Many governments in industrial countries have their own development banks to foster international loans and investments. The three leading institutions of the USA are the Export-Import Bank, the Agency for International Development, and the Overseas Private Investment Corporation.
The Export-Import Bank (Ex-Im Bank) The Ex-Im Bank provides investment funds to MNCs. These funds include long-term direct financing to facilitate the purchase of US goods and services used in industrial projects in foreign countries. In this type of long-term direct financing, the Ex-Im Bank expects substantial equity participation by the borrower. Moreover, it provides US companies with guarantees on their engineering and feasibility studies, as well as on their technical and construction services, performed abroad. In summary, the Ex-Im Bank is a key source of financing overseas projects when private sources are not available. These projects must be economically justifiable, contribute to the economic development of the country, and improve the country's foreign-exchange position.
The Agency for International Development (AID) The agency was established in 1961 to carry out nonmilitary US foreign-assistance programs. As an agency of the US State Department, AID emphasizes assistance to friendly governments or to support programs that will make foreign friends for the USA. As the primary aid agency of the US government, it performs three functions:
1 It administers the government's programs of technical cooperation with less developed countries.
2 It administers the government's economic programs for less developed countries.
3 It carries out special emergency programs as directed by the US President.
Development loans are made to friendly governments, and private companies may borrow these funds from their governments. To prevent a heavy drain of US dollars, loans are usually tied to purchases of US goods and services. Moreover, these funds are generally maintained in the USA and are simply made available for use by recipient countries. All development loans are repayable in dollars and can have a maximum maturity of 50 years, with a grace period of 10 years. In making development loans, AID considers the availability of funds at reasonable terms from other free-world sources. Interest rates are usually lower than international money rates.
The Overseas Private Investment Corporation (OPIC) The corporation was established in 1969 to take over AID's responsibility for investment insurance and guarantee programs. The OPIC became operational in 1971 and is wholly owned by the US Treasury Department. It operates two programs: insurance of US private investments in less developed countries and project financing. More specifically, its insurance programs cover losses from political risks of currency inconvertibility, expropriation, and land-based war to US companies that make investments in friendly developing countries. Its project financing is carried out through an investment guarantee program. This program provides guarantees against losses from commercial and political risks, direct investment funds in dollars or foreign currencies, and a pre-investment survey program.
The OPIC combines private business with the US foreign-policy objective of encouraging American firms to invest in less developed countries. Thus, it grants insurance and guarantees for projects which are in the best interest of both the USA's and the host country's economy.
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