[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
HEARING ON REAUTHORIZATION OF OPIC
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL ECONOMIC POLICY AND TRADE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
__________
APRIL 14, 1999
__________
Serial No. 106-51
__________
Printed for the use of the Committee on International Relations
U.S. GOVERNMENT PRINTING OFFICE
60-297 CC WASHINGTON : 1999
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa TOM LANTOS, California
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey ENI F.H. FALEOMAVAEGA, American
DAN BURTON, Indiana Samoa
ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California ALCEE L. HASTINGS, Florida
PETER T. KING, New York PAT DANNER, Missouri
STEVEN J. CHABOT, Ohio EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South WILLIAM D. DELAHUNT, Massachusetts
Carolina GREGORY W. MEEKS, New York
MATT SALMON, Arizona BARBARA LEE, California
AMO HOUGHTON, New York JOSEPH CROWLEY, New York
TOM CAMPBELL, California JOSEPH M. HOEFFEL, Pennsylvania
JOHN M. McHUGH, New York
KEVIN BRADY, Texas
RICHARD BURR, North Carolina
PAUL E. GILLMOR, Ohio
GEORGE RADANOVICH, California
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
Richard J. Garon, Chief of Staff
Kathleen Bertelsen Moazed, Democratic Chief of Staff
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Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
DONALD A. MANZULLO, Illinois ROBERT MENENDEZ, New Jersey
STEVEN J. CHABOT, Ohio PAT DANNER, Missouri
KEVIN BRADY, Texas EARL F. HILLIARD, Alabama
GEORGE RADANOVICH, California BRAD SHERMAN, California
JOHN COOKSEY, Louisiana STEVEN R. ROTHMAN, New Jersey
DOUG BEREUTER, Nebraska WILLIAM D. DELAHUNT, Massachusetts
DANA ROHRABACHER, California JOSEPH CROWLEY, New York
TOM CAMPBELL, California JOSEPH M. HOEFFEL, Pennsylvania
RICHARD BURR, North Carolina
Mauricio Tamargo, Subcommittee Staff Director
Jodi Christiansen, Democratic Professional Staff Member
Yleem Poblete, Professional Staff Member
Camila Ruiz, Staff Associate
C O N T E N T S
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WITNESSES
Page
Mr. George Munoz, President, Overseas Private Investment
Corporation.................................................... 4
Mr. John Hardy Jr., Vice President of Project Finance, Enron
International.................................................. 15
Mr. Willard A. Workman, Vice President, International Division,
U.S. Chamber of Commerce....................................... 17
Mr. Jim Sheehan, Director of International Environmental Policy,
Competitive Enterprise Institute............................... 19
Mr. Scott Fischer, Vice President, Latin America North Division,
Citicorp....................................................... 22
APPENDIX
Prepared statements:
Hon. Ileana Ros-Lehtinen, Chairman, a U.S. Representative from
the State of Florida........................................... 32
Mr. George Munoz................................................. 34
Mr. John Hardy, Jr............................................... 55
Mr. Willard A. Workman........................................... 63
HEARING ON REAUTHORIZATION OF OPIC
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WEDNESDAY, APRIL 14, 1999
House of Representatives,
Subcommittee on International Economic Policy and
Trade,
Committee on International Relations,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:05 p.m., in
room 2200, Rayburn House Office Building, Hon. Ileana Ros-
Lehtinen, (Chairman of the Subcommittee) presiding.
Mrs. Ros-Lehtinen. The Subcommittee will come to order.
This hearing highlights one of the most important areas of
responsibility that this Subcommittee has--the reauthorization
of the Overseas Private Investment Corporation, (OPIC).
In the last Congress, sessions evaluating OPIC's programs
and the use of its appropriated funds to promote U.S. exports,
spur U.S. foreign investment in overseas markets and promote
economic development were held amidst an environment framed
with concerns about the costs to American taxpayers and
characterization of OPIC as corporate welfare.
Criticism of OPIC as a safety net for large multinationals
dependent on Federal subsidies was supported by the
introduction of numerous pieces of legislation calling for
OPIC's termination or, at the very least, its privatization.
Nevertheless, some analysts contend that the recent currency
crisis and the tumultuous political developments around the
globe have lowered the volume of the attacks.
Opposition remains, however, with legislation having been
introduced in both the House and the Senate calling for the
termination of OPIC within 180 days of the enactment of these
proposals. The critics' concerns deal with the U.S. risking and
spending billions of taxpayer dollars to subsidize foreign
investment for American companies which are some of the richest
in the world.
They also raise the issue of the government becoming
involved in the process of rectifying certain market failures
which could dissuade U.S. firms from investing in the least
developed economies. Critics are concerned about the potential
for direct investment abroad to the displace U.S. workers at
home while still others worry about the tendency of Government
subsidies to distort trade currents and investment flows.
Supporters of OPIC respond to the criticism launched at it
by highlighting OPIC's self-sustaining status, by emphasizing
that OPIC does not entail Government subsidies because expenses
are derived from fees and premiums paid by members, which OPIC
then pays back to the U.S. Treasury in the amount of the
appropriations. They further underscore OPIC's ability to
contribute to the Government's overall budgetary resources.
Recently, OPIC supporters have focussed on the benefit that
it provides to small businesses who would otherwise be unable
to expand into foreign markets and compete on a level playing
field without OPIC's support, financing, or insurance.
A factor which must be taken into account when evaluating
OPIC's programs is the existence of OPIC counterparts,
particularly in Europe, which are fully subsidized by the
Governments or are largely so, placing U.S. companies at a
competitive disadvantage when seeking entry into emerging
markets.
Supporters ask: When the private sector does not offer the
same services OPIC does, where can American businesses turn to?
Nonetheless, OPIC's purpose and the issue of its
reauthorization cannot and must not be approached in a vacuum
devoid of other considerations except U.S. business interests
and trade priorities. As the Subcommittee of jurisdiction, it
is imperative that we also look at OPIC's role relating to U.S.
foreign policy and our national security interests.
In the past we have heard from companies that have been
denied OPIC support because the projects they propose or
governments they sought to do business with were subject to
U.S. restrictions. However, some of these companies found the
funding and insurance through foreign venues, which raises a
new series of concerns about the activities of American
businesses and their subsidiaries.
These and other matters will be addressed during this
hearing as we focus on OPIC's budget request for fiscal year
2000.
Before we begin, I'd like to remind my colleagues that we
are under time restraints due to the continuation of the Full
Committee mark-up following this hearing.
Now I am pleased to turn to the Ranking Member of our
Subcommittee, Congressman Menendez of New Jersey.
[The prepared statement of Hon. Menendez appears in the
appendix.]
Mr. Menendez. Thank you, Madam Chairlady. Just for the
future, can I change my chair? There is a conspiracy here to
have me several inches below the level of the table. I do not
want OPIC's chances to sink here, by any stretch of the
imagination.
Mrs. Ros-Lehtinen. We will change it. Sorry, Bob.
Mr. Menendez. That is all right.
Madam Chairlady, the question is to reauthorize or not and
as someone who is an unabashed supporter of OPIC and was
responsible the last time it was reauthorized for making sure
that we worked with others on the other side of the aisle to
bring it to the floor, the answer to that should clearly be
yes.
Now that might not seem to be the view of some who suggest
that this is corporate welfare. And it certainly might not seem
to be the view of someone who is a Democrat from a very urban
district in a very urbanized State, New Jersey. But as the
Ranking Democrat on this Subcommittee, I clearly believe that
OPIC is vital to the interests of the United States, to its
economic well-being, to the growth and opportunity for
Americans here at home and its reauthorization, as well as TDA
and ITA Programs, are essential for us to consider in this
Congress and to pass.
I think perhaps the most overlooked fact about OPIC is that
it is the only program in the 150 function account which
returns money to the U.S. Treasury every year. OPIC has had a
positive net income for every year of operation, with reserves
now totaling more than $3 billion. Last year OPIC earned a
profit of $139 million and in fiscal year 2000, OPIC will
contribute $204 million in net negative budget authority. Net
negative budget authority.
At a time when the Congress is striving to adhere to the
constraints of a balanced budget, OPIC stands apart as a
revenue-earning program. OPIC's budgetary contributions are
returned to the function of 150 or international affairs
account and help offset the deep cuts that have been made to
our foreign aid and development programs.
That relationship is fitting, as OPIC was created by
President Richard Nixon to complement our aid programs. OPIC
not only complements our foreign aid programs; it is helping to
sustain them.
OPIC, through its operation in 140 countries, fulfills the
aid component of its mandate by bringing much-needed investment
to developing nations while simultaneously providing a much-
needed services and market opportunities to American
businesses.
In my home State of New Jersey, OPIC has provided more than
$1 billion in financing and insurance, generated $3 billion in
U.S. exports and created 10,288 jobs, jobs here in the United
States.
From Newark to Camden to Princeton, OPIC has supported New
Jersey companies and their suppliers. More American exports
means American jobs. U.S. exports of goods and services are
estimated to support more than 12 million domestic jobs. Each
$1 billion in U.S. goods and services exports supports some
13,000 U.S. jobs.
So if, through a program like OPIC, we can help American
companies to export their goods and services, create jobs here
at home, while also helping the economy and infrastructure of
developing nations and furthering our foreign policy goals, I
believe we have a program that constitutes a good marriage
among all of these desired efforts.
