Congressional hearing signals support for new development finance corporation

WASHINGTON — The prospect of a new U.S. development finance institution is closer to reality, after a promising House Foreign Affairs Committee hearing on the subject Wednesday and a Trump administration statement in support of the BUILD Act, which proposed the creation of a new U.S. development finance institution.

Wednesday’s hearing was far from the tense affair down the hall, where lawmakers grilled Facebook CEO Mark Zuckerberg. Ray Washburne, the CEO of the Overseas Private Investment Corporation, responded to mostly friendly questions about the new BUILD Act legislation from members of the committee, all of whom expressed support for a new development finance corporation.

The atmosphere was so positive that Rep. Brad Sherman, a Democrat from California, joked that his colleagues who are used to him asking tough questions would be shocked as he struggled to come up with challenging questions for Washburne.

More than one member of Congress, including Rep. Ami Bera, a Democrat from California, said that perhaps this could mark a new era in bipartisan cooperation, noting the support for the idea and the BUILD Act from the White House, former Obama administration officials, and lawmakers in the House and Senate.

“It’s a testament to the importance of OPIC and a belief the U.S. has to be engaged globally in a smart way. We have to modernize the way we compete and invest,” Bera said.

To OPIC supporters this kind of support may come as something of a surprise — the agency has operated without a long-term reauthorization for a decade, with recent efforts scuttled due to a lack of congressional support.

On Tuesday night, just ahead of the hearing, the Trump administration released a statement saying that it “strongly supports the goals” of the BUILD Act “to consolidate the Overseas Private Investment Corporation (OPIC) and certain aid programs into a reformed international Development Finance Institution (DFI) that catalyzes market-based private sector development and economic growth in less developed countries to advance the national interests of the United States.”

U.S. development finance tools are outdated, the statement continued, which has hurt the ability of the U.S. to achieve foreign policy and national security goals. It said the new DFI would help the U.S. compete globally. The administration also said it looks forward to continuing to work with Congress on the pair of House and Senate bills, both called the BUILD Act, and had a few recommendations.

“We believe the bills need to be strengthened to further ensure that the important work of this institution aligns with U.S. national interests and has strong institutional links to the programming of USAID and other development agencies. The bills must also include a revised funding structure for the institution and reforms to better manage risk to the U.S. taxpayer and avoid displacing private sector resources,” the statement said.

The issue of competition was echoed repeatedly in the hearing, with many mentioning China’s large development finance investments and its Belt and Road Initiative. The chairman of the committee Rep. Ed Royce, a Republican from California, said China “entices governments in search of cheap money and saddles them with debt” through what are “predatory lending practices.”

“We can and should do more to support economic development,” he said.

While a new DFC could never compete with China dollar for dollar, it could make strategic investments and provide a “robust alternative to state-directed investments,” Washburne said in response to the ability of the new DFC to counter China.

“It’s more of a strategic play for us because our dollars are very limited,” he said. “I am not an aid agency; I am a business agency. I have to underwrite projects that will make a profit and come back.”

The new DFC’s development mandate is also an issue that some have raised — both in how the legislation outlines its mission and how it would work with the U.S. Agency for International Development and be in line with development policy.

Rep. Gerry Connolly, a Democrat from Virginia, asked about folding USAID’s Development Credit Authority into the new DFC, and about preventing unintended consequences that could hurt USAID, or USAID capacity. Bera said that while development finance is a powerful tool, it needs to be “wielded” by development professionals and should complement and not replace other assistance.

Royce also asked about moving DCA into the new DFC. DCA relies on the experience of USAID employees in the field ensuring that the guarantees are in line with development objectives, Royce said, asking if the new institution would still benefit from U.S. personnel in the field.

Washburne said that he met with USAID Administrator Mark Green last week and that the proposal has his support. There are, however, some ongoing interagency discussions about the specific relationship between the two agencies and some other details of a new DFC, according to sources familiar with the process.

Royce also said that earlier Wednesday there were some discussions about the linkages between USAID and the DFC and that it “behoves us, as the bill moves forward, to define that more precisely.”

The new DFC would also have a new independent inspector general to expand transparency and better manage taxpayer risks and ensure that investments will not subsidize projects that can and should be done by the private sector, Washburne said in his opening statement, preempting questions on the issue of accountability and additionality.

While the members of Congress were supportive overall, it was clear that some didn’t fully understand how OPIC runs, or some of the complexities of development finance, leaving Washburne at times seemingly struggling to respond to the questions being asked. In an exchange with Rep. Dana Rohrabacher, a Republican from California, there was some confusion about loan guarantees and whether the U.S. government bears all the risk, or if the banks involved in the deals lose out if the deals go bust. The banks who receive loan guarantees do bear some of the risks.

Rohrabacher’s underlying concern was about U.S. taxpayers losing money on deals that go bad, and he asked for examples of deals that hadn’t worked out. Washburne said none had in his tenure, but that he would provide the congressman with a list of OPIC deals. Since it was founded in 2015, OPIC has had about a 1 percent default rate, and just last year returned more than $250 million to the U.S. Treasury, Washburne said in the hearing.

Some questions were raised about the addition of equity capability, which tried to get at if and why it was important. Washburne’s response was that it would give the DFC an additional tool — one that all other development finance institutions have — and enable it to better partner and collaborate with others.

Other questions were raised about OPIC lending to diverse businesses and business owners, cooperation with existing U.S. programs, whether OPIC would take on more risk and invest more in the poorest countries, and how OPIC evaluates deals to ensure that American dollars don’t go to organizations that are counter to foreign policy objectives.