oversight

Audit of the Export-Import Bank of the United States, Fiscal Year 1970

Published by the Government Accountability Office on 1971-06-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                             LM095621




Audit Of
The Export-Import Bank
Of The United States
Fiscal Year 1970 8-114823




BY THE CQMPTROLLER GENERAL                     b
OF THE UNITED STATES
             COMPTROLLER     GENERAL     OF      T!iE       UNITED   STATES

                           WASHINGTON.    D.C.          20548




B-114823




To the President   of the Senate and the
Speaker  of the House of Representatives

       This is our report on the audit of the Export-Import                        Bank   of
the United States for the fiscal year ended June 30, 1970.

        Copies of this report    are being sent to the Director,                   Office
of Management        and Budget; the Secretary   of the Treasury;                  and the
President,    Export-Import     Bank of the United States.




                                              Comptroller                General
                                              of the United              States




                     50TI-l ANNIVERSARY                 1921- 1971
I
I   COMPTRGLLER GENERAL'S                                AUDIT OF THE EXPORT-IMPORT BANK OF THE
I   REPORT TO THE COil?GRESS                             UNITED STATES, FISCAL YEAR 1970, B-114823
I


    DIGEST
    ------

    WHY !lVE AUDIT WAS MADE

          The Government Corporation    Control  Act requires    the Comptroller                       General
          to make an annual audit of the Export-Import        Sank of the United                       States
          (hereinafter  referred   to as Eximbank).


    FINDING3 AND CONCLUSIONS

          In the General Accounting Office's             (GAO) opinion,      the financial     state-
          ments--except     for the treatment        of sales of certificates         of beneficial
          interest--present      fairly     Eximbank's    financial    position     as of June 30,
          1970, and the results         of its operations       and the source and application
          of its funds for the year then ended, in conformity                   with generally      ac-
          cepted accounting      principles      applied    on a basis consistent       with that of
          the preceding     year and with applicable          Federal laws.        (See p. 53.)

          Eximbank has sold financing       instruments     called     certificates       of beneficial
          interest    which are based on financial       participation         in specific      loans.
          GAO believes     that these instruments      should be considered          as borrowing
          or financing     transactions  rather    than as sales of assets--as              Eximbank
          treats   them--because

                 --the   buyer of a certificate            does-not   actually    take   possession     of the
                     loan instrument executed            by the original     borrower    and

                 --the      buyer   is   not   free   to dispose   of the instrument      without     restric-
                     tions.

          Had Eximbank reported   certificates   of beneficial   interest   as borrowing,
          its total  assets and liabilities    would have increased     by about $400 mil-
          lion as of June 30, 1970. (See p. 9.)

           Eximbank finances        its operations,       in part,      by borrowing         in the private
           market rather       than through the Treasury-- apparently                  because Eximbank be-
           lieves    that this type of financing            results     in benefits        in computing      the
           overall     Federal budget surplus        (or deficit)         and relieving        pressures     on
           the statutory       debt limit.     GAO believes         that these benefits           are ques-
           tionable     and that Eximbank's       private      borrowing       results     in substantially
           increased     interest     costs when compared to the costs of direct                     Treasury
           borrowing.        During fiscal    years 1962 through           1970, private        financing
           cost $43.2 million         more than borrowing         through      the Treasury       would have
           cost;    and additional       costs of $29.6 million          will     be incurred      over the
           remaining     life    of Eximbank's    own securities.             (See p. 13.)

    Tear sheet
     Also, arrangements     in effect      for some years permit Eximbank to borrow
     substantial   amounts from the Treasury           at reduced rates.       Had the Trea-
     sury charged Eximbank interest            rates approximating      the full  cost of the
     funds, Eximbank's    interest      and other financial        expenses would have in-
     creased by about $16.8 and $6.9 million             in fiscal    years 1970 and 1969,
     respectively.    Eximbank's      justification      for the reduced interest      rates
     is that they serve to compensate Eximbank for actions                 taken in further-
     ance of overall    Government policy.           (See p. 21.)

     Eximbank's       current    procedures      do not measure with certainty         the poten-       i
     tial    long-term     benefits      derived   from individual      transactions     under the      ;
     export expansion         facility      which provides    financial     support  for U.S. ex-       ,
     ports involving         greater     than normal risks.        This program would be more           I
     effective      if long-term       trade goals of the United States were identified                 I
     on a geographical          and/or industry       basis and if only transactions         which      ,
     met these goals were approved.                (See P* 48.)                                         I
                                                                                                        I

?ZCO,'0iWDATIONS AND SUGGESTIONS

     Eximbank     should increase    borrowing  from         the Treasury so that the sub-              I
     stantially     increased   costs of borrowing           in the private market can be               I
     avoided.      (See p. 15.)                                                                         I
                                                                                                        I
                                                                                                        I
     The Secretary      of the Treasury  and the President   of Eximbank                 should         I
     renegotiate     the agreement concerning   reduced interest    rates                charged   on   I
     certain    Treasury   borrowing.   (See p. 29.)                                                    I
                                                                                                        I
     Eximbank should document and describe         in its annual reports      to the Con-               ;
     gress any activities     performed    in the national   interest   that would not                  I
     be performed     in the ordinary   course of its business.       Eximbank's     annual             ,
     financial   statements   would be more informative      if the financial      results              I
     of such activities     were disclosed    separately   in the statements.        (See               I
                                                                                                        I
     p.   30.)                                                                                          I
                                                                                                        I

                                                                                                        I
.-AGEUCY ACT,'ONS AND- iW?BSOLVED ISSUES                                                                I
     Eximbank and Treasury     agreed with the facts        concerning    the additional                /
     costs Eximbank incurred     by borrowing     in the Private      market.     Treasury              ,
     did state,   however, that the policy       changes implied       in the recommenda-               I
     tion to increase    Eximbank's  borrowing      from the Treasury       might have con-             i
     siderable   impact on the debt ceiling,        the Federal budget,        and the ade-             I

     quatc funding   of Exinbank's   operations.        (See p. 15.)                                    I
                                                                                                        I
                                                                                                        I
     The President         of Eximbank said that,        as a result        of a draft   of this  re-   j
                                                                                                        I
     port and its recommendations,              he had proposed a          new agreement to the         I
     Treasury      relating     to reduced-rate      borrowing.       In    GAO's opinion   the ef-     1
     feet of this proposed new agreement will                 partially        eliminate  Eximbank's    ,
     low-cost     borrowit;g      from the Treasury      and further        action is required    to    ;
     fully    eliminate      the lo:;-cost    borrowing.      (See p.       28.)                        I
         During the course of the GAO audit,            bills    were introduced       in the Gong;-2~s
         which provided      that receipts     and disbursements        resulting    from Eximbank's
         activities     would no longer be included           in totals    of the Federal budget.
         Although   such action would remove restrictions               on Eximbank's       activities
         that were due to Federal budgetary            consideration,       it might lead to sub-
         stantial   increases      in the cost of financing         Eximbank's    activities.          In
         addition,    congressional      approval    of such a bill      might set an undesirable
         precedent    for removing other Federal loan programs from the budget.                         GAO
         believes   that all Federal programs should be funded on the basis of their
         relative   priority     in an all-inclusive        Federal budget.

         The manner of treatment         of certificates        of beneficial         interest    by the
         Eximbank on its financial         statements      is   unresolved.

         A draft   of the section   of this report concerning      Eximbank's    methods of
         financing   was also sent to the Director   of the Office       of Management and
         Budget on December 15, 1970, for comment.        No comments have been re-
         ceived,   so the report  is being issued without     their    comments.     (See
         p. 15.)

I
I   MATTER FOR COUSIDERkTION OF THE COiJGRZSS
I
I
I        The Congress     may wish    to require   Eximbank       to obtain     its     funds    from   the
I        least costly     source.     (See p, 20.)
I




                                                 3
                          Contents
                                                                   Page

DIGEST                                                               1

CHAPTER

  1       INTRODUCTION                                               4
              Management of Eximbank                                 5

  2       METHODSOF FINANCING EXIMBANK'S OPERATIONS                  6
             Eximbank's utilization            of private mar-
                ket to finance its activities                        6
                    Participation      certificates                  7
                    Certificates      of beneficial      inter-
                      est                                            9
                    Debentures and short-term           discount
                      notes                                         12
              Increased cost of private,financing
                 over cost of Treasury securities                   13
                    Conclusion                                      14
                    GAO analysis      of agency comments            15
                   Matter      for consideration        of the
                      Congress                                      20
             Concessionary        interest     rates on borrow-
                 ing from the Treasury                              21
                    Conclusion                                      26
                    Analysis of agency action and com-
                      ments                                         37
                    Recommendations                                 29
  3       LOAN OPERATIONS                                           31
             Loan authorizations                                    31
             Results of loan operations                             34
             New types of loans                                     34
                Relending loans                                     3.5
                Cooperative   financing facility                    35
  4       GUARANTEESAND INSURANCEOPERATIONS                         38
             Guarantee operations                                   39
             Insurance operations                                   42
                  Contract with the FCIA                            42
             New types of policies                                  44
             Results of insurance operations                        45
                                                                               Page

CHAPTER

    5       ADDITIONAL FACILITIES           DESIGNED TO INCREASE
              EXPORTS                                                          48
                 Export  Expansion         Facility                            48
                      Conclusion                                               52
   6        OPINION OF FINANCIAL           STATEMENTS                           53
FINANCIAL    STATEMENTS

Schedule

   1        Comparative     statement of assets and liabil-
              ities,    June 30, 1970, and June 30, 1969                       57
   2        Comparative     statement     of income and expense
              and analysis       of retained    income reserve,
              fiscal    years ended June 30, 1970, and
              June 30, 1969                                                    58

   3        Comparative  statement    of source and applica-
              tion of funds,   fiscal   years ended June 30,
              1970, and June 30, 1969                                          59

            Notes   to the     financial      statements                       61
APPENDIX

   I        Letter     dated   February  9, 1971, from the
               Export-Import       Bank of the United States                   65
   II       Letter   dated     February  2, 1971,          from   the
               Department      of the Treasury                                 68
   III      Principal  officials  of the Export-Import
               Bank of the United  States at June 30,                   1970   73
   IV       Eximbsnk    organization       chart                               74
                              ABBREVIATIONS
CBI        Certificate        of beneficial        interest

Eximbank   Export-Import          Bank

FCIA       Foreign       Credit    Insurance      Association

GAO        General       Accounting      Office
COMPTROLLKRGFi'JlERzU
                   QS                          AUDIT OF THE EXPORT-IMPORT BANK OF THE
REPORTTO THE COii'5RESS                        UNITED STATES, FISCAL YEAR 1970, B-114823


DIGEST
_-----


WHYTHE AUDIT
           -- WASMADE
     The Government Corporation    Control  Act requires    the Comptroller                  General
     to make an annual audit of the Export-Import        Bank of the United                  States
     (hereinafter  referred   to as Eximbank).


FIIvDIiVGs AND CONCLUSIONS
     In the General Accounting          Office's     (GAO) opinion,      the financial     state-
     ments--except     for the treatment         of sales of certificates         of beneficial
     interest--present      fairly     Eximbank's     financial    position     as of June 30,
     1970, and the results         of its operations        and the source and application
     of its funds for the year then ended, in conformity                    with generally      ac-
     cepted accounting      principles       applied    on a basis consistent       with that of
     the preceding     year and with applicable           Federal laws.        (See p. 53.)

    Eximbank has sold financing       instruments     called     certificates       of beneficial
    interest   which are based on financial        participation         in specific     loans.
    GAO believes     that these instruments      should be considered         as borrowing
    or financing     transactions  rather    than as sales of assets--as             Eximbank
    treats   them--because

         --the   buyer of a certificate          does not actually    take     possession      of the
             loan instrument executed          by the original   borrower      and

         --the    buyer   is   not   free   to dispose   of the instrument       without    restric-
             tions m

     Had Eximbank reported   certificates     of beneficial   interest    as borrowing,
     its total  assets and liabilities      would have increased      by about $400 mil-
     lion as of June 30, 1970.        (See p. 9.)

     Eximbank finances        its operations,       in part,      by borrowing        in the private
     market rather       than through the Treasury--            apparently      because Eximbank be-
     lieves    that this type of financing            results     in benefits       in computing     the
     overall     Federal budget surplus        (or deficit)         and relieving       pressures    on
     the statutory       debt limit.     GAO believes         that these benefits          are ques-
     tionable     and that Eximbank's       private      borrowing      results    in substantially
     increased     interest     costs when compared to the costs of direct                   Treasury
     borrowing.        During fiscal    years 1962 through           1970, private       financing
     cost $43.2 million         more than borrowing         through     the Treasury would have
     cost;    and additional      costs of $29.6 million           will    be incurred      over the
     remaining     life    of Eximbank's    own securities.            (See p. 13.)
     Also, arrangeme;-'ts    in effect      ,fcr some years permit Exfmbank to borrow
     substantial   amounts from the Treasury            at reduced rates.        I-lad the Trea-
     sury charged Eximbank interest             rates approximating      the full     cost of the
     funds, Eximbank's     interest      and other financial        expenses would have in-
     creased by about $16.8 and $6.9 million              in fiscal    years 1970 and 1969,
     respectively.     Eximbank's      justification      for the reduced interest         rates
     is that they serve to compensate Eximbani: for actions                 taken in further-
     ance of overall     Government policy,           (See pe 21.)

     Eximbank's       current    procedures      do not measure with certainty         the poten-
     tial    long-term     benefits      derived   from individuai      transactions     under the
     export expansion         facility      which provides    financial     support  for U.S. ex-
     ports involving         greater     than normal risks.        This program would be more
     effective      if long-term       trade goals of the United States were identified
     on a geographical          and/or industry       basis and if only transactions         which
     met these goals were approved,                (See Pm 48.)


R?XOiWdENDA!lYONSAND SUGGESTIOiV'S

     Eximbank     should increase    borrowing  from        the Treasury   so that the sub-
     stantially     increased   costs of borrowing          in the private   market can be
     avoided.      (See p. 15.)

     The Secretary      of the Treasury  and the President   of Eximbank                should
     renegotiate     the agreement concerning   reduced interest    rates               charged   on
     certain    Treasury   borrowing.   {See pa 29.)

     Eximbank should document and describe         in its annual reports      to the Con-
     gress any activities     performed    in the national   interest   that would not
     be performed     in the ordinary   course of its business.       Eximbank's     annual
     financial   statements   would be more informative      if the financial      results
     of such activities     were disclosed    separately   in the statements.        (See
     pe 30.)


AGENCY ACTIONS AUD lJNl?ESOLI/%DISSUES

     Eximbank and Treasury     agreed with the facts concerning          the additional
     costs Eximbank incurred     by borrowing      in the private    market.     Treasury
     did state,   however, that the policy        changes implied     in the recommenda-
     tion to increase    Eximbank's   borrowing      from the Treasury     might have con-
     siderable   impact on the debt ceiling,         the Federal budget,     and the.ade-
     quate funding    of Eximbank's   operations.        (See p. 15.1

     The President        of Eximbank said that,        as a result       of a draft     of this re-
     port and its recommendations,            he had proposed a          new agreement to the
     Treasury     relating     to reduced-rate     borrowing.       In    GAO's opinion      the ef-
     fect of this proposed new agreement will               partially        eliminate    Eximbank's
     low-cost     borrowing      from the Treasury      and further       action    is required    to
     fully    eliminate     the low-cost     borrowing.     (See p-       28.)



                                              2
    During the course of the GAO audit,            bills    were introduced       in the Congress
    which provided      that receipts     and disbursements        resulting    from Eximbank's
    activities     would no longer be included           in totals    of the Federal budget.
    Although   such action would remove restrictions               on Eximbank's       activities
    that were due to Federal budgetary            consideration,       it might lead to sub-
    stantial   increases      in the cost of financing         Eximbank's    activities.          In
    addition,    congressional      approval    of such a bill      might set an undesirable
    precedent    for removing other Federal loan programs from the budget.                         GAO
    believes   that all Federal programs should be funded on the basis of their
    relative   priority     in an all-inclusive        Federal budget.

     The manner of treatment        of certificates        of beneficial         interest    by the
     Eximbank on its financial        statements      is   unresolved.

    A draft   of the section   of this report concerning      Eximbank's    methods of
    financing   was also sent to the Director   of the Office       of Management and
    Budget on December 15, 1970, for comment.        No comments have been re-
    ceived,   so the report  is being issued without     their    comments.     (See
    p. 15.)


MATTER FOR CONSIDERATION OF THE CONGRESS

    The Congress     may wish    to require   Eximbank       to obtain     its     funds    from   the
    least costly     source.     (See p. 20.)
                              CHAPTER1



       The Export-Import    Bank of the United     States, originally
created in 1934, was made an independent          agency by the
Export-Import    Bank Act of 1945 (12 U.S.C,       6351, The prin-
cipal activities     of Eximbank have been to      aid in financing
and facilitating     exports from the United      States to foreign
countries,

        In furtherance     of its objectives       and purposesB Eximbank
makes loans to foreign         obligors   to finance the export of
capital    equipment and services,        military    equipment and ser-
vices 9 and agricultural        commodities; provides exporter
credit financing;       provides emergency standby balance-of-
payment credits       to foreign governments to alleviate         their
shortages of foreign exchange; makes loans to commercial
banks against their holdings of export debt obligations;
and guarantees and insures commercial banks and U.S. export-
ers against commercial-credit           and political     risks of loss
arising    in connection with exports.

       Pursuant to the act of March 13, 1968 (82 Stat. 471,
the name of Eximbank was changed from the Export-Import
Bank of Washington to the Export-Import          Bank of the United
States; the life of Eximbank was extended from June 30, 1968,
to June 30, 1973; the limitation         on the aggregate amount of
loans, guarantees,     and insurance that Eximbank could have
outstanding     at any one time was increased from $9 billion
to $13,5 billion;     and the limitation      on the amount of guar-
antees, ins,urance, and reinsurance        outstanding  for which
fractional    reserves are maintained was increased from
$2 billion    to $3.5 billion.    At June 30, 1970,Eximbank had
uncommitted lending authority       of about $3.8 billion,

      Eximbank's basic legislation   provides for Eximbank to
supplement and encourage and not compete with private        capi-
tal and also provides lending criteria      for making loans
which, in the judgment of the Board of Directors,      offer
"reasonable   assurance of repayment,@' Subsequently,     the act
of July 7, 1968 (82 Stat. 2961, liberalized      Eximbank's lend-
ing criteria   by providing  Eximbank with authority   to use up

                                   4
to $580 million    to facilitate    export transactions      which, in
the j,udgment of the Board of Directors,         offer "s,ufficient
likelihood   of repayment" to more actively         foster U.S. for-
eign trade and long-term        commercial interest     and, thus, im-
prove the U.S. balance of payments,

rJlkl.NAGEMErn
            OF EXIMBANK

      In accordance with the Export-Import       Bank Act of 1945,
as amended9 the management of Eximbank is vested in the
Board of Directors,      consisting  of Eximbank@s president    and
first  vice president      serving as the chairman and vice chair-
man, respectively,      and three additional   members, appointed
by the President      of the United States by and with the ad-
vice and consent of the Senate.         The Board is required by
this act to adopt such bylaws as are necessary for the
proper management and functioning        of Eximbank and shall in
such bylaws designate the vice presidents        and other officers
and prescribe    their duties.
       In accordance with the act, Eximbank also has an advi-
sory committee of nine members, appointed by the Board of
Directors   to advise the Board on Eximbank's operations.

     Eximbank's activities   are conducted principally  through
its office in Washington, D.C. At June 30, 1970, Eximbank
had 358 employees-- an increase of 30 during the fiscal    year.

     The scope of our audit of Eximbank's financial     state-
ments is described on page 53 of this report.     In  addition,
we have included comments on certain   operations  of Eximbank
which we believe to be of interest   to the Congress.
                                    CHAPTER 2

            METHODS OF FINANCING EXIMBANKBS @PERATIONS

       Financial     resources    for Eximbank?s    activities    are de-
rived   mainly    from (1) borrowings      from the U,S. Treasury,
(2) the sale of its own securities            in the private    market,
(3) repayments       of loan principal,      and (4) income from opera-
tions.     A statement      of Eximbank's    source and application     of
funds for fiscal        year 1970 is included      as schedule    3.

         Since fiscal        year 1962 Eximbank has financed               a sub-
stantial      part of its lending            operations      outside    the Trea-
sury by selling           various     types of securities          in the private
market      in order to lessen           the effect     of its operations        on
the Federal         budget and the statutory            debt limit.        Eximbank"s
practice      of obtaining        financing      in the private        market has
cost about $43.2 million                more, since fiscal         year 1962, than
if the funds had been borrowed                 through     the Treasury,       and an
additional        cost of $29.6 million            will  be incurred       over the
remaining      life     of Eximbank!s        own securities.

         Because Eximbank financed             some of its operations          in the
 private     market at interest          rates higher      than the Treasury's
and made certain         low-interest-rate          loans in furtherance          of
national      policy,    Eximbank is receiving           concessionary       inter-
est on a significant           part of its borrowings          from the Trea-
sury 0 Had the Treasury             charged Eximbank interest          rates      ap-
proximating        the full    cost of the funds,         Eximbank's     interest
and other      financial     expenses would have been increased                 by
about $16.8 and $6.9 million                in fiscal    years 1970 and 1969,
respectively.

       These   matters     are   discussed     in   detail   below.

EXIMBANK'S UTILIZATION OF PRIVATE
MARKET TO FINANCE ITS ACTIVITIES

        Prior   to fiscal     year 1962, Eximbank supplemented           its
financial     resources     from operations,     mainly  through      borrow-
ing from the Treasury          pursuant   to Eximbank's    $6 billion        line
of credit     established      by the Export-Import     Bank Act of 1945,
as amended.       Since fiscal      year 1962 Eximbank has utilized
borrowings     other    than Treasury     notes for financial       resources,

                                         6
such as participation         certificates,       short-term    discount
notes, debentures,         and certificates       of beneficial     interest.

       Following    is a summary of Eximbank's major               sources       of
funds other than Treasury borrowing.
                               Certif-
                Partici-        icates
                 pation            of            Short-term
Fiscal           certif-     beneficial           discount              Deben-
years            icates       interest               notes              tures
                                      (millions)
1962-67         $3,544.2            $   -            $                 $     -
1968                570.0                                487.2
1969                                 300.0            1,053.l           400.0
1970                                 400.0
     Total      $4,114.2            $700.0           $1,540.3          $400.0

        The ,underlying reason for Eximbank's financing                 its
loan programs through the issuance of participation                     certif-
icates and certificates          of beneficial      interest      and its ac-
counting for its sales of such instruments                 as sales of as-
sets is the positive         effect   such sales of assets have on
the overall     Federal budget,        Participation       certificates       and
certificates     of beneficial      interest,      when treated       as sales
of assets in the Federal budget, are offsets                 to expenditures
and have the same positive          effect     on the final budget sur-
plus or deficit        as tax receipts,        On the other hand, if par-
ticipation     certificates      and certificates        of beneficial       inter-
est are considered to be borrowing or financing                    transactions,
they have the effect         of increasing      Federal budget deficits,

      Eximbank, as well as several other Government agencies,
have financed their operations   in the private market in-
stead of through Treasury borrowings,   under the direction
of the Office of Management and Budget (formerly   the Bureau
of the Budget) and the Treasury.

Participation      certificates

     During the period from fiscal  year 1962 through                      fiscal
year 1968, Eximbarik sold about $4 billion worth of


                                            7
participation   certificates,      which were accounted for as
sales of assets rather than as a means of financing             in the
Federal budget.     It   should   be   noted,   however, that,  on Exim-
bank's own financial       statements,     sales of these instruments
were accounted for as borrowing transactions,

      Eximbank's participation      certificates       are interest-
bearing instruments    representing      sales of beneficial        interest
in portfolios   or pools of Eximbank@s loans.             In a practical
sense, however, these instruments          have little     of the attri-
butes of an interest     in Eximbank's loan portfolio.

       Although lists     of loan maturities     pledged and the re-
lated interest     payable are maintained       for each portfolio
fund, Eximbank has guaranteed the timely payment of princi-
pal and interest      in the event that payment of principal            and
interest    on the loans pledged is insufficient          to meet the
interest    and principal    due on the participation       certificates.
Eximbank is at liberty       to freely   substitute    other !.oans or
to use any other source of funds in redeeming the participa-
tion certificates.

      When certificates     of participation       in the pools of
loans are sold, the ownership of the loans is still              retained
by Eximbank; interest     and principal       repayments continue to
flow to Eximbank and are commingled with other cash; Exim-
bank continues to service the loan; and Eximbank ass'umes the
risk of default     on any individual      loan insofar as the in-
vestor in the participation       certificate      is concerned.

        As a practical  matter, the sale of participation    cer-
tificates    is a means of financing   a portion  of Eximbank's
operations;     and, should it be unable to meet the principal
or interest    payments from its own resources,    Eximbank would
have to resort to Treasury borrowings to make the payments.

     The "Report of the PresidentIs   Commission on Budget
Concepts, "1 October 1967, states that there has been


1The President  of the United States appointed this Commis-
 sion on March 3, 1967, to make a thorough study of the
 Federal b,udget and the manner in which it is presented to
 the Congress and the public.
substantial     agreement that participation            certificates        are a
means of financing         very similar     to direct    borrowing from
the   Treasury,     The Commission therefore          recommended a change
in the accounting        treatment    in,the budget for the sales of
participation     certificates--     that participation          certificates
be treated in the budget as a means of financing,                    not as an
offset    to expenditures      which, in effect,       reduces the budget
deficit.

        Through fiscal     year 1968 Eximbank sold participation
certificates     at the direction      of the Bureau of the Budget
because the method of accounting           for them in the Federal
budget resulted      in reducing the annual budget deficit             or
increasing     any budget surplus.        Subsequent to issuance of
the "Report of the President's           Commission on Budget Con-
cepts, )* Eximbank stopped selling         participation    certificates;
however, it began to sell instruments              called certificates
of beneficial     interest      which are substantially     the same as
participation     certificates.

Certificates     of beneficial      interest
        Eximbank~s certificates      of beneficial       interest   repre-
sent an interest       in an individual    loan or, for some certif-
icates,    interest    in several identified        loans, as opposed to
pools of loans in participation          certificates.         The original
note signed by the borrower remains with Eximbank; the pur-
chaser of the certificate        cannot sell, assign, or otherwise
dispose of the certificate         except as permitted         by Rximbank.
Eximbank assumes fully        the risk of default        as far as the
investors     in either type of instrument          are concerned.

       After adoption of the recommendation of the President's
Commission on Budget Concepts, Eximbank greatly              expanded
its use of the instruments        called certificates       of beneficial
interest    to finance its loan program.           During fiscal   years
1969 and 1970, this method of financing             amounted to about
$300 million     and $400 million,      respectively;    and the current
plans for fiscal      year 1971 indicate      that Eximbank will is-
sue an additional      $420 million     worth of these instruments.

       The Bureau of the Budget in April 1968, in response to
Rximbankes request,    ruled that the sales of certificates  of
beneficial   interest effectively   constituted the sale of an
asset rather than a form of financing        and should be treated
accordingly   for budget purposes.      In a letter      dated Decem-
ber 31, 1969, the Director,     Bureau of the Budget, advised us
that he considered transactions      involving    certificates    of
beneficial  interest  to be sales of assets because the pur-
chaser of the beneficial    interest    becomes a party to the
underlying  loan.

      1. The purchaser b,uys an interest            in a specific  loan
         and knows who the borrower is,             and the borrower
         knows who the purchaser is--as             distinguished  from
         buying a general obligation     of         the Eximbank.

      2. The terms and conditions  of the underlying   loan can-
         not be changed without the purchaser"s    consent.

      3. There can be no substitution            of one loan for       another
         during the course of events.

        .Accordingly    sales of such instruments    are treated as
sales of assets in the Federal budget just as participation
certificates      were treated prior to the recommendation of
the President's        Commission on Budget Concepts.      It should be
noted that, in fiscal        years 1969 and 1970, Eximbank treated
certificates      of beneficial   interest   as sales of assets in
its financial       statement whereas participation     certificates
were treated as borrowing transactions.

      We recognize      that some fine legal distinction               can be
made between sales        of participation        certificates      and sales
of certificates    of     beneficial     interest     in specific      loans;
however, we do not        believe that the distinction             between the
two is sufficient       to warrant a different            treatment    in the
budget or financial        statements of Eximbank.

       As we stated in our reports1  on the Eximbankss activi-
ties for fiscal    years 1968 and 1969, we believe that two
basic tests should be met in determining    that a loan is ac-
tually   sold.


1Audit of the Export-Import Bank of the United States--
 Fiscal Years 1968, 1969; B-114823, dated May 29, 1969, and
 May 19, 1970.
                                     10
      1, The buyer actually       takes possession of a loan          in-
         strument executed       by the original  borrower.

      2, The buyer is free       to dispose of this instrument
         without restriction       by.the U.S, Government.

      We believe that, since the certificates      of beneficial
interest  do not meet these tests,     they should be considered
as borrowing or financing   transactions,     In our opinion,
such treatment would be in line with the recommendations of
the Presidentas  Commission on Budget Concepts.

      If certificates     of beneficial interest   sold by J&in-
bank in fiscsl      years 1969 and 1970 were treated as borrowing
or financing,     the deficit  impact of Eximbank's activities
on the Federal budget would have been increased,        as follows:

                                                           Fiscal    Fiscal
                                                            year      year
                                                            1969      i970

                                                             (millions)
Deficit(-)    treating    certificates    of benefi-
  cial interest       as sales of assets and off-
  sets to expenditures                                     $246.3    $219.1
Addition   to deficit     if certificates    of ben-
  eficial    interest    were accounted for as
  borrowings rather than offsets          to expen-
  ditures                                                   300.0         400.0
     Total                                                 $546,3    $619.1
       Similarly,    if certificates       of beneficial      interest    were
treated as borrowing or financing             transactions      on Eximbank"s
financial     statements,    as we believe to be proper, Eximbankgs
reported assets and liabilities            as of June 30, 1970, would
each be increased by about $400 million.                  Except for the
method used by Eximbank to report certificates                  of benefi-
cial interest,      Eximbank's June 30, 1970, financial              state-
ments present its financial          position     fairly.      (See ch. 6,
B*Opinion on Financial       Statements,I" p. 53.1



                                     11
Debentures   and short-term    discount   notes

       Eximbank's ability   to raise money in private        capital
markets through issuance of its OWII debt obligations            has
been used as a safety valve for pressures on the statutory
debt ceiling;    if Eximbank borrows directly      from the private
market, Eximbank's related     obligations    are not counted
against the debt ceiling.       Since the debt ceiling       is con-
sidered a chronic problem, the Treasury in previous years
has sought to keep Eximbank's Treasury borrowing to a mini-
mum and to have Eximbank as self-financing         as possible.       As
a result   of this policy,   Eximbank, during the latter        part of
fiscal   year 1968 and most of fiscal. year 1969, issued sub-
stantial   amounts of short-term     discount notes and in Octo-
ber 1968 sold $400 million     of 4-l/Z-year     debentures.      The
interest   rates on these Eximbank securities        have generally
been about l/2 of 1 percent above the Treasury borrowing
rate.




