INTRODUCTION

Much of the decade of the 1980s proved a difficult period for financial institutions. The Export-Import Bank was not immune to the consequences of the unusual macroeconomic developments of the period. For the Bank, the 1980s, especially after 1983, created a time of turmoil and important turning points.

At the beginning of the decade, domestic inflation reached unprecedented peacetime levels. To cope with these problems, the Reagan administration slowed the economy by raising interest rates, which resulted in the deepest recession since the depression of the 1930s. At the same time, large tax cuts and increased military spending led to record deficits. Compounding the decade's economic problems were the first signs of trouble in the domestic savings and loan industry, a consequence of banking deregulation in the late 1970s.

Internationally, a serious debt crisis occurred among less-developed countries unable to service debts incurred in the 1970s. One consequence of these difficulties was a sharp decline in the demand for imports in affected areas. An unusually strong dollar, at least until agreements between 1985 and 1987 to drive its value down, further contributed to a growing trade deficit as American exporters were priced out of many markets.

Together these domestic and international economic developments contributed to a serious reduction in the levels of the Ex-Im's lending activity and the quality of its loan portfolio. In 1983, the Ex-Im's direct lending plunged. It would never again reach the levels of 1978–82.