Foreign Aid:

Impact of Overseas Private Investment Corporation Activities on U.S. Employment

NSIAD-87-109: Published: May 5, 1987. Publicly Released: May 5, 1987.

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In compliance with a legislative requirement, GAO determined the impact of the Overseas Private Investment Corporation's (OPIC) activities on employment in the United States.

GAO found that OPIC: (1) approved projects that it should have expected would have negative impacts on U.S. trade and potentially negative impacts on U.S. employment; (2) continued to assist some projects despite their negative impacts on trade and employment; (3) did not ensure that its procedures provided adequate project screening and monitoring to prevent significant adverse effects from OPIC-assisted investments; (4) used a methodology for computing the economic impact of its projects that led to overly optimistic reports to Congress concerning direct economic benefits; (5) did not routinely consult such organizations as labor unions and trade associations before approving projects; (6) did not adequately document job loss data when it evaluated proposed projects and monitored ongoing projects; and (7) has not determined the appropriateness of and circumstances for discontinuing assistance to projects whose operations have adverse effects on the U.S. economy.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: OPIC stated that in a memorandum dated September 1, 1988, it has embarked on a more aggressive monitoring program and will devote more financial resources and staff to the monitoring process.

    Recommendation: The President, OPIC, in consultation with the Administrator, AID, should assess the adequacy of staff resources devoted to the screening and monitoring processes.

    Agency Affected: Overseas Private Investment Corporation

  2. Status: Closed - Implemented

    Comments: OPIC implemented a system to maintain better documentation of people and organizations contacted during the course of screening and monitoring.

    Recommendation: The President, OPIC, in consultation with the Administrator, AID, should establish a documentation system for screening and monitoring that will record actions taken, help ensure the accuracy of results obtained, and be useful in performing future screening and monitoring analysis.

    Agency Affected: Overseas Private Investment Corporation

  3. Status: Closed - Implemented

    Comments: OPIC stated that it is identifying critical assumptions made by investors and is recommending that their inclusion as covenants in its agreements. If such representation proves false, OPIC states that under the current standard language in its contracts, the Corporation can terminate its insurance or accelerate loan repayments.

    Recommendation: The President, OPIC, in consultation with the Administrator, AID, should determine the appropriateness and circumstances for including in future assistance arrangements, authority to discontinue assistance to projects whose operations are found to have adverse impacts on the U.S. economy.

    Agency Affected: Overseas Private Investment Corporation

  4. Status: Closed - Not Implemented

    Comments: OPIC has not taken action on this recommendation as it believes it would result in an inaccurate portrayal of the effects of OPIC-supported projects. GAO testified on this matter in July 1988 before the Senate Committee on Foreign Relations. However, in absence of clear congressional interest, GAO is closing this recommendation.

    Recommendation: The President, OPIC, in consultation with the Administrator, AID, should, in annual reports to Congress concerning the effects of OPIC-assisted projects on the U.S. economy, report: (1) without offsetting alternatives, the aggregate results of the operations of projects expected to have positive direct impacts on U.S. trade and employment separately from the aggregate results of those expected to have negative direct impacts; (2) separately the economic effects on the United States of any alternatives and assumptions that were considered and analyzed as part of the project approval process; and (3) separately the effect on trade and employment of project construction and start-up procurement.

    Agency Affected: Overseas Private Investment Corporation

  5. Status: Closed - Implemented

    Comments: OPIC stated that it has developed formal guidelines and a comprehensive system for monitoring the economic effects of its projects. However, it has apparently not modified its methodology to estimate the direct effects of proposed projects nor to calculate the actual effects of ongoing projects. The methodological differences between OPIC and GAO probably cannot be resolved.

    Recommendation: The President, OPIC, in consultation with the Administrator of the Agency for International Development (AID) should develop formal policies and a comprehensive system for screening and monitoring the economic effects on the United States of OPIC-assisted projects, including a methodology that more clearly and accurately: (1) estimates the direct economic effects on the United States of projects being considered for OPIC assistance; and (2) calculates the actual effects of ongoing projects on the economy of the United States.

    Agency Affected: Overseas Private Investment Corporation

  6. Status: Closed - Implemented

    Comments: OPIC stated that this recommendation will be carried out under its aggressive monitoring regime.

    Recommendation: The President, OPIC, in consultation with the Administrator, AID, should provide for selection verification of monitoring data and improved use of monitoring results through formal feedback to the screening process.

    Agency Affected: Overseas Private Investment Corporation

 

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