U.S. GOVERNMENT PRINTING OFFICE

60–297 CC WASHINGTON : 1999

HEARING ON REAUTHORIZATION OF OPIC

HEARING

BEFORE THE

SUBCOMMITTEE ON

INTERNATIONAL ECONOMIC POLICY AND TRADE

OF THE

COMMITTEE ON

INTERNATIONAL RELATIONS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

ON

APRIL 14, 1999

Serial No. 106–51

Printed for the use of the Committee on International Relations

(

(II)

COMMITTEE ON INTERNATIONAL RELATIONS

BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania

JAMES A. LEACH, Iowa

HENRY J. HYDE, Illinois

DOUG BEREUTER, Nebraska

CHRISTOPHER H. SMITH, New Jersey

DAN BURTON, Indiana

ELTON GALLEGLY, California

ILEANA ROS-LEHTINEN, Florida

CASS BALLENGER, North Carolina

DANA ROHRABACHER, California

DONALD A. MANZULLO, Illinois

EDWARD R. ROYCE, California

PETER T. KING, New York

STEVEN J. CHABOT, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

MATT SALMON, Arizona

AMO HOUGHTON, New York

TOM CAMPBELL, California

JOHN M. McHUGH, New York

KEVIN BRADY, Texas

RICHARD BURR, North Carolina

PAUL E. GILLMOR, Ohio

GEORGE RADANOVICH, California

JOHN COOKSEY, Louisiana

THOMAS G. TANCREDO, Colorado

SAM GEJDENSON, Connecticut

TOM LANTOS, California

HOWARD L. BERMAN, California

GARY L. ACKERMAN, New York

ENI F.H. FALEOMAVAEGA, American

Samoa

MATTHEW G. MARTINEZ, California

DONALD M. PAYNE, New Jersey

ROBERT MENENDEZ, New Jersey

SHERROD BROWN, Ohio

CYNTHIA A. MCKINNEY, Georgia

ALCEE L. HASTINGS, Florida

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

WILLIAM D. DELAHUNT, Massachusetts

GREGORY W. MEEKS, New York

BARBARA LEE, California

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

RICHARD J. GARON, Chief of Staff

KATHLEEN BERTELSEN MOAZED, Democratic Chief of Staff

SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE

ILEANA ROS-LEHTINEN, Florida, Chairperson

DONALD A. MANZULLO, Illinois

STEVEN J. CHABOT, Ohio

KEVIN BRADY, Texas

GEORGE RADANOVICH, California

JOHN COOKSEY, Louisiana

DOUG BEREUTER, Nebraska

DANA ROHRABACHER, California

TOM CAMPBELL, California

RICHARD BURR, North Carolina

ROBERT MENENDEZ, New Jersey

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

STEVEN R. ROTHMAN, New Jersey

WILLIAM D. DELAHUNT, Massachusetts

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

MAURICIO TAMARGO, Subcommittee Staff Director

JODI CHRISTIANSEN, Democratic Professional Staff Member

YLEEM POBLETE, Professional Staff Member

CAMILA RUIZ, Staff Associate

(III)

C O N T E N T S

WITNESSES

Page

Mr. George Mun ̃oz, President, Overseas Private Investment Corporation ......... 4

Mr. John Hardy Jr., Vice President of Project Finance, Enron International ... 15

Mr. Willard A. Workman, Vice President, International Division, U.S. Chamber of Commerce ................................................................................................... 17

Mr. Jim Sheehan, Director of International Environmental Policy, Competitive Enterprise Institute ...................................................................................... 19

Mr. Scott Fischer, Vice President, Latin America North Division, Citicorp ....... 22

APPENDIX

Prepared statements:

Hon. Ileana Ros-Lehtinen, Chairman, a U.S. Representative from the State

of Florida ............................................................................................................... 32

Mr. George Mun ̃oz ................................................................................................... 34

Mr. John Hardy, Jr. ................................................................................................. 55

Mr. Willard A. Workman ........................................................................................ 63

(1)

HEARING ON REAUTHORIZATION OF OPIC

WEDNESDAY, APRIL 14, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY

AND TRADE,

COMMITTEE ON INTERNATIONAL RELATIONS,

Washington, DC.

The Subcommittee met, pursuant to call, at 2:05 p.m., in room

2200, Rayburn House Office Building, Hon. Ileana Ros-Lehtinen,

(Chairman of the Subcommittee) presiding.

Mrs. ROS-LEHTINEN. The Subcommittee will come to order. This

hearing highlights one of the most important areas of responsibility

that this Subcommittee has—the reauthorization of the Overseas

Private Investment Corporation, (OPIC).

In the last Congress, sessions evaluating OPIC’s programs and

the use of its appropriated funds to promote U.S. exports, spur U.S.

foreign investment in overseas markets and promote economic development were held amidst an environment framed with concerns

about the costs to American taxpayers and characterization of

OPIC as corporate welfare.

Criticism of OPIC as a safety net for large multinationals dependent on Federal subsidies was supported by the introduction of

numerous pieces of legislation calling for OPIC’s termination or, at

the very least, its privatization. Nevertheless, some analysts contend that the recent currency crisis and the tumultuous political

developments around the globe have lowered the volume of the attacks.

Opposition remains, however, with legislation having been introduced in both the House and the Senate calling for the termination

of OPIC within 180 days of the enactment of these proposals. The

critics’ concerns deal with the U.S. risking and spending billions of

taxpayer dollars to subsidize foreign investment for American companies which are some of the richest in the world.

They also raise the issue of the government becoming involved

in the process of rectifying certain market failures which could dissuade U.S. firms from investing in the least developed economies.

Critics are concerned about the potential for direct investment

abroad to the displace U.S. workers at home while still others

worry about the tendency of Government subsidies to distort trade

currents and investment flows.

Supporters of OPIC respond to the criticism launched at it by

highlighting OPIC’s self-sustaining status, by emphasizing that

OPIC does not entail Government subsidies because expenses are

derived from fees and premiums paid by members, which OPIC

2

then pays back to the U.S. Treasury in the amount of the appropriations. They further underscore OPIC’s ability to contribute to

the Government’s overall budgetary resources.

Recently, OPIC supporters have focussed on the benefit that it

provides to small businesses who would otherwise be unable to expand into foreign markets and compete on a level playing field

without OPIC’s support, financing, or insurance.

A factor which must be taken into account when evaluating

OPIC’s programs is the existence of OPIC counterparts, particularly in Europe, which are fully subsidized by the Governments or

are largely so, placing U.S. companies at a competitive disadvantage when seeking entry into emerging markets.

Supporters ask: When the private sector does not offer the same

services OPIC does, where can American businesses turn to?

Nonetheless, OPIC’s purpose and the issue of its reauthorization

cannot and must not be approached in a vacuum devoid of other

considerations except U.S. business interests and trade priorities.

As the Subcommittee of jurisdiction, it is imperative that we also

look at OPIC’s role relating to U.S. foreign policy and our national

security interests.

In the past we have heard from companies that have been denied

OPIC support because the projects they propose or governments

they sought to do business with were subject to U.S. restrictions.

However, some of these companies found the funding and insurance through foreign venues, which raises a new series of concerns

about the activities of American businesses and their subsidiaries.

These and other matters will be addressed during this hearing

as we focus on OPIC’s budget request for fiscal year 2000.

Before we begin, I’d like to remind my colleagues that we are

under time restraints due to the continuation of the Full Committee mark-up following this hearing.

Now I am pleased to turn to the Ranking Member of our Subcommittee, Congressman Menendez of New Jersey.

[The prepared statement of Hon. Menendez appears in the appendix.]

Mr. MENENDEZ. Thank you, Madam Chairlady. Just for the future, can I change my chair? There is a conspiracy here to have me

several inches below the level of the table. I do not want OPIC’s

chances to sink here, by any stretch of the imagination.

Mrs. ROS-LEHTINEN. We will change it. Sorry, Bob.

Mr. MENENDEZ. That is all right.

Madam Chairlady, the question is to reauthorize or not and as

someone who is an unabashed supporter of OPIC and was responsible the last time it was reauthorized for making sure that we

worked with others on the other side of the aisle to bring it to the

floor, the answer to that should clearly be yes.

Now that might not seem to be the view of some who suggest

that this is corporate welfare. And it certainly might not seem to

be the view of someone who is a Democrat from a very urban district in a very urbanized State, New Jersey. But as the Ranking

Democrat on this Subcommittee, I clearly believe that OPIC is vital

to the interests of the United States, to its economic well-being, to

the growth and opportunity for Americans here at home and its reVerDate 11-SEP-98 08:28 May 16, 2000 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 60297.TXT HINTREL1 PsN: HINTREL1
3

authorization, as well as TDA and ITA Programs, are essential for

us to consider in this Congress and to pass.

I think perhaps the most overlooked fact about OPIC is that it

is the only program in the 150 function account which returns

money to the U.S. Treasury every year. OPIC has had a positive

net income for every year of operation, with reserves now totaling

more than $3 billion. Last year OPIC earned a profit of $139 million and in fiscal year 2000, OPIC will contribute $204 million in

net negative budget authority. Net negative budget authority.

At a time when the Congress is striving to adhere to the constraints of a balanced budget, OPIC stands apart as a revenueearning program. OPIC’s budgetary contributions are returned to

the function of 150 or international affairs account and help offset

the deep cuts that have been made to our foreign aid and development programs.

That relationship is fitting, as OPIC was created by President

Richard Nixon to complement our aid programs. OPIC not only

complements our foreign aid programs; it is helping to sustain

them.

