OPIC and the Deficit

A funny thing happened on the way to writing several big deficit-cutting reports – the authors suggested slicing a trade finance program that helps shrink the deficit.

It’s the Overseas Private Investment Corp., an independent federal agency, which reported last week that during the 2010 fiscal year ending Sept. 30 it made “a positive net contribution to the federal budget of $352 million.”

OPIC sells political risk insurance to U.S. firms operating abroad, and makes subsidized loans and credit guarantees in emerging market nations or participates in investment funds that often help foreign-based development projects buy U.S. goods or services.

For instance, OPIC says the 97 projects it aided in the past year should generate $624 million in U.S. exports and support 1,000 American jobs. Since it began operations in 1971, OPIC says it aided $74 billion in exports that supported 274,000 U.S. jobs.

But the co-chairs of President Obama’s bipartisan National Commission on Fiscal Responsibility and Reform – Democrat Erskine Bowles and Republican Alan Simpson – said the government could save about $100 million between now and 2015 by eliminating new OPIC program activity. A separate deficit plan from Rep. Jan Schakowsky, D-Ill., looks to pick up $150 million by ending OPIC, while the Bipartisan Policy Center plan unveiled by Republican Pete Domenici and Democrat Alice Rivlin listed the OPIC trim option among potential budget cuts.

What gives?

OPIC’s top-line costs include a yearly federal budget outlay for administration and credit subsidies. That expense reached $96 million in FY 2010, before counting about $447 million in receipts. And some say OPIC’s programs, which are also meant to support broader U.S. international policies, duplicate offerings by the Agency for International Development or in some cases what is available in private insurance.

For whatever reason, OPIC ended up on a Congressional Budget Office list of potential program-change and budget options in August 2009. That list includes some ideas offered for efficiency reasons, and some that may have come from lawmakers, outside groups or federal agencies. The CBO does not endorse these ideas, but its “options” lists often become quick-grab sheets for policymakers in Congress or advisory commissions.

In this case, the CBO described an option of stopping new activity while OPIC continues to service its existing portfolio, and listed arguments for such action. “The main rationale for implementing this option,” it said, “is that the activities of OPIC may not provide net public benefits to the United States. Its subsidies deliver benefits to foreigners and selected U.S. businesses,” the CBO said, or may duplicate federal programs for nations of strategic significance or hamper development of local financial markets.

All of this could be an example of deficit cutters failing to count the other side of the ledger, or them taking advantage of the fiscal push to change a trade credit program for efficiency reasons. But whatever the merits of the option, cutting OPIC does not cut budget deficits.

There are plenty of other examples in which deficit cutting ideas could have blowback -- from the potential impact on exports of sharply hiking barge fees to making export promotion activities pay for themselves with fees on would-be exporters. Readers are welcome to add their own.

The bottom line is that a top-line cut does not tell the whole story. As Congress and President Obama try to negotiate deficit reductions in the year ahead, there will be surely be devils in the details.

--Contact John Boyd at jboyd@joc.com.

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