I do recall an OPIC fund of similar size designed for local investment in the Gaza and W Bank after Oslo. Designed to secure and advance the peace through joint ventures like Marriotts in Gaza and canning plants or something. Sure worked well. I can imagine with a greater hubristic challenge like re-making the region into democracy how well this will work -- its political purpose, I speak of.

It may however result in a good project here or there, line pockets of various wasta'd parties, and of course, unironically I say deservedly so, our good Mr. Lounsbury.

The OPIC fund for the West Bank - Ghaza was cancelled, never executed.

Re current fund effort, actually it seems largely private driven so in terms of wastage I think that will not be an issue so long as there is good governance (and I think there is in this group).

The issue is rather does it really work for a policy goal?

A natural pessimism says it will not acheive the policy goal. One thing I do not understand is this thing called "political risk insurance" which I believe OPIC had in the past and assume they have now. Doesn't it give that dangerous sense of lowered risk, a la USA gov't-insured Savings and Loans of the 1980s, that make investments reckless.

W Bank-Gaza cancelled? Well that explains why some folks I know never followed through on some joint ventures in the works. Wonder why they cancelled, I remember it during an optimistic time like 1995-6.

Political risk insurance is coverage against 'political' events such as expropriation and similar events. It's their core product.

I don't think there is unmanageable moral hazard in the offering, and it strikes me it has been useful in helping early boost to perceived dangerous countries. Would have been brilliant to have it ready as a product in Iraq in 2003, but they missed it. One can buy similar products from AIG for many countries, and by mandate OPIC asks clients to 'prove' they have not been able to secure reasonable quotes from a private provider.

In the end, any insurance product carries moral hazard, the key question is what is the benefit versus the cost, and is the total risk priced correctly? The S&L problem is a seperate issue - unless you want to rail on about deposit insurance generally - and one largely in my understanding tied to US domestic political decisions that trumped standard technocratic system management, as in easing prudential rules. If my recollection is correct, then the issue there is not the moral hazard from an insurance product, but the moral hazard from a purely political easing of the rules surrounding guarantees.

As for the West Bank Gaza fund, it was unable to raise capital, I understand, and close. Another fund was raised for the region and launched c. 1997/8 but I can't speak to that for legal reasons.

As to the policy angle, I suppose one has to be clear on what policy and what objectives. Transformation? Assisting entrepreneurship? Boosting quality financing vehicles for growth oriented firms?

Direct political goals are not going to be achieved, but I think assisting entrepreneurship, boosting quality financing vehicles for growth oriented firms in a region where capital tends to flow to very traditional destinations is a valid goal.

Now, my question is, does this fund with its sweeping mandate and sweeping geographical range do that?

With that sort of scope (sectors and geography), looks to me like they're just trying to get their feet wet and do some business under the theory that just about any private sector investment in the region is a good thing. I'd be interested in what they're targeting as their standard size investment. With that size fund, and assuming say 20? investments, average $10 mil for, what, max 1/3 -- that's average project size $30 mil? Seems a bit large for me for private equity as we normally think of it. But then the EMP folks are more in the infrastructure business and are used to boxcar numbers. So your assumption that the fund will wind up having an infrastructure focus, even though that's not emphasized in the laundry list of investible sectors, is probably right.

My other question is whether the EMP group intends to take the lead in scaring up and assembling projects, or whether they think there's other private equity floating around in the region that has projects and is looking for someone to come in. Again, with those wide-ranging investment objectives, looks like they expect to tag along rather than lead. So maybe your new fund can flog deals to this outfit.

The OPIC staff may have sold the fund on the basis of grand political objectives. But I expect the real thinking to be that, based on the experience of this fund, they can refine their objectives -- both investment and political -- for the next fund. Or if this fund looks like it's being wildly successful during invest-up, it will draw in competing funds to the region who won't need the OPIC angle as part of a fund package in the future.

As for an OPIC-guaranteed Iraq fund 2 years ago -- well certainly more sensible than the Baghdad Stock Exchange, I'll grant you. But even so, a tad premature?

Nadezhda, your observations deserve a post on their own insofar as I was thinking about this anyway - no surprise I suppose it is my business and obsession.

However, re the OPIC fund proposed / postulated in 2003, too early? Given what happened, perhaps, but there are ways to make money. Afraid I can't comment further on that effort, legal issues.