JUNE 1980 - VOLUME 1 - NUMBER 5
An interview with J. Bruce Llewellyn
Always controversial for its program of aid to U.S. multinationals in developing countries, the Overseas Private Investment Corporation (OPIC) is in the Congressional spotlight once again. At hearings held in June, the Senate Foreign Relations Committee considered legislation extending OPIC's authorization that would expand its power to insure investors against the risks of war, revolt, nationalization of assets, and exchange controls that prevent taking profits out of a host country.
OPIC is charged with promoting development by giving American companies political risk insurance and, occasionally, financing, to enable them to invest in the Third World. The bill sponsored by U.S. senators Jacob Javits (R-N.Y.) and Abraham Ribicoff (D-Conn.) would give OPIC a second mandate: bolstering America's trade position by helping U.S. firms penetrate developing economies. The bill would also allow OPIC to step up its activity in the more advanced developing countries that have already achieved "newly industrialized" status.
This month, the Monitor's Mark Anspach and George Riley talked with J. Bruce Llewellyn, OPIC's outspoken president and the moving force for many of the proposed changes in its charter.
Appointed to head OPIC in 1978, Llewellyn brought to the job his experiences as president of FEDCO Food Stores, the country's largest black-run retail business, and as one-time president of The Freedom National, one of the nation's biggest minority banks. Llewellyn also has held a number of economic development posts in the U.S., including Deputy Commissioner of the New York City Housing and Development Administration and Regional Director of the U.S. Small Business Administration. At OPIC, he has overseen outreach efforts to recruit more small businesses for overseas investment, as directed by Congress in 1978.
MULTINATIONAL MONITOR: Perhaps we should begin by discussing the recent legislation proposed by Senator Javits. As late as 1977, the Carter Administration urged that OPIC be "steered toward a more developmental role." In 1979, you argued in Congressional testimony that OPIC should be given an independent status as an agency promoting both trade and development. The Javits bill includes a mandate directing OPIC to support trade producing projects. Can you explain the apparent shift in the Administration's policy toward OPIC?
J. BRUCE LLEWELLYN: Sure it is a shift. I have no doubt that today there is greater concern about our balance of payments deficit and the fact that America's world trade position declined steadily in the seventies. The U.S. has to be more. aggressive in marketing its goods and services overseas. But to be very honest with you, I could point out that American investment right now is bringing about American trade as a general principle. If an American company puts up a plant, the technology is American, and it usually turns out, to use American machinery and equipment. It may involve a follow-on of American raw materials and other goods and services. For example, a grain company puts up a flour mill in Africa that may take 15 million metric tons a year of American wheat. If the French put it up, it will take French wheat-it's simple.
MONITOR: Could the aim of promoting trade ultimately conflict with OPIC's. original role as a developmental agency? Should OPIC encourage investments that use American exports rather than the raw materials and products of the host country? Shouldn't a host government seek out local sources of supply for the flour mill?
Llewellyn: I can cite you a project that from a direct point of view is almost 100 percent trade-oriented in terms of content, but which has great developmental benefits to the country. A national came in from the country and said it had no ability to move goods. There's one railroad-it goes .1000 miles between the port and the capital and it washes out half the time. They've been building a highway to cover the same route for over I S years and they haven't completed it. The trucks have to be specially built. We said, "Even if you got the trucks, you don't have the maintenance facilities in place, you don't have the people trained to run the trucks properly, and two or three years from now you'll have nothing but hulks by the side of the road." So we insisted that they put in maintenance facilities and also that they bring Americans over to train local people to maintain and operate these trucks. One hundred trucks and all the contents, all the spare parts over the five years of the contract, came from the United States. It's as good a piece of development for a country I can think of. I can literally show you the developmental benefit from any decent investment. It's not a problem. What we are trying to do is expand our ability to do things besides just development. Everything we do in export promotion must still have a developmental side to it. If it's all exports we won't do it.
MONITOR: So if a company feels the project is profitable enough to go in, you would not say that it may not be in the best interests of the country's development?
Llewellyn: Well, but the country said it. Every project that we insure has to have something called foreign government approval. It has to be presented to the government and that government has to make its own determination as to whether it's in their best interests. And if they say no, I won't let it happen.
