Time to fully fund and enable the U.S. International Development Finance Corporation
At the start of the last decade, it became increasingly clear that the United States had fallen behind in the international development game. New players like China with its “Belt and Road Initiative” (BRI) were beginning to take center stage — to the detriment of nations that agreed to partner with it — and the U.S. was quickly losing ground that had taken years to gain.
For these reasons, the 115th Congress created a new international development tool in the form of the U.S. International Development Finance Corporation (DFC). Introduced as the BUILD Act in 2018, the bill was passed by unanimous bipartisan majorities in both the House and Senate.
The DFC replaced the successful but outdated Overseas Private Investment Corporation (OPIC) to offer a U.S.-led foreign aid vehicle to the world as an alternative to China’s BRI. China’s BRI has faced accusations of “debt-trap diplomacy,” deceptive and abusive development practices, and shoddily built infrastructure.
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One area of improvement over OPIC is the DFC’s ability to partner with development finance institutions in other countries as well as private equity interests in financing international projects. This enables our development assistance to more effectively leverage the power of the private sector to complete major infrastructure projects with less risk to American taxpayers.
When Congress passed the BUILD Act in 2018, it intended the DFC to be fully funded and functional on day one. This included the ability for the DFC to leverage equity authority as part of its financing ability. Despite the general success of the DFC since its launch, however, there are still issues regarding equity authority that Congress and the administration must address.
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However, since its passage the Office of Management and Budget (OMB) along with the Congressional Budget Office (CBO) have held up DFC funding the way Congress planned. This has prevented the DFC from getting off the ground to fulfill its intended purpose. In a rapidly changing world with other countries offering an alternative to Western democracies it’s imperative that we fund the DFC as Congress intended when it was signed into law.
To not adequately fund this new anticipated development tool, weakens America’s hand in the development world and discredits our nation’s ability to compete in the 21st century on the world stage. It also lends more credibility to China’s BRI that uses predatory lending to prey on weaker nations that need a hand up not debt trap diplomacy. We ask the OMB and CBO to fund the DFC as intended and to give it equity authority.
Currently, funding for the DFC is appropriated on a dollar-for-dollar basis, which places pressure on limited financial resources and presumes that every dollar of equity invested would be lost. Under legislation I introduced earlier this year, this inefficient funding approach would be replaced by utilizing equity authority to treat investments as loans under the Federal Credit Reform CT of 1990 and require an upfront annual appropriation at a fraction of the cost of the current dollar-for-dollar approach. This in turn leverages greater economic power through the U.S. Treasury Department and places less financial risk on American taxpayers.
While this approach has broad bipartisan support in Congress and the administration, the legislative fix has so far been held back by a small group of federal employees in the OMB and CBO. This has prevented the DFC from reaching the extent of operational capacity that Congress intended and handicapped the organization right out of the starting gate.
To fund this new development agency inadequately weakens America’s hand in the development world and discredits our nation’s ability to compete on the world stage. It also lends more credibility to the BRI and forces developing nations with immediate needs to reluctantly agree to predatory lending and decreased autonomy. As essential organs to protecting America’s financial accountability, I urge the OMB and CBO to embrace equity scoring and fully fund the DFC as Congress intended to protect taxpayer money and enable the U.S. to compete once again on the field of international development.
• Ted S. Yoho is a Republican U.S. representative from Florida.