The years 2005-2006 were a tough patch for the Export-Import Bank in the political arena. Congress received an earful of complaints about the agency’s programs, and, in typical fashion, trotted out two of its favorite weapons to work its will on the U.S. export lender.

One of these is a committee “oversight” hearing that puts an agency’s top managers through a public grilling. The other is fresh legislation that micro-manages the agency’s operations down to small details.

The Congressional challenge began with a bruising April 2005 House Small Business Committee hearing that rang alarm bells over Ex-Im’s failure to meet its required small business transaction volume. It ended in December 2006 when the Bank’s legal charter was renewed, with a slew of detailed instructions on how to conduct its business.

Equally challenging, Congress and the White House could not agree on nominations to fill the chairmanship and two Board member jobs when the incumbents’ terms expired in July 2005. James Lambright, now chairman and president, spent over a year in an “acting” capacity. The five-member Board, which requires three for a quorum, was short two members for months, dangling the possibility that important decisions might languish.

But, now that’s all in the past. Lambright has won high marks-from exporters, lenders, and members of Congress. The Bank’s charter legislation was adopted with lightning speed at the last moment in December during a brief window of opportunity (four hectic days).

Setting the agenda

The charter extension has set the Bank’s agenda for the next several years-adopting priorities, revising the organization chart, fine tuning underwriting processes, and building online services.

Five items top the list of priorities. Most visible among them is to expand support for small business, which drew a lot of Congressional fire, and produced a lot of micro-managing.

Another: to become more aggressive in dealing with new global export credit agency competition, epitomized by China’s blockbuster campaign to penetrate markets. Still, a third: to avoid deals that help the overseas competitors of “sensitive” U.S. sectors, such as steel and semiconductors.

A fourth priority is to streamline operations, particularly by speeding up applications processing through online services, and, finally, to do more business in a handful of countries and industry sectors.

Small business strategy

Ex-Im Bank’s small business activities have been reshaped in a dozen ways, but, significantly, Congress was adamant in retaining the “set-aside,” a requirement that 20 percent of its annual transactions (in dollar terms) be approved for smaller firms.

The Bank failed to hit that target in 2003-2005, but sailed past it (26 percent) in 2006, through a combination of more small business dollar volume and a sluggish year overall (thus boosting the small biz share). Ex-Im officials did their best to persuade Congress to ease the rule, but the lawmakers put their foot down.

In micro-managing, Congress formally created a Small Business Division to handle outreach, product improvements, and transaction advocacy, as well as a Bank-wide Small Business Committee to formulate strategy and oversee performance.

What really matters here, said James Morrison, president of the Small Business Exporters Association, at a Senate hearing, is management consistency, which is assured only through legislation. The Bank, he noted, “had at least 15 major changes in its small business structure since 1997, more than one a year.”

The charter renewal also formally created a ‘senior vice president’ to head the division, and placed dedicated small business staff specialists in each transactions division, empowering them to create underwriting standards exclusively for small exporter performance. Plus, the specialists are authorized to approve most applications of less than $10 million.

At the same time, the charter gives a boost to medium-term deals (five-year payment terms), which have been a persistent target of complaints by smaller exporters. “The new legislation lets Ex-Im delegate authority to banks and finance companies, which should speed up applications for equipment exporters considerably,” said Peggy Houlihan, head of Houlihan International (Reston, Virginia), which advises exporters on using government trade programs.

Battling the new competition

Meanwhile, fresh global competition from other governments’ export credit agencies (ECAs) is a mounting challenge for Ex-Im Bank, and perceived as a threat on Capitol Hill. The charter renewal calls for a more strenuous response, and provides some tools to work with.

Most threatening is the soaring volume of Chinese credits. Ex-Im’s recent annual “Competitiveness Report” predicts that in 2010 the Asian giant will be the world’s largest source of official export finance.

And, China is not a member of the Organization for Economic Cooperation and Development (OECD), the Western “club” of governments that sets the rules for ECA operations. The U.S., Europe, Canada, and Japan have a common forum to challenge one another’s violations of the rules, but China is not subject to them.

Plus, the new law calls on Ex-Im and the Treasury to pressure China and other aggressive lenders through the World Trade Organization (WTO), to which they all belong. The WTO has specific restrictions on export subsidies that can be expected to provide a platform for this effort.

Processing applications

The legislation also imposes speed and clarity on the applications process, requiring the Bank to maintain an effective Internet program to handle requests and keep exporters informed on where they stand. Ex-Im had, in fact, already initiated such a service, called Ex-Im Online, in mid-2006, but the charter insists that it be fully operational by September 1, 2007.

The Congressional action, a response to years of complaints about slow processing, micro-manages applications in several ways. For example, it sets timetables for acknowledging their receipt, informing exporters on whether their submissions are complete, and on what remains to be submitted.

And, it calls for keeping applicants informed on their status, including a “clear and timely” notice of approval or disapproval, and the reason for disapproval. Also, exporters are now given the name of a Bank employee to contact with questions.

More Africa business

The legislation also encourages more Ex-Im Bank activity with a few countries, but mostly with Africa, where it has been steadily expanding anyway. The charter calls for increasing the number of master guarantee agreements (a framework that speeds processing) with African lenders, and improved working relationships with key regional institutions, such as the African Development Bank and the African Export-Import Bank.

Congress will be watching

The charter renewal has given Ex-Im Bank its marching orders for the next five years, but it will take time to absorb all the directives. Some fresh initiatives will be rolled out at the April 2007 annual Washington conference.

One thing is for sure: Congress plans to monitor progress closely. Stay tuned for more “oversight hearings” in the months ahead.