Critics of OPIC who advocate for a divorce need to take a
look at the impact of exports on our economy, on our jobs here
at home. They need to take a look at OPIC's net revenues to the
Government. They need to really consider that OPIC is not
corporate welfare but, in fact, in the vital interest of the
United States. It serves America's interests, both domestically
and its foreign interests.
Last, earlier this year I had the opportunity to work with
OPIC on the creation of a Central American investment facility,
a joint venture between OPIC and Citibank which will provide
much-needed capital to businesses and much-needed investment to
the region.
And having just met with the Central American Ambassadors,
again while we are in the midst of a humanitarian crisis in
Kosovo, people have forgotten about the humanitarian crisis
here in our own hemisphere. The devastation caused by Hurricane
Mitch in Central America will take years to fully recover from.
The OPIC Citibank investment facility will expedite the process
by bringing services and jobs to the region while helping
American companies to get a foothold on the region.
That is exactly the type of Government program we should
support. It fulfills domestic and foreign policy goals while
returning revenue to the U.S. Treasury. I doubt there are many
other programs that can make the same statement.
Thank you, Madam Chairlady.
Mrs. Ros-Lehtinen. Thank you.
Would you like to make an opening statement, as well?
Mr. Delahunt. I will defer. Thank you.
Mrs. Ros-Lehtinen. Thank you.
It is my pleasure to introduce Mr. George Munoz, who has
served as the president and chief executive officer of the
Overseas Private Investment Corporation since 1997. Prior to
taking the position at OPIC, Mr. Munoz was the chief financial
officer of the U.S. Treasury Department from 1993 to 1997 and
most of his career has been focussed on international law and
business. He was a partner in the law firm of Meyer, Brown and
Platt and a principal with former Senator Adlai Stevenson in an
investment banking firm focussed on international transactions.
Mr. Munoz has also headed his own law firm, concentrating
in corporate and international business, and it is a pleasure
for us to welcome you today. Thank you, George. We will be glad
to enter your statement in the record.
STATEMENT OF GEORGE MUNOZ, PRESIDENT, OVERSEAS PRIVATE
INVESTMENT CORPORATION
Mr. Munoz. Thank you, Madam Chair and Members of the
Subcommittee. I am here to answer any questions you may have
with respect to the reauthorization. Therefore, Madam Chair, I
request that my long written statement, as well as my oral
statement that has been submitted to all of you, be submitted
for the record.
I also want to thank you, Madam Chair, for your very well
balanced opening statement that I think went to the crux of the
debate, a healthy debate that has taken place regarding our
reauthorization.
But I think most will agree, including this Congress that
voted last year on a bill that would have cut back expenses,
the operating expenses for OPIC when the Congress, by a two to
one vote, voted to keep OPIC on a positive growth path.
I also want to acknowledge a good friend and welcome
Congressman Bob Menendez as the new Ranking Member of this very
important Subcommittee, especially because of his experience
with working with OPIC firsthand.
As you know, OPIC is a critical element of U.S. foreign
policy. It was established to mobilize American private capital
to support the growth of developing countries and economies
that are in transition to democracies and transitions to free
markets as a means of increasing our own security and well-
being, while helping bring about stability and development
abroad.
OPIC is requesting reauthorization because we continue to
make a valuable difference in meeting our mission of helping
America compete while supporting development and stability in
strategic regions around the world at no cost to the taxpayer.
Madam Chair, I just want to briefly outline that as
president and CEO of OPIC, I want to make sure that we fulfill
our mission in the most optimal manner. As a result, I have set
out four priorities for our agency: first, that OPIC take a
leadership role in implementing foreign policy investment and
development priorities of the U.S. Government, as determined by
the Administration and the Congress; second, that OPIC be
prudent in its use and care of the full faith and credit of the
U.S. Government, ensuring that OPIC's self-sustaining status
remain; third, that OPIC facilitate the involvement of U.S.
small business in international business development; and
fourth, that OPIC operate and be recognized as a model, high-
performance organization striving to have the best in people,
products and systems. Today we can report that on all these
priority items, OPIC has excelled.
Madam Chair, I would like to point out to all the Committee
Members the pictures that I have brought with me today to show
you the difference that we can make. On my extreme left is a
picture of a project that we have helped in Africa. This is a
project, the Tea Importers, that employs approximately 30,000
employees in that region. It is a project that has faced
political problems, but because of OPIC political insurance, it
has stayed the course and today it continues to be the sole
source of cash income for approximately 30 farm families in
Rwanda.
Next, it's a picture that was just taken last month in
Honduras. This is one of the few remaining shacks that the
hurricane left in its tracks. And right next to it, in
Nicaragua, also taken last month, is the remains of where there
was some development taking place, homes of other people.
We are now in a position to make a difference by again
bringing the private sector to Central America, much as you see
as the Tea Importers example. And we can only do it, Madam
Chair, if the private sector believes that OPIC will be with
them all the way, not year to year, depending on whether we
will be reauthorized, not with more limitations or
restrictions, but whether or not the U.S. Government wants to
have an agency that will continue on the roots on which it was
created with the Marshal Plan, bringing the private sector to
fulfill the development needs of many of these countries.
I would like to say, Madam Chair, that I know that yourself
and certainly the Ranking Member, Congressman Menendez, have
shown your care and interest in Central America. I know that
Madam Chair, as we traveled there a couple of months ago,
people from Nicaragua and Honduras expressed their sincere
appreciation for your leadership in bringing about some relief
on the immigration level to those countries.
But they expressed a strong interest in having people stay
in their own countries, to the extent there can be jobs and
development and security in their own homeland, and I believe
that OPIC is one of the few instruments that the U.S.
Government has to partner up with the private sector in order
for that to take place.
Madam Chair, we are asking that the Administration's
request for reauthorizing OPIC for 4 years, because of its
current reauthorization expires on September 30, 1999, be
approved. I can report that this agency's reauthorization has
received the full vote of confidence in the Senate. The Senate
Foreign Relations Committee, just last month on March 23,
unanimously reported legislation reauthorizing OPIC for 4
years. The Senate Bill S. 688 sponsored by Chairman Jesse Helms
sends a very strong message of OPIC's relevance in today's
global markets. We are hopeful that this Subcommittee will also
follow the lead that the Senate has taken with respect to our
reauthorization.
Madam Chair, as I said, I am here to answer questions. My
written statement has examples of the human face that OPIC has
put on its project for bringing about jobs and development. But
I would like to comment on a few matters that you mentioned in
your opening statement with respect to the corporate welfare.
There are those who say that the term ``corporate welfare''
is something that should apply to OPIC. First, there is a
question of what corporate welfare means. It has many
definitions.
In one extreme, it could be viewed as a corporation getting
something for nothing. This definition does not fit OPIC
programs. It can only be a case of mistaken identity as applied
to OPIC. All OPIC services are paid for by the private sector.
An alternative definition of corporate welfare may be that
OPIC services are partially subsidized by the Government. That,
too, does not fit our program. OPIC has not been a drain on the
U.S. Treasury. To the contrary, in our history we have
contributed to the Treasury more in private sector fees than we
have taken out for our own operations.
Others have viewed corporate welfare as anything of value
that is provided to a select group of businesses. This, too,
does not characterize OPIC. We are an instrument of foreign
policy. When the Foreign Assistance Act creating OPIC was
signed, it was done with a clear objective in mind: the
development of strategic countries important to our well-being
and the well-being of the world. That is the mission that was
established for OPIC and it is still our mission today.
Furthermore, even the GAO has looked closely at OPIC's cost
to the Federal Government and their findings are noteworthy.
According to the 1997 GAO study, ``Historically, OPIC's
combined finance and insurance programs have been profitable
and self-sustaining, including costs due to credit reform and
administration.''
One last item, Madam Chair. You mentioned in your opening
statement the arguments that sometimes are made that OPIC
mostly helps the large businesses. It so happens that mostly it
is the larger businesses that are involved in international
development, so we are by their side in the development that
takes place. But I would like to note two things.
One, as I mentioned, one of the priorities that we have set
out at OPIC is for the small business, that small businesses be
facilitated into international business. We have declared 1999
as small business at OPIC.
As a result and at the request of this Committee, Madam
Chair, in the last meeting that we had, we have acted on
streamlining our processes for small business applications.
Two-thirds of the suppliers for OPIC projects are in the small
business area and approximately 28 percent of all of the
projects that OPIC does are with small businesses.
So I would like to underscore, Madam Chair, that this is
the direction that we are going in and we believe that, as any
of the critics have identified items that deserve merit and
attention, we certainly have paid that attention to them.
I very much welcome any questions that this Committee may
have for the reauthorization of OPIC. Thank you, Madam Chair.
[The prepared statement of Mr. Munoz appears in the
appendix.]
Mrs. Ros-Lehtinen. Thank you so much, Mr. Munoz. We
appreciate it.
I want to talk about this photo that you have displayed
about the Tea Importers in Westport, Connecticut. As all of us
know, all but one country in Latin America has a democratic
system of Government so why then is OPIC political risk
insurance still needed for any businesses to do business in the
region? Are American businesses in danger of expropriation of
their properties or political violence?
For example, the one that you point to, the Westport,
Connecticut company that obtained $500,000 in OPIC insurance to
establish tea production and trading operations in Ecuador is
an example and in Brazil OPIC also provided more than $200
million in insurance for three separate Enron power projects.
