The Overseas Private Investment Corporation is facing an uncertain future amid mixed signals from the White House and Congress about its role in the Donald Trump administration.
The agency has appeared on some leaked lists of possible government cuts, but not on others. It has bipartisan support in Congress, but many representatives are tentative and waiting for a signal from the executive. Meanwhile, widespread discussion about a possible nominee to head OPIC has given proponents of the agency hope it could not only persist but even expand under Trump.
For those watching closely, it’s been a rollercoaster ride at a time when other countries, notably the U.K. and China, are expanding their development finance institutions.
OPIC has a $21.5 billion portfolio of loans and guarantees in about 100 developing countries, an increase of about 160 percent from 2009. The agency operates at no cost to taxpayers and has generated about $2.3 billion for the federal government in the past six years.
Immediately following the election of President Trump, reports from the Heritage Foundation and from the House of Representatives’ Freedom Caucus suggested OPIC should be cut, fueling concerns over the agency’s future. The New York Times reported last week that OPIC was on a White House budget office draft list of programs that Trump could eliminate.
Yet those reports conflict with growing chatter among Washington insiders suggesting that Trump or his advisors would like to keep the agency and that they have a potential nominee in mind to run it.
The man being considered, according to several sources Devex spoke to, is Ray Washburne, a Texas-based investor and businessman who served as vice chairman of the Trump Victory Committee. He was also considered for secretary of the interior and chaired the transition’s commerce team, according to a CNBC report.
If OPIC is maintained under the new administration, it could still see a variety of levels of support. Advocates for the agency would prefer a long-term reauthorization from Congress to give OPIC stability, allow it to make modernizing reforms, and instill greater confidence among potential borrowers.
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Before 2007, the agency typically received five-year reauthorizations. But for the past decade, it has been renewed annually. When the agency’s authorization lapsed for six months in 2008, it stopped making new loans, leaving some borrowers skittish.
The most recent effort at a longer term reauthorization was as part of the Electrify Africa Act, which passed last year. But the provision referring to OPIC was eventually removed because it did not have the unanimous support required for the expedited process that was being used.
A new reauthorization bill is being drafted in the Senate. OPIC has enjoyed bipartisan support in the past, but some in Congress are waiting to see what signals the Trump administration sends before staking a position. It’s possible that OPIC will be reauthorized again as part of the appropriations bill and continue for another year, delaying any decision on its fate.
With no public comments and many executive appointments unfilled, it’s too early to tell where the Trump administration will be on OPIC, said Ben Leo, a visiting fellow at the Center for Global Development and the CEO of Copernicus.io, an Africa data analytics company.
“I think we’re likely in for a surprise from a Trump administration in terms of how they’re going to view and use an OPIC in their broader development and foreign policy strategy,” he said. “They’re going to be looking for scalable, high-impact and agile vehicles to advance the softer side of their global agenda and OPIC is particularly well positioned in that context.”
The challenge to OPIC
Critics of OPIC have long argued that the agency is doing a job commercial banks would do, that it requires taxpayers to take on the risky investments, or that it is corporate welfare. Those arguments surfaced in a document released on Dec. 14, 2016, from the House Freedom Caucus and Republican Rep. Mark Meadows, titled the First 100 Days: Rules, Regulations, and Executive Orders to Examine, Revoke, and Issue.
The most recent version of the document excludes references to OPIC. But it had initially argued: “OPIC is institutionally ill-suited to its mission and harms poor people around the world. Its investments in developing countries, while well-intentioned, fail to offer real beneficial results. That is because OPIC’s investment decisions are heavily politicized, which means that many OPIC-financed projects, rather than help the least well-off, end up enriching the politically connected.”
A number of papers and policy recommendation documents from the Heritage Foundation — which is closely involved in staffing the new administration — have called for OPIC to be eliminated. Its Blueprint for Balance 2017 budget recommendations call for eliminating OPIC, even though, as it notes, it would cost the government money — $278 million in 2017, according to their estimates.
Heritage argues that while there may have been a need for OPIC when it was founded, the private sector will now make the loans and grant the risk insurance that the agency provides. The report says the OPIC investments disincentivize countries to adopt policies that will attract foreign investments. The Heritage Foundation did not respond to requests for an interview.
Robert Mosbacher Jr., appointed by George W. Bush as the CEO of OPIC from 2005 to 2009, told Devex that the private sector simply cannot and will not provide the insurance and loans that OPIC does. He said OPIC takes its mandate for additionality seriously and is focused on not crowding out or competing with the private sector. “What OPIC tries to do is facilitate investments that won’t happen otherwise.”
“I’ve yet to meet someone who has those thoughts who understands exactly what OPIC does and how and has tried to do a project internationally,” Mosbacher said, adding that he’d happily debate the issue with any critics.
What OPIC supporters would like to see
OPIC supporters would like to see the agency given a long-term reauthorization that would grant more authority and greater flexibility in how it lends its money. They argue that this could allow OPIC, which has largely remained unchanged through its history, to upgrade its processes.
“OPIC is ripe for modernization,” Leo said. “I think its time has come, especially when you look at how other governments are operating. It’s behind the curve.”
China’s equivalent development finance agency, for example, is adding as many staff per year as OPIC has in total, former OPIC CEO Elizabeth Littlefield told Devex. The U.K. government has proposed quadrupling the budget of its development finance agency and others in Europe are also ramping up development finance institutions. Advocates say that these agencies can leverage private capital and spur the investment that is necessary to achieve the Sustainable Development Goals, something that cannot be done with aid alone.
