US shuts Gina bank

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From the AFR:

The US government bank that has injected almost $10 billion into Australian resources projects, including Gina Rinehart’s Roy Hill iron ore mine, is shutting down, leaving a potential funding hole for future mining development.

US political conservatives have successfully waged an ideological war against the taxpayer-backed US Export-Import Bank, arguing it is handing out “corporate welfare” to major corporations.

…As well as Ms Rinehart’s Hancock Prospecting, Ex-Im has lent billions of dollars to local resources projects led by Origin Energy and BG Group.

The reason why the US has been so generous is that it is basically funding projects that will buy American goods such as GE locomotives, Caterpillar trucks etc. The bank does so in projects that have troubled private sector support, usually owing to political risk but in the case of Australia it was market risk around excess supply (in the case if Gina).

I have some sympathy for these types of organisations, especially for smaller nations that struggle to raise capital, but you’d be hard pressed to argue that it was an overall efficient deployment of capital in Gina’s case given the massive glut building now though for the US it may still have had net benefits.

We can probably expect the ideological copy cat in the Abbott Government to now gun for the comparable Australia Export Finance Corporation (EFIC) even though it is very well run and has a good track record of investments.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.