MONITOR: Assistant Secretary of the Treasury C. Fred Bergsten, a prominent developmental economist, would disagree; he has criticized the addition of trade promotion to OPIC 's mandate. Bergsten. has also attacked the Javits bill because it would eliminate the present requirement that OPIC restrict most of its activities to countries with a per capita income of less than $1,000. He has suggested that lifting the $1,000 cap is part of a plan to encourage trade with wealthier developing countries. He testified that, "it is hard for any government corporation or government agency to serve two masters, and that is in fact what would be called for by explicitly adding a trade purpose, eliminating the ,81000 cut-off... I think that adding an explicit export focus ... would inevitably distort the developmental focus. "
Llewellyn: The first thing you've got to understand is that Fred Bergsten is the author of this $1000 cap, and he takes pride of authorship. The second thing is that Fred Bergsten might be a great developmental economist, but he never met a payroll in his life, and he never will. Fred Bergsten is out of touch with the reality of doing business. He is on a crusade because he doesn't think that the upper-income LDC's need any assistance in order to attract investments, so why provide it? That's the rationale behind all of his positions.
MONITOR: So then you're suggesting that the reality of doing business must take priority over OPIC's development mandate. The 1978 amendments to OPIC's authorization said it "will be guided by the economic and social development impact and benefits of... a project and the ways in which such a project complements or is compatible with other developmental assistance programs . . . " But you recently objected to the $1000 income cap, saying, "If / have to continue to load up more and more projects in a certain segment of the spectrum as opposed to putting my projects across the spectrum, I'm not going to be acting on a good actuarial basis. "Does your philosophy of OPIC sacrifice developmental assistance to the poorest countries in order to maximize revenues?
Llewellyn: I think you misinterpreted what I said. We need increased revenues to increase profitability, to increase our reserves. If you asked me to start off in 1971 with approximately $200 million capital and approximately $2 billion worth of insurance, and in the course of a year. l wrote another billion dollars worth, I'd better increase the reserves like a bank. Our basic mandate, among others, is to be self-sustaining. In order to be self-sustaining we have to act in a kind of entrepreneurial way. And we're not about to turn back people because a project is developmental or non-developmental and so forth. We have the capability of accepting all the business that comes through our door that meets our criteria. It's not a question of making a lot of money to pay to the shareholders. That's not the purpose.. The money is going into reserves, and part of that by the way is to allow me to put money into my fund for direct-lending to small businesses that want to invest in developing country projects. That all sounds nice in the legislation about being compatible with other developmental programs, but as far as OPIC is concerned, if I'm going to do direct lending I have to earn the money. We haven't received a penny from Congress in years.
MONITOR: You now seem to be suggesting that development objectives may often not be the criteria employed in approving individual OPIC projects. Still, the spirit behind the 1978 legislation seems to be that the U.S. government is willing to take a greater risk with OPIC's reserves by targeting the poorer countries. Couldn't you play a greater developmental role by extending more insurance to the poorest countries even if it doesn't make good actuarial sense?
Llewellyn: All the investment decisions are made by the investor, not us. And the investor looks at the decision in terms of something called reasonable assurance of repayment and the ability to make a profit. That has nothing to do with whether it's the poorest of the poor or the richest of the rich, it has something to do with the marketability of the product, labor force, and all the other things necessary to do the job. That has nothing to do with OPIC.
MONITOR: But if OPIC has to be selfsustaining and has little influence over investment decisions, then why is OPIC a government agency? Why was OPIC unable to fulfill its 1974 Congressional requirement to involve private insurance companies in insuring overseas development?
Llewellyn: Do you understand how salvage out? If I insure you and for some reason something goes wrong and I pay you off, I then tell you I will give you the check if you will sign over your assets to me. I then take the .sovereign entity called the United States government and go one-on-one, head to head with the sovereign entity that did the damage to you as a private investor, and l say, "We want to get paid." If you own a copper mine and you try to take on the Chilean government, you are not going to do too well because the Chilean government can interpose all kinds of sovereign defenses against you. But when the United States government starts to talk about cutting off all military assistance, cutting off all Food for Peace funds, cutting off any other kind of assistance until the matter is resolved-then there's a leveraging factor. There's no private insurance company that could take on the salvage value of the insurance and be in any better position than you would be as a private investor. Let me tell you something. If I thought for a moment this place could do this privately, I'd like to have a piece of the action and go out and run the company myself because this place makes a lot of money. But there's no private entity that could do what we do.
MONITOR: Can you envision any circumstances in which it might not be in the national interest for the U.S. government to go head to head with a nationalist Third World government in defense of private investments?
Llewellyn: No. Any sovereign government has the right to nationalize. But that government also has the duty to pay the full market value for what they take. It's no different from eminent domain. The government has the power to say, "We are building a school in the middle of your living room." But if your house is worth $100,000 and they're going to give you $10,000, you have the right to go to court for compensation.
