Privatizing OPIC

May 21, 2014

Congress should eliminate support for OPIC, contend Bryan Riley, senior policy analyst at the Heritage Foundation, and Brett Schaefer, senior research fellow.

The Overseas Private Investment Corporation (OPIC) is a U.S. creation from 1969. Intended to encourage what might otherwise be risky investments, OPIC provides loan guarantees to private businesses for investments in developing markets. It also offers risk insurance for losses resulting from terrorism or coups, and it supports funds that make investments in companies in emerging markets. Basically, OPIC provides guarantees and subsidies to private businesses, leaving taxpayers to shoulder that cost and risk.

Riley and Schaefer write that OPIC is no longer necessary, as many private firms offer investment loans and political risk insurance. As such, OPIC may be displacing private businesses in investment projects overseas. As for the environments that are so risky that private services might be unavailable, the U.S. interest should be clear, the authors write, if taxpayers are to assume the risk for those overseas ventures.

Furthermore, OPIC actually rewards countries with bad investment policies: 

  • Countries with strong business climates are most likely to attract investment. When OPIC guarantees investments in risky environments, those countries have no incentive to adopt more favorable policies.
  • OPIC claims to support more than 278,000 American jobs. However, that figure assumes that the investments backed by OPIC would not have occurred. If the investment makes sense economically, it would have occurred without OPIC support.

Companies that want to invest in emerging markets should do so, but taxpayers should not be required to support them, say Riley and Schaefer. Investors should base their investment decisions on whether the investment makes economic sense, not on whether a government agency will subsidize their risk.

Source: Bryan Riley and Brett D. Schaefer, "Time to Privatize OPIC," Heritage Foundation, May 19, 2014.

 

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