Exclusive: New US DFI expected to get strong White House support

The White House. Photo by: Powhusku / CC BY-SA

WASHINGTON — A long-awaited, bipartisan bill in the United States calling for the creation of a new development finance institution is expected to be introduced as soon as next week in the Senate and House of Representatives. Supporters are optimistic they will get strong backing from the Trump administration to usher it into law, according to people familiar with the effort.

If lawmakers do move a new U.S. development finance institution from proposal to reality, it will stand as a major aid reform accomplishment at a time when many development programs are facing White House pressure to cut back. The new institution would also mark the arrival of development finance in a more central role in U.S. global development policy, having overcome political battles that hindered efforts to strengthen these institutions in the past.

Those who have called for years for more robust U.S. government tools to engage in development finance are optimistic about the direction they think this bill will take a new institution, and the likelihood it will find enough support on Capitol Hill, in the White House, and across government agencies.

One supporter with knowledge of a recent version of the proposal — who spoke about a bill that has not yet been finalized on the condition of anonymity — said this will be, “a very, very full-throated effort to provide this country with the most timely and effective way to engage in development finance that people can imagine.”

The new bill is expected to be introduced soon by Republicans including Bob Corker in the Senate and Ted Yoho in the House, and Democratic Senator Chris Coons. It is still incorporating feedback from the White House.

Congressional offices that responded to inquiries from Devex stressed the bill is still a work in progress.

“While nothing has been finalized, Senators Corker and Coons continue to work with their colleagues to build support for development finance legislation,” Micah Johnson, communications director for Corker, told Devex in an email.

According to the person familiar with a recent draft, the bill will call for the creation of a new institution that will absorb the Overseas Private Investment Corp. and the U.S. Agency for International Development’s Development Credit Authority.

The new institution would have the authority to do small grants and feasibility studies, much in the way that the U.S. Trade and Development Agency currently does. But the person familiar with the effort said that USTDA will likely continue to exist as an independent agency.

The new institution would also have the ability to take an ownership stake — or equity — in its investments, an authority that OPIC currently lacks, but which its leaders and supporters have long argued in favor of granting. OPIC is currently only allowed to offer risk insurance and debt financing. Previous calls to grant the agency equity authority were scuppered by politicians worried about government interference in the free market, but development finance advocates have won over many of their detractors.

“For many strategic projects in important countries, given their risk profile and their stage of development, equity rather than debt is the most appropriate and most constructive instrument,” said Todd Moss, senior fellow at the Center for Global Development.

The person familiar with the latest version of the bill did not specify exactly how large the new institution would be, but said the bill will aim to raise the new finance institution’s liability limit. OPIC is currently capped at a $29 billion liability ceiling. Raising that would grant the new institution more headroom to pursue financing deals around the world.

“OPIC is a high-performing agency given its size, but it’s still an agency that was launched in the Nixon administration, and its age is showing,” Moss said.

Any effort to merge or shift responsibilities among government agencies runs the risk of inciting turf battles, and the authors of the new bill have taken pains to maximize “collaboration and cooperation” between the new development finance institution and USAID, according to the person with knowledge of the process.

The USAID administrator would have a role on the institution’s board, the person familiar with the bill said, speculating that there could be opportunities to draw closer links between USAID country missions and development finance investments.

“Development finance is the future of development policy.”

— Elizabeth Littlefield, former president and CEO of OPIC

Enhancing U.S. development finance could fit neatly into an agenda that has emerged as one of USAID Administrator Mark Green’s biggest early priorities — finding ways to “transition” countries from development assistance to a new form of partnership with the U.S. government. Green has repeatedly stated that the purpose of foreign assistance should be ending its need to exist. One way to do that would be using foreign assistance money to lay the groundwork for private investment, which a development finance institution could encourage by reducing investment risk in developing countries.

“There’s an iconic notion of a relay, where the ground is prepared by USAID and others for OPIC to then come in and make an investment, which then may give rise to the opportunity for exports down the road … It’s like a handoff,” said Elizabeth Littlefield, who led OPIC during the Obama administration.

OPIC and USAID have worked to create those links between assistance programs and development finance investments in the past, but they have happened on a “deal-by-deal-by deal” basis, Littlefield said. “We could do a huge amount by building much better and more explicit plumbing between the agencies,” she added.

“Development finance is the future of development policy. We want to shift away from foreign assistance to foreign investment, and countries want to shift away from being aid recipients. They want private investment, and development finance is the public policy tool to catalyze capital flows into productive sectors,” Moss said.

Read more Devex coverage on U.S. aid.

About the author

  • Michael Igoe

    Michael Igoe is a Senior Reporter with Devex, based in Washington, D.C. He covers U.S. foreign aid, global health, climate change, and development finance. Prior to joining Devex, Michael researched water management and climate change adaptation in post-Soviet Central Asia, where he also wrote for EurasiaNet. Michael earned his bachelor's degree from Bowdoin College, where he majored in Russian, and his master’s degree from the University of Montana, where he studied international conservation and development.