Why Cut an Agency That Makes Money?
By Daniel Mintz, Bloomberg, New York, NY,
Wed, March, 22, 2017
NEW YORK-- Caught in the crosswinds of President Donald Trump's aggressive budget-cutting is one program that Democrats and Republicans should both support. The Overseas Private Investment Corporation, the government's development-finance institution, is one of numerous agencies and programs set to be eliminated if Trump's proposed budget is enacted. But OPIC is a rare example of a profitable and lean federal agency -- one that actually reduces the budget deficit.
OPIC mobilizes private capital for emerging markets by providing debt financing, political risk insurance and support for investment funds. This boosts revenue and jobs at home, while encouraging development in poorer and potentially unstable countries. It also helps U.S. businesses mitigate risk by providing capital in areas where conventional financial institutions often are reluctant or unable to lend.
As part of our private-equity program, my investment firm, Olympus Capital Asia, has worked with OPIC for the past 20 years, under Democratic and Republican administrations, and I can testify that it is the opposite of "corporate welfare." In fact, the U.S. taxpayer has made about $20 million just from our business. This revenue comes from the fees we pay OPIC, which allow us to issue low-cost, long-term financing on qualifying investments.
We've worked with OPIC on 18 investments in local industries, including microfinance, consumer goods, and environmental and health-care services. These businesses have benefited emerging economies such as India, Thailand, Indonesia and the Philippines without replacing American jobs or disadvantaging U.S. companies, consistent with OPIC's strict requirements. With the agency's support, funds like ours have invested more than $5 billion in over 570 privately owned and managed companies in some 65 countries.
All this is done at no net cost to U.S. taxpayers. By charging market-based rates and premiums for its loans and insurance, OPIC has generated a $5.7 billion surplus since it was created in 1971 by President Richard Nixon. Last year, it brought in $263 million in revenue with a budget of only $63 million -- and with fewer than 300 employees.
So why involve the government in commercial activities such as investment, lending and insurance? Simple: Even though OPIC charges market rates and profits on its activities, its very presence in a transaction as a U.S. government-owned corporation helps to reduce risk, because companies in emerging markets know that their own governments will not want high-profile defaults on OPIC-linked projects.
Emerging markets can present unique challenges to businesses, so if an investment runs into trouble, OPIC can help find a solution, with its credibility and influence enhanced by the government's imprimatur. More than once, when we faced stressful circumstances in developing markets, we've benefitted from OPIC's help. The agency's historically low credit losses and insurance claims are testimony to its ability to reduce risk.
Olympus Capital's most recent OPIC investment is in a company that controls fast-growing microfinance businesses in India, Indonesia and the Philippines. Globally, 2 billion people lack access to formal financial services, and most of them live in emerging markets where banks generally don't make loans of less than $500. Micro loans -- primarily for income-producing assets such as livestock -- can help lift these people into the middle class. OPIC has profitably backed such programs throughout emerging markets.
Expanding financial access is a critical component of economic stability and growth, and thus strongly in the interests of U.S. foreign policy and national security. OPIC also requires that clients like us, and the companies we invest in, adhere to high environmental, social, legal and governance standards. For many companies receiving investment from OPIC-affiliated funds, these standards provide a roadmap for the best practices and responsible corporate behavior that the U.S. government has long sought to promote overseas.
I recognize the imperative to cut government waste and overreach. But this administration, packed with successful business leaders, should appreciate a public-private partnership that leverages the business sector to boost overseas development and achieve significant foreign-policy goals -- all while earning high returns for taxpayers.
Americans are divided at home, and the image and influence of their government faces challenges abroad. We have enough real problems without creating new ones for the sake of symbolic budget cuts. OPIC doesn't just benefit taxpayers. It projects core American values to the developing world. And that's something that can't be measured in dollars alone.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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