U.S. Must Help Iraq Obtain Wealth Quickly, Ex-Im
Bank Head Says
The United States must help Iraq realize wealth quickly -- in addition to
giving Iraqis more responsibility -- in order to make Iraq more secure,
politically stable and economically viable, the chairman of the Export-Import
Bank of the United States (Ex-Im Bank) says.
In March 24 remarks to a business organization in Washington, Phillip Merrill
said that the funds appropriated so far by the Congress, even when counted
together with the money generated by current production of Iraqi oil, will not
cover the costs of reconstruction and revitalization of the country's economy,
estimated at close to $100 billion over several years.
He said that unless Iraq finds a way of using its "tremendous" oil reserves to
obtain the necessary capital, or access to it, more quickly, the U.S. taxpayer
will likely have to pick up the tab.
"It is cheaper, as well as smarter, to make Iraq relatively rich than it is for
the United States to continue on a path that, in time, if not already, is sure
to make us be seen as an occupying power," Merrill said.
He said that an Iraqi authority could securitize the proceeds from future oil
production to raise more money upfront. News reports says the Ex-Im Bank is
supporting a plan under which such an authority would issue bonds or other
securities and pledge a portion of Iraq's future oil and gas revenue as
collateral to obtain capital.
Merrill said that, in any case, Iraq will need approximately $20-$30 billion in
long-term investment to increase its oil production significantly. He emphasized
that a request for such investment must come from the Iraqis themselves.
"In the end, it is their oil, and they can use it as they wish," Merrill said.
As the precondition for international investment, Iraq will have to deal
"promptly" with its foreign debt estimated at $130 billion -- an amount that
excludes reparation obligations from its previous wars, Merrill said.
He said that international investors will require "some form of sovereignty,
physical security, and precedence over existing debt, to provide sufficient
comfort that contracts will be honored over time" if they are to come to the
Merrill also commented on Ex-Im Bank dealings with Vietnam, China, Russia and
Following is the text of Merrill's remarks as prepared for delivery:
Export-Import Bank of the United States
The Honorable Philip Merrill
President and Chairman
Export-Import Bank of the United States
Washington International Business Council
Washington, DC, March 24, 2004
I would like to thank Greg Dole (Boeing's director for commercial trade) for his
It's a pleasure to be here to address the Washington International Business
Council and the many ambassadors and other distinguished diplomats who are
members of the Executive Council on Diplomacy.
In the next few minutes, I would like to say a few words about trade and the
global economy and Ex-Im Bank, the institution that President Bush has entrusted
me to lead. I would also like to touch on the situation in Iraq.
During the last year, I have traveled extensively on behalf of Ex-Im Bank and
the Bush Administration's trade team -- to Asia, Russia, and Europe, in
In fact, I was in Rome on Monday, where I signed a co-financing agreement with
Ex-Im Bank's Italian counterpart. I was also attending meetings of the G-7
[Group of Seven major industrialized countries] export credit agencies in Paris.
GLOBALIZATION AND TRADE
Many commentators focus on the risks of globalization. Certainly, a slowdown in
one part of the global economy -- because of a terrorist attack in the United
States or Europe, a default in Latin America, sluggish growth in Japan, or an
epidemic like SARS last year -- can reverberate throughout the world economy.
But it is also clear that the opening up of world trade has helped bring about
the greatest aggregate wealth creation in history by spurring productive
enterprise. Global trade is now $16 trillion, a number that's doubled just since
1990, according to the World Bank.
Twenty years ago, the prevailing wisdom from most investment managers was to
diversify one's investments -- as one part of the world was likely to do well
when another part was in a slump. Now, the U.S. can only do well if other
countries do well, and other countries can only do well if we do well. What this
means is that our fortunes are all inextricably linked.
U.S. trade alone has soared from about $80 billion to $2.6 trillion in the last
35 years. That represents an increase from about 8 percent of GDP [gross
domestic product] to about 20 percent. In the United States, 1 in 10 jobs is now
dependent on exports. Indeed, there are 240,000 American exporting companies.
They have helped create jobs and wealth on an unparalleled scale, to the tune of
$100 trillion of net worth in the United States over the last four decades.