Brazil and Ecuador may not, especially in Ecuador, may not have
the strongest economy now but certainly that political risk
insurance is kind of in question in those particular countries.
What do you say about OPIC's involvement in Latin America? Why
is it still needed, with the growing democracies and strong
economies getting hold?
Mr. Munoz. Madam Chair, the projects that OPIC supports are
all long-term. Most of them are infrastructure projects. And,
in fact, it is because OPIC supports mostly long-term projects,
projects that require 15 to 20 years before they really are up
and running from a profit point of view to be commercially
viable, the markets are just not there to support that, because
of the risks. People know that over such a long period of time,
the politics of a country can change, so there is that
protection that American private sector investors need.
The market is the one that dictates such need and the
market is saying that long-term projects require protection
from political risks.
Second, Madam Chair, the political risk insurance that we
sell has a double benefit. No. 1, it sends a signal to the
governments of those countries where the project is going that
that project meets international standards, so that it does not
harm the environment and it is helpful to the development of
the country.
But No. 2, it also sends a signal to the government that
this is a project that will have the support of the U.S.
Government and therefore, as times change and there is a risk
of political violence or some actions on the part of the
government to endanger the project, that because of the
insurance, those risks are usually identified and tried to be
negotiated before it turns into a difficult situation.
I would say, Madam Chair, that the market, the U.S. market
has sent a very loud message that long-term projects in many of
the emerging markets and certainly in all of the developing
countries still run a risk that must be protected against.
Mrs. Ros-Lehtinen. Thank you. Mr. Munoz, please elaborate
on the need for a $400,000 increase for OPIC's administrative
expenses and how these additional resources will be used by
OPIC.
Mr. Munoz. Madam Chair, OPIC is a very small organization.
Most people do not realize that we are approximately 200
employees, yet every year we are being asked by Congress, as
well as the Administration, to make sure that we are present
and visible in very needy areas around the world, including
sub-Saharan Africa, Central America, Latin America, the
Caucuses and many other areas.
In order to carry out those responsibilities and look into
the risk analysis that is required for us to support a project,
we need the proper resources. In order for us to monitor our
ever-growing portfolio, which is right now approximately $18
billion, we need to have the right personnel.
The one reason why we can assure the taxpayer that their
exposure is not real in terms of real risk is because we are
able to monitor all our projects.
As our portfolio grows and the responsibilities put upon us
grow, then it is important that we have the proper resources.
If anything, I would say that you will not find another agency
that is as streamlined and low-cost as OPIC, given all the
responsibilities that it is taking. So this is the natural
growth that we will require for our monitoring requirements.
Mrs. Ros-Lehtinen. Well, what mechanisms do you have in
place to ensure that the contingent liabilities will not become
obligations for the U.S. taxpayers?
Mr. Munoz. That is a very good question and one that we are
very proud of our record. The first line of defense is that we
do not approve a project that just does not make any sense
economically. In fact, we approve no project that requires any
kind of subsidy or concessions in lending rates or the like
because we are mandated by Congress to be self-sustaining.
So the first line of attack is that we try to do good
business transactions.
The second line is we have built up a substantial fortress
of reserves against any liability for when political risk
insurance must be paid for or we have financing that has
failed, that the project has failed.
Right now our reserves are over $3 billion and we have had
independent auditors and outsiders look at our books and they
have stated that as far as the industry practice in the private
sector, we actually have a buffer or a cushion of reserves
greater than what even the industry would have required under
the circumstances. I think that is the second one.
And then last, Madam Chair, we have the full knowledge and
resources of the U.S. Government at play. When a project is
endangered for political reasons--let us say like the Rwanda
project or a project in Brazil--we have the State Department's
U.S. Embassies, we have the Department of Commerce employees
and we have OPIC employees who can come as a team and try to
work out the matter so that the projects, in fact, do not fall
into failure.
So I think with those three lines of defenses, it has
proven that our track records is as good as it is.
Mrs. Ros-Lehtinen. Thank you.
Mr. Menendez.
Mr. Menendez. Thank you, Madam Chair.
First of all, Mr. Munoz, let me congratulate you on your
tenure at OPIC and the work you have done there and I am glad
to hear that this is the year of small businesses because that
is an area that many of us are concerned about in terms of
seeing some further efforts by OPIC and we are glad to see
that. I read in your statement that is one of the areas that
you intend to fulfill.
Let me ask you a couple of quick questions and maybe we can
go through and get some of these myths versus facts on the
table, if we can.
Myth No. 1 that I always hear is that OPIC subsidizes
American businesses. What is the fact?
Mr. Munoz. We charge rates that are market, at the market
we are active in. There is no concessionary lending or
concessionary political risk insurance that we give. Fees are
paid. $3 billion of reserves that I have mentioned earlier, its
foundation and its base is the user fees that get paid by our
clients.
Mr. Menendez. Second myth I always hear is that private
investors in OPIC funds are protected from losing their money.
What is the fact?
Mr. Munoz. Well, we do not lend to anybody unless they have
their own equity at risk, No. 1. And No. 2, if it is political
risk insurance, by definition, we are protecting equity
investments, so for the investment of the individual.
We do not, on the political risk insurance side, protect
against commercial risks, so the investor is certainly at risk
on the commercial side. And if we are on the lending, we
require that the investor have equity at risk, also.
So there is no such thing as any investor having an
investment that is risk-free.
Mr. Menendez. The other myth I hear is that OPIC costs
America jobs.
Mr. Munoz. That is a very good question, Congressman,
because at one point this Congress, a Congress debated that
issue and put into OPIC's legislation a requirement that we not
support a single job that will be detrimental to the U.S.
economy.
We have interpreted that internally as quite stringent, so
internally we have a guideline that we will not support a
single investment overseas that will show a loss of a single
U.S. job.
So therefore any U.S. companies that are shutting down
their operations here and opening up overseas, if they come to
OPIC for their opening up overseas and we look at the record
and find that their overseas operation is a cause for their
shutting down jobs here, we will not extend any assistance.
Mr. Menendez. And last, I hear this issue and although I
think it is a much smaller segment that raises this issue, I
hope you can respond to it as that--the argument that OPIC's
partnership with the private sector interferes with the
functioning of the markets.
Mr. Munoz. This is a good myth to take on and that is
because for the longest time, our U.S. Government and private
sector have boasted that the best way to conduct business,
especially in transition times, is for a partnership to take
place, a partnership between the U.S. Government and the
private sector.
There is no way right now that the private sector, on its
own, can go into many of the regions that the United States
wants them to go into and there is no way that the United
States, on its own, can go without the private sector.
So the partnership between the U.S. and the private sector
is a perfect model that is often boasted about by both sides as
the right model for development and investments to take place.
So I think if anything, this is something that the U.S. should
be very proud of, that it is, in fact, partnering up with the
private sector to accomplish its goals.
Mr. Menendez. I want to thank you for your answers. I think
it is helpful. I am very happy to be working with Mr. Manzullo
on this reauthorization and I do want to see it hopefully pass
this year. Thank you.
Mr. Manzullo--[presiding]. Thank you very much. I am sorry
I am late. I just wanted to bring out a couple of things and
have you tell my favorite OPIC story.
Mr. Munoz, your background is that of investment banker. Is
that correct?
Mr. Munoz. That is correct. Attorney, CPA and investment
banking.
Mr. Manzullo. And you have an extensive background in
international trade law. So this is not a situation where we
are dealing with somebody who is what I call a political
appointment, somebody who has no expertise in a particular
area.
I want to thank you for lending us a couple of years out of
your private life to devote to the public sector. I think that
is commendable and I just wanted to publicly thank you for your
public service.
Mr. Munoz. Thank you.
Mr. Manzullo. Would you tell us the story about Monique
Matty?
Mr. Munoz. About what? I am sorry.
Mr. Manzullo. Monique Matty.
Mr. Munoz. This is one of our favorite stories because it
does--Congressman Menendez talked about small business--a
perfect example of a small business that basically without OPIC
would not have taken place.
We had an investment for an African country that was in
need of somebody to give some experience and holding the hand,
if you will, for an investment that needed to take place,
needed to believe in the investment to help finance the
business.
Monique Matty has testified before Congress on the
important role that OPIC played for them in terms of financing
the business, making it grow. She has been very successful,
expanding the business.
Mr. Manzullo. If I could jog your memory a little bit, I
may not remember every story on it but I believe she is an
American citizen and she was born in Liberia and her background
was in telecommunications. She set up two facilities, one in--
maybe I should tell the story.
Mr. Munoz. Yes.
Mr. Manzullo. She set up two facilities, one in Ghana and
the other one in Tanzania, where I think in the latter country
she has about 400 employees that manufacture these portable
telephone booths. It is all hooked up with a system of
satellites and you see in these developing countries these
telephone booths that are just set up there.
What she did was I think she and one other person have an
American company and went over there with an OPIC resource and
if you want to talk about sustainable development that provided
jobs for those people over there and she is not exporting to
the United States.
Mr. Munoz. Right.
Mr. Manzullo. But the profits are coming to the United
States because she is an American citizen. I am sure next time
you come you will probably----
Mr. Munoz. She brought not only the technology but she made
it so easy. This was not a service that was meant for the well-
to-do but rather, because of her little calling card, if you
will, the phone card that she had with her, made it very
accessible to many of the citizens, and that is one reason why
it has been made profitable.
