WASHINGTON — In a speech in Vietnam on Friday, United States President Donald Trump said that his country is committed to reforming its development finance institutions.
“We’re also committed to reforming our development finance institutions so that they better incentivize private sector investment in your economies and provide strong alternatives to state-directed initiatives that come with many strings attached,” he said during a speech at the Asia-Pacific Economic Cooperation summit.
His comments signal what appears to be a remarkable turnaround in administration policy on development finance. In his 2017 fiscal year budget recommendations, the president called for the Overseas Private Investment Corp., the U.S. development finance institution, to “initiate orderly wind-down activities.”
The idea that the U.S. may get a new or reformed development finance corporation, which Devex previously reported, seems to be gaining momentum both in the administration, with this speech, and in Congress.
The United States may soon have a new development finance corporation. Efforts are underway in Congress and in the Trump administration to create a new development finance institution with greater capabilities and the ability to grow. Here's what you need to know.
The administration will now likely include language about a newly-empowered development finance corporation in the fiscal year 2019 budget request, incorporating plans to consolidate other agencies or functions. Bills to improve the effectiveness of the U.S. government’s development finance capacity are also being drafted in both the House and the Senate.
The shape of a new or reformed development finance agency is still unclear, but it would likely see an expanded OPIC. The new bank could also absorb other agencies or functions related to development finance, such as the U.S. Trade and Development Agency and the U.S. Agency for International Development’s Development Credit Authority, according to several people with knowledge of the discussions.
OPIC has a roughly $22 billion portfolio of loans and guarantees in about 100 developing countries, an increase of about 160 percent from 2009. The agency operates at no cost to taxpayers and has generated about $2.3 billion for the federal government in the past six years. But OPIC has struggled in recent years to secure a long-term mandate, relying instead on yearly authorizations through the appropriations process. The agency has also been hamstrung by limits on its authorities, particularly its inability to make equity investments.
OPIC’s CEO Ray Washburne, released a statement Friday saying that he applauded the president’s commitment to improving U.S. development finance.
“The private sector is critical to international development, and a modernized approach by the U.S. government can better catalyze U.S. private capital to invest in projects that advance our foreign policy goals. I look forward to working with the president, the administration, and Congress to better meet the development challenges of the 21st century,” Washburne said.
Advocates for improving U.S. development finance capabilities hope a new or reformed agency could put the U.S. back on a level playing field with other donor countries. Trump’s commitment, in a speech largely focused on an America First trade policy, seemed to indicate a U.S. desire to offer an alternative to Chinese development finance and not miss out on U.S. ability to do business in the region.
“We know it is in America’s interest to have partners throughout this region that are thriving, prosperous and dependent on no one. We will not make decisions for the purpose of power or patronage. We will never ask our partners to surrender their sovereignty, privacy, and intellectual property, or to limit contracts to state-owned suppliers,” Trump said in the speech. “We will find opportunities for our private sector to work with yours and to create jobs and wealth for us all.”
In addition to committing to reforming U.S. development finance, Trump also said the U.S. would refocus existing development efforts and would call on the World Bank and the Asian Development Bank “to direct their efforts toward high quality infrastructure investment that promotes economic growth.”
Congress will pick up a discussion about the role of development finance in the Asia Pacific region next week at a House Foreign Affairs subcommittee on Asia and the Pacific hearing on Nov. 15. In a statement posted online about the hearing, Rep. Ted Yoho, a Republican from Florida, and the chairman of the subcommittee wrote: “This is all the more important as China’s Belt and Road Initiative, advancing China’s interests and influence, sometimes at the expense of our own, stands unchallenged as the region’s premier economic engagement initiative. Development finance mechanisms are important tools for reshaping U.S. development assistance in Asia to become more sustainable, better serve U.S. foreign policy and security goals, and generate more economic opportunities for the United States.”