In her exit memo before stepping down from her post as CEO of OPIC, and in an exit interview with Devex, Littlefield described how she tried to modernize some systems and internal infrastructure and shifted more investments to Africa, and more challenging investment environments in general.
Greater reform, she told Devex, would require a long-term or permanent reauthorization that would provide more resources to hire additional staff, improve monitoring and technical systems, work with more small businesses and provide the agency with more tools, including the ability to make equity investments. In order to fund those expansions, Littlefield recommended allowing OPIC to use its profits to pay for future growth and operations.
“I would like to see OPIC in three years double the staff it has now,” said George Ingram, a senior fellow at the Brookings Institution. “Even if it did that it wouldn’t be at the equivalent level of European sisters or what the Chinese are doing.”
Some of Ingram’s suggestions go even further, including allowing OPIC to take on more risk and support local efforts in developing countries without the stipulation that investments must have a U.S. connection that is required now. He calls for tripling OPIC’s resources over the next five years.
“I think blended finance, development finance, is what’s needed, is the future,” he said. “The U.S. is using a model that was created 40 years ago and I think it’s way past time for modernizing our capabilities.”
Other proposals for changes to OPIC include giving the agency the ability to make equity investments in specific companies rather than just make debt investments, which are often seen as less risky. The agency could also be granted the ability to take a first loss in an investment, which is essentially a guarantee that if a company cannot repay the investment, OPIC would agree to take on a certain amount of the losses; such guarantees can often mitigate risk and bring in additional investors. The agency could be expanded to provide technical assistance grants to help companies prepare projects, so that they are investable.
“OPIC shows a responsible way for the United States of America to spend the American taxpayers money working with countries on investments and helping the private sector invest in areas they couldn't get financing for.”— Republican Rep. Ted Yoho from Florida
The situation on the Hill
OPIC has generally enjoyed bipartisan support in Congress, but its greatest limitation may be how little most representatives know about what the agency does.
Republican Rep. Ted Yoho from Florida was among them when he first arrived in D.C. in 2013. He didn’t know about OPIC but has since become an advocate and is committed to explaining the agency’s work to his peers. He is not involved in any existing legislation about OPIC but is confident it will be reauthorized.
“I think this is something everybody needs to know about, and we really need to promote it because it shows a responsible way for the United States of America to spend the American taxpayers money working with countries on investments and helping the private sector invest in areas they couldn't get financing for,” he said. “The benefit from that is, obviously not only do you stimulate an economy that improves their workforce and their economy, and their people, and their quality of living, but you also increase your alliances and good will.”
Yoho argues that once representatives understand the agency and its history, they can easily be convinced to support it. For 39 years, OPIC has been a self-sustaining agency that operates at no net cost to the government and during the Obama administration contributed $2.6 billion to deficit reduction. The agency has a low failure rate of just 1 percent and has largely operated with a skeleton team.
“I think it’s a very easy sell once members understand that,” Yoho said. “And our goal is to make sure that if we extend the authorization that we also have the oversight to make sure that it lives up to those standards with the right people running that, and they’ve done that, like I said, for the last 39 consecutive years.”
He will be discussing the issue with other members of the Freedom Caucus, he said, and that while there are some people who say it’s not for them, he is confident that OPIC will be reauthorized.
One potential vehicle for that reauthorization could be a bill drafted by a Democratic senator. After the OPIC reauthorization failed to get through as part of the Electrify Africa Act, the senator’s office began to consider alternative ways to maintain OPIC, make it more effective and address some of the key Republican concerns, a Senate foreign policy staffer told Devex. He spoke on condition of anonymity in order to discuss a bill that has yet to be introduced.
The draft bill would essentially replace OPIC’s initial drafting legislation and replace it with less arcane language, creating a new U.S. development finance corporation with many of the capabilities OPIC has today. It would also have the potential to do equity investments, direct loans, fund first loss, provide local currency guarantees and potentially technical assistance grants, the staffer said.
The bill is also an attempt to identify potential redundancies in the U.S. government's development finance work and finds ways to make the government more effective, the aid said.
The senator is thinking carefully about how to package the bill and present it in a way that would encourage and allow Republicans to support it. A lot may depend on who signs on as the Republican co-sponsor, but that will likely wait for some signal from the administration as most people are “in wait and see mode,” he said.
The conversation on OPIC’s future is likely to start in earnest when a nominee is named. If the nominee is interested in pushing things forward, legislation could follow fairly quickly, perhaps even before the August recess, said Porter Delaney, a Republican lobbyist who leads the Consensus for Development Reform, a conservative thought leaders platform on global development. Still, reauthorization could be held up over policy disputes, or if detractors choose to make a stand.
Delaney said he is “pleasantly surprised” to see a sincere interest from the Trump camp to keep OPIC, likely with some reforms or changes.
The administration and congressional majority’s focus on U.S. economic growth also favors OPIC, which requires the companies it supports to have a tie to the United States. The agency could prove a key link between the public and private sector in development.
“This is an exciting time in the economic development process,” Mosbacher said. “I think there’s much potential for innovation and I’d like to see the U.S., both as a country and as a government, lead a lot of that and not retreat from the conversation or shoot ourselves in the foot.”