MONITOR: If OPIC is unique in its ability to protect foreign investments, couldn't it threaten to withhold insurance in order to influence the developmental contribution of a project?
Llewellyn: If it's true that the only reason a businessman makes an investment is that he gets insurance, then he ought to be shot for doing it. I mean it very seriously.
MONITOR: It's clear that a business will consider investing only if the prospective host country presents an opportunity to make a profit. The question is whether den ring OPIC insurance would prevent the company from taking advantage of that opportunity. Would you insure a company even if you thought the company would go into the country anyway?
Llewellyn: I don't know whether the company will go into the country or not. That's exactly the question that's always asked. It's asked by my board members sometimes: "Will this company go into the country if it didn't have OPIC insurance?" And nobody really knows. I do think insurance availability is a factor in certain countries.
MONITOR: The Congressional intent behind the income cap and other restrictions was that OPIC should not devote its resources to the wealthier developing countries. For example, some have questioned why' OPIC recently insured 11 projects in Saudi Arabia.
Llewellyn: But they have great needs for development that have nothing to do with money. You know, I've got problems with you because I get very upset about all this stuff. Let me tell you. You guys are worrying about overseas-I could sit down and talk to you about development in the South Bronx and development in Watts, if you really want to talk about development. There's a whole lot of places in this very, very rich country where a whole lot of white people are walking around in good shape, and there's a whole lot of brown people and black people with their ass out of doors who can't make their first meal. So therefore to make these generalized statements that it's a wealthy country is not to talk about maybe 20 million black people and another 20 million brown people and others having a greatly difficult time. See, I don't quite understand what you mean by development. What do you think development means?
MONITOR: Well, the government established OPIC with the intent that it mobilize private capital to complement the resources of AID programs and multilateral lending. Congress also intended OPIC to stimulate local enterprises, transfer technologies and skills, and increase local employment and productivity. For example, rather than insuring a series of luxury hotels in a Caribbean country, OPIC should try to get investors for small agribusiness or mills that
Llewellyn: Who said that?
MONITOR: I'm just giving you a hypothetical.
Llewellyn: It stinks.
MONITOR: Why does it stink?
Llewellyn: If you go down and look at certain countries, one of their. great developmental plans is to increase tourism because that's one of their basic ways of putting a lot of people to work. So therefore to talk about not constructing luxury hotels is to put a big kabosh into their income stream. For example, l think after bauxite Jamaica's number one income producer ' is tourism. I71 take you to New York, I71 take you right down here. Who the hell do you think are all the chamber maids, all the cooks. Go take a look: they're the Puerto Ricans, they're the blacks. And what are they going to do if they don't have those jobs? It's all very nice to talk about building luxurious fancy hotels. All right, so the suckers are paying $100 a day, that's their problem. But what about the back-up people who are sitting there making a living because the people are paying $100 a day? One of the basic things I think is developmental is to provide the. individual man or woman with the ability to be selfsufficient in terms of a job which allows them to feed a family.
MONITOR: So as long as a project doesnot violate express restrictions in your authority, your major concern is that it creates employment?
Llewellyn: If you tell me you're going to build the biggest house of prostitution in the area and it's going to employ a lot of girls, I still wouldn't insure it. Just so you don't take your example too far.
MONITOR: To reiterate, are you suggesting that every legitimate business venture, approved by the host government, by creating a few jobs, constitutes a positive contribution to development? Many Third World development economists would find this a simplistic view of foreign investment. They point out that a project may have damaging ramifications throughout the economy which outweigh the apparent initial benefit. For instance, a capital-intensive investment may bring with it a small number of high-paid jobs that distort the nation's wage structure, sparking a general trend toward higher capital-intensity through mechanization that costs the economy afar greater number of jobs in the long run. Does OPIC recognize any criteria to identify projects whose effect on development is not merely small, but actually harmful?
Llewellyn: You characterize my answers as "a few jobs" and so on. I find the words inflammatory, but that's neither here nor there. As to the question, job creation is the most Immediate and critical factor in most of the developing countries. But it's only one of the factors that we take into account in our analysis. Keep in mind that the developing nations themselves take these factors into consideration. And frankly, I consider the host government's assessment of their needs. We don't tell them what their needs are, and we also consider the negative as well as the positive aspects in considering these projects. What I'm really trying to drive home to you is that I am not telling them what they have to take. This is not an AID program where I tell the host government, "I'm going to give you something." It's not the case. As for introduction of new technology, hell, that tends to create whole new areas of employment opportunity for people. Again,, we don't have a test called capital-intensive. The test is really called foreign government approval, and I can't emphasize it to you enough. Who are you, and, who am 1, to sit down and evaluate better what a country needs than the country itself? You find me anywhere in OPIC's mandate where it mentions capital-intensive and I'll eat your hat. .