                                  12
INCREASEDCOST OF PRIVATE FINANCING
OVER COST OF TREASURYSECURITIES -

      Financing     in the private market for Federal budget
purposes through the issuance of participation             certificates
and certificates      of beneficial   interest     costs Eximbank a
minimum of l/2 of 1 percent,        and sometimes as much as
1-l/2   percent,    above comparable Treasury borrowing rates,
Eximbank's debentures and short-term           discount notes issued
to relieve     pressures on the statutory       debt ceiling      cost at
least l/2 of 1 percent more than comparable Treasury bor-
rowing.

       Using rates provided to us by the Treasury Department,
we estimate that, since fiscal       year 1962, the additional
interest    cost and the amortized portion     of commissions paid
on these securities     through June 30, 1970, amounted to
$43.2 million    and that additional     costs of $29.6 million
will be incurred over the remaining life of Eximbank's own
securities.

                                   Certificates
                                          of
     Fiscal        Participation    beneficial      Short-term
      year          certificates     interest          notes        Debentures         Total
 1962-67            $12,678,034     $      -        $     -         $       -       $12,678,034
 1968                 7,401,033                         689,253             -         8,090,286
 1969                 8,865,691         144,202      1,873,618          1,244,444    12,127,955
 1970                 8,089,084         319,062           2,655         1,866,667    10,277,468
     Total as of
       FY 1970       37,033,842         463,264         2,565,526       3,111,111   43,173,743
 1971 to matu-
   rity              23,458,112         866,495                         5,288,889    29,613,496

                    %!L491,~954
                    --              $1,329,759      $2,565,526
                                                     -_I_           $8,400,000      U&787,239


       Our determination  of the additional    costs incurred      and
to be incurred    are based on estimates of the interest        rates
that the Treasury would have paid if the Treasury had is-
sued securities    at the same time and having the same matu-
rities    as those of Eximbank.   These estimates    are based on
market yields supplied by Treasury officials        on existing
securities    and include approximately    l/8 of 1 percent as an
estimate of the additive     that would have been required        to

                                               13
       bring    new buyers    into   the market to purchase        these   securi-
       ties.

              In addition  to easing the effect that Eximbank's op-
       erations   have on the Federal budget and the statutory  debt
       limit,   reasons also advanced for the sale by Eximbank of
       its own securities    are:

               --Issues    sold to foreign governments and public issues
                   sold to foreign   investors  have been made to assist
                   in the U.S. balance-of-payments    problems,  These
                  benefits   would be limited   to the short run since
                  repayments would operate in the opposite direction.

               --Participation      certificates     have been sold to encour-
 4
“!i               age private     participation    in specific    programs.       The
,,I!              Attorney General has ruled, however, that the
                  agency's guarantee of participation           certificates
                  brings into being a general obligation            of the United
                  States backed by its full faith and credit.                Thus,
                  the distinction       between financing    through private
                  participation     in these programs and financing
                  through the Treasury appears to be diminished.

       Conclusion

              We believe that Eximbank finances its operations          in
       the private    market rather than through the Treasury because
       it believes     private financing    has benefits   in computing the
       overall   Federal budget surplus or deficit        and relieving
       pressures on the statutory        debt limit.    As discussed above
       we believe that these benefits        are questionable.

              Certificates       of beneficial   interest,    although consid-
       ered by the Office of Management and Budget as sales of as-
       sets, are substantially          the same as participation      certifi;
       cates which are now treated as financing             or borrowing trans-
       actions in the Federal budget on the basis of the recommen-
       dation of President's          Commission on Budget Concepts.          In
       addition,      securities    issued by Eximbank are backed by the
       full faith and credit of the U.S. Government as are securi-
       ties issued by the Treasury.            The President's     Commission on
       Budget Concepts believes          that the concept of the Federal

                                              14
debt shoul.d be expanded to include           securities     issued   di-
rectly by Eximbank.

        In view of the foregoing       facts and the substantially
increased costs incurred         or to be incurred   by Eximbank--
$72.8 million--     in financing    its operations   in the private
market rather than through Treasury borrowing,            we pointed
out-- in a draft of this report furnished          to responsible
officials     of the Office of Management and Budget, the Trea-
sury, and Eximbank in December 1970--that           we believed    that
they should take the steps necessary to increase Eximbank's
borrowings from the Treasury in order to avoid the in-
creased costs of borrowing in the private           market.

GAO analysis     of agency comments

      Although we submitted a draft of the above segment of
this report to all three agencies concerned--Treasury,
Eximbank, and the Office of Management and Budget--for   com-
ment in December 1970, we received replies   from only Trea-
sury and Eximbank.   We again requested the Office of Man-
agement and Budget's comments on February 19, 1971. No
comments have been received,  so this report is being issued
without their comments.

        Eximbank did not comment directly    on our recommendation
that Eximbankls borrowing from the Treasury be increased to
avoid the additional     cost of borrowing in the private       market
but pointed out that use of participation       certificates      and
certificates    of beneficial  interest   were consistent    with
Government policy.     Eximbank did agree that the use of
these methods of financing     did increase these cost of oper-
ations by $72.8 million.

        Treasury,    in its comments, stated that, although it
was difficult      to fault GAO's recommendation on the grounds
of budgetary analysis,          they believed that (1) treating          cer-
tificates     of beneficial       interest    as borrowings   and account-
ing for securities        issued by Eximbank on its own behalf
against the statutory          debt limit would have serious restric-
tive effects      on Eximbankss operations,          (2) should certifi-
cates of beneficial         interest     no longer serve to offset       ex-
penditures     in the Federal budget, the resulting            slack would
have to be taken up by decreased Eximbank authorizations,                     a
larger budget deficit,   or both, and (3) the balance-of-
payments impact of the salesof       certificates      of beneficial
interest   to foreigners would be lost.          Treasury stated also
that they believed that the disagreement between the Office
of Management and Budget and GAO concerning            the method of
accounting   for sales of certificates        of beneficial    interest
in the Federal budget should become far less significant                if
Eximbank were exempted from the budget.

        In our opinion,  restrictions        on EximbankOs activities
because of Federal budget or statutory             debt considerations
would result only after a judgment had been made at the
highest levels of Government that Eximbank's export activi-
ties were not of sufficient         priority    to justify    support at
the reduced levels of Government expenditures              required by
budgetary or statutory      debt limit considerations,            With re-
spect to balance-of-payments         benefits    resulting    from sales
of certificates     of beneficial      interest   to foreigners,      it
should be noted that for the most part these benefits                 are
limited    to the short run since repayments, repurchases due
to "put"' provisions,    and the cost of such sales will,             in
fact, have a negative impact on the U.S. balance-of-payment
position.

        Furthermore,    we do not believe that exempting
Eximbank's operations        from the restrictions        of the Federal
budget will eliminate        the problem,, As shown above, financ-
ing in the private market outside the Treasury has cost
Eximbank $43.2 million         in additional    financing    costs since
fiscal    year 1962 and additional        costs of $29.6 million      will
be incurred      over the remaining life of Eximbank's own secu-
rities,      In our opinion elimination        of Eximbank from the
Federal budget would result          in an increase in Eximbank's
financing     its operations     outside the Treasury,       at substan-
tially    increased costs.

        Moreover, to exclude the receipts      and disbursements   of
Eximbank from the totals        of the Federal budget would con-
stitute    the first  departure    from the unified   budget adopted
as the result of the work of the Commission on Budget Con-
cepts.     It should be noted that approval of bills        in the
Congress to eliminate     Eximbank's operations     from the Federal
budget may well set a precedent for eliminating          other agen-
cies9 lending activities      from the Federal budget.
                                     16
       In its deliberations concerning whether to exclude
lending programs from the Federal budget, the Commission on
Budget Concepts considered   the following  arguments set
forth in a staff paper presented to the Commission,

     O'The case for   excluding   loans   from the budget

            ItSeveral reasons have been given at one time
     or another for treating         loans at the very least
     as something other than ordinary          budget expendi-
     tures or for excluding        them altogether    from the
     calculation     of budget surplus or deficit,        The
     reason for excluding       loans in the NIA budget
     [note 11--that     these are not income items in or-
     dinary accounting      practice--has    already been
     stated.

           "The same conclusion     seems to be suggested
     if we consider the net economic effect        if the
     Federal Government simultaneously        makes a loan
     and finances the loan by borrowing.         We will set
     aside for the moment the case where bonds are
     sold to the central     bank, which is the financial
     equivalent  of printing    new money. If the Govern-
     ment borrows by selling      bonds, its lending and
     borrowing of equal amounts very largely         wash out
     in net economic effect,      depending somewhat of
     course on the type of security       sold and the type
     of loan made.

            "Much of the Federal Government's borrowing
      and relending   is a form of activity    quite differ-
      ent in economic character     from the levying of
      taxes and the purchase of goods and services        for
      public programs.     In many cases, the Government
      is simply acting as a conduit for funds borrowed
      from areas or capital    markets with loanable funds
      to spare, p assing them on to private,      State and
      local government, or foreign parties      who are not
      able to borrow directly    themselves.    In this
      sense, the Government is engaging in financial
      intermediation,   like a bank, a savings and loan

1National   Income Account.
                                  17
association,     or other financial     intermediary.,       By
borrowing and relending,        these institutions       bring
the interests      of savers (lenders)     and borrowers
into balance.        When Government lending activity
is viewed this way, then it seems logical             to
treat loans differently       from ordinary      taxes and
expenditures--     indeed even exclude them com-
pletely--    in calculating   the budget surplus or
deficit."
     *            -/k          *            *            >k


'The case for     includineoans        in the budget

        "Advocates of including        loans in the calcu-
lation    of budget surplus or deficit          point out
that when the Government makes loans, it is not
just acting as a bank or financial             intermediary.
If financial     intermediation      were all that were
required,     the private     sector could well take
care of balancing the interests            of borrowers and
lenders in a country with such highly developed
capital    markets as ours.        Clearly something else
is involved,     specifically      a recognition     that
without Federal intervention,            important public
objectives     would not be accomplished through the
ordinary working of the capital            markets.

        "From this point of view, Federal loan pro-
grams represent a redirection             of national   re-
sources to comply with social priorities.                They
establish      claims on resources and demands for cur-
rent output of the economy that are very hard to
distinguish       from the demands and claims that arise
from Federal expenditures             for grants, transfer
payments, or subsidies--transactions              which are
clearly     included in anyone's measure of Govern-
ment 'expenditures."            'Soft! loans by the Agency
for International        Development to developing         coun-
tries repayable in local currency,              and nonre-
course loans to farmers made by the Commodity
Credit Corporation        (CCC) for which there is no
legal obligation       to repay if the farmer prefers
to forfeit      his collateral,        are only extreme

                               18
     examples of so-called     @loans' which are particu-
     larly hard to distinguish     from ordinary    Govern-
     ment expenditures.     In any event, the burden on
     the Treasury to finance loans through taxes or
     borrowing is not less than--or     different    from--
     the burden associated    with financing     any other
     Government expenditures.9s
          *           *          *           *           *


            v9T~ some, the pressures to minimize budget
     expenditures    and the budget deficit   provide an
     argument for excluding     loans so that the choice
     between direct and indirect      loans can be made
     solely on their respective      merits.  But if loans
     were excluded from the budget, these same pres-
     sures might well lead to an even worse distortion
     of program choices.      The misnaming of grants,
     transfer    payments, and subsidies--to   get them out
     of the budget totals-- might be greatly      stepped
     up.9'
      The sum and substance of the staff paper was the argu-
ment that loans made by the Government would not be made if
adequate credit resources were available      on the same terms
in the private   sector.  Accordingly,    the budget itself
should provide for any redirection     of economic resources
through governmental action.      The effect  of any such pro-
grams should be reported on a net basis, not on a gross
basis, and should be included in the calculations       of budget
surplus or deficit.

      In concluding that lending operations   should be in-
cluded in the Federal budget totals,    the Commission stated:

      "In line with the Commissionvs conviction         that a
      unified    budget system is essential,     and that a
      comprehensive definition       of the budget is very
      important,    the inclusion    of net lending as well
      as other expenditures       in the budget has particu-
      lar significance.      With both in the budget, there
      should be no pressure by special interest         or pro-
      gram partisans    to redesign other expenditure


                                     19
         programs to give them the appearance of direct
         loans in order to get them out of the budget."

Matter     for   consideration   of the ConRress

        In view of the substantial      additional    costs incurred--
$43.2 million    since fiscal     year 1962.-and the additional
costs of $29.6 million     which will be incurred over the re-
maining life of Eximbank's own securities           because Eximbank
has financed its operations        in the private     market to avoid
restrictions    on its activities     because of Federal budget
and statutory    debt limit considerations,        the Congress may
wish to consider whether to require Eximbank to obtain its
funds from the least costly source.            Normally, the source
will be the Treasury;     however, there may be some instances
in which Eximbank may be able to borrow funds in the pri-
vate market at less cost than from the Treasury.              We there-
fore believe that Eximbank should retain           the latitude    to
borrow in the private market only when it can do so at less
cost than through the Treasury.




                                    20
CONCESSIQNARYINTEREST RATES ON
BBR.RGWINGS
          PROMTHE T'REASmY

      Eximbank has received concessionary   interest  rates on
a significant   part of its borrowings  from the Treasury and
thereby has substantially   increased its reported net income
and retained  earnings over what would have been reported had
the borrowings been made at regular Treasury rates.       The
special borrowing arrangements with the Treasury were made
at Eximbank's request and have been in effect periodically
since Eximbank was organized in its present corporate      struc-
ture, in 1945.

     A review of Eximbank's financial    records on its borrow-
ings from the Treasury showed that the savings realized        by
Eximbank as the result of the concessionary     interest   rates
amounted to about $16,8 and $6.9 million     in fiscal   years
1970 and 1969, respectively.   These savings had the follow-
ing effect on Eximbank's net income.

                                               Net income       Percent-
            Reported     Savings due to          without         age of
                net       concessionary       concessionary      differ-
             income            rate               rate            ence


FY 1970        $110           $16.8               $93.2            15.3
FY 1969         104             6.9                97,l             6.6
As shown in the schedule, Eximbank would have reported a de-
crease in net income for fiscal    year 19i?O instead of the re-
ported increase if borrowings   from the Treasury had been
made at regular rates.

       Eximbank officials     have advised us that the reason for
the special interest      rates is that the savings in interest
expense serve to compensate Eximbank for actions taken in
furtherance    of overall    Government policy,       including   the sell-
ing of participation      certificates      for budgetary purposes
and the granting     of low-interest-rate        loans negotiated    by
the Department of Defense with foreign governments to fi-
nance sales of U.S. military          equipment.     Without a

                                      21
concessionary   rate from the Treasury, these actions would
have resulted   in net charges against Eximbankss regular op-
erations.

       The Export-Import Bank Act of 1945, as amended, autho-
rizes Eximbank to borrow from the Treasury up to $6 billion
outstanding   at any one time,, The act provides, in part,
that:

     "Each such obligation     shall bear interest    at a
     rate determined by the Secretary of the Treasury,
     taking into consideration      the current average
     rate on outstanding   marketable obligations      of the
     United States as of the last day of the month pre-
     ceding the issuance of the obligation       of the
     Bank."

       Eximbank has utilized  its borrowing authority     from the
Treasury as one of its principal     means of financing     its op-
erations.    Most of its borrowings have been made at rates
determined by the Treasury in accordance with the suggested
formula outlined   in the act of 1945. However, substantial
sums have been borrowed at concessionary       rates, generally
to compensate Eximbank for certain      programs or loans under-
taken by it in the interest     of national   policy, which other-
wise would have had an adverse effect on Eximbank"s oper-
ating results.

