News Release

September 15, 2003

Media Contact: (202) 789-5200

Federal Foreign Investment Agency a "Blatant Example of Corporate Welfare"
Overseas Private Investment Corp. undermines progress in developing nations, hurts U.S. economy

WASHINGTON -- This month, Congress will consider reauthorizing the Overseas Private Investment Corporation (OPIC), a government agency that provides loans and investment insurance to U.S. companies doing business around the world. In "Reauthorize or Retire the Overseas Private Investment Corporation?" Ian Vásquez, the director of the Cato Institute's Project on Global Economic Liberty, and John Welborn, former Cato research assistant, look at OPIC's record in the four years since its last reauthorization and explode many of the arguments the agency's supporters use to justify its continued existence.

OPIC argues that it helps the U.S. economy, creates jobs, enables U.S. businesses to operate and invest overseas, encourages growth and corrects for "market failure" in developing countries. But according to the study's authors, OPIC rewards bad policymaking in developing nations, subsidizes already profitable industries, and transfers resources away from their most productive uses.

The study addresses three basic questions:

Is OPIC good for the U.S. economy? The agency asserts that it has generated $65 billion in U.S. exports and created more than 254,000 American jobs since its inception. But as Vásquez and Welborn point out, "such figures are often based on claims originating from the very U.S. firms that are applying for OPIC support" and are not a reliable indicator of success.

Some also argue that the agency strengthens the American economy by increasing investment opportunities in developing countries. However, the authors write, "U.S. direct investment has grown considerably in the past decade. During that time, OPIC projects have remained... less than 10 percent of all U.S. direct investment in the developing world."

Does OPIC encourage overseas development? It is often asserted that the agency corrects for the failure of the private sector to invest in particular countries. However, the report states, "there are often good reasons for such behavior. By withholding or offering funds, the market is providing important signals about a country's investment environment. By contrast, OPIC finance and insurance can be seen as a reward to host country governments for not implementing the kinds of policies that will genuinely attract capital and lead to self-sustaining growth." Further, note the authors, "almost all of the debt problem [in the world's 42 heavily indebted poor countries] has been caused by foreign aid agencies and government-backed finance schemes, of which OPIC is a part."

Who benefits from OPIC's largesse? According to the study, nearly all of the agency's assistance goes to large corporations, such as Citibank, Enron, Caterpillar Corporation, and Bechtel; and the top 10 beneficiaries in the past four years received more than half of all support. "It is difficult to believe that the corporations on that list, whose combined annual sales are in the hundreds of billions of dollars, are unable to come up with sufficient funding for worthwhile investment without taxpayer support."

Vásquez and Welborn conclude that "OPIC's record since its last reauthorization in 1999 provides little evidence that it promotes development abroad or helps the U.S. economy.... Congress should retire, not reauthorize, this blatant example of corporate welfare."