WASHINGTON — A former head of the United States Agency for International Development’s Development Credit Authority cautioned that the proposed U.S. Development Finance Corporation could end up jeopardizing the efficiency and ultimate success of DCA if restructuring is not handled properly.
Ben Hubbard, who ran DCA during the Obama administration, said he supports creation of the new institution, but moving DCA into the new DFC, as proposed, could eliminate some of the characteristics that make it most effective.
“When you take DCA out of USAID and put it into another structural environment, it can no longer operate and adapt to USAID systems,” Hubbard said on April 6 during a conversation at the Center for Strategic and International Studies. “My fear is once you take [DCA] out, the DFC — because DCA is no longer in that system — finds it really impossible to access USAID resources.”
The bipartisan Better Utilization of Investment Leading to Development (BUILD) Act introduced in the Senate and House in February aims to combine the Overseas Private Investment Corporation and several parts of USAID that deal with private finance, including DCA. The new institution would have several capabilities that OPIC, the current U.S. development finance institution, does not have: A higher spending cap ($60 billion vs. OPIC’s current $29 billion), the ability to make equity investments, and the ability to give grants for technical assistance and project development.
Hubbard said part of the motivation for moving DCA to the proposed new entity is political: Making it seem like the DFC consolidates current U.S. agencies or programs doing development finance could help gain more support from Republicans, getting the bill through both chambers of Congress and to President Donald Trump’s desk.
Indeed, in his statement announcing the introduction of the bill, co-sponsor Rep. Ted Yoho, a Republican from Florida, said a goal of the new DFC would be to “streamline” the current system. “Right now, we have multiple federal agencies distributing foreign aid around the globe,” Yoho said. “The BUILD Act will consolidate various federal development programs and agencies into one full-service, self-sustaining U.S. International Development Finance Corporation (IDFC).”
But consolidation is actually a false choice, Hubbard said.
“There’s a myth that DCA and OPIC are doing the same thing in the same places. And that is absolutely not the case,” Hubbard said. “If I thought you could pull DCA out and combine it with the DFC and have it all work, I’d be for it. But I think you break it. And I just hate this idea of messing with something that’s working.”
Hubbard said that during his tenure at DCA, regular portfolio reviews were done by DCA and OPIC to make sure the two institutions weren’t overlapping needlessly. He said they share information about what deals each entity is pursuing and where, and what banks they are working with.
“In the last four years, they’ve actually been comparing deals — they’re all different,” Hubbard said.
Amb. John Simon, a former vice president of OPIC, noted that his former agency also used to be part of USAID before it was spun out, and that DCA’s history of success isn’t reason enough not to consider moving it to the new DFC. He said the new DFC could benefit from the expertise of DCA as it works to create a standardization of practices, and it could spur more innovation.
“I’m a big fan of the DCA. The DCA has been an incredible development tool,” Simon said. “But just because something has been successful doesn’t mean it should stay where it is forever.”
Mary Ott, a former senior deputy assistant administrator in the bureau of Economic Growth, Education and Environment at USAID, said whatever existing programs get wrapped into the new DFC, it must have a very concise mandate that makes it crystal clear what it does and does not do.
“One of the miseries of USAID is we are set up — and this is more of a political thing — to be all things to all people,” Ott said. “It would be really important to try not to have a DFI with the same problem.”
She said the most functional DFIs are specialized in particular sectors that do defined types of deals with a clear mission, and the new institution is a real opportunity to design a system that works as efficiently as possible with USAID to achieve maximum impact.
Hubbard said DCA already has a good sense of its mission and already knows how to work well with both USAID and the private sector.
“Let’s make DCA the kind of dual-hatted program unit but have it actually sit at USAID and continue using the structures and processes it has, but let’s give it the ability to actually open those up to the DFC,” Hubbard said. “I think DCA would love to be able to work more formally with the DFC, and I think ultimately it would benefit the DFC.”