     At June 30, 1970, Eximbank's      borrowings     with   the Trea-
sury were:

                                                    (millions)

Loans made at regular Treasury rates                             $1,005.5
  II     I? at concessionary  rates:
     Discount program support loans          $ 74.9
     Special loan A                            44.0
         I1    II B                           451.0
         II    II  C                           11.0
        Total   concessionary   loans outstanding                   580.9
        Total   loans outstanding                            $1,586.4


                                22
Each type of concessionary-rate          loan is discussed    in detail
below.

       Discount program support loans--These             loans were made
in connection with Eximbankls discount loan program, which
involved    the granting    of loans to commercial banks on the
basis of their holdings        of export debt obligations.          In
April 1968 Eximbank made several revisions               to the program
in order to encourage additional           activity     on the part of
commercial banks.       One revision     involved a decrease in the
interest    rate charged commercial banks for net increase
loans, one of the two types of loans available                under the
program.     The concessionary     rates granted to Eximbank by
the Treasury on loans to finance this program were arranged
to offset    the decrease in interest         rates charged by Eximbank.
The arrangement permits the Treasury to provide financing
to Eximbank at the same rate that Eximbank is charging the
commercial banks.        It alsopermitseach         loan from the Trea-
sury to be tied directly        to specific      discount loans made by
Eximbank.

       At June 30, 1970, Eximbank's borrowings outstanding
with Treasury for this program amounted to $74.9 million.
Treasury rates on loans to Eximbank during fiscal              year 1970
in support of the discount loan program ranged from 5-l/8 to
6 percent,    while Treasury's    regular rates for this period
ranged from 5-3/8 to 6-3/4 percent.           The interest-rate      con-
cession on these loans ranged from l/8 to l-l/2             percent,   re-
sulting    in an interest   savings to Eximbank of approximately
$714,000 in fiscal      year 1970.    In fiscal    year 1969 the in-
terest savings amounted to $203,000.            These amounts were
computed by comparing Treasury's         regular rate of interest
with the rate charged Eximbank at the time the funds were
disbursed.

      It should be noted that the concessionary-rate   arrange-
ment in this case was made to offset a decrease in interest
income resulting   from a decision by Eximbank to revise one
of its programs.     This decision was made by Eximbank to im-
prove one of its programs rather than to carry out overall
Government policy.




                                    23
       In July 1969 Eximbank made further      revisions    to its
discount loan program.        It no longer uses concessionary-
interest    loans from the Treasury to make new loans under
the program,       As of June 30,1970, however, borrowings       still
outstanding     with the Treasury with concessionary-interest
rates resulting      from discount loan operations     during the
period April 1968 to June 1969 amounted to $74.9 million.

       Special loans A and B--These two loans were negotiated
with the Treasury in July 1964. They differ              from the
concessionary-rate      loans granted by Treasury to support the
discount program, in that Eximbank may draw down and repay
repeatedly     at the original    rate of interest.        Also, al-
though the notes given to Treasury for these loans carry
maturity    dates, the understanding       with Treasury permits
Eximbank to renew these loans at maturity,             at the same rate
of interest.       The understanding    also   provides    that, should
Eximbank repay these loans earlier           than scheduled,      it may
at any later time borrow from the Treasury at the same in-
terest rates in amounts up to the original            maximum amounts.
In effect,     these loans are a maximum line of credit at fixed
interest    rates-- 3 percent on amounts up to $451 million            and
3-l/8 percent on an additional         $44 million--which       is avail-
able to Eximbank indefinitely.

       The available     records on the negotiations          leading up
to these loans are not entirely            clear,      It appears, however,
that the loans were meant to compensate Eximbank for actions
taken by it in carrying          out national     policy,   which adversely
affected    Eximbank's operating       results,     such as the selling
of participation      certificates     and the granting       of low-
interest    loans to foreign governments to finance purchases
of military     equipment in the United States.

      Participation  certificates     in Eximbank!s loan portfo-
lio were sold starting      in 1962.    In negotiating     the
concessionary-rate   loans with the Treasury,         Eximbank stated
that the sales of participation      certificates       were carried
out at the direction    of the Bureau of the Budget for budget-
ary purposes and that the sales had an adverse effect on
Eximbank's net income.       Eximbank pointed out that the end
result of the sales was that Eximbank was raising             cash in
excess of its needs at a cost of 5- to 5-l/Z-percent              inter-
est and using the proceeds to prematurely          retire   Treasury

                                    24
loans made several years earlier    which carried   interest
rates of 3 and 3-l/2 percent.     In the case of the military
sales loans, Eximbank was directed     to grant loans, negoti-
ated by the Department of Defense, at low-interest        rates.
Without the concessionary   rate granted by the Treasury,
Eximbank would have incurred    a net loss in making these
loans.

       At the time this concessionary-rate           agreement was ne-
gotiated    with the Treasury in July 1964, the Treasury's
regular rate on borrowings was approximately              4-l/4 percent,
thus Eximbank was given a concession of l-1/4 percent on
$451 million     and l--l/8 percent on an additional           $44 million.
Eximbank's records show that the amounts outstanding                   under
this agreement have fluctuated           in line with Eximbank's cash
position.      At one point in 1967, all Eximbank borrowings
from the Treasury,       including    loans carrying     concessionary
interest    rates, were liquidated         as the result   of the large
influx    of cash from heavy sales of participation             certifi-
cates.     Subsequently,     when Eximbank again needed cash to
finance its operations,         new loans were obtained from Trea-
sury at the 3- and 3-l/B-percent            rate.

       At June 30, 1970, the maximum amounts authorized          by
the concessionary-rate      agreement outstanding     were $451 mil-
lion at 3 percent and $44 million        at 3-l/8 percent.      The
interest   savings realized     by Eximbank under this agreement
amounted to $15,644,625 in fiscal        year 1970 and $6,352,148
in fiscal   year 1969.    These amounts were computed on the
basis of the difference      between the Treasury's     regular rate
and the concessionary     rate at the date of disbursement.
This difference     ranged from 3 to 3-l/4 percent on disburse-
ments entering    into the computation     for interest    savings
realized   by Eximbank in fiscal     year 1970.

       Special    loan C--Eximbank's      records indicated      that this
loan was made in relation          to lend-lease   termination      loans
extended by Eximbank to several European Countries                 immedi-
ately following       World War II..     These loans were made by
Eximbank at 2-3/8 percent and were originally              financed with
borrowings     from Treasury at a rate of 1 percent.'            The orig-
inal loans from Treasury;         however, carried     shorter maturi-
ties than the related        lend-lease     loans, necessitating       the
refinancing      of outstanding     balances with new loans from

                                    25
Treasury       in 1959.   The Treasury   agreed to refinance   matlaring
loans   with     Eximbank at an interest     rate of 2-3/8 percent,
the same rate Eximbank was earning on its loans to the Eu-
ropean countries,   This rate represented    a concession  sf
less than 1 percent from Treasury on the basis of the regu-
lar Treasury rate in effect at that time.      Outstanding bal-
ances on these loans have fluctuated     as the result of pre-
payments by Eximbank and subsequent reborrowing,

       For example, in 1967 Eximbank repaid the outstanding
balances due the Treasury in full but subsequently      borrowed
additional   amounts at the Z-3/8-percent     rate. The agree-
ment with Treasury on these loans provides that the total
borrowings by Eximbank outstanding     at any one time at Z-3/8
percent cannot exceed the outstanding      balance due Eximbank
under the Z-3/8-percent    lend-lease  loans.
      At June 30, 1970, Eximbankss outstanding   balance with
Treasury at 2-3/8 percent amounted to $11 million,      The in-
terest savings realized   by Eximbank on these loans, using
the amount of concession at the date of disbursement,     was
$435,000 in fiscal   year 1970 and $333,000 in fiscal   year
1969.
Conclusion

        The concessionary-interest-rate            arrangements with the
Treasury do not result        in any real savings to the Govern-
ment because of the interagency             nature of the transaction.
As previously     discussed,     Eximbank      has justified       its practice
of obtaining     concessionary      interest      rates to compensate for
financing    its operations      through the sale of participation
certificates     and certificates        of beneficial       interest   and
for having made certain         relatively      low-interest-rate       loans,
all in furtherance      of national        polqcy.     Since these actions
would not have been taken on Eximbank's own initiative,
Eximbank does not believe it should be called upon to ab-
sorb the net additional         costs involved,
       Although Eximbank's position    does have some merit if
such loans were made in the national       interest   and not in the
ordinary    course of Eximbank's business,     the argument against
the practice     of adjusting costs through the use of conces-
sionary interest     rates appears to be more persuasive     from

                                        26
the standpoint   of good accounting.    This argument, simply
stated,  is that an accurate measurement of the financial
results  of an activity    can only be obtained if the full
costs of carrying    out that activity  are applied against the
revenues generated,

        In the case of Eximbank, it must be recognized            that,
even though Eximbank is a Government corporation              with wide
discretionary      authority,     it is at the same time a part of
the executive      branch.     It may therefore    be called upon to
take certain      actions in the interest       of overall   Government
policy that will incidentally          have an adverse effect       on
Eximbank's net income.           When such actions are taken by
Eximbank, they become part of the operating             record and any
financial     statements purporting      to show the overall      finan-
cial results      of Eximbank's operations       should reflect     the
full financial      effect    of those actions.

      We believe that, if Eximbank were charged the current
average Treasury borrowing rate on all of its loans from
Treasury,  a more accurate measurement of the Government's
cost of carrying    out Eximbank's activities      would result.
Therefore,    in a draft of this report furnished       to the Secre-
tary of the Treasury and to the President of Eximbank, we
stated that we believed      that they -should renegotiate     the
agreement concerning concessionary       interest   rates charged
Eximbank on certain     Treasury borrowings     so that the interest
rates charged would approximate       the current average borrow-
ing costs paid by Treasury.

Analysis   of agency action     and comments
       In commenting on our draft report,        both Eximbank and
Treasury stated that they did not believe that the "cost"
of Eximbank's low-yield        loans made in the national    interest
should be borne by Eximbank.          The President  of Eximbank in
his comments dated February 9, 197.1, stated that he believed
the criteria     for reporting     such costs should not be dictated
by the immediate source of funds but, rather,          should be re-
lated to the purpose served by the granting          of the respective
loans o The Assistant       Secretary of the Treasury for Inter-
national    Finance in his comments dated February 2, 1971,
stated that:


                                    27
     1. "It would seem that   when acting for the Gov-
        ernment in a role which it [Eximbank] would
        not be likely  to undertake on its own, some
        sort of concessionary   rate is -justified, and
        ***ss

     2, "It is quite reasonable that the concessionary
        borrowing lines should not exceed the out-
        standing amount of underlying   low-interest
        paper,   but to eliminate them seems   punitive."

Although the President of Eximbank expressed some disagree-
ment with our recommendation he did advise us that:

            '!As a result of your draft report and its
     recommendation in this regard, we have thoroughly
     researched these so-called      'concessionary'     borrow-
     ings and the reasons therefor.        In summary, we
     have found that the Bank's 'how-cost borrowings
     were originally     intended to offset its low-yield
     loans made in the over-all     national    interest   and
     that this contra relationship      between source and
     application     of particular Bank funds has inadver-
     tently been lost over the years.

            "Accordingly,    we have proposed to Treasury
    a new agreement in this regard whereby our low-
    interest    borrowings from Treasury would be tied-
    in directly      to the rate, term, and amount of the
    outstanding      balances of those loans which we have
    made at concessionary       terms in the national       in-
    terest.     Thus, such borrowings     from Treasury
    would be paid-down as Eximbank in turn received
    payments on its contra loans outstanding           (this
    has not generally       been the case heretofore).

           "We believe     such an agreement would be a
    fair one and would establish        a direct and logical
    relationship      between the BankDs low-interest      Trea-
    sury borrowings and its concessionary        national-
    interest     loans; we are hopeful that such an agree-
    ment will be reached in the very near future."



                                  28
       Subsequent to our review, Eximbank officials            advised
us that Eximbank and Treasury began to implement the borrow-
ing arrangement outlined       above; and, as of March 22, 1971,
$278,6 million     had been borrowed by Eximbank in the manner
described above.       The effect    of this revision     will be to
eliminate    a portion   of the concession given to Eximbank
because of its low-cost borrowings           from the Treasury.       In
view of the fact, that the low-interest-rate            loans made by
Eximbank in the national       interest    yield less than the rate
at which the Treasury is able to borrow funds, the Treasury
will be absorbing the cost of these national            interest    loans.
This cost will be buried in the interest           cost on the na-
tional    debt.

        We believe that the full cost of all Eximbank activi-
ties, both those which it incurs in the national             interest
and in the ordinary       course of its business,     should be borne
by Eximbank and should be reflected        on any financial        state-
ments purporting       to account for all of its operations.           In
our opinion,      moreover, the record is not clear concerning
the purpose of the low-interest-rate         loans which Eximbank
officials     claim were made in the national      interest.       Our
examination      of the resolutions   of Eximbankss Board of Direc-
tors showed that the loans, although made for military                equip-
ment and services at less than Eximbankgs going interest
rates, were approved on the baszs that they would facilitate
U.S. exports and were charged against the authority               pro-
vided by the Congress to Eximbank to make loans to finance
and facilitate      the making of U.S. exports.

        We continue to believe       therefore   that, if Eximbank
were charged the current average Treasury borrowing rate on
all its loans from the Treasury,            a more accurate measure-
ment of the Government"s cost of carrying             out Eximbank's
activities,      both its normal export activities         and those it
takes in the national      interest,      would result.

Recommendations.

       Therefore,  we recommend that the Secretary of Treasury
and the President    of Eximbank renegotiate      the agreement con-
cerning concessionary     interest    rates charged Eximbank on
certain   Treasury borrowing     so that the interest   rates


                                     29
charged will approximate     the current   average   borrowing   costs
paid by Treasury.

      Moreover, so that the Congress may be fully          informed
of all of Eximbank's activities,       we recommend that Eximbank
fully  document and describe in its annual reports to the
Congress any activities    it performs in the national         inter-
est that it would not perform in the ordinary          course of its
business.   We also believe that Eximbank's annual financial
statements would be more informative         if the financial     re-
sults of such activities     were disclosed     separately    on
Eximbank's annual financial      statements.




                                 30
                              CHAPTER3

                            LOAN OPERATIONS

LOAN AUTHORIZATIONS

       During fiscal  year 1970, Eximbank authorized   new loans
totaling    $2,093.6 million, net of cancellations   and partici-
pations in current authorizations,    which were classified      by
Eximbank as follows:

                                      Number of          Amount
        w       of credit         authorizations       (millions)

   Long-term capital  loans              150            SJ14.1
   Commodity loans (note a>                1                 75.0
   Discount loans                        765               504.5

        Total                            916            $2,093.6
                                                         -

'A l-year credit made annually      to support     the export   of U.S.
  cotton to Japan.

        Long-term capital   loans are dollar    credits  extended di-
rectly    to borrowers outside the United States, generally         on
repayment terms of 5 years or longer (average 6-l/2 to 8-l/2
years) for purchases of U.S. goods and services.           The cur-
rent interest     rate charged on direct    loans is 6 percent per
annum, and repayment is normally made in semiannual install-
ments beginning 6 months after delivery         of purchases or com-
pletion    of the project   financed.

       In February 1970 Eximbanlc adopted a policy with respect
to loans to developed countries      for military  equipment and
services of charging interest     rates equivalent   to the rate
charged Eximbank on its borrowing from the Treasury.         During
fiscal   year 1970 this rate ranged from 6-5/8 percent to 7-7/8
percent.     Eximbank also charges the borrower a commitment
fee equal to l/2 of 1 percent per annum on the undisbursed
balance of the loan.

        The principal  items being financed with      the $1,514.1
million    of long-term capital   loans authorized      in fiscal  year
                                   31
1970 are jet aircraft,      $588.3 million     or 39 percent     of autho-
rizations;    atomic and thermal     electric    power projects?
$311.6 million     or 20 percent   of authorizations;       and defense
articles   and services,    $286.4 million     or 19 percent     of autho-
rizations.