MONITOR: Isn't labor-intensity in your mandate?
Llewellyn: Yes, that's jobs, isn't it?
MONITOR: But do you look at the relative proportion of jobs and capital?
Llewellyn: That's not in the legislation. Whatever my mandate mentions we handle and handle very well because we've got everyone from the General Accounting Office on our backs taking a look at these projects. to make sure we're meeting these mandates, and we've more than met them.
MONITOR: So you do not feel it necessary to look at the intensity of labor relative to capital?
Llewellyn: I don't think we do that. I really don't think we do that evaluation of capital to labor.
MONITOR: While you have fulfilled the Congressional mandate to increase the ratio of OPIC-insured projects carried out by small businesses, the ratio, of OPIC insurance dollars devoted to, small business is still much smaller. Do you have any plans to shift more of your coverage dollars to small businesses?
Llewellyn: That question does not pertain to me. The dollars are not my dollars. They represent the magnitude of the investment as put forth by the investor, and we only cover those dollars as they are presented to us. I have no ability to make an investment large, small or any other size-it's up to the investor himself.
MONITOR: Let's turn to the question of human rights. U.S. law directs OPIC and representatives to multilateral banks not to support projects in countries which systematically violate human rights unless the aid benefits the majority of the people. In 1978 and 1979 U.S. representatives at multilateral development banks abstained on votes for a $15 million livestock and animal project and a $23 million communications project in El Salvador, citing human rights conditions. But in those same two years OPIC insured five projects in El Salvador, while turning down only one on human rights grounds. How do you account for the seeming inconsistency in U.S. treatment of the human rights situation in El Salvador?
Llewellyn: The human rights consideration in the project OPIC turned down was that the owner of the project other than the American investor was the government of El Salvador. The U.S. government was consistent in turning down the project when the government of El Salvador was involved. The basic premise was not to do anything to enhance or help the government of El Salvador unless they changed, how they were treating the people of the country. As far as wholly-owned American investment doing something for the benefit of the people, the U.S. government was not against that.
MONITOR: It appears then, that the decisive factor is whether there is equity participation by a repressive government. Would OPIC ever refuse insurance to a solely private investment in a country that violates human rights because
Llewellyn: I want you to get off the question of human rights with me. I have nothing to do with it in the sense that I don't have the facilities to make those decisions and I'm not responsible for them. All I can tell you is that I refer the projects to the State Department, to the so-called Christoper- Committee, and how they go about it I do not know. Talk about human rights. Nice. I personally don't like it because people play games with it. You show me one person around here, in Congress or out, who really wants to stand up and say the South Africans are a no good bunch of sons of bitches, and we are really going to put it to them. Show me one of them for all of this talk about human rights. Sure, we jump on El Salvador because El Salvador is really a little know-nothing of a country by comparison. So hl Salvador gets creamed because El Salvador can't really do anything to hurt us. But I guess South Africa can do certain things in terms of cutting off raw materials, therefore South Africa is not to be talked about in the same context.
MONITOR: Do you have any final thoughts on where you would like to .see the Overseas Private Investment Corporation heading in the future?
Llewellyn: I would like to see OPIC be as effective a tool as possible for helping the so-called developing countries improve their standard of' living and their technology. I happen to think this is a two-way street. The United States government and the United States people are getting something out of this deal also. We're not there to exploit people or to take theirs and give them nothing. I think that would be a disaster from a foreign policy perspective. But if you go into a country and are a good partner, and you provide education, upgrade health and technology, provide jobs and what have you, I think you have a hell of a lot better friend in the long pull. We have to make a guy feel he's a part of our system. Don't say, "I'm only-here to help you, I'm not here to help myself." Say, "Yeah, we need your assistance, we need your bauxite, we need certain other things and we're prepared to pay for it, we're prepared to train your people, to help your government by paying taxes in the process. You'll be better off for having us in." That's my philosophy. *The conference report on the OPIC Amendments Act of 1978 lists "the type of factors which should be considered in evaluating the development impact of projects," starting with "The ratio of capital to employment."