OPIC, through its operation in 140 countries, fulfills the aid component of its mandate by bringing much-needed investment to developing nations while simultaneously providing a much-needed

services and market opportunities to American businesses.

In my home State of New Jersey, OPIC has provided more than $1 billion in financing and insurance, generated $3 billion in U.S.

exports and created 10,288 jobs, jobs here in the United States.

From Newark to Camden to Princeton, OPIC has supported New

Jersey companies and their suppliers. More American exports

means American jobs. U.S. exports of goods and services are estimated to support more than 12 million domestic jobs. Each $1 billion in U.S. goods and services exports supports some 13,000 U.S.

jobs.

So if, through a program like OPIC, we can help American companies to export their goods and services, create jobs here at home,

while also helping the economy and infrastructure of developing

nations and furthering our foreign policy goals, I believe we have

a program that constitutes a good marriage among all of these desired efforts.

Critics of OPIC who advocate for a divorce need to take a look

at the impact of exports on our economy, on our jobs here at home.

They need to take a look at OPIC’s net revenues to the Government. They need to really consider that OPIC is not corporate welfare but, in fact, in the vital interest of the United States. It serves

America’s interests, both domestically and its foreign interests.

Last, earlier this year I had the opportunity to work with OPIC

on the creation of a Central American investment facility, a joint

venture between OPIC and Citibank which will provide much-needed capital to businesses and much-needed investment to the region.

And having just met with the Central American Ambassadors,

again while we are in the midst of a humanitarian crisis in Kosovo,

people have forgotten about the humanitarian crisis here in our

own hemisphere. The devastation caused by Hurricane Mitch in

Central America will take years to fully recover from. The OPIC

Citibank investment facility will expedite the process by bringing

4

services and jobs to the region while helping American companies

to get a foothold on the region.

That is exactly the type of Government program we should support. It fulfills domestic and foreign policy goals while returning

revenue to the U.S. Treasury. I doubt there are many other programs that can make the same statement.

Thank you, Madam Chairlady.

Mrs. ROS-LEHTINEN. Thank you.

Would you like to make an opening statement, as well?

Mr. DELAHUNT. I will defer. Thank you.

Mrs. ROS-LEHTINEN. Thank you.

It is my pleasure to introduce Mr. George Mun ̃oz, who has served

as the president and chief executive officer of the Overseas Private

Investment Corporation since 1997. Prior to taking the position at

OPIC, Mr. Mun ̃oz was the chief financial officer of the U.S. Treasury Department from 1993 to 1997 and most of his career has been

focussed on international law and business. He was a partner in

the law firm of Meyer, Brown and Platt and a principal with

former Senator Adlai Stevenson in an investment banking firm focussed on international transactions.

Mr. Mun ̃oz has also headed his own law firm, concentrating in

corporate and international business, and it is a pleasure for us to

welcome you today. Thank you, George. We will be glad to enter

your statement in the record.

STATEMENT OF GEORGE MUN ̃OZ, PRESIDENT, OVERSEAS

PRIVATE INVESTMENT CORPORATION

Mr. MUN ̃OZ. Thank you, Madam Chair and Members of the Subcommittee. I am here to answer any questions you may have with

respect to the reauthorization. Therefore, Madam Chair, I request

that my long written statement, as well as my oral statement that

has been submitted to all of you, be submitted for the record.

I also want to thank you, Madam Chair, for your very well balanced opening statement that I think went to the crux of the debate, a healthy debate that has taken place regarding our reauthorization.

But I think most will agree, including this Congress that voted

last year on a bill that would have cut back expenses, the operating

expenses for OPIC when the Congress, by a two to one vote, voted

to keep OPIC on a positive growth path.

I also want to acknowledge a good friend and welcome Congressman Bob Menendez as the new Ranking Member of this very important Subcommittee, especially because of his experience with

working with OPIC firsthand.

As you know, OPIC is a critical element of U.S. foreign policy.

It was established to mobilize American private capital to support

the growth of developing countries and economies that are in transition to democracies and transitions to free markets as a means

of increasing our own security and well-being, while helping bring

about stability and development abroad.

OPIC is requesting reauthorization because we continue to make

a valuable difference in meeting our mission of helping America

compete while supporting development and stability in strategic regions around the world at no cost to the taxpayer.

5

Madam Chair, I just want to briefly outline that as president and

CEO of OPIC, I want to make sure that we fulfill our mission in

the most optimal manner. As a result, I have set out four priorities

for our agency: first, that OPIC take a leadership role in implementing foreign policy investment and development priorities of

the U.S. Government, as determined by the Administration and the

Congress; second, that OPIC be prudent in its use and care of the

full faith and credit of the U.S. Government, ensuring that OPIC’s

self-sustaining status remain; third, that OPIC facilitate the involvement of U.S. small business in international business development; and fourth, that OPIC operate and be recognized as a model,

high-performance organization striving to have the best in people,

products and systems. Today we can report that on all these priority items, OPIC has excelled.

Madam Chair, I would like to point out to all the Committee

Members the pictures that I have brought with me today to show

you the difference that we can make. On my extreme left is a picture of a project that we have helped in Africa. This is a project,

the Tea Importers, that employs approximately 30,000 employees

in that region. It is a project that has faced political problems, but

because of OPIC political insurance, it has stayed the course and

today it continues to be the sole source of cash income for approximately 30 farm families in Rwanda.

Next, it’s a picture that was just taken last month in Honduras.

This is one of the few remaining shacks that the hurricane left in

its tracks. And right next to it, in Nicaragua, also taken last

month, is the remains of where there was some development taking

place, homes of other people.

We are now in a position to make a difference by again bringing

the private sector to Central America, much as you see as the Tea

Importers example. And we can only do it, Madam Chair, if the private sector believes that OPIC will be with them all the way, not

year to year, depending on whether we will be reauthorized, not

with more limitations or restrictions, but whether or not the U.S.

Government wants to have an agency that will continue on the

roots on which it was created with the Marshal Plan, bringing the

private sector to fulfill the development needs of many of these

countries.

I would like to say, Madam Chair, that I know that yourself and

certainly the Ranking Member, Congressman Menendez, have

shown your care and interest in Central America. I know that

Madam Chair, as we traveled there a couple of months ago, people

from Nicaragua and Honduras expressed their sincere appreciation

for your leadership in bringing about some relief on the immigration level to those countries.

But they expressed a strong interest in having people stay in

their own countries, to the extent there can be jobs and development and security in their own homeland, and I believe that OPIC

is one of the few instruments that the U.S. Government has to

partner up with the private sector in order for that to take place.

Madam Chair, we are asking that the Administration’s request

for reauthorizing OPIC for 4 years, because of its current reauthorization expires on September 30, 1999, be approved. I can report

that this agency’s reauthorization has received the full vote of conVerDate 11-SEP-98 08:28 May 16, 2000 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 60297.TXT HINTREL1 PsN: HINTREL1
6

fidence in the Senate. The Senate Foreign Relations Committee,

just last month on March 23, unanimously reported legislation reauthorizing OPIC for 4 years. The Senate Bill S. 688 sponsored by

Chairman Jesse Helms sends a very strong message of OPIC’s relevance in today’s global markets. We are hopeful that this Subcommittee will also follow the lead that the Senate has taken with

respect to our reauthorization.

Madam Chair, as I said, I am here to answer questions. My written statement has examples of the human face that OPIC has put

on its project for bringing about jobs and development. But I would

like to comment on a few matters that you mentioned in your opening statement with respect to the corporate welfare.

There are those who say that the term ‘‘corporate welfare’’ is

something that should apply to OPIC. First, there is a question of

what corporate welfare means. It has many definitions.

In one extreme, it could be viewed as a corporation getting something for nothing. This definition does not fit OPIC programs. It

can only be a case of mistaken identity as applied to OPIC. All

OPIC services are paid for by the private sector.

An alternative definition of corporate welfare may be that OPIC

services are partially subsidized by the Government. That, too,

does not fit our program. OPIC has not been a drain on the U.S.

Treasury. To the contrary, in our history we have contributed to

the Treasury more in private sector fees than we have taken out

for our own operations.

Others have viewed corporate welfare as anything of value that

is provided to a select group of businesses. This, too, does not characterize OPIC. We are an instrument of foreign policy. When the

Foreign Assistance Act creating OPIC was signed, it was done with

a clear objective in mind: the development of strategic countries

important to our well-being and the well-being of the world. That

is the mission that was established for OPIC and it is still our mission today.

Furthermore, even the GAO has looked closely at OPIC’s cost to

the Federal Government and their findings are noteworthy. According to the 1997 GAO study, ‘‘Historically, OPIC’s combined finance

and insurance programs have been profitable and self-sustaining,

including costs due to credit reform and administration.’’

One last item, Madam Chair. You mentioned in your opening

statement the arguments that sometimes are made that OPIC

mostly helps the large businesses. It so happens that mostly it is

the larger businesses that are involved in international development, so we are by their side in the development that takes place.

But I would like to note two things.

One, as I mentioned, one of the priorities that we have set out

at OPIC is for the small business, that small businesses be facilitated into international business. We have declared 1999 as small

business at OPIC.

As a result and at the request of this Committee, Madam Chair,

in the last meeting that we had, we have acted on streamlining our

processes for small business applications. Two-thirds of the suppliers for OPIC projects are in the small business area and approximately 28 percent of all of the projects that OPIC does are with

small businesses.

7

So I would like to underscore, Madam Chair, that this is the direction that we are going in and we believe that, as any of the critics have identified items that deserve merit and attention, we certainly have paid that attention to them.