        With respect       to loans for defense        articles        and services,
the Foreign      Military        Sales Act of 1968 (22 U.S.C.            2751-2772)
prohibits     Eximbank from extending            loans in connection          with
sales of defense          articles     and services    to any economically
less developed         country.       Three countries,      Australia,      Italy,
and Spain,     which received          loans for defense        articles    and ser-
vices     from Eximbank during           fiscal  year 1970 are considered
developed     countries.

       To ensure that Eximbank's           financial         resources        supplement,
rather   than compete with,        private      sources        of export        financing
and that Eximbank"s        resources     are extended            to the largest
possible    number of projects,         Eximbank has           adopted a policy
of seeking,     at all times , private          financial         participation          in
any transaction     requiring      Eximbank direct             lending.,

        This policy,       termed participation             financing,         is the com-
bining     of Eximbank's       direct    lending     with loans provided               by
private      sources     of funds.     It is the "blending"                of Eximbank's
direct     loans provided        at the current         interest       rate of 6 per-
cent per annum with the privately                 supplied        funds at the com-
mercial      rate of interest.         This policy          moderates        the effective
rate the borrower          must pay to finance            the transaction           and is
usually      competitive      with the rate of interest                offered      by
non-U.S.       suppliers    on comparable        sales,

        Under its other major lending            program,   the discount     loan
program,     Eximbank will    lend to U.S. commercial             banks and Edge
Act corporations1       up to 100 percent         on their    eligible   export
debt obligations.        Debt obligations         which are not eligible
include     (1) exports   of military      articles      or services,    (2)
transactions      fully  guaranteed     outside      of Eximbank's


1
    Corporations      organized      for the purpose    of engaging           in inter-
    national     or foreign     financing    or banIcing activities             under
    the Edge Act (12 U.S.C.            611).


                                           32
medium-term      guarantee    and insurance    programs, 1 (3) transac-
tions   negotiated      in cooperation    with Eximbank and with re-
spect to which Eximbank has either            made a loan or given a fi-
nancial   guarantee       on a loan made by a commercial       bank, and
(4) exports      to, or for use in, any nation         which engages in
armed conflict       with the U.S. or which furnishes        items to
such a nation.

      The interest     rate charged on discount       loans is l/2 of
1 percent    less than the yield     to the commercial      banks when
the underlying     debt obligations     are guaranteed     or insured    by
Eximbank under the medium-term         guarantee   or insurance     pro-
grams and 1 percent       less than the yield     to the commercial
banks when they are not guaranteed          or insured.     In no event,
however,   will   Eximbank's    rate be less than 6 percent       per
annum.

        The discount      loan program was initiated                 in September
1966 to assist        commercial      banks to increase            their      financing
of the export        of U.S. products           and services*          The program
is designed       to provide      credit      for exports       during       periods    of
tight     money.     On July 1, 1969, Eximbank revised                     the terms of
the program substantially              in order      to alleviate          the shortage
of funds which were constraining                  commercial       bank financing
of exports       sold on medium terms.             As a result,          in fiscal
year 1970,       net  new   discount      loan    authorizations           amounted to
$504.5 million,        or 24 percent          of the total       net new loan au-
thorizations;        a considerable         increase      from the net discount
loans of $58.4 million            authorized       in fiscal       year 1969.


1 See ch.    4 of    this   report     for   descriptions        of   these    programs*




                                             33
     RESULTS OF LOAN QPEl@TiONS
     --
            Following             are the   results     of loan operations  (excluding
     discount     loans)           during   fiscal     years 1970 and 1969.

                                                                1970                  1969

                                                                    (000     omitted)

             Interest  and fee          income               $300 :,590           $266,948
             Other income                                             7                  177

                          Total                                3GO,597             267,125

             Less:
                     Interest      expense                     189,324             162,148
                     Administrative        expenses              3,922               3,016
                     Other expenses and losses                      200                 101

                          Total                               193,446              165,265-

                          Net gain                           $107,151
                                                              --                 $101,860
                                                                                  ____-
              The net      results for the discount   loan                 operations         for
    fiscal      years      1970 and 1969 were as follows:

                                                              1970                 1969
                                                                                   -..

                                                               (000        omitted)

               Interest       income                        $16,532            $11,303

               Less :
                    Interest      expense                    14,118              18,403
                    Administrative        expense                 30                      6

                            Total                            14,148              10,409

                            Net gain                       GLx!4
                                                            __-__              $-.J-i%i
                                                                                _.----

    NEW TYPES OF LOANS

N
            During  fiscal   year 1970 Eximbank developed                         two new 'types
    of   loan programs     designed to assist  U.S, export                        markets;

                                                      34
namely      the Relending        Program      and the Cooperative             Financing
Facility.

        Relending       loans

         Under Eximbank*s         relending        program,       direct    loans are
made to foreign          lending      institutions         for the purpose           of re-
lending       to small and medium-size               establishments         desiring        to
purchase        U.S. products       but lacking         the experience          or finan-
cial     strength      to deal directly           with Eximbank.           Eximbank has
made this        type of loan for several               years;     however,       in August
1969 the relending            program was restructured,                  so that,      the
primary       thrust    was that of export            promotion.          Under the pro-
gram9 Eximbank makes export                  financing       available      to small
buyers and attempts             to enhance the competitive                 position       of
U.S. exports         in foreign      markets.         In restructuring            the pro-
gram, Eximbank also extended                   the definition          of eligible        bor-
rowers to include           foreign      branches       of U.S. financial            insti-
 tutions      and both U.S. and foreign               trading       companies.

      During      fiscal     year 1970 Eximbank authorized       24 relending
loans amounting          to $76.1 million    in favor   of foreign    finan-
cial  institutions         in eleven countries.       These loans ranged
from $500,000         to $6,000,000.

       In July 1970 Eximbank         further      revised     the Relending      Pro-
gram by (1) standardizing         the interest          rates    charged    on sub-
loans,   (2) authorizing      credits      in multiples         of $1 million,
and (3) charging      the relending        institution        a commitment     fee
of l/2 of 1 percent      per annum on the undisbursed                 balance    of
the loan,

        On the basis of limited       experience       and the amount of
interest     shown by foreign    financial      institutions    in many
parts    of the world,   Eximbank believes         that this program will
assist     in increasing   U.S. exports.

        Cooperative        Financing       Facility

          In April     1970 Eximbank established             the non-U.S.       Bank
Joint      Financing        Program,  now called      the Cooperative         Financing
Facility,        to enable selected         foreign     financial    institutions
and overseas          affiliates     and branches       of U.S. banking         institu-
tions       to assist       foreign  buyers    in financing       up to 90 percent

                                                35
    of ;hc CGSt     Of   purchasing        u.s,     gUGdS and services               for export.
    This program       is similar      to Eximbankss           relending         program        in
    that a line     of credit      is extended           to financial          institutions
    to enable them to finance              the purchase          and exportation              of
    u ,S. goods and services           by foreign         buyers.       However,          the Co-
    operative    Financing      Facility        differs      from the Relending
    Program in that Eximbank             finances       only 50 percent             of the
    transaction     and the cooperating              financial       institution            fi-
    nances the remaining          50 percent;          whereas,      under the Relend-
    ing Program,     Eximbank makes a loan for the full                          amount of
    the transaction       financed.

            Under the Cooperative      Financing       Facility,        Eximbank en-
    ters into an agreement         to make specific         amounts of funds
    available      to the cooperating     financial       institutions          for spe-
    cific    periods    of time for joint      financing        of purchases          of
    U.S. goods and services.          The cooperating           financial       institu-
    tion or Eximbank may suggest          that a particular             purchase        trans-
    action    be considered     under their      agreement        but both must ap-
i   prove the subloan.         These agreements        require       Eximbank to pro-
    vide its share under one of the three following                       alternatives.

             Alternative        A--Eximbank     and the cooperating          financial
    institution          each extend a loan for 50 percent               of the financed
    portion       of each transaction          directly     to the buyer.        Each as-
    sumes both political              and commercial      risks     on its portion;
    however,        the cooperating       financial     institution       may obtain   a
    financial         guarantee     from Eximbank covering           its risks.

             Alternative       B--Eximbank       extends     a loan,    equivalent       to
     50 percent        of the financed       portion      of each transaction,           to
     the ccoperating         financial     institution,         which extends        a loan
     for 100 percent         of the financed         portion      to the buyer and as-
    sumes both political             and commercial        risks1    on the entire
    loan.       The interest       rate charged by the cooperating                financial
    institution         on the portion       covered by Eximbank's           loan maysnot
    e,xceed Eximbank's          interest     rate by more than Z-1/2 percent.


    1
     See pe 38 of        this    report     for   a description         of   these    risks.




                                                  36
     Alternative  C-- This option is the same as alternative
B except that Eximbank will extend a financial     guarantee to
cover the borrowing from another financial   institution    to
make up the remaining 50 percent of a loan not advanced by
Eximbank.

        During the period June to November 1970, Eximbank estab-
lished under this facility          lines of credit       totaling $134 mil-
lion to six cooperating        institutions.         Two major recipients
were the Bank of America and the First National City Bank of
New York which received $50 million              and $60 million,    respec-
tively.      These U.S. institutions         qualify   for the program as
they have overseas affiliates            or branches in several coun-
tries which can make use of the lines of credit.




                                     37
                                     CHAPTER4

                    GUARANTEEAND INSURANGEOPERATIONS

             Section 2(c) of the Expsrt-Import          Bank Act of 1945, as
     amended, authorizes       Eximbank to guarantee,       insure, coinsure,
     and reinsure       U.S. exporters    and foreign exporters       doing
     business in the United States against commercial-credit                  and
     political      risks of loss due to nonpayment arising            in connec-
     tion with U.S. exports.          Commercial-credit     risks include
     the insolvency       of a buyer and the protracted        default     of
     payment by a buyer.        Political    risks include the actions
     taken by a foreign government-- such as currency convertibil-
     ity restrictions,       export and import restrictions,          war, rev-
     olution,     civil   commotion, and expropriation--which           prevent
     consummation of payment for a sale.

            Eximbank does not insure nor guarantee the full amount
     or contract      price of items exported;      its liability    as to
     principal     is determined after deduction of the required
     cash down payments and the percentage of the financed por-
     tion not underwritten          and is based on the instructions      es-
     tablished     for the various risk markets.        For purposes of
     assessing premium fees and establishing           guidelines    for its
     guarantee and insurance programs, Eximbank classifies              for-
     eign markets into four groups or risk markets--A through D.
     Countries are graded according to their degree of economic
     and political       stability,    the A market being composed of the
     lowest risk countries          and the D market the highest.

            Although U,S. exporters    are protected    against the same
     types of commercial and political       risks under the Eximbank
     insurance and guarantee programs, the approach under each
     of the two systems is different.        In the case of insurance,
     it is the exporter who seeks the insurance from the Foreign
     Credit Insurance Association      (FCIA) and follows through with
                                                                                    .
     the necessary paper work.      If he desires financing,      he as-
     signs the proceeds of the insurance policy to his bank.             In
.”   the case of a guarantee,    the commercial bank seeks the guar-
     antee, from Eximbank for a credit       it is willing    to extend
     to an exporter.     The commercial bank before submitting        an
     application    to Eximbank must make a judgment as to the sound-
     ness of the transaction    and must do the necessary paper work.

                                         38
        The principal      distinction    between the general nature
of Eximbank's guarantee and insurance programs involves                  the
beneficiaries      participating       in the programs.     That is, com-
mercial banks are generally            the beneficiaries    in the guar-
antee program, whereas exporters             are the principal    benefi-
ciaries    in the insurance program.

GUARANTEEOPERATIONS

       Eximbank issues guarantees,      generally  to commercial
banks9 to cover the repayments of their medium-term (6 months
to 5 years) financing      of U,S. export sales.      Under the com-
mercial bank exporter guarantee program, Eximbank guaran-
tees the payment of export debt obligations          acquired by
U.S. banking institutions,       without recourse,    from U.S. ex-
porters.    Eximbank's financial      guarantee program guarantees
the repayment of direct      loans made by financial      institutions
to foreign purchasers of U,S. goods and services.              In cer-
tain instances Eximbank also extends its guarantees directly
to exporters    of U,S. goods and services.

      During fiscal    year 1970 Eximbank authorized    902 new
guarantees and increases in existing       guarantees totaling
about $612.5 million.,      As shown in the following   summary,
there was a substantial      increase in the dollar value of the
guarantees authorized      during fiscal year 1970.

                Total
             amount of           Amount by type of guarantees
Fiscal      guarantees                     Commercial
 year      -authorized        Financial   Bank exporter     Exporter

                                      (millionsF--

  1966        $300.1           $ 94.2                $203.8         $ 2.2
  1967         193.0             23.4                 168.1           1,5
  1968         290.0             59.2                 229,9             .9
  1969         396.9            112.3                 27705           7*1
  1970         61265            335,5                 265.1          11.9

      The substantial      increase in the dollar   amount of guar-
antees authorized     during fiscal    year 1970 resulted    from in-
creased emphasis by Eximbank of its policy of seeking pri-
vate financial    participation     in transactions  requiring

                                     39
direct   Sending.     Under this method of financing          U.S. ex-
ports 9 which is called participation          financing,     Sximbank
makes a direct     loan at its current rate of interest            of 6 per-
cent per annum for a portion         of the financjng      required and
guarantees the repayment of credit extended by private                 lend-
ers at the commercial rate of interest            for the remaining
portion of the financing       under the financial        guarantee pro-
gram.   Forty-five     of the  52  financial     guarantee3    authorized
by Eximbank during fiscal       year 1970 were issued in combina-
tion with Eximbank direct       loans.     Prior to fiscal      year 1970,
only a limited     number of financial       guarantee3 were autho-
rized in this manner,
        Authorization3       under the financial     guarantee program
ahso increased due to expansion of the program beginning                   in
August 1969 to cover loan3 made by foreign               financial    in-
stitutions      for the purchase and exportation           of U.S. good3
and services.        During fiscal      year 1970 nine glJaran%ees were
issued to foreign financial           institutions    covering loans
totaling     over $70 million.        with    such a guarantee,     a for-
eign financial       institution     may loan funds for exports with
the assurance,       that Eximbank will absorb related           losses,
wholly or in part, if such a loan is not repaid in accor-
dance with the respective          loan agreement.

        Foreign financial    institutions    currently   eligible     to
participate     in Eximbank's guarantee program include,           but are
not limited     to, overseas offices      of U.S. trading companies,
foreign branches of U.S. commercial banks and investment
banks, foreign      trading companies, public or private          foreign
commercial investment and development banks.
      As a general rule, a financial      guarantee will not be
extended to a foreign financial.    institution    whenever private
U.S. sources of funds are willing      and able to finance the
transaction  on reasonable terms.

      In addition    to extending its guarantee program to for-
eign financial    institutions,   Eximbank,, during fiscal year
1970, also expanded its guarantee program to include

      1. political-risk       guarantee    coverage   on U.S. equipment
         used by U.S. contractors          in their   performance on
         contracts      abroad,


                                     40
     2. financial    guarantee coverage to non-U.S. financial
        institutions     which provide local-cost1 financing
        necessary to support sales abroad of U.S. goods and
        services,    and

     3. financial guarantees of loans extended by either
        U.S. or non-U.S. commercial banks for engineering
        planning and feasibility  studies performed by U.S.
        firms,

      For fiscal year 1970 Eximbank records show a net gain
from guarantee operations  of $1,351,000 compared with a net
gain of $1,544,000 for fiscal  year 1969, a decrease of
$193,000.
                                             1970             1969

Guarantee fees                           $2,306,000       $2,181,000
Claims recovered                             157,000          416,000

                                           2,463,OOO       2,597,ooo

Less:
     Administrative     expenses             992,000          847,000
      Nonadministrative    expenses            3,000            1,000
      Claims paid (cash basis)               117,000          205,000
         Total                             1,112,ooo       1,053,000
         Net gain                         $1,351,000
                                           ______         $1,544,000

     Accumulated     net income from the inception        of the pro-
gram to June 30,     1970, totaled     $10,252,598.    In view of the
fact that claims     are accounted for on a cash basis, this
amount does not     give consideration      to any provision    for

1Local costs are those expenses incurred           by the buyer of U.S.
 goods and services for the purchases in his own country,              of
 goods and services associated        with the transaction.       T-hey
 may include expenses for engineering          services;  public util-
 ity connections;  locally    available     construction    materials,
 labor, equipment installation;         employee housing; and simi-
 lar items of host-country      origin.