But this is a perfect example of where American ingenuity
and entrepreneurship can be fostered overseas and that kind of
know-how can be spread around.
Mr. Manzullo. And that cost the U.S. taxpayers nothing.
Mr. Munoz. Nothing.
Mr. Manzullo. She paid the premium on that insurance and
talk about helping people in that continent that really needs
some jobs--she did it.
Mr. Munoz. Congressman, and if someone were to say, ``Well,
why don't you just let the market work for itself? '' Because
the market would have not functioned there. That is that
Monique would not have had someone to partner up with--not the
international banks, not anybody else in the private sector,
because of many of the unknowns.
We should realize that the U.S. Government has, because of
our embassies and our long relationships and special
relationships with many of these governments, that we have the
proper information and we have the ability and resources to
team up with a Monique and let that business transaction occur.
If we did not partner up with Monique or many of the other
private sector entrepreneurs and businesses, many of these
businesses would not take place. OPIC, in the earlier part of
its history, was asked whether or not we have additionality,
whether we do make a difference for a project, whether it will
take place or not.
In many cases it is a very difficult question to answer but
there is much anecdotal evidence, Monique being one of them,
that without OPIC, that business investment would not have
taken place.
Mr. Manzullo. I appreciate you telling the story, with a
little bit of my help. It is a great story. She is a great
lady.
Mr. Delahunt.
Mr. Delahunt. Thank you, Mr. Chairman. Thank you for the
story.
Did I hear you say Senator Stevenson, Adlai Stevenson?
Mr. Munoz. Yes, sir.
Mr. Delahunt. Did you work for Senator Stevenson? You
certainly don't----
Mr. Munoz. We worked together.
Mr. Delahunt. You worked together?
Mr. Munoz. Oh, yes. I am 48.
Mr. Delahunt. That was a very good question. You do not
look old enough to have worked with Senator Stevenson. That was
the point. It was an inverse compliment, Mr. Munoz.
Let me just say that I think you have a very easy sell
here. The record speaks loudly. It speaks clearly.
In terms of the corporate welfare issue, I noted that you
are no longer on the green scissors list, so that, I would
submit, is some sort of benchmark that you ought to be very
pleased with. I think most likely more and more constituencies
and individuals are recognizing the good work that you do.
I was very pleased to hear your observation, your comment
about internally not losing, putting at risk a single American
job. And I know on a net basis, you generate American
employment opportunities.
Also in some of the papers that you have submitted here you
talk about respecting workers' rights and environmental
standards. Do you have a mechanism in place? Do you conduct
audits? How do you ensure that, in fact, you are realizing that
goal? Because that is very important to me and to my part of
the country.
Mr. Munoz. It is and we understand that the reason for the
bipartisan support is because our assistance is balanced. That
is we do not just help a U.S. business that is looking at
purely the economics without also having to look at the
international standards for environmental protection, as well
as worker rights and human rights.
We have, because it is a statutory mandate that we look
toward that sector of the investment, we have in our office a
department that reviews all programs for compliance with the
environmental guidelines that have been put out by the World
Bank. We also review the worker rights impact of the project
and the country's history with that, and also the State
Department's designation for human rights.
Mr. Delahunt. Do you generate reports that are circulated
in the public domain?
Mr. Munoz. Yes, sir. I believe that we supply a report
annually to the Congress on that.
Mr. Delahunt. I see one of your staff nodding
affirmatively. I would appreciate receiving that because again
that is important to my district.
Mr. Munoz. There are two other levels of oversight that are
helpful here. One is our board of directors. We are an
independent agency that reports directly to the board of
directors. The board of directors has, by statute, a
representative from the bargaining unit, from labor, as well as
the Department of Labor. And we have representatives from small
business. We have representatives from a variety of sectors
that oversee our operations.
And then last, we do monitor projects after they have been,
on a sampling basis, after they have been approved by OPIC.
Mr. Delahunt. That is very important. And let me also just
echo the sentiments expressed by Mr. Menendez in terms of I am
really enthused to hear the focus is on small businesses
because for many of us, small business in terms of our economy
is where it is at. And again traditionally and historically,
small businesses add to the community more than just simply the
bottom line.
One more question, Mr. Manzullo?
Mr. Manzullo. I thought maybe Mr. Sherman would have a
question. If Mr. Sanford does not have them, we could finish
up, if that is OK with you.
Mr. Delahunt. Whatever you say, Mr. Manzullo. I just had
one more question.
Mr. Manzullo. Just make it short.
Mr. Delahunt. I will make it short.
You know, I noted that one of your projects that you funded
was the flour mill in Haiti.
Mr. Munoz. Yes.
Mr. Delahunt. Could you give me a very brief and concise
update on the status of that particular project?
Mr. Munoz. Well, it is still moving forward. This is one of
the projects that I went to visit myself. It is the only flour
mill in Haiti. It used to be operated by the government. It
basically went defunct. It sat there.
Mr. Delahunt. I am familiar with the history of it.
Mr. Munoz. It is still moving forward, Congressman.
Mr. Delahunt. Are you satisfied with it?
Mr. Munoz. Very satisfied with it.
Mr. Delahunt. Thank you.
I yield back, Mr. Manzullo.
Mr. Manzullo. Mr. Sherman.
Mr. Sherman. Thank you.
If OPIC just made a profit for the Federal Government, it
would be enough. If OPIC just represented the fact that we do
not believe in unilateral disarmament in the economic contest
with our trading partners in Europe and Japan but we wanted our
companies to be able to compete where their companies are
getting far more in the way of government help, that would be
enough. And if it was just the help for development cognizant
of human rights, workers' rights and the environment, that
would be enough. So I would think that I should be allowed by
the House to vote three times to reauthorize OPIC.
But the real question before us is Mr. Munoz's supposed age
and I am here to vouch for that because we did go to the same
law school and he was ahead of me. So we will be asking which
version of Rogaine he uses.
[Laughter.]
Mr. Manzullo. That company got an OPIC guarantee.
[Laughter.]
Mr. Sherman. And finally I would point out that when U.S.
companies do business abroad, they face a greater risk than
their competitors in Germany and Japan because they are a
politically charged symbol. Some demagogue may want to
nationalize all of the American assets. It has happened before
and it is more likely perhaps to happen than--I cannot imagine
somebody demagoging the issue and saying, ``And that is why we
have to nationalize all the Norwegian-owned businesses in this
country.'' But the United States is high profile. We intend to
continue a high profile in foreign policy and I think our
businesses need to be able to turn to a government organization
to have some insurance against the effects of that, especially
if we make money on it.
So Mr. Munoz, I do not know if you have a response.
Mr. Munoz. Congressman, I would like to report very happily
that one reason why small business--you had a special comment
on OPIC's application for small business, that you had asked us
if we could streamline it and I am happy to report that we have
and I think you have seen it. It is a very streamlined process
and now small businesses are able to more quickly transact
their business.
Mr. Sherman. I know there are people here who are part of
the OPIC international investing world. I have never seen a
government agency quite this responsive. Within 2 weeks after I
believe it was your last authorization hearings when I pointed
out that if somebody was seeking a $1 or 2 million guarantee or
even $10 or 20 million guarantee, they might not have the legal
expertise or just the money to buy the legal expertise to fill
out a form that is applicable to a billion-dollar project.
You folks provided--not only was it a two-page form but as
I recall, it requires reviewed but not audited financial
statements. So it is not just two-fifths the length of the old
form but I am sure it is well below 40 percent of the cost of
filling out the old form.
Mr. Munoz. We are grateful for you, Congressman, as well as
this whole Committee. I think I have heard one thing
consistently from all Committee Members and that is that small
business should be a priority and I am happy to say it is one
of the top four priorities that I have identified.
I would like to, for the record, say that one of the
individuals at OPIC who is taking the most lead in this thing
is the executive vice president, Kirk Robertson, who is right
behind me here. He has seen to it that 1999 is the year of
small business at OPIC.
Mrs. Ros-Lehtinen--[presiding.] Thank you. Thank you so
much, Mr. Munoz.
We will hear from our second panel, the private panel, when
we come back from these two votes and the Subcommittee is just
suspended for a few moments.
[Recess.]
Mrs. Ros-Lehtinen. The Committee will be reconvened. We
thank the private panelists for being here today and I would
like to introduce you and then you can make your opening
statements and we will be glad to put all of your remarks as
part of the official record.
I will start with Mr. John Hardy, Jr., who joined Enron
International as vice president for project finance in 1997.
His focus in that capacity is on international financing and
project development through Washington-based resources. Prior
to joining Enron, Mr. Hardy was director of corporate
development and finance at Brown & Root, an international
engineering and construction company headquartered in Houston,
Texas. Prior to his work for Brown & Root, Mr. Hardy held
several positions with the Agency for International
Development.
Next will be Mr. Willard Workman, who has testified in our
Subcommittee before. He is currently vice president of the
International Division of the U.S. Chamber of Commerce,
responsible for the formulation and implementation of the
Chamber's policy position on international economic and trade
issues.
He also serves as vice president of the Center for
International Private Enterprise and Mr. Workman joined the
U.S. Chamber in 1988 as deputy director for policy and programs
in its International Division.
