International executives often complain that government agencies perform like lumbering giants-they're slow to respond, and clumsy at tailoring programs to the varied circumstances of their customers. But, government has one invaluable advantage-it can take some risks that private firms can't handle.

And, nowhere is that more evident than in the international arena, where the Export-Import Bank helps U.S. firms and banks take the risks of foreign lending, and the Overseas Private Investment Corporation (OPIC), which helps U.S. businesses deal with political risks in infrastructure projects, manufacturing operations, and service activities in emerging markets and Third World countries.

OPIC is currently going through one of its periodic charter renewals, which gives Congress an opportunity to review its performance before extending its legal mandate for another few years. And that gives OPIC's friends and critics a chance to tell the lawmakers what its strategy should be.

It also gives U.S. companies an opportunity to see what OPIC has actually been doing, and where its new direction will lead. This time, the agency is seeking a four-year extension and some changes in the way it operates. Significantly, it wants to be able to support overseas investments by foreign-based companies that have a sizable U.S. presence. Several larger corporations, for example, have lost their OPIC eligibility after being acquired by European groups.

The Congressional exercise finds OPIC in a contrite mood, reflecting years of criticism, not only from its perennial labor union and environmental group skeptics, but also from Capitol Hill conservatives, who have labeled its programs "corporate welfare."

There's a bit of history here. In the 1990s, after the Soviet Union vanished, OPIC found a robust new world of opportunity in the former Communist nations, and in Latin America and Asia, where privatizing infrastructure grew popular. And, since Congress was reluctant to spend on traditional foreign aid, OPIC programs offered an alternative through stimulating the flow of U.S. capital and management know-how.

But, its conservative critics say, it went overboard. In its traditional insurance and finance programs it acquired an unnerving amount of exposure.

The insurance program covers political risks such as expropriation, currency inconvertibility, and political violence. The finance program offers smaller firms loans at near-market rates and on repayment terms that are longer than banks provide, while offering large companies comprehensive guarantees that help them raise capital for overseas projects. The investment funds program, a newer activity, also came in for criticism. All told, the agency has supported 26 funds with combined committed capital of $3.4 billion, OPIC president Peter Watson told a recent Congressional hearing.

Congress decided it had too little information on what the investment fund groups were doing with Uncle Sam's support, which made some lawmakers uneasy. OPIC even said on its own web site that it was exempt in this activity from the Freedom of Information Act, which researchers often use to find out what's happening in a federal institution.

The funds program injects government money and guarantees into private financial organizations that, in turn, invest in numerous projects in a country or a region. And, in typical Washington fashion, Congress worried that the support was being funneled to political favorites.

Many, however, have been prominent businesses, including HSBC Equator Bank, a leading lender in Africa; a new group set up by billionaire investor George Soros, and an India financing unit set up by William Draper, former Export-Import Bank chairman and a prominent California venture capitalist.

In response to the political heat, the investment funds program was frozen in mid-2001 to let the new regime under Peter Watson take a close look at its portfolio and procedures. It re-opened in mid-2002, and ever since OPIC has cut back its share of each newly sponsored group's capital. It is also moving to capture more of the profits generated.

New directions

The agency's new directions are now becoming clear, so companies interested in participating should consider meshing their overseas investment plans with this evolving strategy.

First, OPIC is re-emphasizing its original role as a generator of economic development in target countries, stressing its ability to make a difference, by supporting investment projects that otherwise would not fly.

The Bush Administration's 2001 budget stressed the point: OPIC should focus "more closely on companies and countries that cannot access private financing or insurance," while striving to be more complementary, not competitive, with the private market. That is likely to mean fewer big splashy projects in power plants and oil and gas operations.

Second, a small list of priority countries and regions has surfaced. Africa, a Washington policy focus anyway, has already drawn more business. And, Asian countries involved in recent U.S. military operations have been targeted for deals.

In Pakistan, for example, OPIC has recently supported projects in banking, power, and information technology. In Afghanistan, it is financing and insuring an international hotel. Iraq is also on the horizon, and the agency is trying to figure out a strategy.

Mexico, however, is the real breakthrough (see sidebar). Mexican law has prohibited the country from signing the bilateral agreement that OPIC requires to operate. Now that is being changed, but will require the Mexican senate to ratify the arrangement. The U.S. agency began offering small business financing in 2001, and will be able to deliver political risk insurance and comprehensive guarantees once Mexico's legislature acts.

The initial focus will be on projects in municipal infrastructure and environmental sectors, although housing and water infrastructure are also targeted.

Third, OPIC is encouraging private insurers to take a crack at projects before it gets involved. Investors are routinely directed to them, and the agency has brought them into an advisory council to cement relations for co-insurance and reinsurance.

The ranks of private political risk insurers have grown rapidly, thanks to OPIC alumni who created their programs. That includes Robert Svensk at Exporters Insurance Company, a Bermuda group captive; Daniel Riordan at Zurich Financial; and Leigh Hollywood, who helped set up Sovereign Risk Insurance in Bermuda.

Fourth, small business is now a growing priority. Like many Washington agencies, OPIC stresses its dealings with small business, which is politically popular, when its charter is up for renewal. But this time it looks more serious: a dedicated small business unit has been created; the Small Business Administration has been brought in to generate deals; and the approval process has sped up.

Still, the investment funds program, which could help smaller American firms finance their projects in emerging markets, isn't aimed at them. Some OPIC funds have welcomed approaches, while others have not been interested. Furthermore, finding out who they are and where they are located can also prove to be daunting.

Finally, OPIC is working with a few U.S. banks in building lending programs in some key countries. These local credits could possibly be used to buy U.S. equipment. OPIC identifies the banks (Citibank, Wachovia, National City Bank), but doesn't say what kinds of credits these arrangements cover.

The agency does, however, offer a staff directory with phone numbers on its web site, but for that you will have to search its Freedom of Information Act "reading room," which also houses some other secret information such as legal claims documents. Only in Washington!

Sidebar: Full OPIC Activity Pending for Mexico

The United States and Mexico concluded a bilateral agreement earlier this summer to enable the OPIC to offer all of its programs and services in Mexico-the U.S.' second-largest trade partner--pending ratification by the Mexican Chamber of Senators. OPIC has been able to support only U.S. small businesses investing in Mexico since early 2001.

Initially, the OPIC intends to focus on projects in education, municipal infrastructure and environmental sectors in Mexico. Additional opportunities will be explored in the housing and water infrastructure sectors. The agreement will also enable the OPIC to work with its sister agencies, the U.S. Trade and Development Agency and the Export Import Bank of the U.S., to provide investment support in Mexico.

"Conclusion of this bilateral agreement between the United States and Mexico represents not only the fulfillment of several principal goals of the Partnership for Prosperity, but the culmination of years of OPIC efforts to strengthen our own ties to support economic development in Mexico," said Dr. Peter Watson, president and CEO of the OPIC.

The Partnership for Prosperity was established by President Bush and Mexican President Fox in 2001 as a public-private alliance to spur private sector economic growth throughout Mexico.