                                  41
estimated future losses resulting             from program activity
through fiscal  year 1970.

--INSURANCEOPERATIONS
        Eximbank, under an agreement with FCIA, currently                   com-
posed of about 50 private             casualty,    property,      and marine in-
surance companiess provides comprehensive export insurance
and political-risk-only            insurance to U.S. exporters.            Compre-
hensive insurance policies             cover both commercial-credit          and
political     risks.      Policies     are further     classified     between
short-term      transactions       (up to 180 days) and medium-term
transactions       (181 days to 7 years).

Contract    with   FCIA

        The agreement between FCTA and Eximbank is designed to
allocate      income and expenses of the program in such manner
as to provide FCIA with a limited            profit   for its services.
At any time mutually agreed upon, FCIA and Eximbank can
reallocate       between themselves such income and expenses to
meet this objective.          Several such changes have been made
 since theoriginalagreement           was signed in 1961 that were
specifically       designed to assist FCIA in operating          on aprofit-
able basis.         At the present time, FCIA receives 80 percent
of comprehensive premium income9 net of commissionsp and
assumes 55 percent of the related            expenses while Eximbank
receives 20 percent of the income and assumes 45 percent of
the expenses.        There is a profit     limitation    provision    in the
agreement, however, which stipulates             that, if the under-
writing     result at the association        level is a cumulative net
profit    after taxes9 Eximbank and FCIA shall share this
profit    equally.      Eximbank also receives net premium income
from political-risk-only         policies    not underwritten      by FCIA.

      The joint Eximbank-FCIA insurance program generates,in-
vestment income in addition     to premium income.     This income
is earned primarily  from investing     cash reserves for future
insurance losses in certificates      of deposit and short-term
commercial notes.   The Eximbank-FCTA agreement provides that
investment income be allocated     on the basis of the propor-
tion of the funds that each has outstanding       as reserves for
future losses.


                                      42
        The agreement between Eximbank and FCIA provides that,
for short-term     insurance transactions,       member companies of
FCIA assume the commercial-risk        losses of the first     $150,000
for any one buyer and that losses in excess of that amount
be borne by Eximbank.        For medium-term or combined short-
term and medium-term policies,        FCIA is permitted    to select
the amount of commercial-credit        risk it wishes to assume
and Eximbank assumes the balance.          Any resulting   losses on
such policies     are borne by Eximbank and FCIA in proportion
to the risks each has assumed. Eximbank assumes all the
political    risk of loss insured against in both the compre-
hensive and political-risk-only        policies.




                                   43
NEW TYPES OF POLICIES

       During fiscal    year 1970 Eximbank made a market survey
and an analysis of the types of export insurance being
offered.     On the basis of the results        of this survey, Exim-
bank introduced      several new types of export insurance which
it believed were responsive           to the needs of U.S. exporters
and export financing       institutions.

     1. Small business policy-.-A policy, covering a 2-year
        period,  provides comprehensive coverage of pclitical
        and commercial risks for all or any desired portion
        of short- and medium-term sales of newcomers in the
        export business or those who have modest sales.
        This coverage is intended for companies whose annual
        export sales do not exceed $200,000.    The cost of
        these policies   is minimal.

     2.   Catastrophe policy--This    policy covers political            and
          commercial risks in various percentages of effective-
          ness for all of an exporter's       transactions     made on
          credit   terms up to 5 years.     It is designed to pro-
          tect against the danger of catastrophic           experiences
          that otherwise would inhibit      interest     and participa-
          tion in exports.    The  exporter     can  obtain   political_-
          only coverage on all of its exports and may determine
          whether he wishes to have commercial-risk           coverage
          on sales to a preselected     group of buyers, in excess
          of an agreed deductible    amount.

     3. Short-term    and medium-term comprehensive policies--
        This policy provides comprehensive coverage for both
        commercial and political     risks on all or a reasonable
        spread of an exporter's     short- and medium-term
        credits   for periods up to 5 years.     The deductible
        feature referred    to above will also be included in
        this policy.

     4. Short-term  and medium-term
                           ---          political    policies--For
        exporters who want political-risk         coverage only,
        this policy provides the broadest possible coverage
        without the inclusion   of commercial coverage.



                                    44
       5.    Initial-inventory           coverage--This coverage allows
             exporters         to extend, to new dealers and distributors
             abroad, repayment terms of up to one full year for
             the initial         stocking of parts, accessories,    and
             other shelf items.
       6. Agricultural     policy--In       recognition     of the fact that
          exporter margins are usually            2 percent or less in
          the case of most bulk agricultural              commodity ship-
          ments, this policy was established              to reduce the
          minimum    supplier    participation        from 5 percent to
          2 percent in supplier          credit coverage relating       to
          agricultural     commodities.

       These new types of policies       are designed to benefit      the
exporter     by reducing the cost of the protection.         The phi-
losophy behind this new approach is to provide protection              to
the exporter      for credit risks in exporting,     which are of
such magnitude that it should not normally be expected to
assume in the course of business.          To 'the extent that finan-
cially   capable exporters     are willing   to accept "deductibles"
which exceed their expected credit losses,          the cost of the
insurance can be reduced and the decisionmaking           process
accelerated.

Results      of insurance   operations

      During fiscal  year 1970, FCIA authorized  the insurance
of new and renewed policies    totaling $1,145.7 million.     A
brief comparative   summary of policies  issued during fiscal
years 1970 and 1969 follows.
                                Fiscal year 1970                  Fiscal  year 1969
                            Number of       Amount             Number of.      Amount
                            policies      (millions)           policies      (millions)
Issued and renewed:
     Short-term   compre-
       hensive                 1,062          $   733.9          1,059          $604.1
     Short-term   politi-
       cal                        84                66.4             86            62.1
     Medium-term   com-
       prehensive             1,500               340.3          1,050           147.9
     Medium-term   polit-
       ical                       36                     5.1         65          - 10.2
            Total             2,682           $l,lG.‘Y           2,260          $824.3


                                         49
        Eximbank records      showed that it incurred      a loss of
 $166,000    in the insurance      program for the fiscal      year ended
June 30, 1970.      A brief      comparative     summary of the results
of the insurance      operations      for fiscal    years 1970 and 1969
follows.

                                                              1970                 1969

           Premium       income                             $717,000             $515,000

           Less:
                 Administrative  expenses                    821,000             746,000
                 Claims and other losses
                    (cash basis)                              62,000               38,000

                         Total                               883,000             784,000
                         Net loss                           $166.000

         Eximbank            records   also     showed that       it had sustained
cumulative             losses since      inception          of the insurance program
totaling             $2.5 million.

       The net income of FCIA, according to its financial
statements,   amounted to $62,000 and $318,000 for the years
ended June 30, 1969 and 1970, respectively,    which provided
FCIA with a cumulative gain, since the inception    of the pro-
gram, of $377,000.     The following schedule shows the distri-
bution of net gains and losses to FCIA and Eximbank from
inception   of the program to June 30, 1970.
                                                        Reported       gain or loss(-)
                                                Total   net             FCIA           Eximbank

Cumulative net gain or
  loss(-)  from inception
  through June 30, 1965                        $ -353,000          -$645,000          $   292,000
Fiscal      j<,tr     1966                       -556,000             -34,000           -522,000
                "     1967                       -346,000             380,000           -726,000
    I!          I1    1968                       -832,000              296,000       -1,128,OOO
    !I          "     1969                       -208,000               62,000          -270,000
    11          "     1970                       -152.000             318.000           -166,000

Cumulative net income or
  loss(-)  through June 30,
  1970                                        -$2.143.000            $377.000       -$2,520,000
                                                                                       --

                                                   46
       In our report to the Congress on the operations     of
Eximbank for fiscal     year 1969 (B-114823; May 19, 19701, we
recommended that Eximbank (1) develop a more reasonable
basis for allocating     the income and expenses of the program
between FCIA and Eximbank and (2) establish     a level of in-
come for the program, which is commensurate with its cost
of operations.      In commenting on our report for fiscal    year
1969, the President     of Eximbank advised us that he agreed
 in principal   with our recommendation.

      During fiscal   year 1970 Eximbank made efforts      to comply
with the intent of the recommendation;      however, it has not
been able as yet to fully     implement the recommendation be-
cause, to some extent,     the purpose of Eximbank's participa-
tion with FCIA in the program is to promote U.S. exports
and this purpose has priority      over the returnpf    a profit
to Eximbank.    Therefore,   we are not repeating    our recommen-
dation at this time.




                                 47
                               CHAPTER5

     ADDITIONAL FACILITIES DESIGNEDTO INCREASEEXPORTS

 EXPORTEXPANSIONFACILITY

       Eximbank@s export expansion facility        was authorized     by
the act of July 7, 1968 (82 Stat. 2961, which provided a
more liberal    policy statement by the Congress regarding
Eximbank's criteria      for loans, guarantees,     and insurance
than that included in Eximbank!s basic enabling legislation.
The basic legislation       provides that Eximbank make loans
which, in the j,udgment of the Board of Directors,           offer
"reasonable    assurance of repayment."      The legislation       enacted
early in fiscal     year 1969 provided that Eximbank devote a
part of its resources to the support of export transactions
which offer "sufficient        likelihood of repayment'? to j,ustify
Eximbank's support in the interest        of foreign trade and
long-term    commercial interest.

        Eximbank must specifically        designate the loans, guaran-
tees, and insurance made under this program.              In determining
the $500 million      limitation     on the outstanding    amount under
the program, loans are charged at 100 percent and insurance
and guarantees at 25 percent of Eximbankes liability.               The
legislation    provided also that, in the event of any losses
under the program, the first          $100 million   of losses be borne
by Eximbank, the second $100 million            be borne by the Trea-
sury, and all additional         losses be borne by Eximbank.

       An Export Expansion Advisory Committee is chaired by
the Secretary of Commerce and includes the Secretaries               of
State and Treasury and the President           of the Eximbank.      The
Committee provides guidance to Eximbank with respect to the
operation   of the export expansion facility.            To expedite
actions on relatively       small transactions,      the Committee has
agreed that Eximbarik can approve, without prior committee
approval,   credits,    guarantees,   and insurance transactions
in which the amount of principal        liability      does not exceed
$500,300.    However, Eximbank must subsequently           report on
such transactions     to the Committee.        Eximbank's liability
under the export expansion facility          as of June 30, 1970, is
summarized below:

                                   48
                                       Amount outstanding
         Types of financing                (thousands)

        Loans                               $117,586,8
        Medium-term guarantees               103,538.O
        Medium-term insurance                 56,609.O
        Short-term  ins,urance                43,805.g

             Total                          $321,539.7

      In our report on Eximbankls activities    for fiscal year
1969 (B-114823 dated May 19, 1970), we stated that Eximbank
had developed guidelines   to govern the use of the export
expansion facility,    These guidelines   were approved by
Eximbank's Board of Directors    and the Export Expansion Ad-
visory Committee in December 1969.      The Department of Com-
merce concurred in these guidelines,
       These guidelines essentially   provide that Eximbank
support those export sales which offer a sufficient        likeli-
hood of repayment if the transaction      will advance the na-
tion's   long-term commercial interest,      Such interest   may be
judged on the basis of one or more of the following        condi-
tions.

     1. The sale is to a country which has questionable
        current capacity to service foreign debts but which,
        in the j,udgment of Eximbank, offers the potential
        for improving its debt capacity and therefore    cur-
        rent development of markets for U,S. goods and ser-
        vices is justified.

     2. The sale is to a buyer for which the current finan-
        cial standing does not offer reasonable assurance
        of repayment but which, in the judgment of Eximbank,
        offers the potential  for an improved financial
        standing leading to continuing   sales.

     3. The transaction   will result    in significant    follow-
        on sales (i.e.,   100 percent within 5 years) of
        equipment, spare parts,    servicing,     raw materials,
        semimanufactures,    or the like,    and there is suffi-
        cient likelihood   of repayment also for the follow-
        on sales.

                                 49
      4. The transaction     wil.1 preempt the sale by the foreign
         competitor    which either is "buying in" the market
         for follow-on     sales af spares and the like or is
         attempting    to establish    an assured market for its
         country's   raw materials     or semimanufactures.

      5. The transaction  is demonstrably       necessary for the
         U.S. supplier,  or the industry,       to maintain "pres-
         ence" in the marketplace.

        In applying the guidelines,       Eximbank stated that the
 important consideration        in each case is the vvleverage'v which
can be obtained through the transaction            and that mere con-
summation of a sale is not necessarily           responsive     to the
nation's    long-term    commercial interest;     rather,    each trans-
action must be judged on the additional           benefits    to be de-
rived from its consummation.          The factors    that disqualify
an application      under normal Eximbank criteria         should be
identified,     and the basis for judgment that the transaction
offers sufficient      likelihood    of repayment should be estab-
lished.

       Our examination,      on a test basis, of the loans, insur-
ance, and guarantees approved 3y Eximbank under the export
expansion facility       indicated    that, in evaluating the appli-
cants, primary emphasis was placed on determining          whether
a sufficient   li'kelihood      of repayment existed rather than
the potential     of long-term trade and commercial interest       to
be gained from the acceptance of higher risk transactions.

      For example, a review of 63 of the 128 export expansion
medium-term insurance policies  in effect at June 30, 1970,
showed that only 10 evaluations   of applicants    made by
Eximbank contained a discussion   of the potential    leverage
that could be obtained from the transactions     and that seven
of those were approved prior to adoption of the new guide-
lines in December 1969 and three were approved subsequent
to adoption of the guidelines.

        We did notes however, that five medium-term insurance
transactions     approved under the facility  appeared to have
qualified     under the condition  that the export was needed to
preempt the sale by a foreign competitor      which either was
"buying in" a market      or was attempting     to establish   an as-
sured market for his      country's    raw materials   or semimanu-
factures.   We believe      that these types of transactions       are
more in keeping with      the interest    and spirit   of guidelines
established  for the     export expansion facility.

        The majority   of insurance policies        approved, if cate-
gorized by the criteria        established     by the new guidelines
in December 1969, appear to have been made with the under-
standing that the sales were to buyers whose current finan-
cial standings did not offer reasonable assurance of repay-
ment and that Eximbank was assuming that, with an improve-
ment in the buyers' financial          standings,    continued sales
could develop,       Eximbank had made no attempt, however, to
definitize    or project    the real long-term benefits        to be
achieved from accepting higher risk applicants.

        With respect to medium-term guarantees,       our review
showed that a greater percentage of the guarantees            included
some discussion     of the leverage to be gained from the con-
summation of one particular       transaction   than was apparent
in the medium-term insurance policies         approved ,under the
facility.     After adoption of the new guidelines,        however,
we noted a decline in the number of individual          transactions
which contained     some discussion    on the potential    long-term
benefits    to be derived from the consummation of the indi-
vidual transaction,

       We noted, for example, that six of 13 medium-term guar-
antees approved prior to adoption of the new guidelines          con-
tained some evidence that the long-term        interest   of the
United States was given some consideration         but that only one
of the seven medium-term guarantees approved after adoption
of the guidelines      contained evidence that long-term trade
objectives    -were given primary consideration.

