katz

The Export-Import Bank is pushing out a slew of misinformation crafted to convince Congress that it is worthy of a long-term renewal. One of its central themes is that the bank is a champion of the little guy.

But, in fact, the bank is a fount of corporate welfare—and its subsidies put other U.S. firms at a competitive disadvantage and distort export markets.

It is impossible to know precisely how many small businesses actually benefit from Export-Import financing. Officials claim 20% of annual authorizations, but that is a stretch given the bank’s expansive definition of “small,” which includes firms with as many as 1,500 workers or revenue of up to $21.5 million annually. A recent investigation by a news agency found that the bank improperly categorized hundreds of corporations and conglomerates as small businesses.

Also consider that the bank finances less than 2% of U.S. exports overall. Economist Veronique de Rugy of the Mercatus Center at George Mason University calculates that the bank benefits just one-half of 1% of small businesses in the country.

Just How Crucial?
Proponents claim that the Export-Import Bank provides export financing that is otherwise unavailable to small companies. But based on the bank’s own data, Ms. de Rugy has documented that only 10.9% of the bank’s loans and long-term loan guarantees were categorized as necessary because the risk was too great for an exporter or a financial institution to assume. In other words, 89.1% of those loans and guarantees had nothing to do with private financing being unavailable.

Record demand for U.S. exports indicates no shortage of private capital to finance the sale of American goods overseas. In a 2013 survey of small exporters by the National Small Business Association, some 63% reported that getting export financing was no more difficult than getting regular financing.

U.S. exports would remain very strong if the bank isn’t reauthorized—regardless of whether other nations have export credit agencies to subsidize native businesses. Reauthorization would not remedy actual barriers to export growth, such as high corporate tax rates and budget deficits that push hundreds of billions of dollars into Treasurys instead of business investment.

No Benefit at All
What’s more, the contention that the bank is a financial plus for the government is a mirage caused by the bank’s accounting. The Congressional Budget Office reported in May that Export-Import Bank programs, if subjected to the fair-value accounting methods required of private banks, actually operate at a deficit that will cost taxpayers some $2 billion over 10 years, in addition to the bank’s operating costs.

The same goes for the supposedly low default rate of bank clients. The bank’s true financial condition is obscured by its narrow definition of default, which does not cover a variety of loan violations designated as defaults by private banks.

The Export-Import Bank’s officials are spending millions of dollars attempting to convince Congress and the public that small businesses would disappear without export subsidies. They assume that the economic activity they subsidize would not occur absent bank financing—an absurd notion, but one prevalent among bureaucrats who cannot fathom that business actually functions without them.

All propaganda to the contrary, the vast majority of Ex-Im subsidies benefit America’s largest corporations. If Congress really wants to help the little guy, it will allow the Export-Import Bank to expire and eliminate the tax and regulatory barriers that cripple small business.

Ms. Katz is a research fellow in regulatory policy at the Heritage Foundation. She can be reached at reports@wsj.com .

 

U.S. Relaxes Rules on Cuba Travel

A tourist bus in Old Havana on Thursday. U.S. law forbids tourist travel to Cuba but several tour operators said business has been booming.
A tourist bus in Old Havana on Thursday. U.S. law forbids tourist travel to Cuba but several tour operators said business has been booming. ENRIQUE DE LA OSA/REUTERS

The U.S. will allow eligible citizens to travel to Cuba on the honor system, eliminating a requirement for many to seek prior approval and making visits easier for thousands of Americans, according to details released Thursday.

U.S. law forbids tourist travel to Cuba. Under the law, U.S. citizens may visit only if their travel fits into one of a dozen categories, including family visits, humanitarian work and journalism, and many eligible travelers have needed a license from the U.S. government to visit, in addition to obtaining a Cuban visa.

Under the new policy, an administration official said on Thursday, citizens still may only travel to Cuba for eligible purposes, but they will no longer need a U.S. government license to do so.  READ MORE

How One Burger Chain Profits From Turmoil Abroad

By , Businessweek.com


A Fatburger outlet in Karachi, Pakistan

Photograph by Rizwan Tabassum/AFP via Getty Images A Fatburger outlet in Karachi, Pakistan

Political protests, disease outbreaks, terrorist campaigns—U.S. business owners considering expanding internationally would be forgiven for deciding to stay at home. But name a tumultuous spot abroad—Hong Kong, Iraq, Egypt—and Andy Wiederhorn has probably opened a burger shop there in the past seven years.

Wiederhorn has taken his Los Angeles-based franchise, Fatburger, from a struggling also-ran to a $125 million company by opening in 32 countries since 2007. He has 200 international locations now and an additional 350 in development, including in places rocked by unrest, such as Tunisia and Libya. Despite the advances of Islamic State, a second store in Iraq is also in the works.

“Consumers all over the world love American brands, especially burgers, shakes, and fries,” he says. Facing increasing competition from other specialty burger brands at home, “I knew there was a huge opportunity for us overseas,” he says. Wiederhorn began Fatburger’s global expansion after serving a stint in prison a decade ago, having pleaded guilty to charges related to paying an illegal gratuity and filing a false tax return in a financial scandal at his previous company.FI3Indices

Fatburger is unusual in its adventures abroad: Less than 1 percent of America’s 30 million companies regularly export, according to the U.S. Commercial Service, a percentage that’s significantly lower than in all other developed countries. And of the American businesses that do export, most sell to just one other country. That’s a major missed opportunity, considering that more than 70 percent of the world’s purchasing power is located outside the U.S.

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So how do small and midsize companies venture beyond their own backyards and into parts of the world that may be challenging?  

[ A great place to start is with a Fluent In Foreign Company Profiles, that feature Fi3F indices™ rating attractiveness of 180 markets for franchisors seeking to expand. 

                                                                                READ MORE

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