Let me drive that point home: 35 years ago, U.S. exports were $42 billion. Now,
they are approaching $1.1 trillion. That's equal to China's GDP and roughly
three times the size of Russia's GDP.
Today, China has a $125 billion trade surplus with the United States. Wal-Mart
is their distribution agent, with $12 billion in sales to that one company
alone. But China's overall trade is in balance. Despite problems in some
sectors, trade -- and the direct investment that flows from it -- have made all
who participate in it wealthier.
EX-IM BANK: SUPPORTING GLOBAL PROSPERITY THROUGH TRADE
Export credit agencies have consistently played a critical role in filling
financing gaps to keep trade flowing to emerging markets.
This is because commercial banks simply do not have a large appetite for placing
emerging market risk on their books. This has been particularly true in recent
years, as net commercial bank lending to emerging markets has fallen
Private financing, of course, could reverse course again with a change in risk
perception. But it's hard to see private finance fully supplanting the role of
export credit agencies in providing significant trade finance to higher-risk
emerging markets in the foreseeable future. In a very important sense, Ex-Im
Bank provides dual benefits. We help developing countries and their companies
get the U.S. goods and services they need to grow. And we help U.S. exporters
make sales into these markets. Our mission is to create and maintain U.S. jobs.
We're a $100 billion bank, with roughly $60 billion in exposure as I speak. That
leaves $40 billion in my pocket to lend to anyone who wants to buy from U.S.
We provide guarantees, insurance and direct project finance products in areas
where private capital alone cannot afford to take either the political or
commercial risk that we underwrite.
We are legally mandated to find that a "reasonable assurance of repayment"
exists for every transaction we authorize. Yet, we like to see ourselves as
catalysts that pave the way in opening up and cultivating what euphemists call
more difficult markets.
Ex-Im Bank is active in about 90 countries, and open for business in about 60
more. We support every kind of export -- from capital goods associated with
large infrastructure projects, jet aircraft, medical equipment, and engineering
and other services, right through to exports of a multitude of small businesses.
Last year, we financed $67,000 of used clothing to Ghana.
Ex-Im Bank's project finance program is particularly useful for major
infrastructure development needs such as transportation, oil and gas and other
energy facilities, and major telecommunications systems. And our municipal
exports initiative makes it possible for creditworthy cities and other local
governments to procure needed goods and services.
Our annual conference next month will be a great place to learn more about how
Ex-Im Bank can serve U.S. exporters and foreign buyers. It will be April 29 and
30 here in Washington, and some 1,500 international bankers and exporters will
overflow the Omni-Shoreham, as they do every year.
EX-IM BANK IN THE WORLD
Looking around this room, I see distinguished representatives of many nations.
Ex-Im Bank has been active in the vast majority of them.
Just last month, I traveled to Vietnam, where Ex-Im Bank recently provided
long-term loan guarantees to help Vietnam Airlines purchase its first four
commercial aircraft from Boeing and the United States.
With 51 million out of 83 million people doing stooped labor in rice paddies,
the Prime Minister of Vietnam -- with whom I met for two hours -- is very
conscious of the need for foreign direct investment to produce the 30 power
plants his country needs in the next 10 years.
This means moving toward a market economy. Such a recognition from a
still-communist government I found intriguing and remarkable.
I also visited several cities in India, an economy on the rise, where Ex-Im Bank
financing has helped Indian companies buy everything from refinery equipment and
commercial jets to U.S.-made software.
Last fall, President Putin and I signed the latest in a number of financing
agreements that we have concluded with banks in Russia, where Ex-Im Bank has
long been active.
I'm pleased that we're open to support deals with Russia's private sector
-- something, by the way, that we cannot yet do in China, even though we have $5
billion in exposure in China and the Chinese are very market-oriented.
It is still difficult to enforce private contracts under Chinese law. Thus,
unlike Russia, our business there still requires sovereign guarantees.
Last October, Ex-Im Bank held a sold-out conference in Slovenia to connect
private- and public-sector buyers in Southeast and Central Europe with U.S.
