September 3, 1996 | Executive Memorandum on Taxes
When it returns from its August recess, the House of Representatives is expected to consider H.R. 3759, the Exports, Jobs, and Growth Act of 1996, which authorizes appropriations for the Trade and Development Agency (TDA) and export programs of the International Trade Administration (ITA) for fiscal years 1997 and 1998. But the heart of the Act extends the authority of the Overseas Private Investment Corporation (OPIC) to engage in new commitments through 2001 and doubles the statutory limits on OPIC's insurance and financing activities.
OPIC insures overseas investments by U.S. business against loss to expropriation, political instability, and unforeseen contingencies, such as currency inconvertibility. It also issues investment guarantees and direct loans to U.S. businesses for international investments. The agency was created by the Foreign Assistance Act of 1961 to complement the federal government's trade policy and development activities. Specifically, OPIC is charged with increasing U.S. exports and assisting American private capital in the development of less developed countries (LDCs) and countries in transition from non-market to market economies.
Strangely, no one seems to notice the irony of using a government-run program to encourage other countries to end government interference in their economies. Congress should not expand OPIC's funding and authority. OPIC is another form of corporate welfare and accomplishes nothing that cannot be performed better in the private sector, without risk to U.S. taxpayers.
Additionally, beginning in 1987, OPIC began dabbling in venture capital, one of the riskiest areas of the financial industry. Starting with the Africa Growth Fund, OPIC began creating numerous funds to encourage investment in less developed countries. These funds have several things in common: They are involved in the world's riskiest markets, are subject to little control or oversight by OPIC, and rarely turn a profit. These funds also have been growing precipitously, from $70 million at the beginning of the Clinton Administration to over $814 million last spring.
Additionally, OPIC employs many restrictions on its lending and insuring practices that have nothing to do with the viability of the investment. For example, many countries that fit the normal criteria for OPIC political insurance and loans are ineligible because they do not meet U.S. standards in such areas as human rights, environmental concerns, and workers' rights. Countries that are excluded from OPIC lending for these reasons include South Korea, China, Hong Kong, and Mexico. In other words, political correctness is more important than maximizing the return on taxpayers' money.
At the very least, OPIC should be required to limit its activities to those which complement rather than undermine the activities of private-sector political risk insurers. OPIC, for example, could supplement private political risk insurance by issuing policies for the time window beyond that typically offered by the private sector. Ideally, however, OPIC should be eliminated and its commitments privatized.
Proponents claim that OPIC cannot easily be privatized. To bolster this claim, they cite an independent study which estimated that privatization would cost American taxpayers between $500 million and $700 million. This is a large sum, but it pales in comparison to the potential cost to U.S. taxpayers if major economic or political upheavals occur in areas of the world with OPIC-insured projects. The potential liability to the U.S. is in the billions -- in effect, a global version of the savings and loan debacle of the 1980s, for which the American taxpayer is still paying.
The U.S. government should not intrude in areas where the private sector is willing and able to do the job, can do it more efficiently, and can do it without forcing American taxpayers to underwrite risky ventures. Encouraging foreign investment is an admirable goal, but it should not come in the form of government subsidies to private U.S. firms -- subsidies that discourage economic reform in the target countries and put the American taxpayer at risk.