"Privatized profits and socialized risks" is a good description of many government programs, and the federal Overseas Private Investment Corporation may embody that form of crony corporatism more than any other U.S. agency.
OPIC is on the chopping block. President Trump's budget proposes to eliminate the agency, which subsidizes U.S. companies and investors doing business overseas, either by guaranteeing private loans, issuing their own taxpayer-funded loans, or by injecting taxpayer money into private equity funds.
The agency peddles corporate welfare, displacing private finance, steering investment away from where the market would guide it. The theory behind OPIC — a federal subsidy for foreign businesses — is dubious. It's even worse in practice.
Federal watchdogs are investigating nearly a billion dollars in loans to finance solar farms and a hydroelectric dam in Chile, Reuters reported Monday night. "At least three of its five solar projects," Reuters reported, "have started restructuring their debt, according to two people familiar with the projects' finances. They said OPIC's losses on the solar deals are likely to exceed $160 million."
OPIC loaned $450 million money to five solar farms in Chile that the private sector had passed on. The reason: the solar farms did not have the standard power-purchase agreements — whereby utilities promise to buy a certain amount of electricity at a specified rate — that make such renewable projects viable.
The Office of the Inspector General for the U.S. Agency for International Development (USAID) is auditing the Chile deals to see if OPIC carried out sufficient due diligence.
It's a similar story in Kabul, where an OPIC subsidy was supposed to build a five-star Marriott hotel and a luxury apartment building, but instead has erected two empty, uninhabitable buildings at U.S. taxpayer expense.
A Jordanian businessman and U.S. consulting firm teamed up with the idea of building a 200-room, five-star hotel across the street from the U.S. embassy in Afghanistan's capital. In 2006, these entrepreneurs applied to OPIC for a subsidy, and the agency approved a $60 million loan from U.S. taxpayers.
A few years later, the same Jordanian businessman, Fathi Taher, scored another OPIC loan, $27 million to build an apartment building, "Kabul Grand Residence." In early 2013, through media reports, it became clear that hotel construction had halted.
"Only a month later," a military audit found, "in June 2013, the loan recipients provided OPIC with a progress report stating that contracts had been issued for the procurement of furniture, fixtures, and equipment. Based on this progress report, on June 18, 2013, OPIC approved the final disbursement of loan funds to Tayl Investors Group, bringing the total OPIC loan disbursement for the project to approximately $58 million."
Inspectors from the Special Inspector General for Afghanistan Reconstruction visited the site in the summer of 2016 and found empty shells.
Of the apartment building, the inspector general found: "As with the hotel, we found that the apartment project was never finished and appears to be abandoned ... We found structural cracks in the walls; incomplete electrical, elevator, communications, fire prevention/suppression, sewer, heating, ventilation, and air conditioning systems; uninstalled doors and windows; and, many other problems.
OPIC should have known about these problems with the buildings, especially since media was covering them. The agency's ignorance of the problems — or alternatively, its insistence on nevertheless issuing further financing — reflected "troubling management practices and lax oversight by OPIC" the inspector general concluded.
It would be folly to chalk up these stories as OPIC stumbles. The government shouldn't be a venture capitalist and a financier of luxury hotels and apartment buildings. OPIC shouldn't exist. That's pretty obvious to anyone who isn't a direct beneficiary.
Trump's White House deserves applause for calling for OPIC's abolition. Trump's party has the power to kill OPIC. It has little excuse not to.
Timothy P. Carney, the Washington Examiner's senior political columnist, can be contacted at firstname.lastname@example.org. His column appears Tuesday and Thursday nights on washingtonexaminer.com.