I very much welcome any questions that this Committee may

have for the reauthorization of OPIC. Thank you, Madam Chair.

[The prepared statement of Mr. Mun ̃oz appears in the appendix.]

Mrs. ROS-LEHTINEN. Thank you so much, Mr. Mun ̃oz. We appreciate it.

I want to talk about this photo that you have displayed about the

Tea Importers in Westport, Connecticut. As all of us know, all but

one country in Latin America has a democratic system of Government so why then is OPIC political risk insurance still needed for

any businesses to do business in the region? Are American businesses in danger of expropriation of their properties or political violence?

For example, the one that you point to, the Westport, Con- necticut company that obtained $500,000 in OPIC insurance to establish tea production and trading operations in Ecuador is an example and in Brazil OPIC also provided more than $200 million in

insurance for three separate Enron power projects. Brazil and Ecuador may not, especially in Ecuador, may not have the strongest

economy now but certainly that political risk insurance is kind of

in question in those particular countries. What do you say about

OPIC’s involvement in Latin America? Why is it still needed, with

the growing democracies and strong economies getting hold?

Mr. MUN ̃OZ. Madam Chair, the projects that OPIC supports are

all long-term. Most of them are infrastructure projects. And, in

fact, it is because OPIC supports mostly long-term projects, projects

that require 15 to 20 years before they really are up and running

from a profit point of view to be commercially viable, the markets

are just not there to support that, because of the risks. People

know that over such a long period of time, the politics of a country

can change, so there is that protection that American private sector

investors need.

The market is the one that dictates such need and the market

is saying that long-term projects require protection from political

risks.

Second, Madam Chair, the political risk insurance that we sell

has a double benefit. No. 1, it sends a signal to the governments

of those countries where the project is going that that project meets

international standards, so that it does not harm the environment

and it is helpful to the development of the country.

But No. 2, it also sends a signal to the government that this is

a project that will have the support of the U.S. Government and

therefore, as times change and there is a risk of political violence

or some actions on the part of the government to endanger the

project, that because of the insurance, those risks are usually identified and tried to be negotiated before it turns into a difficult situation.

I would say, Madam Chair, that the market, the U.S. market has

sent a very loud message that long-term projects in many of the

emerging markets and certainly in all of the developing countries

still run a risk that must be protected against.

8

Mrs. ROS-LEHTINEN. Thank you. Mr. Mun ̃oz, please elaborate on the need for a $400,000 increase for OPIC’s administrative expenses and how these additional resources will be used by OPIC.

Mr. MUN ̃OZ. Madam Chair, OPIC is a very small organization.

Most people do not realize that we are approximately 200 employees, yet every year we are being asked by Congress, as well as the

Administration, to make sure that we are present and visible in

very needy areas around the world, including sub-Saharan Africa,

Central America, Latin America, the Caucuses and many other

areas.

In order to carry out those responsibilities and look into the risk

analysis that is required for us to support a project, we need the

proper resources. In order for us to monitor our ever-growing portfolio, which is right now approximately $18 billion, we need to have

the right personnel.

The one reason why we can assure the taxpayer that their exposure is not real in terms of real risk is because we are able to monitor all our projects.

As our portfolio grows and the responsibilities put upon us grow,

then it is important that we have the proper resources. If anything,

I would say that you will not find another agency that is as streamlined and low-cost as OPIC, given all the responsibilities that it is

taking. So this is the natural growth that we will require for our

monitoring requirements.

Mrs. ROS-LEHTINEN. Well, what mechanisms do you have in

place to ensure that the contingent liabilities will not become obligations for the U.S. taxpayers?

Mr. MUN ̃OZ. That is a very good question and one that we are

very proud of our record. The first line of defense is that we do not

approve a project that just does not make any sense economically.

In fact, we approve no project that requires any kind of subsidy or

concessions in lending rates or the like because we are mandated

by Congress to be self-sustaining.

So the first line of attack is that we try to do good business

transactions.

The second line is we have built up a substantial fortress of reserves against any liability for when political risk insurance must

be paid for or we have financing that has failed, that the project

has failed.

Right now our reserves are over $3 billion and we have had independent auditors and outsiders look at our books and they have

stated that as far as the industry practice in the private sector, we

actually have a buffer or a cushion of reserves greater than what

even the industry would have required under the circumstances. I

think that is the second one.

And then last, Madam Chair, we have the full knowledge and resources of the U.S. Government at play. When a project is endangered for political reasons—let us say like the Rwanda project or

a project in Brazil—we have the State Department’s U.S. Embassies, we have the Department of Commerce employees and we have

OPIC employees who can come as a team and try to work out the

matter so that the projects, in fact, do not fall into failure.

So I think with those three lines of defenses, it has proven that

our track records is as good as it is.

9

Mrs. ROS-LEHTINEN. Thank you.

Mr. Menendez.

Mr. MENENDEZ. Thank you, Madam Chair.

First of all, Mr. Mun ̃oz, let me congratulate you on your tenure

at OPIC and the work you have done there and I am glad to hear

that this is the year of small businesses because that is an area

that many of us are concerned about in terms of seeing some further efforts by OPIC and we are glad to see that. I read in your

statement that is one of the areas that you intend to fulfill.

Let me ask you a couple of quick questions and maybe we can

go through and get some of these myths versus facts on the table,

if we can.

Myth No. 1 that I always hear is that OPIC subsidizes American

businesses. What is the fact?

Mr. MUN ̃

OZ. We charge rates that are market, at the market we

are active in. There is no concessionary lending or concessionary

political risk insurance that we give. Fees are paid. $3 billion of reserves that I have mentioned earlier, its foundation and its base is

the user fees that get paid by our clients.

Mr. MENENDEZ. Second myth I always hear is that private investors in OPIC funds are protected from losing their money. What is

the fact?

Mr. MUN ̃OZ. Well, we do not lend to anybody unless they have

their own equity at risk, No. 1. And No. 2, if it is political risk insurance, by definition, we are protecting equity investments, so for

the investment of the individual.

We do not, on the political risk insurance side, protect against

commercial risks, so the investor is certainly at risk on the commercial side. And if we are on the lending, we require that the investor have equity at risk, also.

So there is no such thing as any investor having an investment

that is risk-free.

Mr. MENENDEZ. The other myth I hear is that OPIC costs America jobs.

Mr. MUN ̃OZ. That is a very good question, Congressman, because

at one point this Congress, a Congress debated that issue and put

into OPIC’s legislation a requirement that we not support a single

job that will be detrimental to the U.S. economy.

We have interpreted that internally as quite stringent, so internally we have a guideline that we will not support a single investment overseas that will show a loss of a single U.S. job.

So therefore any U.S. companies that are shutting down their operations here and opening up overseas, if they come to OPIC for

their opening up overseas and we look at the record and find that

their overseas operation is a cause for their shutting down jobs

here, we will not extend any assistance.

Mr. MENENDEZ. And last, I hear this issue and although I think

it is a much smaller segment that raises this issue, I hope you can

respond to it as that—the argument that OPIC’s partnership with

the private sector interferes with the functioning of the markets.

Mr. MUN ̃

OZ. This is a good myth to take on and that is because

for the longest time, our U.S. Government and private sector have

boasted that the best way to conduct business, especially in transiVerDate 11-SEP-98 08:28 May 16, 2000 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 60297.TXT HINTREL1 PsN: HINTREL1
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tion times, is for a partnership to take place, a partnership between the U.S. Government and the private sector.

There is no way right now that the private sector, on its own,

can go into many of the regions that the United States wants them

to go into and there is no way that the United States, on its own,

can go without the private sector.

So the partnership between the U.S. and the private sector is a

perfect model that is often boasted about by both sides as the right

model for development and investments to take place. So I think

if anything, this is something that the U.S. should be very proud

of, that it is, in fact, partnering up with the private sector to accomplish its goals.

Mr. MENENDEZ. I want to thank you for your answers. I think

it is helpful. I am very happy to be working with Mr. Manzullo on

this reauthorization and I do want to see it hopefully pass this

year. Thank you.

Mr. MANZULLO—[presiding]. Thank you very much. I am sorry I

am late. I just wanted to bring out a couple of things and have you

tell my favorite OPIC story.

Mr. Mun ̃oz, your background is that of investment banker. Is

that correct?

Mr. MUN ̃OZ. That is correct. Attorney, CPA and investment banking.

Mr. MANZULLO. And you have an extensive background in international trade law. So this is not a situation where we are dealing

with somebody who is what I call a political appointment, somebody who has no expertise in a particular area.

I want to thank you for lending us a couple of years out of your

private life to devote to the public sector. I think that is commendable and I just wanted to publicly thank you for your public service.

Mr. MUN ̃OZ. Thank you.

Mr. MANZULLO. Would you tell us the story about Monique

Matty?

Mr. MUN ̃OZ. About what? I am sorry.

Mr. MANZULLO. Monique Matty.

Mr. MUN ̃OZ. This is one of our favorite stories because it does—

Congressman Menendez talked about small business—a perfect example of a small business that basically without OPIC would not

have taken place.

We had an investment for an African country that was in need

of somebody to give some experience and holding the hand, if you

will, for an investment that needed to take place, needed to believe

in the investment to help finance the business.

Monique Matty has testified before Congress on the important

role that OPIC played for them in terms of financing the business,

making it grow. She has been very successful, expanding the business.

Mr. MANZULLO. If I could jog your memory a little bit, I may not

remember every story on it but I believe she is an American citizen

and she was born in Liberia and her background was in telecommunications. She set up two facilities, one in—maybe I should

tell the story.

Mr. MUN ̃OZ. Yes.

