Why Are American Taxpayers Propping Up Mexico’s Insolvent, Government-Owned Oil Company?

“Reauthorized by Congress in December 2019 with the promise that it would suddenly change its ways and focus its firepower on fighting China, this export credit agency quickly returned to its tired routine of propping up its old and favorite customers, including—very prominently—Petroleos Mexicanos, or Pemex.”

“Ex-Im Bank approved $400 million in financing to this Mexican government-owned oil company.”

“Pemex is in serious financial trouble. It could very well collapse, despite its privileged position in Mexico. A pandemic-induced drop in oil prices combined with years of mismanagement have left Pemex technically insolvent. It’s already the world’s most-indebted oil company and one of the largest issuers of debt in Latin America.”

“Pemex has been corrupt for years. In July 2020, its former chief executive was arrested in Spain (where he had been hiding to evade a Mexican arrest warrant) and extradited. He’s now a protected witness in an expansive bribery scandal involving three of Mexico’s former presidents, four former finance ministers, two presidential challengers, two state governors and a number of legislators.”

“Now Ex-Im is justifying its financing to Pemex with the go-to excuse that it “would help counter financing competition from foreign export credit agencies, including from China.” This claim is dubious. In the bill to reauthorize Ex-Im last December, Congress did include what it calls the Program on China and Transformational Exports. It specified 10 sectors for the program, such as artificial intelligence, renewable energy, water treatment and sanitation. However, the list doesn’t include oil and gas. Nearly a quarter of Ex-Im’s overall exposure is in that sector, so Ex-Im’s long-standing connections to the industry—rather than a desire to counter China—are probably why the bank continues to deepen ties with Pemex.
This brings us to another question: How can some members of Congress reconcile subsidizing so many foreign oil and gas companies in light of their stated concerns about climate-related issues? Pemex’s record on that front should particularly disturb those who so loudly proclaim their environmental interests.”

“The overarching lesson from this mess is that Congress was unrealistic to expect Ex-Im to change its ways. The bank can assert that things will be different, or that it will now focus on fighting China, but at the end of the day, its relationship with Pemex stretches back more than 70 years—a fact about which the agency boasts in its press release.
As long as Ex-Im holds tight to its favored companies, nobody should expect major results in any so-called transformational sectors. Old dogs won’t learn new tricks.”

The Export-Import Bank’s China Program Lacks Vision

“Vast research shows that, while subsidies might prop up the direct recipients, governments that subsidize harm their economies overall. That said, in the name of national security or geopolitical concerns, these principles may sometimes be traded off against other concerns.

But this doesn’t mean that all subsidies should get a free pass. There must be a concrete strategy behind the effort to use subsidies in this way. For instance, China mostly operates in lower-income nations. If Ex-Im is serious about competing with China, that’s where its loans should be going, rather than continuing to finance foreign borrowers in rich countries such as Italy, France, or the United Arab Emirates, where they’re served well by a commercial banking market.

Ex-Im’s recent annual conference was full of bold statements about fighting China as mandated by Congress during the agency’s reauthorization process back in December 2019. Unfortunately, despite much bluster from its leadership, there’s been no fundamental change in the way Ex-Im operates or in which companies Ex-Im extends financing to with taxpayer backing.”

“the Export-Import Bank’s failure ultimately lies with the policymakers who believe an agency that has been devoted to serving well-connected companies for so long would actually change.”