Before joining the Chamber, he was the special negotiator
for international trade controls at the U.S. Department of
State and prior to that position, he served as director of
strategic planning and policy at the Bureau of Export
Administration in the U.S. Department of Commerce. And we
welcome Mr. Workman to our Subcommittee.
Mr. James Sheehan is currently director of international
environmental policy at the Competitive Enterprise Institute.
At CEA he specializes in policies concerning international
environmental regulation, international financial institutions
and world trade.
He is the author of ``Global Greens: Inside the
International Environmental Establishment,'' a book dealing
with international environmental advocacy groups. His writings
have appeared in various leading publications and he has been
featured as a commentator on various television programs,
speaking on issues of international environmental policy. Thank
you, Mr. Sheehan.
Next is Scott Fischer, who is the vice president of
Citicorp Latin America North Division and that is based in my
home town of Miami, where he is responsible for the bank's
capital markets and corporate finance businesses. In this
capacity he has been involved in transactions across the
regions for both public and private sector clients, including
debt fund-raising, privatizations, mergers and acquisitions and
private equity.
Mr. Fischer spent over 9 years with Chase Manhattan as
corporate finance head for Spain and a senior transactor for
Chase Investment Bank Latin America and as relationship
manager. So we welcome Mr. Fischer here with us.
Thank you, Mr. Hardy, if you could start.
STATEMENT OF A PANEL CONSISTING OF JOHN HARDY, VICE PRESIDENT
OF PROJECT FINANCE, ENRON INTERNATIONAL
Mr. Hardy. Thank you, Madam Chairwoman. I appreciate the
opportunity to speak to you today in support of OPIC. I am also
pleased to appear at this hearing on behalf of the Coalition
for Employment through Exports and the International Energy
Development Council and the National Foreign Trade Council,
which together represent a wide array of businesses, both large
and small, and in the full spectrum of industry sectors. Each
of these organizations and their Members view OPIC as a
critical tool in promoting U.S. competitiveness.
OPIC supports the export of U.S. goods and services in
markets throughout the emerging world and through those goods
and services, the jobs of U.S. workers. Accordingly, we
strongly support a 4-year reauthorization of OPIC.
What I would like to do is to give you a perspective from
the field and make three points about OPIC: first, that OPIC
financing is essential to U.S. sourcing of goods and services
in major projects internationally; second, that OPIC has an
essential role as a catalyst in attracting commercial bank
financing to support these international projects; and third,
that OPIC is not corporate welfare.
With regard to the first issue, a big part of what OPIC is
doing today is providing finance and insurance for large
infrastructure projects in developing countries. This is a huge
market--the World Bank has estimated it in excess of $200
billion per year--in energy, telecommunications, water and
transport.
But the market is extremely competitive. In the energy
sector, essentially all of our export competitors produce the
equipment for electric power plants and also have state-of-the-
art design engineering services. The same is also true in the
other sectors.
So the critical issue is in sourcing of such equipment and
services, whether it comes out of the United States, whether it
comes from Japan or from the European countries depends largely
on the availability and terms of financing and the importance
of OPIC is that OPIC makes available its financing to enable
U.S. sponsors to source U.S. goods and services.
This is fundamentally a competitiveness issue. Each of the
developed countries has one or more programs in place to
provide precisely the same sorts of services in the exporter
investment-related finance as OPIC. Some 40 industrialized
countries have programs like OPIC and some 80 countries have
programs like Eximbank.
If programs like OPIC were not available, we as sponsors of
these projects would have no choice but to move our sourcing to
other countries where financing is available. And indeed in my
testimony I have provided an actual and immediate example of
that in the context of India.
The availability of OPIC financing also has a critical
impact on small, as well as large, U.S. manufacturers. Sourcing
for a major infrastructure project has a tremendous ripple
effect through the manufacturing sector because a great many of
the larger suppliers in turn out-source components to smaller
supplies, so there are many small companies involved that
ultimately end up producing elements of goods that go into
these major projects. If OPIC financing is not available, the
support for these smaller suppliers is lost.
In summary, since it was created, OPIC estimates that its
programs have fostered 237,000 jobs and in excess of $58
billion in exports.
As to the second point, OPIC's role is as a catalyst.
Private banks and insurers cannot themselves provide the
necessary loans and insurance to support these projects. OPIC
has a catalytic role to draw commercial banks into supporting
these projects in more difficult markets.
Asking why? It is because in transition markets, the key
risks are risks of adverse government action by host countries
where the projects are being built. Only OPIC or Eximbank, as
government agencies, can bring governmental action to bear, and
this is the key tool that separates OPIC and really makes it
unique, in terms of being able to bring private lenders and
insurers into the marketplace.
But once OPIC comes in for a piece of the financing or
insurance, then private lenders and insurers will be able and
willing to come into the deal for the remainder, the bulk of
the financing. And appropriately, OPIC usually charges a higher
price and thus receives a higher margin for the portion of
financing that it provides than the private lenders charge for
the portion they provide.
Let me spend just a moment on the corporate welfare issue.
OPIC's programs are fee for service at market-equivalent rates.
We need to look at the facts here because there has been an
awful lot of rhetoric around this issue.
First, OPIC imposes charges for all aspects of the
financing and insurance it provides to its customers. Second,
OPIC's charges are usually higher than what private lenders do
charge. And again in my testimony I have provided several
examples of that.
OPIC's terms are also more onerous than private lenders'
terms, as OPIC requires not only the projects be financially
and technically sound but also that they satisfy numerous
policy requirements which private lenders and many foreign
government finance programs do not impose.
Last and perhaps most importantly, OPIC charges fully cover
both OPIC's costs and OPIC's risks. OPIC's revenues have
exceeded operating costs throughout OPIC's 30-year existence
and OPIC's revenues have not only covered all of the risks that
have materialized into problems but have accumulated $3.3
billion in retained earnings, now held by OPIC in Treasury
securities. I think the fundamental lesson here is that OPIC is
managing its programs in a very prudent manner.
In conclusion, OPIC is a real success story. In performing
a catalytic role, it is making a profit, providing financing
and insurance that private banks and insurers cannot provide
alone, and it is generating American exports and jobs. OPIC is
making it feasible for companies like Enron to keep the
sourcing for their international projects here at home in the
United States the winners are U.S. workers.
Accordingly, we urge your full support for 4-year
reauthorization of OPIC. Thank you very much for the
opportunity to testify.
[The prepared statement of Mr. Hardy appears in the
appendix.]
Mrs. Ros-Lehtinen. Thank you, Mr. Hardy.
Mr. Workman.
STATEMENT OF WILLARD A. WORKMAN, VICE PRESIDENT, INTERNATIONAL
DIVISION, U.S. CHAMBER OF COMMERCE
Mr. Workman. Thank you, Madam Chair. My name is Willard
Workman. I am the VP International from the U.S. Chamber of
Commerce. We represent about 3 million American companies here
and abroad. We have accredited American Chambers overseas. We
have 87 of those in 77 countries, the most recent one being in
Lebanon, which was accredited 2 weeks ago.
We are pleased to be here. The bulk of our membership are
small business. Ninety-six percent of our membership are
companies that employ less than 100 workers. Sixty percent of
our membership are companies that employ less than nine
workers.
You have my statement. We support 4-year reauthorization
for OPIC. And what I thought might be valuable for the
Subcommittee would be if I could sort of put this in a small
business context. I just want to give you some statistics, and
I will be glad to provide these for the record.
What is the business opportunity out there, looking into
the 21st century? OECD expects that within the next 20 years,
world GDP will double. That is a very conservative scenario. In
the last 10 years, the percent of U.S. GDP to trade has
doubled, so we can reasonably project that into the next 10 to
20 years.
Over the next 20 years emerging markets, the kind that OPIC
operates in, which have currently populations 10 times the U.S.
population, will account for 40 percent of all U.S. export
opportunities.
Putting it on a more mundane level in terms of the business
opportunities out there, only 50 percent of the world's people
have ever made a phone call. Only 50 percent of the world's
people have daily access to electricity. Less than 11 percent
of the people in the world have ever owned a car. So that is
the market. That is what very competitive, world competitive
American companies, especially small and mid-sized companies,
are interested in.
American small business. Currently, and these are census
statistics, American small business, defined as less than 500
employees, employ 53 percent of the American work force,
account for 51 percent of the private sector output, account
for 96 percent of export firms. There are about 113,000
companies that are engaged in exporting and about 108,000 are
small businesses. Their exports represent 30 percent of all
American exports in 1998.
So that is who they are currently. What are the trend
lines? I can report this from a variety of sources. Where are
small and mid-sized companies in the United States going in the
global trading and investment environment?
According to the Institute for International Economics, in
1987 only one in 10 manufacturers with fewer than 100 workers
exported. That is one in 10. Five years later, in 1992, it was
one in five, so it doubled in 5 years.
The share of small and mid-sized firms that get 10 percent
or more of their sales from exports doubled between 1994 and
1996. That is in only 3 years.
In 1992 the Commerce Department 800 number to help small
firms export received 39,000 telephone inquiries. In 1996 they
received 72,000 inquiries.
At the U.S. Chamber we get a lot of calls not only from our
member companies but from American business in general. We have
seen over the 11 years that I have been at the Chamber a
quintupling of the number of inquiries, either phone or fax or
now e-mail, that are coming into my division related to what
are the opportunities to invest, to be an importer, to export
or what have you.