11

Mr. MANZULLO. She set up two facilities, one in Ghana and the

other one in Tanzania, where I think in the latter country she has

about 400 employees that manufacture these portable telephone

booths. It is all hooked up with a system of satellites and you see

in these developing countries these telephone booths that are just

set up there.

What she did was I think she and one other person have an

American company and went over there with an OPIC resource

and if you want to talk about sustainable development that provided jobs for those people over there and she is not exporting to

the United States.

Mr. MUN ̃OZ. Right.

Mr. MANZULLO. But the profits are coming to the United States

because she is an American citizen. I am sure next time you come

you will probably——

Mr. MUN ̃OZ. She brought not only the technology but she made

it so easy. This was not a service that was meant for the well-todo but rather, because of her little calling card, if you will, the

phone card that she had with her, made it very accessible to many

of the citizens, and that is one reason why it has been made profitable.

But this is a perfect example of where American ingenuity and

entrepreneurship can be fostered overseas and that kind of knowhow can be spread around.

Mr. MANZULLO. And that cost the U.S. taxpayers nothing.

Mr. MUN ̃OZ. Nothing.

Mr. MANZULLO. She paid the premium on that insurance and

talk about helping people in that continent that really needs some

jobs—she did it.

Mr. MUN ̃OZ. Congressman, and if someone were to say, ‘‘Well,

why don’t you just let the market work for itself? ’’ Because the

market would have not functioned there. That is that Monique

would not have had someone to partner up with—not the international banks, not anybody else in the private sector, because of

many of the unknowns.

We should realize that the U.S. Government has, because of our

embassies and our long relationships and special relationships with

many of these governments, that we have the proper information

and we have the ability and resources to team up with a Monique

and let that business transaction occur.

If we did not partner up with Monique or many of the other private sector entrepreneurs and businesses, many of these businesses

would not take place. OPIC, in the earlier part of its history, was

asked whether or not we have additionality, whether we do make

a difference for a project, whether it will take place or not.

In many cases it is a very difficult question to answer but there

is much anecdotal evidence, Monique being one of them, that without OPIC, that business investment would not have taken place.

Mr. MANZULLO. I appreciate you telling the story, with a little bit

of my help. It is a great story. She is a great lady.

Mr. Delahunt.

Mr. DELAHUNT. Thank you, Mr. Chairman. Thank you for the

story.

Did I hear you say Senator Stevenson, Adlai Stevenson?

12

Mr. MUN ̃OZ. Yes, sir.

Mr. DELAHUNT. Did you work for Senator Stevenson? You certainly don’t——

Mr. MUN ̃OZ. We worked together.

Mr. DELAHUNT. You worked together?

Mr. MUN ̃OZ. Oh, yes. I am 48.

Mr. DELAHUNT. That was a very good question. You do not look

old enough to have worked with Senator Stevenson. That was the

point. It was an inverse compliment, Mr. Mun ̃oz.

Let me just say that I think you have a very easy sell here. The

record speaks loudly. It speaks clearly.

In terms of the corporate welfare issue, I noted that you are no

longer on the green scissors list, so that, I would submit, is some

sort of benchmark that you ought to be very pleased with. I think

most likely more and more constituencies and individuals are recognizing the good work that you do.

I was very pleased to hear your observation, your comment about

internally not losing, putting at risk a single American job. And I

know on a net basis, you generate American employment opportunities.

Also in some of the papers that you have submitted here you talk

about respecting workers’ rights and environmental standards. Do

you have a mechanism in place? Do you conduct audits? How do

you ensure that, in fact, you are realizing that goal? Because that

is very important to me and to my part of the country.

Mr. MUN ̃OZ. It is and we understand that the reason for the bipartisan support is because our assistance is balanced. That is we

do not just help a U.S. business that is looking at purely the economics without also having to look at the international standards

for environmental protection, as well as worker rights and human

rights.

We have, because it is a statutory mandate that we look toward

that sector of the investment, we have in our office a department

that reviews all programs for compliance with the environmental

guidelines that have been put out by the World Bank. We also review the worker rights impact of the project and the country’s history with that, and also the State Department’s designation for

human rights.

Mr. DELAHUNT. Do you generate reports that are circulated in

the public domain?

Mr. MUN ̃OZ. Yes, sir. I believe that we supply a report annually

to the Congress on that.

Mr. DELAHUNT. I see one of your staff nodding affirmatively. I

would appreciate receiving that because again that is important to

my district.

Mr. MUN ̃OZ. There are two other levels of oversight that are helpful here. One is our board of directors. We are an independent

agency that reports directly to the board of directors. The board of

directors has, by statute, a representative from the bargaining

unit, from labor, as well as the Department of Labor. And we have

representatives from small business. We have representatives from

a variety of sectors that oversee our operations.

And then last, we do monitor projects after they have been, on

a sampling basis, after they have been approved by OPIC.

13

Mr. DELAHUNT. That is very important. And let me also just echo

the sentiments expressed by Mr. Menendez in terms of I am really

enthused to hear the focus is on small businesses because for many

of us, small business in terms of our economy is where it is at. And

again traditionally and historically, small businesses add to the

community more than just simply the bottom line.

One more question, Mr. Manzullo?

Mr. MANZULLO. I thought maybe Mr. Sherman would have a

question. If Mr. Sanford does not have them, we could finish up,

if that is OK with you.

Mr. DELAHUNT. Whatever you say, Mr. Manzullo. I just had one

more question.

Mr. MANZULLO. Just make it short.

Mr. DELAHUNT. I will make it short.

You know, I noted that one of your projects that you funded was

the flour mill in Haiti.

Mr. MUN ̃OZ. Yes.

Mr. DELAHUNT. Could you give me a very brief and concise update on the status of that particular project?

Mr. MUN ̃OZ. Well, it is still moving forward. This is one of the

projects that I went to visit myself. It is the only flour mill in Haiti.

It used to be operated by the government. It basically went

defunct. It sat there.

Mr. DELAHUNT. I am familiar with the history of it.

Mr. MUN ̃OZ. It is still moving forward, Congressman.

Mr. DELAHUNT. Are you satisfied with it?

Mr. MUN ̃OZ. Very satisfied with it.

Mr. DELAHUNT. Thank you.

I yield back, Mr. Manzullo.

Mr. MANZULLO. Mr. Sherman.

Mr. SHERMAN. Thank you.

If OPIC just made a profit for the Federal Government, it would

be enough. If OPIC just represented the fact that we do not believe

in unilateral disarmament in the economic contest with our trading

partners in Europe and Japan but we wanted our companies to be

able to compete where their companies are getting far more in the

way of government help, that would be enough. And if it was just

the help for development cognizant of human rights, workers’

rights and the environment, that would be enough. So I would

think that I should be allowed by the House to vote three times to

reauthorize OPIC.

But the real question before us is Mr. Mun ̃oz’s supposed age and

I am here to vouch for that because we did go to the same law

school and he was ahead of me. So we will be asking which version

of Rogaine he uses.

[Laughter.]

Mr. MANZULLO. That company got an OPIC guarantee.

[Laughter.]

Mr. SHERMAN. And finally I would point out that when U.S. companies do business abroad, they face a greater risk than their competitors in Germany and Japan because they are a politically

charged symbol. Some demagogue may want to nationalize all of

the American assets. It has happened before and it is more likely

perhaps to happen than—I cannot imagine somebody demagoging

14

the issue and saying, ‘‘And that is why we have to nationalize all

the Norwegian-owned businesses in this country.’’ But the United

States is high profile. We intend to continue a high profile in foreign policy and I think our businesses need to be able to turn to

a government organization to have some insurance against the effects of that, especially if we make money on it.

So Mr. Mun ̃oz, I do not know if you have a response.

Mr. MUN ̃OZ. Congressman, I would like to report very happily

that one reason why small business—you had a special comment

on OPIC’s application for small business, that you had asked us if

we could streamline it and I am happy to report that we have and

I think you have seen it. It is a very streamlined process and now

small businesses are able to more quickly transact their business.

Mr. SHERMAN. I know there are people here who are part of the

OPIC international investing world. I have never seen a government agency quite this responsive. Within 2 weeks after I believe

it was your last authorization hearings when I pointed out that if

somebody was seeking a $1 or 2 million guarantee or even $10 or

20 million guarantee, they might not have the legal expertise or

just the money to buy the legal expertise to fill out a form that is

applicable to a billion-dollar project.

You folks provided—not only was it a two-page form but as I recall, it requires reviewed but not audited financial statements. So

it is not just two-fifths the length of the old form but I am sure

it is well below 40 percent of the cost of filling out the old form.

Mr. MUN ̃OZ. We are grateful for you, Congressman, as well as

this whole Committee. I think I have heard one thing consistently

from all Committee Members and that is that small business

should be a priority and I am happy to say it is one of the top four

priorities that I have identified.

I would like to, for the record, say that one of the individuals at

OPIC who is taking the most lead in this thing is the executive vice

president, Kirk Robertson, who is right behind me here. He has

seen to it that 1999 is the year of small business at OPIC.

Mrs. ROS-LEHTINEN—[presiding.] Thank you. Thank you so

much, Mr. Mun ̃oz.

We will hear from our second panel, the private panel, when we

come back from these two votes and the Subcommittee is just suspended for a few moments.

[Recess.]

Mrs. ROS-LEHTINEN. The Committee will be reconvened. We

thank the private panelists for being here today and I would like

to introduce you and then you can make your opening statements

and we will be glad to put all of your remarks as part of the official

record.

I will start with Mr. John Hardy, Jr., who joined Enron International as vice president for project finance in 1997. His focus in

that capacity is on international financing and project development

through Washington-based resources. Prior to joining Enron, Mr.

Hardy was director of corporate development and finance at Brown

& Root, an international engineering and construction company

headquartered in Houston, Texas. Prior to his work for Brown &

Root, Mr. Hardy held several positions with the Agency for International Development.

15

Next will be Mr. Willard Workman, who has testified in our Subcommittee before. He is currently vice president of the International Division of the U.S. Chamber of Commerce, responsible for

the formulation and implementation of the Chamber’s policy position on international economic and trade issues.

He also serves as vice president of the Center for International

Private Enterprise and Mr. Workman joined the U.S. Chamber in

1988 as deputy director for policy and programs in its International

Division.

Before joining the Chamber, he was the special negotiator for

international trade controls at the U.S. Department of State and

prior to that position, he served as director of strategic planning

and policy at the Bureau of Export Administration in the U.S. Department of Commerce. And we welcome Mr. Workman to our Subcommittee.

Mr. James Sheehan is currently director of international environmental policy at the Competitive Enterprise Institute. At CEA he

specializes in policies concerning international environmental regulation, international financial institutions and world trade.

He is the author of ‘‘Global Greens: Inside the International Environmental Establishment,’’ a book dealing with international environmental advocacy groups. His writings have appeared in various

leading publications and he has been featured as a commentator on

various television programs, speaking on issues of international environmental policy. Thank you, Mr. Sheehan.

Next is Scott Fischer, who is the vice president of Citicorp Latin

America North Division and that is based in my home town of

Miami, where he is responsible for the bank’s capital markets and

corporate finance businesses. In this capacity he has been involved

in transactions across the regions for both public and private sector

clients, including debt fund-raising, privatizations, mergers and acquisitions and private equity.

Mr. Fischer spent over 9 years with Chase Manhattan as corporate finance head for Spain and a senior transactor for Chase Investment Bank Latin America and as relationship manager. So we

welcome Mr. Fischer here with us.

Thank you, Mr. Hardy, if you could start.

STATEMENT OF A PANEL CONSISTING OF JOHN HARDY, VICE

PRESIDENT OF PROJECT FINANCE, ENRON INTERNATIONAL

Mr. HARDY. Thank you, Madam Chairwoman. I appreciate the

opportunity to speak to you today in support of OPIC. I am also

pleased to appear at this hearing on behalf of the Coalition for Employment through Exports and the International Energy Development Council and the National Foreign Trade Council, which together represent a wide array of businesses, both large and small,

and in the full spectrum of industry sectors. Each of these organizations and their Members view OPIC as a critical tool in promoting U.S. competitiveness.

OPIC supports the export of U.S. goods and services in markets

throughout the emerging world and through those goods and services, the jobs of U.S. workers. Accordingly, we strongly support a

4-year reauthorization of OPIC.

16

What I would like to do is to give you a perspective from the field

and make three points about OPIC: first, that OPIC financing is

essential to U.S. sourcing of goods and services in major projects

internationally; second, that OPIC has an essential role as a catalyst in attracting commercial bank financing to support these international projects; and third, that OPIC is not corporate welfare.

With regard to the first issue, a big part of what OPIC is doing

today is providing finance and insurance for large infrastructure

projects in developing countries. This is a huge market—the World

Bank has estimated it in excess of $200 billion per year—in energy,

telecommunications, water and transport.

But the market is extremely competitive. In the energy sector,

essentially all of our export competitors produce the equipment for

electric power plants and also have state-of-the-art design engineering services. The same is also true in the other sectors.

So the critical issue is in sourcing of such equipment and services, whether it comes out of the United States, whether it comes

from Japan or from the European countries depends largely on the

availability and terms of financing and the importance of OPIC is

that OPIC makes available its financing to enable U.S. sponsors to

source U.S. goods and services.

This is fundamentally a competitiveness issue. Each of the developed countries has one or more programs in place to provide precisely the same sorts of services in the exporter investment-related

finance as OPIC. Some 40 industrialized countries have programs

like OPIC and some 80 countries have programs like Eximbank.

If programs like OPIC were not available, we as sponsors of

these projects would have no choice but to move our sourcing to

other countries where financing is available. And indeed in my testimony I have provided an actual and immediate example of that

in the context of India.

The availability of OPIC financing also has a critical impact on

small, as well as large, U.S. manufacturers. Sourcing for a major

infrastructure project has a tremendous ripple effect through the

manufacturing sector because a great many of the larger suppliers

in turn out-source components to smaller supplies, so there are

many small companies involved that ultimately end up producing

elements of goods that go into these major projects. If OPIC financing is not available, the support for these smaller suppliers is lost.

In summary, since it was created, OPIC estimates that its programs have fostered 237,000 jobs and in excess of $58 billion in exports.

As to the second point, OPIC’s role is as a catalyst. Private banks

and insurers cannot themselves provide the necessary loans and insurance to support these projects. OPIC has a catalytic role to draw

commercial banks into supporting these projects in more difficult

markets.

Asking why? It is because in transition markets, the key risks

are risks of adverse government action by host countries where the

projects are being built. Only OPIC or Eximbank, as government

agencies, can bring governmental action to bear, and this is the key

tool that separates OPIC and really makes it unique, in terms of

being able to bring private lenders and insurers into the marketplace.

17

But once OPIC comes in for a piece of the financing or insurance,

then private lenders and insurers will be able and willing to come

into the deal for the remainder, the bulk of the financing. And appropriately, OPIC usually charges a higher price and thus receives

a higher margin for the portion of financing that it provides than

the private lenders charge for the portion they provide.

Let me spend just a moment on the corporate welfare issue.

OPIC’s programs are fee for service at market-equivalent rates. We

need to look at the facts here because there has been an awful lot

of rhetoric around this issue.

First, OPIC imposes charges for all aspects of the financing and

insurance it provides to its customers. Second, OPIC’s charges are

usually higher than what private lenders do charge. And again in

my testimony I have provided several examples of that.

OPIC’s terms are also more onerous than private lenders’ terms,

as OPIC requires not only the projects be financially and technically sound but also that they satisfy numerous policy requirements which private lenders and many foreign government finance

programs do not impose.

Last and perhaps most importantly, OPIC charges fully cover

both OPIC’s costs and OPIC’s risks. OPIC’s revenues have exceeded

operating costs throughout OPIC’s 30-year existence and OPIC’s

revenues have not only covered all of the risks that have materialized into problems but have accumulated $3.3 billion in retained

earnings, now held by OPIC in Treasury securities. I think the fundamental lesson here is that OPIC is managing its programs in a

very prudent manner.

In conclusion, OPIC is a real success story. In performing a catalytic role, it is making a profit, providing financing and insurance

that private banks and insurers cannot provide alone, and it is generating American exports and jobs. OPIC is making it feasible for

companies like Enron to keep the sourcing for their international

projects here at home in the United States the winners are U.S.

workers.

Accordingly, we urge your full support for 4-year reauthorization

of OPIC. Thank you very much for the opportunity to testify.

[The prepared statement of Mr. Hardy appears in the appendix.]

Mrs. ROS-LEHTINEN. Thank you, Mr. Hardy.

Mr. Workman.

STATEMENT OF WILLARD A. WORKMAN, VICE PRESIDENT,

INTERNATIONAL DIVISION, U.S. CHAMBER OF COMMERCE

Mr. WORKMAN. Thank you, Madam Chair. My name is Willard

Workman. I am the VP International from the U.S. Chamber of

Commerce. We represent about 3 million American companies here

and abroad. We have accredited American Chambers overseas. We

have 87 of those in 77 countries, the most recent one being in Lebanon, which was accredited 2 weeks ago.

We are pleased to be here. The bulk of our membership are small

business. Ninety-six percent of our membership are companies that

employ less than 100 workers. Sixty percent of our membership are

companies that employ less than nine workers.

You have my statement. We support 4-year reauthorization for

OPIC. And what I thought might be valuable for the Subcommittee

18

would be if I could sort of put this in a small business context. I

just want to give you some statistics, and I will be glad to provide

these for the record.

What is the business opportunity out there, looking into the 21st

century? OECD expects that within the next 20 years, world GDP

will double. That is a very conservative scenario. In the last 10

years, the percent of U.S. GDP to trade has doubled, so we can reasonably project that into the next 10 to 20 years.

Over the next 20 years emerging markets, the kind that OPIC

operates in, which have currently populations 10 times the U.S.

population, will account for 40 percent of all U.S. export opportunities.

Putting it on a more mundane level in terms of the business opportunities out there, only 50 percent of the world’s people have

ever made a phone call. Only 50 percent of the world’s people have

daily access to electricity. Less than 11 percent of the people in the

world have ever owned a car. So that is the market. That is what

very competitive, world competitive American companies, especially

small and mid-sized companies, are interested in.

American small business. Currently, and these are census statistics, American small business, defined as less than 500 employees,

employ 53 percent of the American work force, account for 51 percent of the private sector output, account for 96 percent of export

firms. There are about 113,000 companies that are engaged in exporting and about 108,000 are small businesses. Their exports represent 30 percent of all American exports in 1998.

So that is who they are currently. What are the trend lines? I

can report this from a variety of sources. Where are small and midsized companies in the United States going in the global trading

and investment environment?

According to the Institute for International Economics, in 1987

only one in 10 manufacturers with fewer than 100 workers exported. That is one in 10. Five years later, in 1992, it was one in

five, so it doubled in 5 years.

The share of small and mid-sized firms that get 10 percent or

more of their sales from exports doubled between 1994 and 1996.

That is in only 3 years.

In 1992 the Commerce Department 800 number to help small

firms export received 39,000 telephone inquiries. In 1996 they received 72,000 inquiries.

At the U.S. Chamber we get a lot of calls not only from our member companies but from American business in general. We have

seen over the 11 years that I have been at the Chamber a quintupling of the number of inquiries, either phone or fax or now email, that are coming into my division related to what are the opportunities to invest, to be an importer, to export or what have you.

So clearly American small business has decided to go global. Activities in agencies and programs like the Overseas Private Investment Corporation are essential to that.

I must commend Mr. Mun ̃oz on the efforts that he has not only

proposed but actually implemented in terms of helping small business access the programs of OPIC. From our point of view, we have

been trying to get a lot of government agencies to do more than

just talk about helping small business and I have to commend

19

President Mun ̃oz and OPIC for actually getting the job done. I

think as the time goes by, it will be interesting this time next year

to come back and see how their 1999 OPIC for Small Business Program, statistically what kind of results that has yielded.

So again to sum up, small business is going global. They need

programs like OPIC. This is one of the silver bullet Federal programs where it costs the taxpayer nothing, it makes a profit for the

taxpayer. It is accountable and it only has a bureaucracy of 200

employees. I think the only political danger in this whole situation

is if the general American public found out that we had a program

like that, they would insist that we replicate it across the Federal

Government, and I am not sure that is possible.

So I thank you for the opportunity to testify here.

[The prepared statement of Mr. Workman appears in the appendix.]

Mrs. ROS-LEHTINEN. Thank you, Mr. Workman.

Mr. Sheehan.

STATEMENT OF JIM SHEEHAN, DIRECTOR OF INTERNATIONAL ENVIRONMENTAL POLICY, COMPETITIVE ENTERPRISE INSTITUTE

Mr. SHEEHAN. Thank you, Madam Chair, very much for inviting

me and this opportunity to testify today. My name is James

Sheehan. I am director of international environmental policy at the

Competitive Enterprise Institute. We are a free market think-tank.

It is fitting that we address this important subject today. It is

the day before many taxpayers submit their tax forms and it is the

taxpayers, after all, who are expected to finance programs like

OPIC.

My employer does not receive any benefits or subsidies from

OPIC of any kind.

OPIC is a Federal agency, as we know, that props up foreign investments of private corporations in developing countries. It offers

subsidized political risk insurance and financing, guarding against

losses in unstable markets. While private companies can make

handsome profits using OPIC financing, the taxpayers actually

bear the risk of any losses that would occur. With the Asian financial crisis and other currency debacles in Russia and Brazil, I think

we have learned some important lessons about risk and what the

conditions are like in the highest risk areas of the world.

The Federal Government has exposed the taxpayer to these

risks, in an unwarranted fashion, I believe. Currently OPIC’s insurance contingent liability is $12 billion and its exposure under

investment guarantees is around $6 billion. The two countries with

the largest finance and insurance exposure are Russia and Brazil,

where currently devaluations have caused economic havoc.

OPIC’s portfolio is backed by the full faith and credit of the U.S.

Government. Should the multi-billion-dollar OPIC scheme prove to

be as shaky as Federal Deposit Insurance was, it will need a costly

bail-out. And I would hasten to note that many of the arguments

we have heard today are very reminiscent of arguments that we

heard before the S&L bail-out.

20

The Asian financial crisis—I would like to say a few words about

OPIC’s involvement in some of the countries that are embroiled in

that crisis.

First of all, in Russia, the agency’s exposure, as I mentioned be- fore, in this reeling economy is a whopping $2 billion. In Brazil

OPIC exposure totals $1.9 billion. And OPIC concedes that fully

half of its loans in Brazil will be materially impacted by the crisis.

In Indonesia, the maximum contingent liability is $600 million.

Now despite the recent turmoil in these markets, the agency

claims it is still making a profit and it continues to rely on what

I call clever accounting gimmicks to make that claim.

To start, OPIC is a Government agency. It does not pay taxes

like a normal insurer or a financial institution would. In addition,

most of its income is derived from the U.S. Government. While the

agency reported $139 million in net income for fiscal year 1998,

$193 million in revenues consists of interest on U.S. Treasury securities. This is really a shall game. It is a loss for the government.

It is a loss for taxpayers of $54 million, but OPIC insists that that

is called a profit.

Now Madam Chair, if this Congress would be so generous as to pay me $193 million in interest on Government securities, I will be

happy to pay back next year only $139 million and we can all report that as a profit for the Government.

The question of corporate welfare is an interesting one. Just a

few words about that. OPIC aid recipients, to them, the value of

OPIC subsidized foreign investment is no different than a welfare

check. They are getting benefits they could not get on the private

market. Many of the companies benefiting from this, some sitting

at this table, are very familiar names—Citicorp, AT&T, Pepsi-Cola,

to name a few. Even the billionaire financier George Soros is getting a helping hand from OPIC.

The taxpayers’ loss in this scheme is the politicians’ gain. The

Boston Globe reported last year that 27 American companies receiving OPIC aid have donated more than $2.3 million to the

Democratic National Committee and there are several examples of

very wealthy individuals who were on those infamous foreign trade

missions with the late Commerce Secretary Ron Brown. If a Republican were in the White House, the story would be much the same.

OPIC is a scheme for connected businessmen, not small businessmen, as I think some of the prior testimony has conceded.

Now let us talk about some of OPIC’s negative economic impacts.

OPIC’s defenders say that it promotes economics stability in developing countries. In fact, private capital flows that are not subsidized at all to emerging markets are plentiful. We had $150 billion in private capital flows in 1998.

OPIC’s entire portfolio is a small fraction of what the private sector invests on its own abroad. If anything, OPIC only makes the

financial crises worse in places like Russia and Indonesia because

it is diverting valuable resources from more viable projects into unstable countries.

In contrast to some of the claims we have heard, others argue

that OPIC has a net negative impact on American jobs. In 1997,

for example, OPIC issued a $29 million insurance policy to Levi

Strauss for a plant in Turkey. That same year Levi Strauss workVerDate 11-SEP-98 08:28 May 16, 2000 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 60297.TXT HINTREL1 PsN: HINTREL1
21

ers applied for trade adjustment assistance from the U.S. Labor

Department—6,400 workers—because their jobs were displaced by

cheap imports.

I am not going to rehash the arguments on small business. I

think most of the witnesses and the president of OPIC today have

conceded that OPIC is not really serving small businesses and they

are increasing their efforts to do so. More than 90 percent of OPIC

projects are for large businesses.

OPIC also claims to be creating innovative financial products for

investors, these 26 investment funds abroad that it has created and

capitalized. But despite OPIC’s claims, publicly guaranteed investment funds are not desperately needed by the private sector. In

fact, OPIC’s activities duplicate the activities of many existing mutual funds.

In Asia, for example, OPIC’s South Asia Capital Fund competes

with the T. Rowe Rice New Asia Fund. In Africa, the OPIC-backed

Africa Growth Fund competes with the Morgan Stanley Africa Investment Fund. And plenty of private firms have tried their hand

in the Russian casino. Morgan Stanley has a Russia and New Europe Fund to bet against OPIC’s Russia Partners Fund.

Along with foreign policy considerations, OPIC is forced to consider a lot of nonfinancial factors, including environment and labor

standards, and we have heard some talk about these. While these

political niceties may score points with the environmental movement or the Vice President’s office, OPIC has really not made substantial changes to its operations.

John Sohn of Friends of the Earth, for example, has written that

OPIC harms valuable ecosystems and impacts local populations

and even though its environmental standards are practically brand

new, it has already tried to violate them. It has a project that is

under consideration in the Bolivia and Brazil rain forest right now

that has green NGO’s in a tizzy.

Export-Impact Bank has similar standards that it has tried to ignore and that is probably an example of what happens when a government agency has billions of dollars in portfolio and it is a very

political process and some of the standards and rules can get bent.

Overall, I think the experience of Freeport McMoran in Indonesia

several years ago is indicative of the future of business with OPIC.

These political strings that are attached to OPIC subsidies, like environment and labor standards, caused Freeport McMoran to lose

its insurance in 1995, I believe is the year.

Now companies like Enron and Shall are facing a similar challenge in the Bolivia-Brazil Pipeline and I think that this is an increased trend for the future that business will have to consider and

I think it is going to lead them to the unfortunate conclusion that

OPIC is not truly beneficial to their interests.

If OPIC’s claims have any basis in fact and the agency can be

run without government support, then it should not be asking Congress for new authorizations. If OPIC can truly be made a profitable enterprise, I argue it should be spun off as a private corporation.

Though OPIC might have to be sold off at a slight discount due

to the riskiness of its portfolio, a privatization option is quite feasible. In 1997 a consortium of private insurers led by Export InsurVerDate 11-SEP-98 08:28 May 16, 2000 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 60297.TXT HINTREL1 PsN: HINTREL1
22

ance Company submitted a proposal to Congress to privatize $5 billion of OPIC’s insurance operations. If private insurers are willing

to undertake OPIC privatization, who is Congress to stand in the

way? Government bureaucrats whose own money is not at risk are

not as capable of picking winners and losers in the private marketplace.

Keeping OPIC in business as a government corporation subjects

private companies to unfair competition. They do not enjoy the full

faith and credit guarantee that OPIC does. They do not have the

deep pockets of the U.S. Treasury to cover their liabilities if things

go wrong. If OPIC bureaucrats had any real expertise in foreign investment, they would be employed to do this work in the private

sector.

Foreign investment subsidies are inconsistent with the ideals of

open trade that we so often preach to undeveloped nations and

former Communist states. If OPIC were an agency of the European

Union or of the Chinese Government, many legislators in this Congress would be calling for counteractive trade sanctions against

that country.

The time is ripe for Congress to set an example of real economic

reform and to transfer OPIC from public to private hands. Madam

Chair, thank you very much.

Mrs. ROS-LEHTINEN. Thank you, Mr. Sherman.

Mr. Fischer.

STATEMENT OF SCOTT FISCHER, VICE PRESIDENT, LATIN

AMERICA NORTH DIVISION, CITICORP

Mr. FISCHER. Madam Chair, Congressman, I am happy to be

here today in support of OPIC’s reauthorization. I would like to

just briefly give you Citibank’s perspective and my perspective as

a market practitioner on some of the benefits of the recently announced OPIC-Citibank facility for the Caribbean and Central

America.

Essentially this facility increases Citibank’s ability to act as a

much-needed source of medium- and long-term capital in a region

which has limited access to this type of loans, either from financial

institutions or from the capital markets. Given the structure of the

facility, the typical projects these loans will support will normally

create significant direct and indirect employment, as well as improve infrastructure, such as power and telecommunications, which

should have significant positive long-term and ripple effects on

these economies.

The strengthening of these economies should have a favorable

impact in the United States, particularly in South Florida, where

I live, which has significant trade and financial interaction with

the Caribbean Basin; I also might add that where Citibank has a

number of employees who deal with this particular region.

My next point I want to preface by mentioning an example of

some of the things that we are seeing coming from the recent announcement of the facility, specifically in South Florida. This is an

example, I think, of how important the OPIC support can be.

We were approached recently by a small South Florida company

which builds children’s furniture in Honduras and they bring it to

the United States and sell it into major retailing chains, such as

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Toys R Us or Walmart. This company had some damage to its facilities from the hurricane. They are looking to term out some of

their local debt, which tends to be very expensive, and also to build

a new facility. This is a fairly small company by normal Citibank

standards but we are looking at that transaction and I think if it

does happen, it would be made possible by this OPIC facility.

The next point I also wanted to preface by saying that as the

major U.S. institution in the Central American Caribbean region,

I think it is safe to say that we see more projects, more investment

proposals than probably anyone else in that region. So I can also

safely say that the specific support provided by OPIC in this facility is unique and that it is not generally available from private or

market sources and it may well make the difference in many cases

in investment decisions of companies looking to take advantage of

the otherwise attractive investment climate of these countries.

I think it is also important to note that the OPIC support does

not represent a subsidy in this instance but has been structured as

a risk-sharing exercise, which will allow Citibank to incrementally

support the investment plans of our clients, many of which are U.S.

multinationals doing business in the region. Thank you.

Mrs. ROS-LEHTINEN. Thank you so much. Thank you, gentlemen,

for being here with us.

We have heard some testimony this afternoon about OPIC diverting resources from projects and competing with privately financed

ventures. Is this not counterproductive and doesn’t it run counter

to the objectives of OPIC?

Mr. SHEEHAN. I would be happy to take that one.

Mrs. ROS-LEHTINEN. Somehow I figured that you would.

Mr. SHEEHAN. It is part of OPIC’s mandate, through foreign policy, to spur investment in areas that the private market is not willing to invest in. Some of these countries are simply too risky, but

the White House or the Federal Government has decided it is a political decision that it would somehow be in our interest for there

to be more economic activity in Russia or in Indonesia, so let us

try to divert some of it there using these very favorable financing

subsidies. And I do call them subsidies because they are achieved

at rates that are below what the market would otherwise bear.

Mrs. ROS-LEHTINEN. Now Mr. Sheehan pointed out in his testimony the risky ventures, the economic climate not being very positive in Russia; he mentioned Brazil, Indonesia. What do the rest

of you say about OPIC’s ventures in those regions of the world and

what should we say to taxpayers when they see the level of involvement that OPIC has in those regions?

Mr. WORKMAN. I will take a hit at that. First of all, it has been

asserted that there has been diversion from the commercial sector

by OPIC, and that is all it is—an assertion. I do not believe—I listened to President Mun ̃

oz’s testimony and I thought he was pretty

straightforward on that subject. So it is an assertion; it is not

proved. And in practice it has been my experience that it does not

occur.

In terms of operating in these new markets, these emerging markets, I think we are dealing with a new paradigm in global finance

and in international trade. In 1982 when you had the peso crisis

in Mexico and basically it rippled through the rest of Latin AmerVerDate 11-SEP-98 08:28 May 16, 2000 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 60297.TXT HINTREL1 PsN: HINTREL1
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ica, you had what was called the lost decade in Latin America. It

took over 10 years for them to recover. In 1995, when you had the

peso crisis in Mexico, you had the lost 18 months in terms of the

economy turning around.

Something similar has happened with Korea. Those countries

that take the tough economic decisions, we are now looking at positive GDP growth projected for 1999 in South Korea, whereas 16

months ago everybody said South Korea was in the tank.

First, things happen much faster now. I think probably it’s because you can have a trillion dollars go around the world in a nanosecond now, where it was a little more difficult in 1985. So I think,

that has changed.

Second, do we really want to take ourselves out of the game? Because no one else is taking themselves out of the game. At least

40 other industrialized countries have similar programs.

Now we at the Chamber, I would agree with my right to my

right that we do not like subsidies. We have never liked subsidies

and it has always been one of these things where you have to grit

your teeth when you come before the Congress and say, ‘‘Well, we

need an Eximbank and we need an OPIC and in a perfect world

it would be nice if we did not have government subsidies.’’

But then our companies have to deal with the real-world reality

that there is competitive subsidization going on by other governments—our friends, who are also our biggest competitors—the Europeans and the Japanese and the Koreans.

So I think yes, we have to be there. That is what we spent the

past 15 years restructuring American business to be very competitive, to go out and win in the global market, and I say let’s have

at it.

Mrs. ROS-LEHTINEN. Thank you.

Yes, Mr. Hardy.

Mr. HARDY. If I could add to that, let us take Brazil as an example. I think a situation like Brazil really underscores the valuable

role that an OPIC can and is playing.

Brazil is far and away the largest economy in South America.

Brazil, over the last several years, has undergone a dramatic, almost revolutionary transformation in its economy. It has moved toward privatization, stripped away layers of bureaucracy. It has become much more efficient.

But in any sort of transformation like this, it is at a point now

where it is sort of in the midst of this reform that is going on. It

has gotten caught up in difficulties from Asia and from Russia. And

indeed, as we know, it has gone through some very difficult times.

The commercial banks, the financial community were red hot on

Brazil and had been over the last several years, but became increasingly nervous and have backed away and are that way at this

point. If we remain totally dependent upon the ups and downs of

the marketplace in terms of the financing, you end up with a lack

of a coherent policy and an inability to provide the sort of level of

support that a Brazil needs.

There are extraordinary opportunities in Brazil. We have moved

fairly aggressively in the energy sector in both electricity and the

gas markets, which have been totally transformed. We are facing

25

very stiff European competition, particularly from the Spanish but

also from elsewhere in Latin America.

As Mr. Workman has said, there is financing that is available

from those countries and for us to turn around and walk away from

Brazil at this critical point, when the market is being shaped and

market share is being determined would be, in our mind, a terrible

disaster over the long term.

I think everybody is entirely comfortable with the direction that

Brazil is going in and looking at 5 years out and 10 years out, you

are looking at a market that already is but even increasingly so is

going to be extraordinarily important to the United States and to

the U.S. export community.

It is precisely this situation where OPIC can step in and signal

to the marketplace a commitment on the part of the U.S. Government in terms of making stable, long-tern investments.

Let us remember that sponsoring companies like Enron and like

others, we are putting hundreds of millions of dollars of equity into

these projects and that equity is the first financing that is tapped

into in the event that there are any difficulties.

So we are the ones who are significantly at risk. But OPIC support enables other banks to come in, in terms of the long-term sort

of lending that is necessary for these projects, and has a very stabilizing sort of influence.

For us, and I think for the business community in general, it is

a very pragmatic, a very positive sort of step that OPIC’s participation plays and ultimately in terms of U.S. jobs.

Mrs. ROS-LEHTINEN. Thank you, Mr. Hardy.

I have three more questions for you but in the interest of time,

because we do have to clear the Subcommittee to go to the Full

Committee for the continuation of our mark-up, I would like to

yield to my colleagues. Mr. Delahunt.

Mr. DELAHUNT. Thank you, Madam Chairperson. I will stay after

the formal hearing because this is fascinating and, as you know,

I am new to the Committee, as well as to the Subcommittee, so this

is very informative and educational and I appreciate everyone coming and providing this testimony.

The chair said something earlier about these economies and democracy now in Latin America and clearly I think we all applaud

the fact that there has been electoral reform and that we see people and suffrage occurring in Latin American societies, but I dare

say we are a long way from democracies that are stable because

of the history of Latin America. And my sense is that OPIC here

serves a real foreign policy imperative in terms of seeing that these

nations secure some sort of economic justice so that they continue

to mature as democracies. In my own sense, this is what is so intriguing about this particular program.

I think I will direct these questions to Mr. Workman or Mr.

Hardy. Are either one of you aware, and I meant to ask this earlier

to the president, Mr. Mun ̃oz, but he has already gone; is there a

relationship between OPIC and the SBA, given what we are hearing about clearly from the members in terms of outreach to the

small business community, to see that this program is focussed and

is available and at least the small business community is aware of

its existence, because oftentimes the reality is that it is not.

