The past week has been a tumultuous one for U.S. foreign aid — from executive orders mandating reviews of all programs to State Department cables stopping nearly all foreign aid projects. Much of the news has rightly been focused on USAID and the State Department, which appear to have borne the brunt of these dramatic stoppages.
But what does it mean for the newest of the U.S. foreign aid agencies, the U.S. International Development Finance Corporation, which was established during President Donald Trump’s first term?
Overall, the agency seems somewhat insulated from some of the turmoil, sources tell me. The State Department’s stop-work order says it applies to accounts funded by Titles III and IV of the state and foreign operations funding bill. DFC is funded through Title VI.
But there also seems to be some confusion about how exactly the executive order requiring a 90-day pause and review of foreign aid will apply to the agency. An internal email that I obtained says the agency is aware of the executive order and the potential impact on DFC clients.
“We acknowledge the challenges a delay may cause with our clients with respect to upcoming obligations and we are working at the highest levels of the U.S. government to finalize this analysis soon,” says the email to some agency staff members from Mateo Goldman, DFC’s senior vice president for investments. “We will be in touch as soon as we have additional clarity on this matter.”
There are questions, however, about certain parts of the agency’s work, such as its technical assistance funding and DFC’s Mission Transaction Unit, which works closely with USAID.
A DFC official tells me that the agency is working to review all executive orders in coordination with the administration.
“DFC will faithfully execute and comply with all executive orders and remains committed to advancing development finance initiatives that align with U.S. foreign policy and national security objectives of the Trump Administration,” the official says, referring me to the White House for any additional questions.
What we do know: To comply with Trump’s executive order cracking down on diversity, equity, inclusion, and accessibility, or DEIA, programs, the agency has put its head of DEI on leave. Staff have also been informed that they will need to return to the office, another requirement from a separate executive order. That could prove challenging as some staff were hired remotely. Hiring is also frozen, and some job offers have been rescinded, according to sources.
The agency has one political appointee at this point: David Glaccum, according to several sources. He previously worked at DFC as counsel to then-CEO Adam Boehler during the first Trump term.
DFC is different from other aid agencies in that it operates more like a financial institution, and its commitments are backed by the U.S. government. So if it fails to pay out on signed loan agreements, defaulting on its obligations, it could have significant repercussions. It could also hurt the agency’s reputation and make it less competitive, so it is trying to manage market perceptions to avoid being seen as unreliable, a source says.
One source familiar with the situation didn’t believe any loan payments would be missed for existing deals but said the agency is not signing any new agreements or commitments until it is told it can. “People are just worried because they don’t know what to expect,” one source tells me.
Exclusive: State Department issues stop-work order on US aid
Read: USAID threatens ‘disciplinary action’ in DEIA crackdown
+ Catch up on the latest news, in-depth analysis, and exclusive insights on how the Trump administration’s policies are reshaping global development.
Mutually assured construction
When is public consultation not public consultation? Maybe when it’s done on the basis of a nine-page PowerPoint presentation.
That’s one of the critiques from NGOs over a plan by the World Bank and Asian Development Bank to defer to the lead financier in some of their co-financed projects, for “all aspects of project appraisal, supervision, monitoring and reporting (including all fiduciary, environmental and social and technical assessments).”
The banks are set to greenlight the “Full Mutual Reliance Framework” this week, and say it is proof they are working more as a system. But NGOs such as Accountability Counsel argue it could lead to lower standards and make it harder for communities affected by projects to access remedies.
We asked ADB, for instance, whether the framework contradicted its new Environmental and Social Framework, which states that a common approach to environment and social issues in projects it co-finances is only acceptable if it applies the most “stringent” standard among all co-financiers.
The banks responded together that their analysis showed their policies, including the Environmental and Social Frameworks, are “substantially aligned.”
But Radhika Goyal, a policy associate at Accountability Counsel, disagrees, telling us by email that environmental and social safeguards should not be “weakened by stealth.”
Read: World Bank, Asian Development Bank under fire for mutual reliance plan (Pro)
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Speaking of accountability
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Kazakhstan
Development finance institutions do a lot of their lending through financial intermediaries such as banks. But one of the challenges is what happens when those institutions finance projects that don’t comply with the DFIs’ standards?
A case from the International Finance Corporation gives us a glimpse at some of the issues involved, including challenges in pursuing compliance. This week, I took a look at a new report from IFC’s watchdog organization that detailed issues with a management-endorsed plan to address problems caused by coal power plants financed by a Philippine bank that it has invested in.
Local communities report that the power plant projects have led to displacement, pollution, health issues, and disrupted livelihoods. And their complaint, brought against IFC years ago, also marks the first time that communities included greenhouse gas emissions among the harms caused by an investment.
“This case encapsulates the risky nature of financial intermediary lending, whereby a publicly-funded bank hands power over to profit-driven private banks, with catastrophic outcomes for people and the environment,” Daniel Willis, finance campaigner at Recourse, said in a statement.
Read: IFC response to problematic Philippine investment lacking, says watchdog
Davos data
0.8%
—That’s how much AI could lift global growth, according to International Monetary Fund chief Kristalina Georgieva at Davos last week. However, previewing yet-to-be-released research from the fund during a panel session at the World Economic Forum, Georgieva cautioned that there was a roughly 50% gap between advanced economies and low-income countries when it comes to the opportunity to translate AI into growth. In low- and middle-income countries, she said, the AI discussion remains “a bit theoretical” for a very significant part of the economy.
To catch up on our coverage of the just concluded WEF in Davos, check out my colleague Elissa Miolene’s wrap-up of the event.
ICYMI: Devex Davos Dispatch — And the mountains go quiet
What we’re reading
A United Nations official slams World Bank-funded private hospitals at Davos. [Bloomberg]
World Bank project canceled in a landmark victory for Tanzanian villagers. [Oakland Institute]
The future of official development assistance: Incremental improvements or radical reform. [Center for Global Development]
Vince Chadwick contributed to this edition of Devex Invested.
About the author
Adva Saldinger@AdvaSal
Adva Saldinger is a Senior Reporter at Devex where she covers development finance, as well as U.S. foreign aid policy. Adva explores the role the private sector and private capital play in development and authors the weekly Devex Invested newsletter bringing the latest news on the role of business and finance in addressing global challenges. A journalist with more than 10 years of experience, she has worked at several newspapers in the U.S. and lived in both Ghana and South Africa.