So clearly American small business has decided to go
global. Activities in agencies and programs like the Overseas
Private Investment Corporation are essential to that.
I must commend Mr. Munoz on the efforts that he has not
only proposed but actually implemented in terms of helping
small business access the programs of OPIC. From our point of
view, we have been trying to get a lot of government agencies
to do more than just talk about helping small business and I
have to commend President Munoz and OPIC for actually getting
the job done. I think as the time goes by, it will be
interesting this time next year to come back and see how their
1999 OPIC for Small Business Program, statistically what kind
of results that has yielded.
So again to sum up, small business is going global. They
need programs like OPIC. This is one of the silver bullet
Federal programs where it costs the taxpayer nothing, it makes
a profit for the taxpayer. It is accountable and it only has a
bureaucracy of 200 employees. I think the only political danger
in this whole situation is if the general American public found
out that we had a program like that, they would insist that we
replicate it across the Federal Government, and I am not sure
that is possible.
So I thank you for the opportunity to testify here.
[The prepared statement of Mr. Workman appears in the
appendix.]
Mrs. Ros-Lehtinen. Thank you, Mr. Workman.
Mr. Sheehan.
STATEMENT OF JIM SHEEHAN, DIRECTOR OF INTERNATIONAL
ENVIRONMENTAL POLICY, COMPETITIVE ENTERPRISE INSTITUTE
Mr. Sheehan. Thank you, Madam Chair, very much for inviting
me and this opportunity to testify today. My name is James
Sheehan. I am director of international environmental policy at
the Competitive Enterprise Institute. We are a free market
think-tank.
It is fitting that we address this important subject today.
It is the day before many taxpayers submit their tax forms and
it is the taxpayers, after all, who are expected to finance
programs like OPIC.
My employer does not receive any benefits or subsidies from
OPIC of any kind.
OPIC is a Federal agency, as we know, that props up foreign
investments of private corporations in developing countries. It
offers subsidized political risk insurance and financing,
guarding against losses in unstable markets. While private
companies can make handsome profits using OPIC financing, the
taxpayers actually bear the risk of any losses that would
occur. With the Asian financial crisis and other currency
debacles in Russia and Brazil, I think we have learned some
important lessons about risk and what the conditions are like
in the highest risk areas of the world.
The Federal Government has exposed the taxpayer to these
risks, in an unwarranted fashion, I believe. Currently OPIC's
insurance contingent liability is $12 billion and its exposure
under investment guarantees is around $6 billion. The two
countries with the largest finance and insurance exposure are
Russia and Brazil, where currently devaluations have caused
economic havoc.
OPIC's portfolio is backed by the full faith and credit of
the U.S. Government. Should the multi-billion-dollar OPIC
scheme prove to be as shaky as Federal Deposit Insurance was,
it will need a costly bail-out. And I would hasten to note that
many of the arguments we have heard today are very reminiscent
of arguments that we heard before the S&L bail-out.
The Asian financial crisis--I would like to say a few words
about OPIC's involvement in some of the countries that are
embroiled in that crisis.
First of all, in Russia, the agency's exposure, as I
mentioned before, in this reeling economy is a whopping $2
billion. In Brazil OPIC exposure totals $1.9 billion. And OPIC
concedes that fully half of its loans in Brazil will be
materially impacted by the crisis. In Indonesia, the maximum
contingent liability is $600 million.
Now despite the recent turmoil in these markets, the agency
claims it is still making a profit and it continues to rely on
what I call clever accounting gimmicks to make that claim.
To start, OPIC is a Government agency. It does not pay
taxes like a normal insurer or a financial institution would.
In addition, most of its income is derived from the U.S.
Government. While the agency reported $139 million in net
income for fiscal year 1998, $193 million in revenues consists
of interest on U.S. Treasury securities. This is really a shall
game. It is a loss for the government. It is a loss for
taxpayers of $54 million, but OPIC insists that that is called
a profit.
Now Madam Chair, if this Congress would be so generous as
to pay me $193 million in interest on Government securities, I
will be happy to pay back next year only $139 million and we
can all report that as a profit for the Government.
The question of corporate welfare is an interesting one.
Just a few words about that. OPIC aid recipients, to them, the
value of OPIC subsidized foreign investment is no different
than a welfare check. They are getting benefits they could not
get on the private market. Many of the companies benefiting
from this, some sitting at this table, are very familiar
names--Citicorp, AT&T, Pepsi-Cola, to name a few. Even the
billionaire financier George Soros is getting a helping hand
from OPIC.
The taxpayers' loss in this scheme is the politicians'
gain. The Boston Globe reported last year that 27 American
companies receiving OPIC aid have donated more than $2.3
million to the Democratic National Committee and there are
several examples of very wealthy individuals who were on those
infamous foreign trade missions with the late Commerce
Secretary Ron Brown. If a Republican were in the White House,
the story would be much the same. OPIC is a scheme for
connected businessmen, not small businessmen, as I think some
of the prior testimony has conceded.
Now let us talk about some of OPIC's negative economic
impacts. OPIC's defenders say that it promotes economics
stability in developing countries. In fact, private capital
flows that are not subsidized at all to emerging markets are
plentiful. We had $150 billion in private capital flows in
1998.
OPIC's entire portfolio is a small fraction of what the
private sector invests on its own abroad. If anything, OPIC
only makes the financial crises worse in places like Russia and
Indonesia because it is diverting valuable resources from more
viable projects into unstable countries.
In contrast to some of the claims we have heard, others
argue that OPIC has a net negative impact on American jobs. In
1997, for example, OPIC issued a $29 million insurance policy
to Levi Strauss for a plant in Turkey. That same year Levi
Strauss workers applied for trade adjustment assistance from
the U.S. Labor Department--6,400 workers--because their jobs
were displaced by cheap imports.
I am not going to rehash the arguments on small business. I
think most of the witnesses and the president of OPIC today
have conceded that OPIC is not really serving small businesses
and they are increasing their efforts to do so. More than 90
percent of OPIC projects are for large businesses.
OPIC also claims to be creating innovative financial
products for investors, these 26 investment funds abroad that
it has created and capitalized. But despite OPIC's claims,
publicly guaranteed investment funds are not desperately needed
by the private sector. In fact, OPIC's activities duplicate the
activities of many existing mutual funds.
In Asia, for example, OPIC's South Asia Capital Fund
competes with the T. Rowe Rice New Asia Fund. In Africa, the
OPIC-backed Africa Growth Fund competes with the Morgan Stanley
Africa Investment Fund. And plenty of private firms have tried
their hand in the Russian casino. Morgan Stanley has a Russia
and New Europe Fund to bet against OPIC's Russia Partners Fund.
Along with foreign policy considerations, OPIC is forced to
consider a lot of nonfinancial factors, including environment
and labor standards, and we have heard some talk about these.
While these political niceties may score points with the
environmental movement or the Vice President's office, OPIC has
really not made substantial changes to its operations.
John Sohn of Friends of the Earth, for example, has written
that OPIC harms valuable ecosystems and impacts local
populations and even though its environmental standards are
practically brand new, it has already tried to violate them. It
has a project that is under consideration in the Bolivia and
Brazil rain forest right now that has green NGO's in a tizzy.
Export-Impact Bank has similar standards that it has tried
to ignore and that is probably an example of what happens when
a government agency has billions of dollars in portfolio and it
is a very political process and some of the standards and rules
can get bent.
Overall, I think the experience of Freeport McMoran in
Indonesia several years ago is indicative of the future of
business with OPIC. These political strings that are attached
to OPIC subsidies, like environment and labor standards, caused
Freeport McMoran to lose its insurance in 1995, I believe is
the year.
Now companies like Enron and Shall are facing a similar
challenge in the Bolivia-Brazil Pipeline and I think that this
is an increased trend for the future that business will have to
consider and I think it is going to lead them to the
unfortunate conclusion that OPIC is not truly beneficial to
their interests.
If OPIC's claims have any basis in fact and the agency can
be run without government support, then it should not be asking
Congress for new authorizations. If OPIC can truly be made a
profitable enterprise, I argue it should be spun off as a
private corporation.
Though OPIC might have to be sold off at a slight discount
due to the riskiness of its portfolio, a privatization option
is quite feasible. In 1997 a consortium of private insurers led
by Export Insurance Company submitted a proposal to Congress to
privatize $5 billion of OPIC's insurance operations. If private
insurers are willing to undertake OPIC privatization, who is
Congress to stand in the way? Government bureaucrats whose own
money is not at risk are not as capable of picking winners and
losers in the private marketplace.
Keeping OPIC in business as a government corporation
subjects private companies to unfair competition. They do not
enjoy the full faith and credit guarantee that OPIC does. They
do not have the deep pockets of the U.S. Treasury to cover
their liabilities if things go wrong. If OPIC bureaucrats had
any real expertise in foreign investment, they would be
employed to do this work in the private sector.
Foreign investment subsidies are inconsistent with the
ideals of open trade that we so often preach to undeveloped
nations and former Communist states. If OPIC were an agency of
the European Union or of the Chinese Government, many
legislators in this Congress would be calling for counteractive
trade sanctions against that country.
The time is ripe for Congress to set an example of real
economic reform and to transfer OPIC from public to private
hands. Madam Chair, thank you very much.
Mrs. Ros-Lehtinen. Thank you, Mr. Sherman.
Mr. Fischer.
STATEMENT OF SCOTT FISCHER, VICE PRESIDENT, LATIN AMERICA NORTH
DIVISION, CITICORP
Mr. Fischer. Madam Chair, Congressman, I am happy to be
here today in support of OPIC's reauthorization. I would like
to just briefly give you Citibank's perspective and my
perspective as a market practitioner on some of the benefits of
the recently announced OPIC-Citibank facility for the Caribbean
and Central America.
Essentially this facility increases Citibank's ability to
act as a much-needed source of medium- and long-term capital in
a region which has limited access to this type of loans, either
from financial institutions or from the capital markets. Given
the structure of the facility, the typical projects these loans
will support will normally create significant direct and
indirect employment, as well as improve infrastructure, such as
power and telecommunications, which should have significant
positive long-term and ripple effects on these economies.
The strengthening of these economies should have a
favorable impact in the United States, particularly in South
Florida, where I live, which has significant trade and
financial interaction with the Caribbean Basin; I also might
add that where Citibank has a number of employees who deal with
this particular region.
My next point I want to preface by mentioning an example of
some of the things that we are seeing coming from the recent
announcement of the facility, specifically in South Florida.
This is an example, I think, of how important the OPIC support
can be.
We were approached recently by a small South Florida
company which builds children's furniture in Honduras and they
bring it to the United States and sell it into major retailing
chains, such as Toys R Us or Walmart. This company had some
damage to its facilities from the hurricane. They are looking
to term out some of their local debt, which tends to be very
expensive, and also to build a new facility. This is a fairly
small company by normal Citibank standards but we are looking
at that transaction and I think if it does happen, it would be
made possible by this OPIC facility.
The next point I also wanted to preface by saying that as
the major U.S. institution in the Central American Caribbean
region, I think it is safe to say that we see more projects,
more investment proposals than probably anyone else in that
region. So I can also safely say that the specific support
provided by OPIC in this facility is unique and that it is not
generally available from private or market sources and it may
well make the difference in many cases in investment decisions
of companies looking to take advantage of the otherwise
attractive investment climate of these countries.
I think it is also important to note that the OPIC support
does not represent a subsidy in this instance but has been
structured as a risk-sharing exercise, which will allow
Citibank to incrementally support the investment plans of our
clients, many of which are U.S. multinationals doing business
in the region. Thank you.
Mrs. Ros-Lehtinen. Thank you so much. Thank you, gentlemen,
for being here with us.
We have heard some testimony this afternoon about OPIC
diverting resources from projects and competing with privately
financed ventures. Is this not counterproductive and doesn't it
run counter to the objectives of OPIC?
Mr. Sheehan. I would be happy to take that one.
Mrs. Ros-Lehtinen. Somehow I figured that you would.
Mr. Sheehan. It is part of OPIC's mandate, through foreign
policy, to spur investment in areas that the private market is
not willing to invest in. Some of these countries are simply
too risky, but the White House or the Federal Government has
decided it is a political decision that it would somehow be in
our interest for there to be more economic activity in Russia
or in Indonesia, so let us try to divert some of it there using
these very favorable financing subsidies. And I do call them
subsidies because they are achieved at rates that are below
what the market would otherwise bear.
Mrs. Ros-Lehtinen. Now Mr. Sheehan pointed out in his
testimony the risky ventures, the economic climate not being
very positive in Russia; he mentioned Brazil, Indonesia. What
do the rest of you say about OPIC's ventures in those regions
of the world and what should we say to taxpayers when they see
the level of involvement that OPIC has in those regions?
Mr. Workman. I will take a hit at that. First of all, it
has been asserted that there has been diversion from the
commercial sector by OPIC, and that is all it is--an assertion.
I do not believe--I listened to President Munoz's testimony and
I thought he was pretty straightforward on that subject. So it
is an assertion; it is not proved. And in practice it has been
my experience that it does not occur.
In terms of operating in these new markets, these emerging
markets, I think we are dealing with a new paradigm in global
finance and in international trade. In 1982 when you had the
peso crisis in Mexico and basically it rippled through the rest
of Latin America, you had what was called the lost decade in
Latin America. It took over 10 years for them to recover. In
1995, when you had the peso crisis in Mexico, you had the lost
18 months in terms of the economy turning around.
Something similar has happened with Korea. Those countries
that take the tough economic decisions, we are now looking at
positive GDP growth projected for 1999 in South Korea, whereas
16 months ago everybody said South Korea was in the tank.
First, things happen much faster now. I think probably it's
because you can have a trillion dollars go around the world in
a nanosecond now, where it was a little more difficult in 1985.
So I think, that has changed.
Second, do we really want to take ourselves out of the
game? Because no one else is taking themselves out of the game.
At least 40 other industrialized countries have similar
programs.
Now we at the Chamber, I would agree with my right to my
right that we do not like subsidies. We have never liked
subsidies and it has always been one of these things where you
have to grit your teeth when you come before the Congress and
say, ``Well, we need an Eximbank and we need an OPIC and in a
perfect world it would be nice if we did not have government
subsidies.''
But then our companies have to deal with the real-world
reality that there is competitive subsidization going on by
other governments--our friends, who are also our biggest
competitors--the Europeans and the Japanese and the Koreans.
So I think yes, we have to be there. That is what we spent
the past 15 years restructuring American business to be very
competitive, to go out and win in the global market, and I say
let's have at it.
Mrs. Ros-Lehtinen. Thank you.
Yes, Mr. Hardy.
Mr. Hardy. If I could add to that, let us take Brazil as an
example. I think a situation like Brazil really underscores the
valuable role that an OPIC can and is playing.
Brazil is far and away the largest economy in South
America. Brazil, over the last several years, has undergone a
dramatic, almost revolutionary transformation in its economy.
It has moved toward privatization, stripped away layers of
bureaucracy. It has become much more efficient.
But in any sort of transformation like this, it is at a
point now where it is sort of in the midst of this reform that
is going on. It has gotten caught up in difficulties from Asia
and from Russia. And indeed, as we know, it has gone through
some very difficult times.
The commercial banks, the financial community were red hot
on Brazil and had been over the last several years, but became
increasingly nervous and have backed away and are that way at
this point. If we remain totally dependent upon the ups and
downs of the marketplace in terms of the financing, you end up
with a lack of a coherent policy and an inability to provide
the sort of level of support that a Brazil needs.
There are extraordinary opportunities in Brazil. We have
moved fairly aggressively in the energy sector in both
electricity and the gas markets, which have been totally
transformed. We are facing very stiff European competition,
particularly from the Spanish but also from elsewhere in Latin
America.
As Mr. Workman has said, there is financing that is
available from those countries and for us to turn around and
walk away from Brazil at this critical point, when the market
is being shaped and market share is being determined would be,
in our mind, a terrible disaster over the long term.
I think everybody is entirely comfortable with the
direction that Brazil is going in and looking at 5 years out
and 10 years out, you are looking at a market that already is
but even increasingly so is going to be extraordinarily
important to the United States and to the U.S. export
community.
It is precisely this situation where OPIC can step in and
signal to the marketplace a commitment on the part of the U.S.
Government in terms of making stable, long-tern investments.
Let us remember that sponsoring companies like Enron and
like others, we are putting hundreds of millions of dollars of
equity into these projects and that equity is the first
financing that is tapped into in the event that there are any
difficulties.
So we are the ones who are significantly at risk. But OPIC
support enables other banks to come in, in terms of the long-
term sort of lending that is necessary for these projects, and
has a very stabilizing sort of influence.
For us, and I think for the business community in general,
it is a very pragmatic, a very positive sort of step that
OPIC's participation plays and ultimately in terms of U.S.
jobs.
Mrs. Ros-Lehtinen. Thank you, Mr. Hardy.
I have three more questions for you but in the interest of
time, because we do have to clear the Subcommittee to go to the
Full Committee for the continuation of our mark-up, I would
like to yield to my colleagues. Mr. Delahunt.
Mr. Delahunt. Thank you, Madam Chairperson. I will stay
after the formal hearing because this is fascinating and, as
you know, I am new to the Committee, as well as to the
Subcommittee, so this is very informative and educational and I
appreciate everyone coming and providing this testimony.
The chair said something earlier about these economies and
democracy now in Latin America and clearly I think we all
applaud the fact that there has been electoral reform and that
we see people and suffrage occurring in Latin American
societies, but I dare say we are a long way from democracies
that are stable because of the history of Latin America. And my
sense is that OPIC here serves a real foreign policy imperative
in terms of seeing that these nations secure some sort of
economic justice so that they continue to mature as
democracies. In my own sense, this is what is so intriguing
about this particular program.
I think I will direct these questions to Mr. Workman or Mr.
Hardy. Are either one of you aware, and I meant to ask this
earlier to the president, Mr. Munoz, but he has already gone;
is there a relationship between OPIC and the SBA, given what we
are hearing about clearly from the members in terms of outreach
to the small business community, to see that this program is
focussed and is available and at least the small business
community is aware of its existence, because oftentimes the
reality is that it is not.
And I did ask him one question on the way out as he was
leaving, and I would be interested in your response, in terms
of the limitations of the program. I think it was Congressman
Sherman earlier who enumerated three reasons to vote for it and
I think clearly this Subcommittee is very positive about the
program, but in my question to the president, I said to him,
``What are your limitations?'' and he needs more resources.
In other words, the demand and the capacity of OPIC to
provide the kind of services I think that at least there
appears to be a consensus and support of is not there.
Comments. Mr. Hardy, Mr. Workman?
Mr. Workman. On the relationship between OPIC and SBA, yes,
they do cooperate. We cooperate with OPIC in trying to get the
word out to the American small business community.
Mr. Delahunt. Is the SBA doing the job?
Mr. Workman. It is my understanding yes. There is always
room for improvement. There is room for improvement, quite
frankly, in the U.S. Chamber's effort to reach out to American
small business, and that is an on-going sort of communications
problem.
I think in terms of the way they have designed the small
business outreach program, it is more than just--when I used to
write regulations and we got the word down from on high to
reduce the number of pages, we just went to a smaller font and
wider margins.
Mr. Delahunt. I did that when I was writing papers in
college and in law school.
Mr. Workman. But in this case I can testify because we have
heard from the small business members of the Chamber that yes,
this is really a streamlining exercise.
I think it is of recent enough vintage that, as I mentioned
earlier, we think it is something that this Subcommittee should
take another look at a year from now but clearly in design, it
eliminates a lot of paperwork for small companies, which is
their biggest complaint. The threshold, in terms of their
eligibility, has gone from $2 million, I think, to a quarter of
a million, which is more in line with the kinds of average
contracts and investments that they are thinking about making.
So this is beyond just changing the font size. This is
substance.
On the limitations of OPIC, I can tell you that with OPIC,
with Eximbank, with the Trade Development Agency, with the
programs that we traditionally have to support American
business overseas, we do not come close to doing, by any
measure--by per capita, by per billion dollars of exports or
anything--we do not come close to what our G-7 partners are
doing to support theirs. I mean Canada, with a population of 25
million people----
Mr. Delahunt. You will agree with the statement that the
demand far exceeds the ability of these various institutions to
respond.
Mr. Workman. Absolutely. And I will let John weigh in.
Mr. Delahunt. I think that is something that this
Subcommittee should consider in its deliberations on
reauthorization. Mr. Hardy?
Mr. Hardy. I don't have any direct knowledge in terms of
the relationship to the SBA, but I do want to emphasize the
fact that even in the context of the large projects in which we
are involved, the infrastructure projects and in the
telecommunications area, there are a myriad of small firms that
are indirectly involved.
And it is important for us to recognize, again to go back
to the issue that if the ability to source out of the United
States is lost because financing is not available, because OPIC
is not present or not available, whether it is because of
sanctions or because of other policy issues there may be or
because of decisions that have been made regarding
reauthorization, then it is very clearly the end result that
sourcing will move off-shore and that it will not be so much
the Enrons or the larger companies but it is going to be the
small manufacturing facilities that do not have the ability to
move off-shore.
I mean G.E. has facilities all over the world. The smaller
manufacturing facilities do not and do not have the ability to
move. So, in effect, they are the ones who ultimately are hurt
far and away the most because they lack that flexibility and I
think it is very important for us to recognize that whether it
is power plants or pipelines or telecommunications facilities,
that so much of that work and so much of that production goes
back to small businesses throughout the country.
With regard to the limitations of OPIC, I concur that in
significant part, it is a resource issue. This is absolutely an
extraordinary time in the emerging markets because----
Mr. Delahunt. My concern is that we are missing
opportunities by not having adequate resources available to the
business community.
Mr. Hardy. Absolutely, and it runs across the interface
between what the business can do in terms of----
Mr. Delahunt. I do not want to take any further time except
one additional question.
Mr. Sheehan, you said something about a politician's dream?
Mr. Sheehan. Politician's gain, sorry.
Mr. Delahunt. Gain?
Mr. Sheehan. Yes.
Mr. Delahunt. I mean do you really believe that, that
anybody on this panel would cast a vote to support a program
predicated on a trip?
Mr. Sheehan. I am not going to speak for anyone who is in
the room, sir, but I do know that many of the companies that
receive benefits from OPIC also turn around and make
contributions to the Democratic Party or the Republican Party
or whatever they think they need to, and that seems to be
business as usual in Washington. It is not just OPIC. There is
a problem across the board with pork barrel spending.
Mr. Delahunt. Well, that might be something to do with
campaign finance but I am sure, and I think I speak for every
Member here, both Republican and Democratic, that clearly any
decisions that are made are far removed from the invitation to
a trip to some foreign nation. I mean believe me, Mr. Sheehan,
let me disabuse you of that particular thought.
And I think that unfortunately, you have made the statement
and I would submit to you that it diminishes the credibility of
the rest of your statement, at least as far as this Member is
concerned.
Mrs. Ros-Lehtinen. Thank you.
Mr. Cooksey.
Mr. Cooksey. Just to add to the comment, I have traveled a
lot more internationally before I got my new day job in
Congress. I have only done one trip. There may be some people
who would vote that way but I took a cut in pay to take this
job and my wife is still unhappy. So I resent these kinds of
statements, too.
I am very familiar with Enron. Enron is a company that had
a lot of vision and took a lot of risks 20 years ago when you
were formed and you have done a good job internationally and
nationally. I know you have brought a lot of production to my
area because we have a lot of oil and gas production in my
state and some in my area.
But the independent producers had been suffering and they
were particularly suffering, felt like they were really paying
a price 2 weeks ago or 2 months ago when the price of oil was
down and I had a couple of them who reminded me that 20 years
ago when the DOE or the Administration that was in place 20
years ago or Congress--surely Congress would not have made any
dumb mistakes, but when they put the windfall profits taxes on
these people, that some of them felt like they should have that
returned now because a lot of them are going out of business.
My question is what can be done to help someone that
belongs to the IPA, that is not as large as you are, not as
successful as you are, does not have the resources? What can be
done to help them participate in this world economy that we are
in?
Mr. Hardy. I am afraid that your question pulls me sort of
out of my area of focus. Enron is a company that has remade
itself in a number of evolutions, as the market has changed, as
the market has moved. As you know, it started with the merger
of two gas pipeline companies in the mid-1980's, so it is a
relatively new company and it is a long way, where we are now
from where we were then.
I think that there has been, in my own view and I am
relatively new to the company, tremendous vision, as you say,
in terms of getting from where we started to where we are now.
There is no question it has been an extraordinarily
difficult time for the energy community. We have focussed in
the areas where we think that there are tremendous future
opportunities. We are heavily involved in infrastructure
throughout the emerging markets and this really underscores
again the long-term perspective. This has been a very difficult
time, as I said, in much of the industry, near-term. We do not
believe it is going to stay that way.
We think that the energy industry worldwide, but
particularly in the emerging markets, is going to be totally
transformed into the next decade, 15 to 20 years. I think that
this company has moved aggressively to try and shape that
vision and become a significant player in that market. And
frankly, I am grateful to be a part of it.
It means taking a lot of risks. It means coming to grips
with the political uncertainties in terms of operating in a lot
of difficult environments, and that is one reason why we look
to OPIC.
We are certainly prepared to place at risk our equity
funding in projects, and that is very significant--hundreds of
millions of dollars. We are certainly prepared to look at the
risks on the commercial and the economic side.
The difficulty is, as has been mentioned before, the
difficulty of looking 20 years out and determining what is
going to happen in Indonesia or what is going to happen in
Bolivia, and that is where a partnership between the government
and the business community has indeed, with OPIC, has worked
extraordinarily well.
I think to come back to the sort of baseline here, OPIC has
been an extraordinarily successful agency in working with the
business community?
Mr. Cooksey. Let us say you are going to do a $100 million
project in Bangladesh. What percentage of that funding would be
likely to come from OPIC, on average, that would not be your
money at risk or your stockholders' money at risk?
Mr. Hardy. Our equity in a project is generally 30 to 35
percent, right in that area, so you are talking about 30 to 35
percent equity. OPIC has certain limitations in terms of the
percentage. It cannot provide any more than half of the equity,
half of the debt that would be provided, so there are
limitations.
Its value is not in terms of providing the bulk of the debt
financing to the project. It is really in providing that sort
of participation, really a slice of participation that enables
and attracts the private financing and commercial bank
community to come in and participate because it has that
ability, in the event that the Bangladesh Government, for
whatever reason, takes steps after this project is up and
running, to undermine the economics of the project, to be able
to sit down and to, on a government to government basis, work
that out.
And, as a consequence, it has an extraordinarily good track
record.
Mr. Cooksey. That is probably more important to the
funding, I guess, almost.
Mr. Hardy. Exactly. What it does, it really prevents the
Government from taking those sorts of steps because it is
taking those sorts of steps against the U.S. Government.
Mr. Cooksey. Right. We need to get that message out
probably a lot more so because when this comes up, this bill
comes up here every year, as is the case with most all the
legislation, there is a certain amount of misinformation,
disinformation and demagoguery. I know that comes as a surprise
to you that any politicians would do that but it does occur. I
have noticed that. Thank you.
Mrs. Ros-Lehtinen. Well, thank you so much. I thank all of
our panelists for being here and the audience, as well. The
Subcommittee is now adjourned.
[Whereupon, at 4:08 p.m. the Subcommittee was adjourned.]
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A P P E N D I X
April 14, 1999
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