         We were informed by Eximbank officials      responsible     for
approving the individual      guarantee transactions      under the
facility     that quantative  data was not available      to measure
or project      the long-term trade benefits    which were hoped to
be gained from the consummation of the particular           transac-
tion.      They stated that, although Eximbank had not identified
the long-term trade benefits       to be gained, it was felt that


                                   51
the exports generated through the export expansion facility
would have been lost had Eximbank's guarantee been denied.
Moreover9 it was a generally    accepted premise that the con-
summation of these transactions    would increase U,S. pres-
ence in foreign markets and that, as foreign consumers be-
came more aware of U.S. products,     the potential for in-
creased exports would develop,

Conclusion
        Although Eximbank has taken the additional       risks in-
volved in approving loans, ins,urance, and guarantees ,under
the facility,     we believe that management should increase
the effort     to provide some measurement of the potential
trade growth developing      from cons,ummation of the individual
transactions.      If this additional    information   was provided,
management would be able to develop a more effective            program
to measure the potential       long-term benefits    of individual
transactions     against the higher risk being assumed under the
facility,

        We recognize that many of the transactions,           especially
those with small- and medium-scale importers,             do not provide
a practical     opportunity      to measure, with any degree of cer-
tainty,    the potential      long-term benefits     to be derived from
the individual      transaction.       We believe that, if long-term
trade goals of the United States were identified              on a geo-
graphic and/or industry          basis and transactions    then approved
if they met such goals, the export expansion facility               would
be more effective.

        We wish to emphasize, however, that the facility's
flexibility     should not be impaired,   but we are suggesting
only one means by which Eximbank can establish       long-range
goals and objectives     for the facility   and can provide a
reasonable basis for justifying       the acceptance of higher
risk transactions.
                                    CHWTER 6

                    OPINION OF FINANCIAL           STAT,Ej%&TS

      The accompanying  financial     statements   (schedules                  1, 2,
and 3) are those contained      in Eximbank's    annual report                  to the
Congress.

        Our examination      of the statement      of assets     and liabili-
ties of Eximbank as of June 30, 1970, the related                  statement
of income and expense and analysis            of retained      income reserve,
and the statement        of source and application        of funds for the
year then ended was made in accordance              with generally       accepted
auditing    standards      and accordingly    included     such tests      of the
accounting     records     and such other auditing       procedures      as we
considered     necessary     in the circumstances,

       The interest      and other financial          expense reported        by
Eximbank include       interest     charges     on a significant        part of
the borrowings      from the U.S. Treasury           at rates    lower than the
rate prevailing       at the time the funds were borrowed.                  Had the
Treasury     charged Eximbank       interest     rates    approximating       the
full   cost of the funds,        Eximbank's      interest     and other     finan-
cial   expense would have been increased               by about $16.8 and
 $6.9 million     in fiscal     years 1970 and 1969, respectively,
and the net income from operations               for the years then ended
would have been correspondingly              reduced.       Gee pp. 21 to 30.)

         We were advised          by Eximbank officials           that these special
borrowing        arrangements        were made with the Treasury             to com-
pensate,       in part,       for Eximbank's       having    financed     its opera-
tions     through      the sale of participation             certificates       and cer-
tificates        of beneficial         interest    and for Eximbank!s          having
made certain         relatively        low interest      rate loans,      all in fur-
therance       of national        policy.

        The net income reported          by Eximbank       is stated     before   any
provision    for losses     that may be sustained             on loans receivable
and related     accrued   interest       or on guarantees          and insurance.
All accumulated      net income,        after   dividends,       has been reserved
as a provision      for future       contingencies,        defaults,     or claims.
(See note 2 to financial           statements.)



                                           53
       The contingent          liabilities          reported     by the Eximbank as
loan maturities        sold subjest            to contingent        repurchase        som-
mitments    include      participations             in speslfic       loans,    in sup-
port of which Eximbank               issued      instruments       called    certificates
of beneficial       interest.,           The buyers of these instruments                  are
not free to dispose            of them except as permitted                  by Eximbank,
whish also assumes fully                 the risk      of default.        Accordingly,
we believe     that sush instruments                  should be considered            as
borrowing     or financing           transastions         which,    if so handled         on
Eximbank"s     financial         statements,          would increase        Eximbank's
total   assets     and liabilities            by about $400 million             as of
June 30, 1970.

        In our opinion,       the accompanying     financial      statements,
subjest      to our somments in the preceding           paragraph,      present
fairly     the financial      position  of the Export-Import           Bank of
the United      States     at June 30, 1970, and the results            of its
operations      and the source and application           of its funds for
the year then ended, in conformity             with generally        accepted
accounting      prinsiples      applied on a basis consistent           with that
of the preceding         year and with applicable        Federal     laws.




                                             54
-CIAL   STATENENTS
ASSETS
                                                    June 30,1970                              Jlene30,19ti9
Cash:
   In banks, in transit, and on
     hand ________
                __________
                        ___________.
                               _.____$ 13,480,868                                  $       8,276,329
   With U.S. Treasury __.__..._..._.__ 12,931,687                                            242,349
                                                             $     26,412,555                            $       8,518,678
Loans receivable:
  Outstanding loans and undis-
    bursed authorizations . .._..__ 8,690,392,261                                      7,883,825,630
  Less undisbursed balance of
    authorized loans ____
                       _____
                          _..____.. 2,976,582,969                                      2,462,337,827

outstanding loans receivable
   (Notes 2 and 3) .___________..____.___                        5,713,809,292                               5,42 1,487,803
  Accrued interest and fees
  receivable on loans and
  guarantees ____________
                        ____
                           ___
                             ____
                               _______                             71,186,966                                   57,017,826
Other assets:
  Due from Foreign Credit
    Insurance Association _..__.. _              274,740                                    170,295
  Miscellaneous .----.--:____
                           ______
                               _____..         1,676,586                                    143,994
                                                                     1,951,326                                     3 14,289
Furniture and equipment,
  less accummulated deprecia-
  tion (1970, $405,022;
  1969, $382,296) ___.__.___
                         ___
                           ____.
                               __                                     297,3 14                                    275,268
Deferred charges-
  unamortized balance of
  financial expense _________________
                              ___                                   2,483,347                                    8,018,995          .

         Total assets ______________
                              ______                         $5,816,140,800                              $5,495,632,859

    The Notes to the Financial Statements     on pages 61 and 62 are an integral   part of this statement.     See Note   I   for
composition  of the U.S. Government’s   investment    in Eximbank.
                                                                                 SCHEDULE1




LPABILPTIES, CAPITAL,        AND RESERVJI
                                                    June 30,197O                     June 30,1969
Liabilities:
   Portfolio Participation
      Certificates payable
     (Note 3) ____________ ______.____._.___.
                                          $1,492,798,705                   %I ,813,952,940
   Debentures payable .___.____..._   _..    400,000,000                       400,000,000
   Short-term discount notes
     payable _____._____  ___...______...
                                      __.         -                            258.145,OOO
   Notes payable to U.S.
     Treasury (Note I) ..__.__,..__    __ 1,586,440,848                        720,188,081
   Dividend payable (Note I) ____             50,000,000                        so,ooo,ooo
   Guaranteed letters of credit
     payable ________   _____________.
                                 _.______ 7,092,338                             27.722.408
   Accrued interest payable ._.__._.          26,294,462                        28,760,279
   Other .____...._____.._._..~.....~.
                                 ___...._
                                        _      2,791,431                         6.657.819
          Total liabilities _.___._.
                                  _..._.__                  $3,565,417,784                   $3,305,426,527

Deferred Income .___________
                       ______._____                         5,176,936                            5,390,652

Capital and Reserve:
  Capital stock held by U.S.
    Treasury (Note 1) .__.._________   1,ooo,ooo,ooo                      I ,ooo,ooo,ooo
  Retained income reserve for
    contingencies and defaults
    (Note 2) _.._.__.....___.....__________
                                       1,245,546,080                      1.!84.815,680
        Total capital and
          reserve _____.___
                         _______
                              ___.__._                  2,245,546,080                       2,184,815,680
       Total liabilities, capital,
         ad reserve ____.___________
                                   __                  $5,816,140,800                      $§,495,632,859




                                                  57
/ ‘,
1,
j/

1';    SCHEDULE2




                                                                                                                      Fiscal year ended

        Income:                                                                                            June 30,197O               June 30,1969
            Interest and fees on loans ____..
                                           ____
                                              .__.____________________.._____________
                                                                           _____
                                                                               _. $ 317,121,559                                      $ 278,250,929
            Insurance premiums and guarantee fees ___  __._.
                                                          _...___
                                                                .__._...__.___.____ 3,024,814                                             2,696,114
            Other income, principally interest on U.S. securities ___..._...._.._.        8,408                                             177,097

                    Total income _...__._.._..
                                           __._
                                              ._..______
                                                      ___
                                                       _____
                                                          _________
                                                               _..._____
                                                                      ___________.__.
                                                                                $ 320,154,781                                        $ 281,124,140

        Expensesand losses:
          Interest and other financial expense_____._______ ____
                                                               _____
                                                                  ______.._____ _______ $ 203,441,369                                $ 172,55 1,327
          Loans charged off and claims paid - net of recoveries _______.____                   15,978                                     (172,173)
          Administrative and other expenses . . . . ..._......_______
                                                                  _..__
                                                                      __. .. ..__.._.__     5,967,034                                    4,7 16,478

                    Total expensesand losses_.__
                                               ___
                                                 ______
                                                    ______
                                                        __
                                                         _________
                                                              ___
                                                               ______
                                                                   ___________
                                                                          $ 209,424,381                                              $ 177,695,632

        Net income ...............................................................................   -1.                             $ 104,4)28,508
        Less: Dividend declared on capital stock (Note I) ......................                                                        50,000,006

        Addition to Retained Income Reserve (Note 2) _________.__________
                                                                _.____$ 60,730,400                                                   $      54,028,508


        Analysis of Retained Income Reserve:
          Balance at beginning of fiscal year ___.____.._____._.._....~~.~.....~..~...~~..
                                                                                 $1,184,8 15,680                                     $1,130,787,172
          Addition to reserve (Note 2) ____________________....~.
                                                          _____________.._
                                                                      __________     60,730,400                                          54,028,508

                    Balance at End of Fiscal Year ..__.......__.___.__...____.______
                                                                           ________
                                                                                 $1,245,546,080                                      !§1,184,815,488
                                                                                                                                     ~~

              The Notes       to tlw Financial        Statements        on pages 61 and 62 are an integraf    part   of this   statement.




                                                                                   58
                                                                                 SCHEDULE3




                                                                  Fiscal year ended

                                                June 30,%970                          June 30,1969


Net income from operations . .._._.. $110,730,400                             $104,028,508
Add depreciation expense for
  the year _._.___________________.______
                              ______       45,904                                     42,216

       Funds provided by
            operations _..____.._____._____             $ 110>776,304                           !§ 104,070,724
Salesof short-term discount
  notes ___....__. _..____._____._.__..__________.
                                         .                        -                               1,053,055,000
Repayments and other credits
  to loans receivable ...____.__._________                    870,586,219                             924,354,194
Saleof debentures ._.____..    _____.________
                                        ___                       -                                   400,000,000
Salesof individual loan
  maturities ___    ._._________...
                                _____.____._
                                       ____                   406,240,453                             378,149,573
Borrowings from U.S. Treasury -
  Net .. . .. ..__._.
                   _..__________._
                               ____.______
                                      ______                  X66,252,766                             358,608,820
Other -Net         . . ..____.
                            ____._
                               ___.________
                                       _____                  (55,408,346)                             48,599,424

         Told   Fwds   Provided ______                  $2,198,447,396                          $3,266,837,735

FmS        APPLIED:
Payment of dividend to
  U.S. Treasury ______.______.
                            ____________                 $     50,000,000                        $      50,000,000
Disbursements and other additions
  to loans, including capitalized
   interest (1970, $5,912,363;
   1969, $7,828,068) . .._____._
                              _______._.                     1,569,148,161                           1,665,347,871
Repayments on Portfolio
  Participation Certificates ________
                                   __                         321,154,235                             369,114,864
Redemptions of short-term
  discount notes _.______.____
                           __..___.___
                                   __                         258,145,OOO                            1,182,375,000

         Total Funds Applied     __._____                $2,19$,447,396                          $3,266,837,735

      The Notes to the Financial Statements on pages 61 and 62 are an integralpart of this statement.


                                                 59
Nob I                                                                                                      In addition, by agreement, the Republic of China
      Eximbank’s authority to borrow from the U.S.                                                   is not at this time being called upon to make payments
Treasurydis limited to $6 billion outstanding at any one                                             on that portion of four loans made to the Republic of
time, and the authority to lend, guarantee, and insure                                               China prior to 1947, when the seat of the government
is limited to $13.5 billion. Up to $3.5 billion of out-
                                                                                                     was on the mainland, which relates to assetsno longer
standing guarantees and insurance may be charged
against this lending authority at 25 percent of the con-                                             under the government’s control. The total outstanding
tractual liability assumed. At June 30, 1970, the un-                                                principal of this portion of these loans was $26.4 mil-
committed authority to lend, guarantee, and insure                                                   lion at June 30, 1970; on that date $36.8 million ($20.0
totaled $3,79 1.3 million.                                                                           million principal plus $16.8 million interest) was matured
      The investment of the U.S. Government in Exim-                                                 and outstanding, the oldest past due installment having
bank is comprised of the following:
                                                  June 30,19?0            June 30.1969
                                                                                                     matured in 1949. The Republic of China is continuing
Notes payable to U.S.
   Treasury  ____.___._......____........        $1,586,440,848         $ 720,188,081                to make timely payments of principal and interest on
Capital stock held by U.S.                                                                           the balance of the four loans which represents assets
   Treasury  _.._____.,.__._.____........1,000,000,000                   1,ooo,ooo,ooo
Dividend payable . .._._________             ._.      .50,000,000           50,000,000
                                                                                                     still under its control. This portion of the loans, which
Retained income reserve                                                                               is not included in the foregoing figures, has an outstand-
   (Note 2) .. . .. . .._...................      1,245,546,080          1,184,815,680                ing principal balance of $129 thousand at June 30,
       Total     hestment          .___._____
                                           $3,881,9%6,928               $2,95§,003,761                 1970.
     A dividend of $50 million was declared on June
25, 1970, and paid on July 13, 1970.                                                                      The entire retained net income is reserved for con-
Note 2                                                                                               tingencies and defaults. This amount of $1,245,546,080
     Loans with delinquent installments of 30 days or                                                substantially exceeds the total outstanding balances of
over at June 30, 1970, are summarized in millions of                                                 both principal and interest on the foregoing delinquent
dollars as follows:                                                                                  loans. Because of the unpredictable nature of future



                                                                                           Oldest          Total                   Dehquent         installments
                                                                                          post due      ouetnndlng
                    Countr)~                                                          installment        Drincieol    PPiZdXd                 Interest             Total
                                                                                                                      -                       -
                    Cuba ..........................................              5          1958             $ 36.3       $22.8                   $20.3            $43.1
                    Nigeria ........................................             1          1967                1.6          1.2                      .3              1.5
                    Republic of Indonesia ................                       4          1970               36.6          5.2                     1.1             6.3
                    United Arab Republic ___.__________                          2          1966               23.4         19.0                    5.3             24.3
                    Other ..........................................             8          1966               13.4            .7                     .3              1.0

                               Total __._............................            20                          $111.3        $48.9                   $27.3           $76.2
                                                                             -                           -                -                       -
economic and political conditions throughout the world,                                Note 3
the risk of loss on Eximbank’s loans, guarantees, and                                        From May 1, 1962, to June 30, 1968, 19 issues
insurance is not susceptible to accurate measurement.                                  of guaranteed Certificates of Participation in portions
The management of Eximbank believes therefore that                                     of Eximbank’s loan portfolio were sold. On June 30,
its accumulated net earnings should be retained as a                                   1970, this designated portion of loans totaled $2.0
reserve for contingencies and defaults.                                                billion. Certificates of Participation outstanding at June
   The contingent liabilities of Eximbank are summar-                                  30, 1970, totaled $1.5 billion.
ized below in millions of dollars as of June 30, 1970:


              Loanmaturitiessold subjectto contingentrepurchasecommitments.................... $ 415.0
              Guarantees...................................................................................................................... 912.3
              FCIA insurance.............................................................................................................. 1.250.9
              Consignmentinsurance..................................................................................................             .l
                       Total contingentliabilities................................................................................ $2,578.3




                                                                             62
APPENDIXES




  63
                                                                                                         APPENDIX    I


                              EXPORT-IMPORT            BANK           OF THE                  UMBTED     STATES
                                                  WASHINGTON.             D.C.        20571

                                                   CABLE   ADDRESS     “EXINIBARIK”


PRESiDENT    AND   CHAIRMAN
                                                                         February              9, 1971

            The Honorable
            Elmer B. Staats
            Comptroller   General of the United                      States
            General Accounting    Office
            Washington,   D.C. 20548

            Dear Mr. Staats:

                              We want to thank you once                again for the opportunity     to comment
            on Mr.        Stovall's   letter    of December            14, 1970, and its enclosed draft
            copy of        the GAO report      on your audit            of Eximbank for fiscal     1970.
            Certain        minor matters      which we have            noted in your report    have been dis-
            cussed        and resolved     with members of             your staff.

