Making the Case for OPIC
By Daniel F. Runde, Ashley ChandlerMay 12, 2011
The Overseas Private Investment Corporation, or OPIC, simultaneously accomplishes tangible and sustainable economic development goals abroad while actually earning money for the U.S. taxpayer. It is America’s only foreign policy, national security, and economic development instrument that does not cost taxpayers a dime. OPIC has demonstrated the willingness to be innovative within the limits of its authority but needs additional financing flexibility to help the U.S. government achieve its policy objectives in priority countries, regions, and sectors. Therefore, OPIC should not only be reauthorized as an independent, standalone agency, but also empowered to do more of what it does best. Any discussion about folding OPIC into the Commerce Department is not only a distraction, but would weaken and distort the role of one of the U.S. government’s most effective foreign policy tools.
The most pressing upgrade to OPIC’s mandate is the ability to set aside some of its profits to: (a) make small equity investments to complement the lending that it provides, and (b) fund technical assistance alongside its investing operations. We understand that obtaining authority for OPIC to make equity investments and authorizing it to fund the equity and technical assistance from its earnings would take some time and discussion and ought to be done in the context of a longer-term reauthorization (years instead of months). But it is the right policy decision for the United States, as it would put OPIC on the same footing as all of our allies who have established development finance institutions with these authorities. The ability to set aside funding for integrated technical assistance would enhance OPIC as an instrument of our national interest in challenging environments like Afghanistan, and it would help us to consolidate the gains of the Arab Spring, where a big part of what we have to offer is U.S. trade and investment. OPIC has been an instrumental tool in such situations, but it could be even more effective with slightly expanded authorities.
Q1: What is OPIC?
A1: Founded in 1971, OPIC is a U.S. government agency that facilitates U.S. private investment in developing countries and emerging markets. By mobilizing private capital across the developing world, including high-priority countries such as Egypt and Afghanistan, OPIC advances the U.S. foreign policy agenda while helping U.S. companies expand into areas where investment possibilities would otherwise be prohibitively challenging. By using a number of development finance instruments (e.g., investment guarantees, debt financing, and political risk insurance), the agency is authorized to provide direct loans and investment guarantees to corporations that are substantially U.S. companies. OPIC works with U.S. companies, meaning companies that are organized in the United States, and others that are at least majority U.S. owned.
Q2: What does OPIC cost the U.S. taxpayer?
A2: OPIC’s operations are profitable. The users of its services—U.S. companies—pay interest and fees that more than cover the cost of its operations and allow it to set aside substantial reserves. Thanks to this approach, Congress and the U.S. Treasury do not need to borrow money to fund OPIC; instead, Congress authorizes the agency to spend a certain amount of its own funds for administrative needs. As we’ve reached the end of the bull market of foreign assistance, this is a particularly important point to note. OPIC’s profits sit in the U.S. Treasury, and to date, the U.S. Treasury has accumulated more than $5 billion in reserves over the 40 years of OPIC’s operation. For fiscal year 2011, for instance, OPIC’s budget request was $189 million after an income of $259.9 million, and for the 33rd year in a row, OPIC returned money to the U.S. Treasury.
Q3: Why is reauthorizing OPIC smart foreign and national security policy?
A3: Some have suggested that OPIC should be closed down entirely. During this moment of budgetary austerity, this line of argument may be tempting but is misguided. In this increasingly complex and interconnected world, the capability of the United States to address these challenges adequately depends in part on its ability to use development finance effectively as a tool of foreign and national security policy. OPIC has the ability to act swiftly following a crisis, which is essential when fighting breaks out in geostrategically important areas, such as in Georgia during the 2008 conflict with Russia. Just days after the fighting began, OPIC worked with a variety of U.S. government agencies to help revive the Georgian economy. Ultimately, OPIC provided $80 million for housing and commercial development and an equal amount in bank support as part of a $1-billion investment package from the U.S. government. Thanks to its existing relationship with two major Georgian banks, OPIC was able to mobilize capital very quickly—and will earn a profit in doing so.
In recent years, OPIC has been operating on a series of short-term extensions, with no guarantee for the long term. The last reauthorization of OPIC was lumped into a much larger appropriations bill in order for it to be passed. This constant uncertainty is detrimental to the agency’s effectiveness, and far too much is at stake to allow this to continue. Even though OPIC has demonstrated the willingness to be innovative within the limits of its authority, it needs additional financing flexibility to help the U.S. government achieve its policy objectives in priority countries, regions, or sectors. Because troops are able to move out more quickly as businesses move in, waiting too long to introduce these types of economic development activities can have disastrous consequences. It is in the interest of the United States that OPIC thrive instead of just survive.
Therefore, OPIC should not only be reauthorized, but also empowered. The most pressing upgrade to OPIC’s mandate is the ability to have equity authority. Even though this would not be a cost-free exercise, as OPIC’s net negative outlays go to offset other programs in the 150 Account for International Affairs, OPIC’s mandate could be restructured to ensure its contribution to the account, while keeping a portion for equity. Doing so, however, would require a longer-term reauthorization (years instead of months), and OPIC’s current shorter-term extensions do not provide adequate time to instigate this type of change. The ability to set aside some additional funding for integrated technical assistance would also help OPIC be a more effective economic force in challenging environments. America’s allies and strategic competitors have development finance institutions (DFIs) that have these capabilities, and as the United States’ main DFI, OPIC should possess comparable tools aimed at benefiting U.S. companies and U.S. foreign, national security, and development policies.
Q4: Why should OPIC remain a standalone agency?
OPIC should remain a standalone agency that is reauthorized on a longer-term basis. OPIC’s independence has provided it some ability to be (relatively) quick and flexible. OPIC is not a traditionalassistance agency but instead is a self-sufficient foreign policy and national security instrument.
The administration should back off from merging OPIC with the Department of Commerce. There is little appetite on the Hill for this, and it would waste precious time and political capital that could be used for reauthorizing OPIC with expanded authorities.
Daniel F. Runde is director of the Project on Prosperity and Development and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Ashley E. Chandler is a research associate with the CSIS Project on Prosperity and Development.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2011 by the Center for Strategic and International Studies. All rights reserved.
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