Capital is a coward, it will not go where it is not welcomed: OPIC

Capital is a coward, it will not go where it is not welcomed: OPIC

The United States government owned Overseas Private Investment
Corporation (OPIC) works in over 150 developing countries,
providing political risk insurance and financing to U.S.
corporation overseas. In Indonesia, the agency has supported over
100 projects worth US$2 billion of investment since 1974 in
various sectors including power, oil and gas, telecommunication,
manufacturing, financial services and agriculture. Recently, OPIC
chief of staff Joseph Flynn visited the country. The Jakarta
Post's Zakki P. Hakim joined a group interview during his brief
visit. The followings are the excerpts of the interview:

Question: Could you tell us what are OPIC's tasks and products?
Answer: We foster foreign direct investment by U.S. companies in
the developing world, by offering two principal products: A
political risk insurance which protects investors against
expropriation, inconvertibility of currencies and political
violence. The second principal product is loans. We loan
businesses money to leverage their equity to work in the
economies. We support projects with loans as small as US$100
million to as high of $250 million per project. However, we also
support projects in the oil and gas sector with a higher level of
$300 million per project.

We currently have seven active projects involving insurance
and finance within Indonesia. And OPIC's total exposure at the
moment reaches approximately $750 million.

We will support projects with at least 25 percent of U.S.
equity, so it would not have to be necessarily 100 percent or
dominantly U.S. owned.
What is your target of your visit now?

The specific purpose of my visit was to see a couple of OPIC's
projects that we have here in Indonesia. At the same time is to
publicize our support in the tsunami reconstruction effort. We
also had a meeting with government officials to work through some
issues to improve the ability of OPIC to support projects in
Indonesia.

Could you elaborate on OPIC's support for the reconstruction
in Aceh?

This is part of the overall U.S. government response. OPIC is
not a grant making agency. We support private investment, so what
we have done is established a $150 million credit facility for
the affected countries including Indonesia, Thailand, Sri Lanka
and India.

The facility targets long term reconstruction loans for
physical infrastructure projects including power supply, clean
water supply, distribution and transportation.

The second major component of our initiative is we try to
identify microfinance institutions that we will help capitalize
on so they will be able to provide microfinance loans to the
affected areas. Thirdly, we try to facilitate housing
reconstruction. OPIC as an agency that in recent years has been
focusing on housing as an important factor of development to be
involved in.

Recently, we held an infrastructure summit which offered 91
projects worth $22.5 billion for a public-private partnership.
Are you interested in participating in any of the projects?

OPIC has a long history of supporting a variety of
infrastructure projects from power plants to toll roads and
airports. I believe we are looking at being part of the
(mentioned) projects. It is just a matter of finding a project
that gets U.S. company support and interest, then we can join in.

Would you recommend the U.S. private sector to invest in
Indonesia?

In my understanding, the recent (Indonesia's) GDP and the
investment climate is continuing to improve. I think the U.S. has
the interest of seeing Indonesia grow, create jobs, create
wealth.

I believe U.S. investors could do well here as long as the
investment climate continues to improve. As my boss likes to say,
"Capital is a coward. It will not go where it is not welcomed, or
where there is danger".

The fundamental rule of law, sanctity of contract and good
governance will make a healthy investment climate and eventually
U.S. investors will turn to OPIC for support in investing in the
country. My message would be for the government to continue
improving the investment climate.

What does OPIC think of the investment climate in the country?

Well, the last five years have not been very active. From the
U.S. business community, we have not had much demand for
investment in Indonesia. We did support an oil and gas project
three years ago, but since then we have not had another new OPIC
supported project.

I hope with successful new government and the continued
improvement in the investment climate, things will change and a
lot more interest for U.S. businesses utilizing OPIC products
will fall into place.
(In 2001, the government had to pay a $260 million insurance
claim lodged by OPIC, following state power firm PT PLN's loss in
an arbitration proceeding filed by independent power producer
MidAmerican Energy holdings. The arbitration panel ordered PLN to
pay compensation to MidAmerican after PLN suspended a project
insured by OPIC. As PLN was unable to pay, MidAmerican called in
its OPIC insurance. OPIC then handed the bill to the Indonesian
government.)

Are a number of disputes here discouraging investment?

It certainly provides the perception that Indonesia has a
difficult investment climate. It makes U.S. companies a little
reticent to invest a significance amount of capital. The risk of
investing in the country may be clouded by the dispute cases. But
I think the financial crisis of 1998 has taken some time to work
through that to a point where the economy is growing, investment
is improving and jobs are being created. So it is probably not
surprising that in the time after the crisis, it takes a little
time for things to get back on track.