Host country currency exchange restrictions can affect the commercial viability of your project, making it difficult to convert and transfer profits.
OPIC inconvertibility coverage can insure conversion and transfer of earnings, returns of capital, principal and interest payments, technical assistance fees, and similar remittances.
Coverable host country government acts may take many forms, including:
- New, more restrictive foreign exchange regulations
- Failure by an exchange control authority to approve of -- or simply to act on -- an application for hard currency
- An unlawful effort by the host government to block funds for repatriation
- Discriminatory host government actions resulting in an inability to convert and transfer local earnings
OPIC inconvertibility coverage does not protect against the devaluation of a country’s currency.
Political risk insurance in action: Protecting against Currency Inconvertibility in Venezuela
OPIC insured a U.S. financial services corporation against currency inconvertibility on a loan it provided to a Venezuelan passenger-ferry company to be used to purchase ferry-boat engines and other related equipment.
When the contract of insurance was issued, Venezuelan law allowed foreign investors operating in the country to convert and transfer abroad the proceeds of their investments. However, 18 months later, the Law of the Central Bank of Venezuela was amended. Among the changes was the creation of certain restrictions to the conversion of Venezuelan bolivars to U.S. dollars. After a steep decline in the value of the national currency following a two-month general strike that brought oil production to a near standstill, the Central Bank of Venezuela halted trade in Bolivars. The following month, the Government of Venezuela imposed stricter exchange controls, restricting access to foreign exchange and requiring prior authorization for purchase and sale of foreign currency through a newly created Exchange Administration Board.
As a direct result of these political acts, the U.S. based financial services corporation was unable to legally convert local currency to U.S. dollars through any customary channel for 60 successive days. The business submitted a claim, and OPIC determined that the claim was valid and paid, in U.S. dollars, the amount that the U.S.-based company was unable to convert due to the tighter restrictions.