Order Code 98-567 E
Updated December 4, 2003
CRS Report for Congress
Received through the CRS Web
The Overseas Private Investment Corporation:
Background and Legislative Issues
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
The Overseas Private Investment Corporation (OPIC)1 was established in 1969 and
began operations in 1971 to promote and assist U.S. business investment in developing
nations. OPIC is a U.S. government agency that provides project financing, investment
insurance, and other services for U.S. businesses in 144 developing nations and
emerging economies.
For FY2004,
President Bush’s budget recommended
appropriating $42,385,000 for administrative expenses and authorized OPIC to transfer
$24 million from its non-credit account (insurance) to fund the subsidy costs of its direct
and guaranteed loan programs. OPIC is expected to rely on the interest it receives from
the Treasury securities it holds as part of its insurance program loss reserve fund to
finance its loan and guarantee programs. In H.R. 2673, the Consolidated Omnibus
Appropriations Act for 2004, the House and the Senate mirrored the President’s budget
for funding subsidy costs, but approved $41,385,000 for administrative expenses. This
report will be updated as events warrant. Additional information on this and other trade-
related issues is available from the CRS Electronic Briefing Book on Trade at:
[http://www.congress.gov/brbk/html/ebtra1.html].
Background
Structured like a private corporation, OPIC operates on a self-sustaining basis and
has recorded a positive net income for every year of operation, with reserves now totaling
more than $3 billion.
OPIC was established in 1969 amid an atmosphere of
congressional disillusionment overall with U.S. aid programs, especially large
infrastructure projects.
In his first message to Congress on aid, President Nixon
recommended the creation of OPIC to assume the investment guaranty and promotion
functions that were being conducted by the Agency for International Development (AID).
President Nixon also directed that OPIC would provide “businesslike management of
1 For additional information, see OPIC’s Internet address: [http://www.opic.gov/].
Congressional Research Service ˜ The Library of Congress

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investment incentives” to contribute to the economic and social progress of developing
nations.2
In creating OPIC, the Nixon Administration indicated that it was not attempting to
end official U.S. foreign assistance, because “private capital and technical assistance
cannot substitute for government assistance programs,” a combination that can provide,
“official aid on the one hand, and private investment and technical assistance on the
other.” Private investment activities, however, were meant to complement the official
assistance programs and, thereby, multiply the benefits of both. In addition, market-
oriented private investment was viewed as an antidote to the government-oriented aid
projects that were viewed by some as costly and inefficient. OPIC was created as a first
step in the eventual overhaul of the entire U.S. aid program. In 1973, this overhaul was
completed as the United States largely abandoned infrastructure building and other large
capital projects in favor of humanitarian aid to meet basic human needs.
At present, OPIC is directed to “mobilize and facilitate the participation of United
States private capital and skills in the economic and social development of less
developed countries and areas, and countries in transition from nonmarket to market
economies.”3 OPIC’s programs are intended to promote U.S. private investment in less
developed countries by reducing risks, especially political risks (including currency
inconvertibility, expropriation, and political violence), for U.S. firms associated with
overseas investment. To accomplish these goals, OPIC is authorized to finance U.S.
investment through loans and guarantees, insure against political risk, and provide
various investor services. OPIC’s authority to guaranty and insure U.S. investments
abroad is backed by the full faith and credit of the U.S. government and OPIC’s own
substantial financial resources. OPIC’s activities also were intended to assist U.S. firms
and small businesses’ foreign operations. For instance, Congress directed OPIC to focus
on projects that have “positive trade benefits for the United States.” OPIC is required to
decline its services, however, if it believes an overseas investment may reduce
employment in the United States, either because a U.S. firm shifts part of its production
abroad, or because output from an overseas investment will be shipped to the United
States and “reduce substantially the positive trade benefits” of the investment.4 OPIC
also is generally barred by its enabling legislation from participating in projects that pose
an “unreasonable or major environmental health, or safety, hazard,” or participating in
countries that do not “extend internationally recognized workers rights,” or that impose
domestic content requirements.
Programs
OPIC operates in approximately 144 countries and areas worldwide, including
countries in Central and Eastern Europe.5 Although OPIC offers U.S. firms an array of
2
Public Papers of the Presidents: Richard Nixon. Washington, U.S. Govt. Print. Off., 1969.
p. 412.
3 22 U.S.C. Section 2191.
4 22 U.S.C. Section 2191, 3(k)(1).
5 Annual Report, various years. Overseas Private Investment Corporation.

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services, its activities can be grouped into three categories: finance, insurance, and
investment development.
Finance. OPIC’s finance program operates like an investment bank, customizing
and structuring a complete package for each project. To obtain OPIC financing, the
venture must be commercially and financially sound and be wholly owned by U.S.
companies, foreign subsidiaries of U.S. companies, or joint ventures involving local
companies and U.S. sponsored firms. In the case of a joint venture involving existing
firms, the U.S. investor is expected to own at least 25% of the equity of the venture. For
new ventures, financing may be equal to 50% of the total project cost; a larger share is
possible for plant expansions. OPIC provides financing to investors through two major
programs: direct loans and loan guarantees. Direct loans generally range between $2
million and $10 million and are available only for ventures sponsored by, or significantly
involving, U.S. small businesses or cooperatives (such as joint ventures).
Loan guarantees typically are used for larger projects, ranging in size from $10
million to $75 million, but in certain cases can be as high as $200 million. OPIC’s
guarantees are issued to financial institutions that are more than 50%-owned by U.S.
citizens, corporations, or partnerships. Rates and conditions on loans and guarantees
depend on financial market conditions at the time and on OPIC’s assessment of the
financial and political risks involved.
OPIC charges up-front, commitment, and
cancellation fees, and reimbursement is required for related administrative expenses.
OPIC also requires that proceeds of its financing be spent for capital goods and services
in the United States, in the host country, or in other less developed countries, but not in
other industrialized countries.
OPIC also sponsors a number of funds that offer equity financing to U.S. firms that
either cannot allocate or cannot raise sufficient capital to start or expand their businesses
overseas. These funds represent a blend of public and private sector capital and are
managed by firms with venture capital investment capability and experience. Among the
direct investment funds OPIC has invested in are: the Africa Growth Fund, Africa
Growth Fund II, the Central and Eastern European Growth Fund, the India Private Equity
Fund, the Israel Growth Fund, and the InterArab Investment Fund. OPIC also is
supplying guarantees for private funds to assist the Newly Independent States (NIS).
These efforts include the Russia Partners Fund, the Poland Partners Fund, and the Global
Environment Emerging Markets Fund.
Insurance. OPIC provides political risk insurance to U.S. citizens, U.S. firms, or
to the foreign subsidiaries of U.S. firms as long as the foreign subsidiary is at least 95%-
owned by a U.S. citizen. According to OPIC, such insurance is available for investments
in new ventures or in expansions of existing enterprises, and can cover equity
investments, parent company and third party loans and loan guarantees, technical
assistance agreements, cross-border leases, assigned inventory or equipment, and other
forms of investment. This insurance covers three broad areas of political risk: currency
inconvertibility, expropriation, and political violence.
Currency inconvertibility
coverage compensates investors if new currency restrictions are imposed which prevent
the conversion and transfer of remittances from insured investments, but it does not
protect against currency devaluation.

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Expropriation coverage protects U.S. firms against the nationalization,
confiscation, or expropriation of an enterprise, including actions by foreign governments
that deprive an investor of fundamental rights or financial interests in a project for a
period of at least six months. This coverage excludes losses that may arise from lawful
regulatory or revenue actions by a foreign government and actions instigated or provoked
by the investor of foreign firm.
Political violence coverage compensates U.S. citizens and firms for property and
income losses directly caused by various kinds of violence, including: declared or
undeclared wars, hostile actions by national or international forces, civil war, revolution,
insurrection, and civil strife (including politically motivated terrorism and sabotage).
Income loss insurance protects the investor’s share of income from losses that result from
damage to the insured property caused by political violence.
Assets coverage
compensates U.S. citizens and firms for losses of or damage to tangible property caused
by political violence. OPIC also has a number of special programs that protect U.S.
banks from political violence. This type of insurance reduces risks for banks and other
institutional investors, which allows them to play a more active role in financing projects
in developing countries. Specialized types of insurance coverage is also available for
U.S. investors involved with certain contracting, exporting, licensing, or leasing
transactions that are undertaken in a developing country.
Investment Development. OPIC also offers various pre-investment services to
aid U.S. investors. For instance, OPIC sponsors periodic investment missions with U.S.
businesses to developing countries and investor conferences to inform U.S. businesses
about investment opportunities.
OPIC’s Budget
OPIC regularly turns funds back to the Treasury Department. Each year, however,
Congress approves a credit program level for OPIC and appropriates funds for its
administrative expenses. Congress follows this procedure in order to exercise its
oversight role and to set limits on the extent to which OPIC can obligate U.S.
government resources. Prior to FY1992, OPIC relied exclusively on non-appropriated
resources (fees and interest on Treasury securities) to fund its operations (see Table 1).
With federal government credit reform, however, OPIC was required to receive an
appropriation based on an estimate of its credit programs (direct loans and guarantees).
From 1992 to 1994, OPIC returned to the general fund an amount equal to its direct
appropriation. For FY1995 and beyond, OPIC has received authority to forego additional
appropriations, except for programs and guarantees to assist American investors in the
newly independent states.
OPIC’s budget is comprised of non-credit and credit accounts, in conformity with
the standards set out in the Federal Credit Reform Act of 1990. The non-credit portion
of OPIC’s budget relates to OPIC’s political risk insurance program; its credit program
accounts are comprised of OPIC’s direct and guaranteed loans. In FY2003, OPIC
extended about $1.3 billion in insurance to U.S. firms and had $12 billion in insurance
policies outstanding. OPIC also disbursed $40 million in direct loans and $525 million
in guaranteed loans. OPIC has accumulated over $3.5 billion in assets in its non-credit
account, which it uses to fund losses it may experience in its guarantee and insurance
coverage. OPIC uses premium income and the interest it accrues from the assets in its

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non-credit account to fund the direct and indirect expenses in its non-credit and its credit
accounts.
Table 1. OPIC’s Budget Summary
(in millions of dollars)
FY1999
FY2000
FY2001
FY2002
FY2003
FY2004
NON CREDIT ACCOUNT
Operating Expenses
85
144
92
74
65
74
Non credit personnel costs
14
13
15
16
16
17
Insurance payments/provisions
50
103
43
34
25
31
Administration costs
21
22
23
23
23
25
Adjustments to accounts
—
6
11
1
1
1
Budget authority (gross)
85
225
62
38
59
74
Less net Treasury obligations
—
—
—
—
—
—
Outlays (gross)
55
257
53
49
68
73
Offsetting collections
-328
-316
-315
-308
-321
-321
Federal sources
-23
-22
-23
-23
-24
-25
Interest on U.S. securities
-215
-216
-228
-223
-232
-235
Non-Federal sources
-90
-78
-64
-62
-65
-61
Budget authority (net)
-247
-95
-255
-268
-262
-247
Outlays (net)
-271
-59
-262
-239
-253
-248
Budget authority:
Transferred to other accountsa
70
45
46
47
48
49
Transferred to general fundb
—
—
—
—
—
—
Collections not obligated
179
50
425
251
101
199
Total collections start of year
2,579
2,757
2,807
3,332
3,433
3,639
Total collections end of year
2,757
2,807
3,332
3,433
3,639
3,838
CREDIT ACCOUNT
Program Expensesc
40
29
52
160
236
49
Direct loan subsidy
7
4
15
5
8
4
Guaranteed loan subsidy
11
3
14
14
11
20
Program cost re-estimates
118
193
Administrative expenses
22
22
23
23
24
25
Budget authority
72
45
46
23
48
Appropriationd
—
—
—
—
—
—
From other accountse
72
45
46
23
48
49
Source: Budget of the United States Government, various years. U.S. Govt. Print. Off., Washington.
a. Budget authority transferred to other accounts, including OPIC’s credit account;
b. Funds transferred back to the general fund equivalent to OPIC’s credit account appropriation.
c. OPIC did not receive an appropriation prior to FY1992.
d. OPIC received an appropriation only between FY1992 and FY1994; funds for FY1996 were for guarantees for
private funds to assist the NIS.
e. These funds include transfers from OPIC’s Non-Credit Account (see footnote 1) and from the Export-Import Bank
and AID for OPIC guarantees to NIS countries.

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Legislative Issues
The 108th Congress is considering similar measures in the House and the Senate
(H.R. 3145, introduced September 23, 2003 by Representative Hyde, and S. 1824,
introduced November 5, 2003 by Senator Lugar, respectively) that will reauthorize OPIC
through September 30, 2007 and amend OPIC’s legislative authority in a number of
ways. The legislation extends the definition of expropriation to include actions by
political subdivisions of a foreign government or entities owned or controlled by foreign
governments. OPIC would also be granted the authority to issue guarantees in local
currencies, be required to report on its efforts to reach out to business owned by women
and minorities, and create a noncredit account revolving fund in lieu of OPIC’s current
insurance and guarantee fund.
Conclusion
Economists generally oppose the use of subsidized credits to promote trade or
investment abroad. They believe such subsidies tend to distort the flow of capital and
resources away from the most efficient uses and to distort trade and investment flows
abroad. As a result, they conclude that by promoting investment abroad, OPIC may be
crowding out, and thereby reducing, some domestic investment. As long as OPIC’s non-
federal collections — or the fees it charges the public for its services — are sufficient to
cover all of its credit and non-credit activities (as indicated by some estimates), its impact
on the federal government’s budget may not be negative. OPIC’s impact on U.S. capital
and resource markets, however, may well be negative due to the distortionary effects of
subsidized credits.
Much of the rationale for OPIC relates to U.S. foreign policy goals, a premise that
is being questioned by Members of Congress in a number of ways. Initially, OPIC was
established to enhance U.S. aid policy during a period when policymakers were
dissatisfied with the focus of U.S. aid programs on officially supported capital intensive
projects. OPIC was designed to assist U.S. private firms take the lead in developing
projects that not only would enhance economic development but be economically viable
as well. Recently, OPIC has supported efforts within the Newly Independent States to
convert defense industries into market-oriented industries producing consumer products.
In this role, OPIC’s programs may serve to rectify certain “market failures” that dissuade
U.S. firms from investing in developing countries. In many of these countries, labor,
goods, and capital markets are not well established, and information about the economy
often is difficult to obtain. Given this lack of information, individual firms may well
attach more risk to investing in developing economies than is warranted. Until the firms
gain greater experience or information, or otherwise change their assessments of the risks
and rewards of investing in developing countries, they may be overly reluctant to commit
resources to investments in the least developed countries without OPIC’s guarantees.

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