Export-Import Bank

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

A supposedly "reformed" Export-Import bank is back to its old ways.

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As the saying goes, "You can't teach an old dog new tricks." Nowhere is this truth more evident than in the recent behavior of the allegedly "reformed" Export-Import Bank of the United States.

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.

Right under Congress' nose, Ex-Im Bank approved $400 million in financing to this Mexican government-owned oil company. This use of taxpayer funds raises several questions, not the least of which is why our federal government would subsidize a foreign state-owned company in the first place. There's no good answer.

Moreover, 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.

Among other offenses, the bribes were allegedly paid to ensure passage of energy-sector reforms under the prior government, in order to open the sector to foreign investment. The Wall Street Journal also reported last October that the U.S. Department of Justice and the Securities and Exchange Commission are conducting a broad investigation into corruption at Pemex.

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.

Don't be quick to blame this fiasco on President Donald Trump and his Republican political appointees alone, either. One of his political appointees to Ex-Im's board of directors is a Democrat. And under President Barack Obama, Ex-Im happily extended the same favors to the foreign oil and gas company. In fact, Ex-Im data show that between 2007 and 2015, Pemex received over $7 billion in financing from the United States.

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. And as far as Congress' reauthorization of the Export-Import Bank, I'm reminded of another canine aphorism: "As a dog returns to his vomit, so a fool repeats his folly."

NEXT: Teaching Seila Law v. CFPB

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  1. X gonna give it to ya.

    By which we mean the export-import bank is gonna give it to the taxpayers.

    Nonconsensually, of course.

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  2. The oil crisis could be an excellent opportunity for AMLO to reconsider his government’s position on what shape Mexico’s energy sector should take. “It is important to be pragmatic at this point and acknowledge that Pemex does not have the financial capability to invest to increase oil and gas production and that, in association with other oil and gas companies, it could increase such production in the long-term,” says Meyer Brown’s Gyarfas.

    Though the oil crisis will likely limit the number of companies in a financial position to take this kind of work on, in the long-term these kinds of farm-outs could be the solution Mexico’s oil sector desperately needs to recover from the covid-19 crisis and indeed the mess it was in long before the pandemic. “In the long run, it would be a good decision for Pemex and the Mexican oil and gas sector in general,” adds Gyarfas.

    1. Look at Mr fancy bot

  3. this article describe many things regarding govt policies as best described by “Tech write for us

  4. Fool me once, shame on you; fool me dozens of times, I must be Congress.

    1. Holy shit. So now Reason is plagiarizing.

      1. Or is Veronique? Both published on 10/1, but this one was just after midnight, so probably first.

        Either way, WTF?

        1. R Mac is on the beat. Watching Reason like a hawk.

          1. Actually dumbass, Paul Sand posted the link, clearly. Noticing the same article having two different authors doesn’t require eyes like a hawk, it’s quite apparent.

            But thanks for more evidence that you’re a Reason writer Dee.

    2. You can’t plagerize yourself. DeRugy wrote the article. It’s just published in two different places.

      1. They changed the author. It originally said Christian. Seems like the kind of change that should have a correction noted, if we’re talking about real journalism.

        1. As they learned from their favorite journo lists at the Atlantic nyt and Vox the best journalists never admit to an edit

        2. I guess. If it were a mistake of substance, not a case of making a copy and paste error filling out a blog post form in the middle of the night.

          1. I don’t really give a shit what you think Dee.

        3. Yup, I remember it said Bretschgi (autocorrect is not helping me here, sorry) too.

          Weird. I guess these things happen.

  5. In love with a Mexican girl, I went to work for Pemex at Làzaro Càrdenas, near Tampico in the mid-1970s. The first hurdle to getting the job was that I had to be a member of the state-controlled union in order to be hired, and the union would not sign me up unless I had papers showing that I had a job offer. Mordita, obviously, so I paid a bribe to the union.
    The place was run on the ‘be blind’ principle. Trucks were loaded and sent out without any papers whatever. Lab results were pencilled in. It was just like working for the Godfather. Since it is state owned, any hint of actually noticing the corruption was met with an offer of a home visit by the Federales.
    When I hear of any party planning to take over an industry I remember my time in Mexico.

    1. One of my relatives is in Starbucks corporate, supporting the supply chain in Mexico and Latin America. Part of her job is to try to track down trucks full of Starbucks property that go missing.

    2. Yes, Mexico was a keptocracy for decades, if not the whole of a century. They’re changing, but the culture has set in and it’s going to take more decades to get rid of last of it.

      I used to work with someone from Mexico, and he expressed his continual amazement that people could do business here without pockets full of cash to grease government wheels. Doesn’t mean there wasn’t corruption here, he also remarked that the US was just as bad it just wasn’t out in the open and needing to constantly pay someone off.

      1. >>They’re changing

        more bodies hanging from bridges than the year before

      2. his continual amazement that people could do business here without pockets full of cash to grease government wheels
        Not all greasing goes to government wheels. Environmentalists, unions and the like want their cut.

  6. Why Are American Taxpayers Propping Up Mexico’s Insolvent, Government-Owned Oil Company?
    Because they won’t pay for anything. Look how difficult it has been to get them to pay for the wall.

  7. Good question, and , why are we paying to defend Europe, South Korea and Japan ? Why are we paying for farmers, ‘green energy’ or any business?

    1. It’s classic public choice theory. Concentrated interested lobby congress to keep their pork, opposition is too diffuse to block it.

      Plus… religion. The national religion of having troops everywhere and never bringing them home. Remember that the most shit Trump ever got was when he suggested bringing a tiny number of troops home. Then there is the national religion of subsidizing everything that’s “good”. We subsidize farmers because farmers are the salt of the ert and thus good. And we subsidize “green” because green is good. We subsidize dairy because milk is good, but we don’t subsidize beef because we need less red meat in our diet, even though both industries are about cows.

      Cut back troops in Germany! OMG! What if Hitler came back! Cut welfare to soybean farmers, don’t you know that farmers grow all our food?!?! Think of the tofu!

      1. Hitler did come back! He’s living on Pennsylvania Avenue!

    2. Have we stopped paying the hush money for sexual assault by members of Congress?

      1. No because now they’re trying to elect one to the white house.

        Biden is a sexual predator. That is who reason is promoting.

  8. Answer: We have to funnel US tax dollars to Pemex because they’re the ones paying for the wall? See, Trump was right when he said “they” would pay for it!

  9. >>Right under Congress’ nose

    lol sure.

  10. Duh! No one noticed Pemex snuck across the border and had a baby? Pay up Gringos.

  11. It is a payoff. The Mexicans have made a lot of concessions. In return we give them money to prop up the corrupt gas company.

  12. Anyone who gets burned buying Latin American debt deserves what they get.

  13. Gee, I wonder if Pemex has any Ex-Im officials in their pockets?

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