Since the Trump administration has taken office, the International Affairs budget has come under attack. Among the many potential items to be cut, the Overseas Private Investment Corporation (OPIC) has been singled out by the administration as a particularly unnecessary agency.
As a result, a slew of arguments for and against the Overseas Private Investment Corporation have been published in recent months. This article is an attempt to provide clarity about the role of OPIC and suggest that its overall benefits outweigh its costs.
Established by President Nixon in 1971, OPIC provides loans and political risk insurance to private American companies seeking to invest in developing countries. Developmental financing was conceived as a complement to governmental aid insofar as it facilitated the transference of private capital to developing economies.
Critics of OPIC often argue that, as a public institution, the agency crowds out private banks that should, in theory, be more efficient financiers of international development.
The truth is that, although a robust private market for developmental finance exists, private capital oftentimes averts especially risky and poor countries due to the inevitably high premiums and interest rates.
OPIC, on the other hand, is in a unique position to support investments in these countries.
With the backing of the U.S. government, OPIC has been able to recover over 90 percent of its political risk claims. This fact has allowed the agency to offer affordable loans and political risk insurance in countries deemed too risky by private finance institutions.
Other critics of OPIC claim that it represents a form of “corporate welfare,” citing the fact that the agency gives loans to some of the largest U.S. firms, like J.P. Morgan, Citibank, and Wells Fargo.
Although all American firms are welcome to apply for financing, year after year, more than half of OPIC’s commitments go to small- and medium-sized businesses.
Even if one remains unconvinced about the benefits of OPIC, it is important to recognize that the agency imposes virtually no cost on the U.S. government. While OPIC does require federal backing to insure its $20 billion worth of outstanding loans, the agency has been self-sustaining for almost four decades. In fact, it has used its interest receipts to contribute nearly $4 billion to U.S. deficit reduction.
In the end, while there are many arguments for and against the Overseas Private Investment Corporation, the truth is that the agency has a net positive effect on American firms and developing economies alike.
– Nathaniel Sher