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Nothing in sight

Standard Optical has seen for itself aid agency's endless run-arounds

When Salt Lake-based Standard Optical Co. decided to start a manufacturing facility in the Middle East 20 years ago, it turned to the Overseas Private Investment Corp. for financing.

The U.S. government agency, created in 1971 to foster investment in emerging markets, was seen by Standard Optical as a first choice in securing $4.6 million to build a frame-making plant in Cairo, Egypt.

Overseas Private Investment Corp. seemed an attractive fit for two reasons. First, it promoted itself as a financing source for overseas investment. Second, it offered political risk insurance against the uncertainties of foreign governments.

But after three years of filling out mountains of paperwork and meeting with OPIC representatives in New York and Washington, D.C., the Utah eyeglass company was seeing red.

"When push came to shove they never funded the program," said Stephen Schubach, president and chief executive of Standard Optical. "Certainly OPIC seemed to be more political than it seemed to be economic. They were unclear to us about what we needed to do or not do.

"We filled out all the applications. When it came time to really get serious about it, all the requirements changed. We never got the money."

So it came as a bit of a surprise to Schubach to learn that OPIC this summer was touting Standard Optical as a Utah success story, one of hundreds of American companies to which OPIC said it had provided financing support.

Schubach and his partners eventually raised the capital they needed for the manufacturing plant, partially from a German bank. But help from OPIC never came, according to Schubach.

And a new report from the Cato Institute, a libertarian think tank based in Washington, D.C., said Standard Optical's story is not surprising.

In fact, "nearly all OPIC finance and insurance goes to large corporations, such as Citibank, Enron, Caterpillar Corporation and Bechtel," the Cato report said.

"Mainly it is an agency that helps large corporations that are well connected in Washington," Ian Vasquez, director of the project on global economic liberty for the Cato Institute, told the Deseret Morning News. "It claims to have done much more in the way of program support with small businesses in recent years, but the majority of its finance and insurance continues to go to the largest corporations."

In addition to a preference for large corporations, Vasquez argues that "every OPIC transaction is conducted with the full backing of the U.S. government, and therefore U.S. taxpayers."

"If the world's richest corporations are unwilling to assume the full risk of their investments," the Cato report said, "it makes little sense to force taxpayers to do so."

Lawrence Spinelli, an OPIC spokesman, is quick to point out that Congress requires OPIC to be self-sustaining. The company last year made a profit of roughly $175 million, which was given back to the U.S. Treasury.

"We charge market interest rates on our loans. These are not giveaways. We charge premiums on our insurance," Spinelli said. "We operate at no cost to the U.S. taxpayers. We not only pay our own way — which is about $40 million a year in OPIC operating expenses — we then put additional money aside for reserve just in case, like any bank or insurance company does. Then on top of all of that we actually make a profit."

Contrary to the Cato report, a study earlier this year by the Institute for International Economics concluded that OPIC played "an indispensable role in overcoming market failures that limit the flow of foreign direct investment to poor countries."

"The private sector cannot replicate this role on its own," the IIE report said. "OPIC needs new and expanded statutory authority from Congress, however, to realize its full potential to contribute to both the growth of developing countries and the health of the U.S. economy."

Last year OPIC launched a new center to target U.S. small-business investment in emerging markets. And Spinelli said that more than half of the financing projects handed out last year went to small businesses.

Not so, according to the Cato Institute, which points to financing arrangements in the past three years that included:

$350 million in financing to UNOCAL for oil and gas exploration and production in Indonesia.

$150 million to Citibank for an on-lending facility in former Soviet states.

$50 million guaranty to MTV Russia for television broadcasting.

$50 million to the Ritz-Carlton Corp. for the construction, operation and maintenance of a Ritz-Carlton hotel in Istanbul, Turkey.

$30 million in financing to the Getty Family Trust for oil exploration in Russia.

$15 million in financing for mining of offshore diamond deposits in Namibia.

"Does anyone really believe that OPIC loans to a diamond mining firm operating in Namibia or $50 million in OPIC guaranties to the Ritz-Carlton in Turkey is anything other than corporate welfare?" the Cato report asks. "The criteria by which OPIC determines whether or not an investment project significantly contributes to development are entirely unclear.

"Unfortunately, when OPIC supports projects such as the above, the beneficiaries are the companies, their shareholders and their clients; average citizens of developing countries rarely benefit and are made often worse off."

Schubach also was surprised to learn of OPIC's recent finance projects.

"I can go in there and say, 'Look, I need $4 million to teach the Egyptians how to make eyeglasses,' and they'll give $50 million to the Russians for nothing," he said.

But not all of OPIC's financing is tied to large corporations.

Last year the agency offered a $15 million loan guaranty to the Soros Economic Development Fund, helping to assist in the financing of 90,000 homes for low-income families in South Africa. A $1.2 million loan to Dmitrov Dairy Farms in Russia is expected to reverse a dairy industry decline. Texas-based Living Water International received $100,000 to drill dozens of wells in Ghana.

"This is the same old broken record that has been coming out of the Cato Institute for almost a decade now," Spinelli said. "What's unfortunate is they really haven't bothered to take the time to look at all of the changes that have taken place at OPIC over the last few years."

This month Congress must reauthorize OPIC, something the Cato Institute opposes. Surprisingly, Schubach thinks Congress should grant reauthorization.

"What I think they should do is make it simpler for small businesses," he said. "I think it would have been much easier if they had a department that worked with small businesses and made it a little simpler and less bureaucratic. I think the idea is very good, but I don't think they've executed it very well."

With OPIC's new small-business center, reform may already be under way.


E-mail: danderton@desnews.com