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.