Export-Import Bank Puts Taxpayers on Hook for Bailout of Mexico’s State-Owned Oil Company
The Export-Import Bank is back in the news, this time for putting U.S. taxpayers on the hook for a bailout of Mexico’s national oil company – and long-time Ex-Im Bank client — PEMEX.
According to Reason’s Veronique de Rugy, the Ex-Im bank loaned PEMEX $400 million. It was a very risky bet, considering the oil company is teetering on the brink of insolvency (nevermind the chronic corruption):
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.
In April, both Moody’s and Fitch downgraded Pemex’s bond rating to junk status, and the deputy governor of Mexico’s central bank recently said that Pemex could become an “incurable cancer” if its government doesn’t address its deep-seated structural problems. Now, thanks to Ex-Im’s decision to extend financing to Pemex, if the company collapses, it will also be a problem for American taxpayers.
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.
The obvious question is why the U.S. government is bailing out Mexico’s oil company. De Rugy says there’s no good reason. But the Ex-Im Bank says it’s all about fighting Chinses influence:
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.
The Ex-Im Bank has a long history of putting American taxpayers on the hook for loans it has made to foreign companies – some of which have embroiled taxpayers in scandal.
When it was reauthorized in 2019, the Bank’s chairman said it would “protect the American taxpayer.” Risky loans to foreign companies with a history of scandal and mismanagement would seem to say otherwise.
Image Credit: By Jericho [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons