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Cut OPIC's Corporate Welfare
(reposted for email@example.com)
The following op-ed appeared in the Washington Times, Sept. 4, 1996:
NOW END "CORPORATE WELFARE" AS WE KNOW IT
by Janice Shields, Corporate Welfare Project, & James Sheehan,
Competitive Enterprise Institute
When the Congress that "ended welfare as we know it" returns to Washington
in September, members will vote on the re-authorization of a program that
provides subsidized loans and insurance to large corporations for overseas
investments. A majority of Senators and Representatives recently voted to
reduce welfare benefits for families and children. Will Congress be willing
to take the same budget ax to welfare for Union Carbide, Coca-Cola and
Motorola? All these "needy" companies currently receive government aid
from the Overseas Private Investment Corporation (OPIC).
OPIC doles out corporate welfare through subsidized direct loans, loan
guarantees and political risk insurance. This aid supports U.S. business
expansion in countries where conventional financial institutions often
have elected not to lend on such favorable terms.
OPIC's welfare for multinational corporations is very costly. As of
September 30, 1995, the agency reported more than $4 billion in
outstanding loan guarantees and $10 billion in outstanding insurance. OPIC
estimates that $14.6 million of its outstanding direct loans won't be
repaid. If borrowers default on the direct or guaranteed loans, or
insurance claims are filed, the ultimate risk will be borne by the U.S.
government (read: "taxpayers").
To balance the federal budget and downsize government, Congress claims to
be scaling back wasteful spending programs and eliminating others. Not so
for corporate pork, which has somehow survived the cuts and will even grow
faster. The bill to reauthorize OPIC through the year 2001 nearly doubles
the ceiling on OPIC's investment insurance, to $25 billion, and more than
doubles OPIC's financing authority, to $20 billion.
How does this restocking of the fodder in the corporate welfare trough
compare to the recent welfare changes? Children and families receiving
federal payments must be poor. Beneficiaries of OPIC-subsidized loans,
loan guarantees and insurance, on the other hand, are rich. Citicorp,
which received more than $842 million of OPIC insurance in 1995, had net
income that year of $3.5 billion. OPIC awarded US West $100 million in
financing last year, even though the company's net income was $1.3 billion .
Welfare recipients will be limited to five years of benefits. Large
corporations enjoy much longer time limits. According to OPIC's Program
Handbook, "The terms of loans will typically provide for a final maturity
of five to fifteen years following a suitable grace period during which
only interest is payable." Insurance policies under OPIC may extend as
long as twenty years.
The recently-enacted welfare bill eliminates cash assistance, food stamps,
school lunches and Medicaid coverage for legal immigrants to the United
States. In contrast, foreign investors may own up to 75 percent of the
equity in overseas projects that receive OPIC financing. During 1995,
OPIC provided loans to projects owned in part by companies from countries
such as Russia, Colombia, Jamaica and Ghana.
OPIC's defenders vigorously deny that its programs constitute "corporate
welfare." In recent budget testimony before Congress, OPIC President Ruth
R. Harkin claimed that "program users completely pay for the cost of the
program." Ms. Harkin failed to note, however, that 60 percent of OPIC's
revenues come not from the users but from interest on U.S. Treasury
securities. OPIC's net income would drop by 83 percent if this interest
Ironically, Ms. Harkin's testimony claims that OPIC financing is necessary
to support privatization of enterprises owned or subsidized by foreign
governments. Yet, if OPIC were located in Hungary, the agency would be a
prime candidate for privatization.
For several years, a broad coalition of liberals and conservatives,
taxpayer organizations and consumer advocates has called for the outright
elimination of OPIC. How can this agency now come before Congress seeking
to double its financing authority? Surely, better uses can be found for
the $72 million that OPIC spends on annual operating expenses and the $157
million in interest accrued each year on OPIC's U.S. Treasury securities.
If, as OPIC testimony claims, there is strong business demand in many
regions of the world for its loans, loan guarantees and insurance, the
private sector, no longer the victim of subsidized competition, will
quickly and willingly move in to provide these services.