26

And I did ask him one question on the way out as he was leaving, and I would be interested in your response, in terms of the

limitations of the program. I think it was Congressman Sherman

earlier who enumerated three reasons to vote for it and I think

clearly this Subcommittee is very positive about the program, but

in my question to the president, I said to him, ‘‘What are your limitations?’’ and he needs more resources.

In other words, the demand and the capacity of OPIC to provide

the kind of services I think that at least there appears to be a consensus and support of is not there.

Comments. Mr. Hardy, Mr. Workman?

Mr. WORKMAN. On the relationship between OPIC and SBA, yes,

they do cooperate. We cooperate with OPIC in trying to get the

word out to the American small business community.

Mr. DELAHUNT. Is the SBA doing the job?

Mr. WORKMAN. It is my understanding yes. There is always room

for improvement. There is room for improvement, quite frankly, in

the U.S. Chamber’s effort to reach out to American small business,

and that is an on-going sort of communications problem.

I think in terms of the way they have designed the small business outreach program, it is more than just—when I used to write

regulations and we got the word down from on high to reduce the

number of pages, we just went to a smaller font and wider margins.

Mr. DELAHUNT. I did that when I was writing papers in college

and in law school.

Mr. WORKMAN. But in this case I can testify because we have

heard from the small business members of the Chamber that yes,

this is really a streamlining exercise.

I think it is of recent enough vintage that, as I mentioned earlier,

we think it is something that this Subcommittee should take another look at a year from now but clearly in design, it eliminates

a lot of paperwork for small companies, which is their biggest complaint. The threshold, in terms of their eligibility, has gone from $2

million, I think, to a quarter of a million, which is more in line

with the kinds of average contracts and investments that they are

thinking about making. So this is beyond just changing the font

size. This is substance.

On the limitations of OPIC, I can tell you that with OPIC, with

Eximbank, with the Trade Development Agency, with the programs

that we traditionally have to support American business overseas,

we do not come close to doing, by any measure—by per capita, by

per billion dollars of exports or anything—we do not come close to

what our G–7 partners are doing to support theirs. I mean Canada,

with a population of 25 million people——

Mr. DELAHUNT. You will agree with the statement that the demand far exceeds the ability of these various institutions to respond.

Mr. WORKMAN. Absolutely. And I will let John weigh in.

Mr. DELAHUNT. I think that is something that this Subcommittee

should consider in its deliberations on reauthorization. Mr. Hardy?

Mr. HARDY. I don’t have any direct knowledge in terms of the relationship to the SBA, but I do want to emphasize the fact that

even in the context of the large projects in which we are involved,

27

the infrastructure projects and in the telecommunications area,

there are a myriad of small firms that are indirectly involved.

And it is important for us to recognize, again to go back to the

issue that if the ability to source out of the United States is lost

because financing is not available, because OPIC is not present or

not available, whether it is because of sanctions or because of other

policy issues there may be or because of decisions that have been

made regarding reauthorization, then it is very clearly the end result that sourcing will move off-shore and that it will not be so

much the Enrons or the larger companies but it is going to be the

small manufacturing facilities that do not have the ability to move

off-shore.

I mean G.E. has facilities all over the world. The smaller manufacturing facilities do not and do not have the ability to move. So,

in effect, they are the ones who ultimately are hurt far and away

the most because they lack that flexibility and I think it is very important for us to recognize that whether it is power plants or pipelines or telecommunications facilities, that so much of that work

and so much of that production goes back to small businesses

throughout the country.

With regard to the limitations of OPIC, I concur that in significant part, it is a resource issue. This is absolutely an extraordinary

time in the emerging markets because——

Mr. DELAHUNT. My concern is that we are missing opportunities

by not having adequate resources available to the business community.

Mr. HARDY. Absolutely, and it runs across the interface between

what the business can do in terms of——

Mr. DELAHUNT. I do not want to take any further time except one

additional question.

Mr. Sheehan, you said something about a politician’s dream?

Mr. SHEEHAN. Politician’s gain, sorry.

Mr. DELAHUNT. Gain?

Mr. SHEEHAN. Yes.

Mr. DELAHUNT. I mean do you really believe that, that anybody

on this panel would cast a vote to support a program predicated

on a trip?

Mr. SHEEHAN. I am not going to speak for anyone who is in the

room, sir, but I do know that many of the companies that receive

benefits from OPIC also turn around and make contributions to the

Democratic Party or the Republican Party or whatever they think

they need to, and that seems to be business as usual in Washington. It is not just OPIC. There is a problem across the board

with pork barrel spending.

Mr. DELAHUNT. Well, that might be something to do with campaign finance but I am sure, and I think I speak for every Member

here, both Republican and Democratic, that clearly any decisions

that are made are far removed from the invitation to a trip to some

foreign nation. I mean believe me, Mr. Sheehan, let me disabuse

you of that particular thought.

And I think that unfortunately, you have made the statement

and I would submit to you that it diminishes the credibility of the

rest of your statement, at least as far as this Member is concerned.

Mrs. ROS-LEHTINEN. Thank you.

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Mr. Cooksey.

Mr. COOKSEY. Just to add to the comment, I have traveled a lot

more internationally before I got my new day job in Congress. I

have only done one trip. There may be some people who would vote

that way but I took a cut in pay to take this job and my wife is

still unhappy. So I resent these kinds of statements, too.

I am very familiar with Enron. Enron is a company that had a

lot of vision and took a lot of risks 20 years ago when you were

formed and you have done a good job internationally and nationally. I know you have brought a lot of production to my area because we have a lot of oil and gas production in my state and some

in my area.

But the independent producers had been suffering and they were

particularly suffering, felt like they were really paying a price 2

weeks ago or 2 months ago when the price of oil was down and I

had a couple of them who reminded me that 20 years ago when the

DOE or the Administration that was in place 20 years ago or Congress—surely Congress would not have made any dumb mistakes,

but when they put the windfall profits taxes on these people, that

some of them felt like they should have that returned now because

a lot of them are going out of business.

My question is what can be done to help someone that belongs

to the IPA, that is not as large as you are, not as successful as you

are, does not have the resources? What can be done to help them

participate in this world economy that we are in?

Mr. HARDY. I am afraid that your question pulls me sort of out

of my area of focus. Enron is a company that has remade itself in

a number of evolutions, as the market has changed, as the market

has moved. As you know, it started with the merger of two gas

pipeline companies in the mid-1980’s, so it is a relatively new company and it is a long way, where we are now from where we were

then.

I think that there has been, in my own view and I am relatively

new to the company, tremendous vision, as you say, in terms of

getting from where we started to where we are now.

There is no question it has been an extraordinarily difficult time

for the energy community. We have focussed in the areas where we

think that there are tremendous future opportunities. We are heavily involved in infrastructure throughout the emerging markets and

this really underscores again the long-term perspective. This has

been a very difficult time, as I said, in much of the industry, nearterm. We do not believe it is going to stay that way.

We think that the energy industry worldwide, but particularly in

the emerging markets, is going to be totally transformed into the

next decade, 15 to 20 years. I think that this company has moved

aggressively to try and shape that vision and become a significant

player in that market. And frankly, I am grateful to be a part of

it.

It means taking a lot of risks. It means coming to grips with the

political uncertainties in terms of operating in a lot of difficult environments, and that is one reason why we look to OPIC.

We are certainly prepared to place at risk our equity funding in

projects, and that is very significant—hundreds of millions of dolVerDate 11-SEP-98 08:28 May 16, 2000 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 60297.TXT HINTREL1 PsN: HINTREL1
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lars. We are certainly prepared to look at the risks on the commercial and the economic side.

The difficulty is, as has been mentioned before, the difficulty of

looking 20 years out and determining what is going to happen in

Indonesia or what is going to happen in Bolivia, and that is where

a partnership between the government and the business community has indeed, with OPIC, has worked extraordinarily well.

I think to come back to the sort of baseline here, OPIC has been

an extraordinarily successful agency in working with the business

community?

Mr. COOKSEY. Let us say you are going to do a $100 million

project in Bangladesh. What percentage of that funding would be

likely to come from OPIC, on average, that would not be your

money at risk or your stockholders’ money at risk?

Mr. HARDY. Our equity in a project is generally 30 to 35 percent,

right in that area, so you are talking about 30 to 35 percent equity.

OPIC has certain limitations in terms of the percentage. It cannot

provide any more than half of the equity, half of the debt that

would be provided, so there are limitations.

Its value is not in terms of providing the bulk of the debt financing to the project. It is really in providing that sort of participation,

really a slice of participation that enables and attracts the private

financing and commercial bank community to come in and participate because it has that ability, in the event that the Bangladesh

Government, for whatever reason, takes steps after this project is

up and running, to undermine the economics of the project, to be

able to sit down and to, on a government to government basis,

work that out.

And, as a consequence, it has an extraordinarily good track

record.

Mr. COOKSEY. That is probably more important to the funding,

I guess, almost.

Mr. HARDY. Exactly. What it does, it really prevents the Government from taking those sorts of steps because it is taking those

sorts of steps against the U.S. Government.

Mr. COOKSEY. Right. We need to get that message out probably

a lot more so because when this comes up, this bill comes up here

every year, as is the case with most all the legislation, there is a

certain amount of misinformation, disinformation and demagoguery. I know that comes as a surprise to you that any politicians would do that but it does occur. I have noticed that. Thank

you.

Mrs. ROS-LEHTINEN. Well, thank you so much. I thank all of our

panelists for being here and the audience, as well. The Subcommittee is now adjourned.

[Whereupon, at 4:08 p.m. the Subcommittee was adjourned.]

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