Worried that credit markets remain fragile and underserved, the Harper government is poised to extend Export Development Canada’s emergency domestic lending powers for another year.
The decision, expected Tuesday, means EDC, a Crown export credit agency, will continue to be able to provide loans and insurance to companies for their Canadian operations.
In the aftermath of the 2008 global credit crisis, Ottawa transformed the EDC into a domestic lender as well as an export lender, for an initial two-year period. There were fears at the time of a total freeze of short-term funding, not just for export transactions, but also for receivables and other funding needs.
That mandate was quietly extended for one year in 2011. Now, even though the credit crisis has faded from memory, EDC will remain in the market for at least another year.
The plan back in 2009 was to make EDC a temporary financial partner on the home front, giving commercial banks the confidence to keep lending to struggling businesses unwittingly caught up in the global financial meltdown, particularly in Ontario’s decimated auto sector and in aerospace.
EDC has pumped $9-billion into the domestic operations of nearly 600 Canadian companies, typically in partnership with private-sector banks and insurers.
Business groups, such as Canadian Manufacturers & Exporters, have lobbied hard for EDC’s expanded mandate to be made permanent.
That isn’t going to happen.
Still, the extension has raised concerns that EDC may be crowding out private lenders and causing some confusion with the activities of its sister agency, the Business Development Bank of Canada.
“The BDC is moving into areas where the private sector should be performing,” said Peter Kemball, chief executive of Ottawa-based merchant bank Acorn Partners.
But Mr. Kemball acknowledged credit markets are still not back to where they were before the financial crisis. Another one-year extension is probably appropriate, he said.
“That makes sense,” Mr. Kemball argued. “They are monitoring what’s going on in the credit markets.”
Mr. Kemball pointed out that several non-government credit insurers pulled out of the market in 2008 and 2009, and have never returned. And the major national banks remain extremely risk-averse about making commercial loans, particularly to smaller businesses.
Experts said there could eventually be trade implications because the EDC has used the powers to help Montreal-based Bombardier Inc. sell aircraft to domestic carriers, such as Toronto-based Porter Airlines Inc.
“I would have thought this is something that would catch the attention of our trading partners,” said John Weekes, a former top Canadian trade negotiator and now a consultant at law firm Bennett Jones in Ottawa.
He pointed out that the Republican-led U.S. House of Representatives is working on legislation that would eventually get Washington right out of the export finance business – a move targeted at Boeing.
The legislation appears calculated to force negotiations with Europe and other major exporting countries involved in the export finance game, Mr. Weekes said.
Canadian Manufacturers & Exporters president Jayson Myers said the lines between the domestic and global economies are becoming increasingly blurred. And so is the financing.
“EDC is filling a major role providing lending credits for Canadian banks domestically and internationally, and today it’s hard to tell the difference,” he said. “In industry, you’re probably part of an export-oriented supply chain, even if you’re selling locally.”