                        This letter!,   however,   is to reiterate  my own thoughts which
            I expressed    to you personally     in our recent meeting on those more sig-
            nificant   matters   raised  in your report.

            Interest           Rate on Certain    Eximbank           Borrowings               from Treasury

                                To repeat,       1 strongly    disagree   with the recommendation    that
            Eximbank's            low-interest       rate loans from Treasury      should be renegotiated
            to carry,           instead,      Treasury's    "current    average borrowing  costs".

                        We cannot agree with your insistence             that the                            "cost"  of
            Eximbank's    low-yield,     national  interest    loans be borne                              by the Bank or
            shown in its books of account.          We believe      this cost is                            more properly
            borne by Treasury        or some other agency of the Executive                                   Branch.    The
            criteria   for reporting      such costs should not be dictated                                    by the immed-
            iate source of funds but, rather,           should be related     to                           the purposes
            served by the granting        of the respective      loans.



                                                  [See GAO notes                 p. 67.)


                       Your           report  implies   Eximbank continues    to obtain   funds for
            such purposes            at low rates,    which is not actually     the case, although
            we believe   it          should be.     For example,  in April  1970, Eximbank
            increased  its           military   loan commitment to Australia,      at the request




                                                            65
of the Department      ot Defense,   by approximaLely    $39 million at ri-314%
vgitho!lt obtaining    any corresponding    low-cost  flmds from Treasury.

           I do agree, however,   that our present    agreement with Treasury
in this regard needs to be reaefined.      Therefore,   we a;e presently  in
the midst of just such negotiations    with Treasury.

            As a result      of your draft      report   and its recommendation         in
this regard,     we have thoroughly       researched     these so-called
"concessionary    Lt borrowings     and the reasons therefor.          In summary, we
have found that the Bank's low-cost             borrowings    were originally      intended
to offset    its low-yield      loans made in the over-all        national    interest
and that this contra relationship            between source and application           of
particular     Bank funds has inadvertently           been lost over the years.

             Accordingly,      we have proposed to Treasury       a new agreement
in this regard whereby our low-interest            borrowings   from Treasury would
be iied-in    directly      to the rate,   term, and amount of the outstanding
balances of those loans which we have made at concessionary               terms in
the national      interest.     Thus, such borrowings      from Treasury would be
paid-down as Eximbank in turn received            payments on its contra loans
outstanding     (this    has not generally     been the case heretofore).

              We believe     such an agreement would be a fair one and would
establish      a direct    and logical   relationship   between the Bank's
low-interest       Treasury   borrowings    and its concessionary  national-
interest     loans; we are hopeful       that such an agreement will     be reached
in the very near future.

"Discount"    Loans   from Treasury

               It is true that,      from April   1968 to June 30, 1969, Treasury
lent funds to Eximbank at a low rate.              These same low rates were
passed on by Eximbank to those commercial              banks which had increased
their    export     financing   over a base period.        The point your report
fails    to make, however,        is that Eximbank is no longer borrowing         from
Treasl.4ry at low rates for the Discount           Facility     and that such pref-
erential     interest      rate loans to banks were terminated         on July 1, 1969,
as a result       of this Administration's      thorough     revision   of the discount
program at that time.




                                            66
                                                                                   APPENDIX I


Sale   of PC's     and CBI's

               The discussion         on pages 5-9 re Eximbank's              issuance of
Participation        Certificates         and the sale of Certificates               of Beneficial
Interest      creates     the impression        that,    when Eximbank issued PC's in
FY 1962 - 1968 and treated                them as receipts        for budget purposes,          it
was in some way wrong for us to do so and contrary                          to Government
policy.       I believe      the general consensus during               that period,       however,
was clearly       that sales of Participation              Certificates         should be treated
as receipts       for the purposes of the Federal Budget.                       After   the
President's       Commission on Budget Concepts concluded                     that Participation
Certificate       issues should be treated              as borrowings,       Eximbank ceased
issuing     Participation         Certificates       and began to show, as we do now,
all outstanding         PC's as borrowings            in our budget schedules.

           The point here is that Eximbank has complied and continues
to comply fully  with the Commission's  conclusion.        Since that time,
we have sold assets in the form of Certificates         of Beneficial    Interest
and have stopped issuing  Participation   Certificates.        The report     fails
to make this clear.

            Further,  we continue to believe      that our accounting       for CBI
sales is proper and thus rLpresents   fairly"       our financial    position   and
the results    of our operations.  We believe       it is incorrect    for GAO to
say that Eximbank has "not presented      fairly"      its financial   position
(pp. 10 and 14).



                                    [See GAO note           below.]


              In closing,    let me once again express our thanks and appre-
ciation    for the fine job done by your staff       and for their  extra efforts
in providing      your opinion    on our financial  statements  as quickly    as we
requested.       We truly  believe   your agency's  comments are vital     to the
successful      conduct of Eximbank's    operations  and we shall  continue     to
heed your valued judgment,




                                                    Henry Kearns


GAO note:          Comments pertaining                to draft    report material                 not
                   contained in final               report    have been omitted.
                                TREACLE            DEPARTMENT

                                 WASHINGTON,            D.C.     20220




                                                                         FEB 2 1971




h! ii?   Hr I   I?:-FtI :       Silbjzct:          Audit         of Export-Import      Bank,
                                                   Fiscal         Year 1970


         'ittach~d          rire th-      Treasury             Depsrtment's     comncnts



Tmport      Eank presented                to us for             review.

                                             Sincerely             yours,




Mr, ?ugc-n~~ L. P:lhl                              kJ
Assictaat     I:-ircctor
General     Accenting             Office
Room 126, Treasury                Annex          J/E
iJ&lhgto,?,        11. c.




                                            68
                                                                                       APPENDIX II




TO         : Assistant          Secretary     Petty                          DATE:   January   29,   1971

mu3M       :   Donald     A, Websterw


SUBJECT:       GAO F'Y 1970 Audit           of EXIMBANK


                      Treasury   has been asked to comment upon a portion     of GAO's
               fiscal    1970 EXlH3ANK audit,     This memorandum summarizes GAO's
               principal    observations  and recommendations    and presents  Treasury
               comments on the principal      points   at issue.

               GAO's ANALYSIS

                        Asset    Sales

                       EXIMBANK sales of Certificates           of, Beneficial        Interest
               (CBI's)      are treated    by OMB as .asset sales.          Such sales are
               considered      to be offsets    to expenditures         and have the same
               positive      impact as tax receipts       on the U.S. Government budget
               deficit      or surplus.     GAO argues that CBI's are not significant-
               ly different        from sales of instruments         such as Participation
               Certificates       which are treated      as financing       or borrowing       trans-
               actions      and do not offset     expenditures.         Therefore,       GAO, citing
               the "Report of the President's            Commission on Budget Concepts"
               as support,       recommends that CBI's be considered               financing
               operations,        Were this recommendation         followed,      the negative
               budget impact of EXIMBANK's operations,                 assuming an unchanged
               level of author,izations,        would be increased          by the amount of
               CBI's sold per year,          The current     PY 1971 OMB mark for asset
               sales is $420 million.

                        Statutory        Debt Limit

                       According     to GAO, "EXIMBANK's ability       to raise money in
               the private       capital  markets through      issuance of its own debt
               obl.igations      has been used as a safety valve for pressures             on
               the statutory       debt ceiling."       GAO believes   that EXIMBANK's
               own debt obligations         are similar    in most respects    to Treasury
               securities      and therefore      should be included     in the definition
               of the public        debt.




                            Bay U.S. Savings Bends Regularly on the Payroll Savings Plan


                                                       69
APPENDIX II


        Increased    Treasuq      Borrowing

          GAO believes     thc?t the Benk . . . "finances       its operations
  in the private       market rather     than through the Treasury because
  of the supposed benefits          this type of financing         has in comput-
  ing the overall       Federal budget surplus or deficit             and relieving
  pressures    on the statutory        debt limit."      GAO believes     that
  these benefits       are illusory     and that EXIMBANK's private          borrow-
  ing results      in substantially      increased    interest     costs when com-
  pared to direct       Treasury    borrowing.      The Audit Report therefore
  recommends that OMB, Treasury and EXIMBANK "takes the steps
  necessary    to increase      EXIMBANK's borrowing        from the Treasury
  in order to avoid the increased            cost of borrowing       in the
  private    market."

        Concessionary      Interest   Rates   on EXIMBANK Borrowings        from
        Treasury

           GAO describes    the arrangements      in effect    for some years
  which permit EXIMBANK to borrow substantial               amounts from
  Treasury     at concessionary      rates.     As of June 30, 1970,
  $581 million       were outstanding.      Pactors justifying       these
  loans are concessionary         rates on certain      EXIMBANK discount,
  military,      lend-lease    and reconstruction     loans,     and the in-
  creased cost of borrowing          in the private     market rather      than
  directly     from the Treasury.

          GAO argues that EXIMBANK, as an Executive               agency, should
  bear the full       financial       cost of actions     taken in support of
  government     policy.        It is therefore      recommended that the con-
  cessionary     borrowing        agreement be renegotiated...        "so that the
  interest    rates charged approximate            the current    average borrow-
  ing costs paid by Treasury."
                                                                     APPENDIX II



TREkXJRY AXALYZL? hNC RECOMMENDATIONS

       Sdhile it is difficult     to fault    the GAO's recommendations
on grounds of budgetary       analysis,    there are policy   changes
implied   which might have considerable          impact on the debt ceil-
ing , the U.S. Government Budget, and adequate fllnding of
EXIMBANK's operations.

Asset    Sales

        This long-standing      OMB-GAO dispute      should become far less
significant     if the Bank is exempted from the budget.                If the
budget exemption       is not granted,      the problem remains.          Yhile
GAO's argument for treating           CBI's as financing      operations       it
quite persuasive,        the effect    on EXIM's operations       could be
serious.      OMB's current     FY 1971 and 1972 marks are greatly
below EXIM's requests        and somewhat below Treasury's           recom-
mended levels.        Should asset sales no longer serve to offset
expenditures,      the slack would have to be taken up by decreased
EXIMBANK authorizations,          a larger    budget deficit,     or both.
Furthermore,      should the GAO recommendation         be accepted,       the
balance of payments impact of asset sales to foreigners                    would
be lost.

        Recommendation

      GAO's recommendation          to cease treating   CBI's as asset
sales is likely      to result      in a restriction  in EXIMBANK's ex-
port support    activities       below levels which we judge to be
reasonable.     Therefore,       for the time being, we would oppose
changing the budgetary         treatment    of CBI's.

Elimination      of Concessionary     Borrowing     Privilege

        Here, GAO's argument is not convincing.                 In most, if not
all,    cases EXIMBANK's extension          of low-interest       loans was
clearly     in response to over-all         Executive     Branch policy.      It
would seem that when acting            for the Government in a role which
 it would not be likely         to undertake       on its own, some sort of
 concessionary      rate is justified.          It is quite reasonable      that
 the concessionary       borrowing     lines should not exceed the out-
 standing     amount of underlying        low-Lltercst      paper, but to elimi-
nate them seems punitive.




                                         71
APPENDIX       II




            Recommendation

           We understand      that the principal    concessionary     lines,
   totaling     some $495 million,       are not directly     tied at present
   to the amount of underlying           loans made at concessionary         rates.
   We would,     therefore,      recommend that the amounts and rates of
   the concessionary        lines be restructured      to reflect   the under-
   lying    loans made by EXIMBANK in support          of national    policies.

   Statutory        Debt Ceiling

           There seems to be no compelling              reason to change the defi-
   nitions     long accepted by Congress.              Further,     while GAO's recom-
   mendation      to include    all EXIM securities           under the definition
   of the public        debt would not, by itself,            have a restrictive
   impact on the Bank's operations,               nonetheless,       we feel that it
   is only realistic         to anticipate      that pressures        could eventually
   be generated       to limit   EXIMBANK's borrowings            from the private
   market.       These pressures      could cause an artificial            restriction
   on the Bank's export         support    activities.

            Recommendation

            EXIMBANK's own debt       obligation  should continue       to be ex-
   cluded     from the definition        of the public  debt.

   Increased        Treasury   Borrowing

          Normally,     EXIMBANK should borrow from the Treasury.            There
   are situations,        however,    when it makes sense for the Bank to
   borrow in the private         market.     An example of the advantages       of
   a flexible      approach to the question       of EXIMBANR financing      is
   the recent      $1 billion     borrowing   from the Euro-dollar   market.

            Recommendation

           Flexibility   should continue       to be exercised    in determining
   whether     EXIM should borrow from       the Treasury    or from the private
   market.




                                            72
                                                              APPENDIX III


                         PRINCIPAL    OFFICIALS    OF

                     THE EXPORT-IMPORT BANK OF

                            THE UNITED STATES

                            AT JUNE 30,     1970

                                                                    Date of
                                                                    agpoint-
                                              Position                ment

BOARD MEMBERS:
    Henry Kearns                       Chairman and Presi-
                                          dent                       3-20-69
    Walter    C. Sauer                 Vice Chairman and
                                          First Vice Presi-
                                          dent                       9-28-62
    Tom Lilley                         Director                     10-26-65
    R. Alex McCullough                 Director                      5-21-69
    John C. Clark                      Director                      6- 3-69
    R. H. Rowntree                     Economic Advisor      to
                                          Board of Directors         2-10-70

OFFICERS:
     Don Bostwick                      Executive     Vice Presi-
                                         dent                        3-18-70
    John E. Corette,  III              General    Counsel            5- l-69
    J. Patrick  Dugan                  Senior Vice Presi-
                                         dent and Treasurer
                                         Controller                  6- 2-69
    Warren    W. Glick                 Senior    Vice President
                                         Financing                   9-21-69
    Raymond L. Jones                   Senior Vice President
                                         Exporter     Credits,
                                         Guarantees      and In-
                                         surance                     7-22-62
    Charles    E. Shearer,      Jr.    Senior Vice President
                                         Planning      and Export
                                         Expansion                   3-18-70
    Joseph    H. Regan                 Secretary                    12-14-65




                                      73
.   .   .. . .   .   .   .       .   .   .   _      .     ._      ._     ._..   -.-.       -_._   __.___-   -   .__-   ..____.___-   --.---_..-_e.              __-.._....         _ ____.._._.__.            . . ..-.




                                                                                                                                                                                                                         f--GENERAL    COUNSEL

                                                                                                                                                                                                                         Deputy   General   Counse




                                         1 Public       Affat!r        Olfmr           1                                                             1 Government            Affairs            Officer   1




                             1