After that conference, our executive vice president, Jim Lambright, and I went
to Kazakhstan, where we signed an agreement to provide Ex-Im Bank financing for
a major project to modernize the country's rail system.
Ex-Im Bank has also made a major effort to increase U.S. trade with sub-Saharan
Africa. Last year, we supported a record $700 million in U.S. exports to the
region, about 15 percent of our nation's total exports there.
In fact, we have supported several significant infrastructure projects in Africa
and the Middle East. We provided critical financing for the Chad-Cameroon oil
pipeline and to help Nigeria expand its liquid natural gas production. And just
a few weeks ago, Ex-Im Bank financing was approved to help Jordan develop a
nationwide radio-dispatch and cellular telecommunications network.
Indeed, Ex-Im Bank has a long history of engagement in the Middle East. We
helped Israel's initial provisional administration in the late 1940s with loans
based on the idea that the future government would be supported by the United
States and was therefore a good risk. At about the same time, we helped finance
the highway in Saudi Arabia from Jidda to Mecca.
In short, we're doing business in an awful lot of places.
Today, we are engaged in another historic effort in the Middle East. We are
working with our coalition partners to devise effective structures to help the
Iraqi people address their country's immediate reconstruction needs and Iraq's
medium- and longer-term needs of rebuilding a sustainable, diversified economy.
There are three pillars to the successful reconstruction of Iraq: physical
security, political stability and economic growth.
A consensus U.S. estimate is that Iraq will need close to $100 billion in
economic support over several years.
One answer to this requirement is the U.S. taxpayer. This year's appropriation
for Iraq's reconstruction is $18.6 billion.
Another approach is to use the proceeds from Iraqi oil in rebuilding their
country. With tremendous oil reserves, Iraq should be able to afford a lot, but
time is a big problem.
Current production is unlikely to generate the money needed today to ensure
Iraq's success. Pay-as-you-go is not likely to cut it.
One solution might be an Iraqi authority that could securitize future oil
revenues to raise more money upfront.
In order to have physical security and political stability, we must do something
to enable Iraqis to realize their wealth more quickly. And, of course, we must
also turn more responsibility over to Iraqis, as we plan to do on July 1.
This will require resolving the Iraqi debt problem. A country with a pre-war GDP
of $26 billion cannot service $130 billion in debt, plus billions in reparation
obligations from previous wars. If there is going to be any long-term
investment, this debt will have to be dealt with promptly. At the moment, there
is a major effort to resolve this issue through the Paris Club by the end of
this calendar year.
It is cheaper, as well as smarter, to make Iraq relatively rich than it is for
the United States to continue on a path that, in time, if not already, is sure
to make us be seen as an "occupying" power.
At $1 billion a week just to maintain our armed forces there, the political and
military costs are incalculable.
Currently, Ex-Im Bank can support reconstruction activities in Iraq in three
ways by providing:
1. short-term support to the Trade Bank of Iraq, which was established last July
as an independent Iraqi government entity to help facilitate reconstruction; 2.
any kind of financing, if backed by a creditworthy source of repayment in a
third country; and 3. working capital guarantees to U.S. subcontractors
operating there now.
While the Trade Bank will help, Iraq will need approximately $20 to $30 billion
in long-term investment to get from the current 1-2 million barrels per day to
5-6 million barrels per day of sustained oil production. The request for that
investment must come from the Iraqis. In the end, it is their oil, and they can
use it as they wish.
However, if that investment doesn't take place, the American taxpayer will end
up paying most of Iraq's development bill. If it does take place, Iraq can
generate for itself $20-to-$30-billion-plus per year for its own development,
depending on oil prices and ramping up time.
In short, investors are telling us that three key requirements are some form of
sovereignty, physical security, and precedence over existing debt, to provide
sufficient comfort that contracts will be honored over time.
If there is one message I want to leave you with, it is that Ex-Im Bank is
committed to creating win-win opportunities for U.S. businesses and foreign
buyers, and for workers in both the United States and abroad. If you have any
questions, I would be happy to try to answer them. Thank you.
(Distributed by the Bureau of International Information Programs, U.S.
Department of State. Web site: