US Development Finance Corporation hopes to BUILD on its future
DFC head Scott Nathan talks about the growth of his young agency, and the future growth he hopes it has.
By Anna Gawel // 27 June 2024The U.S. International Development Finance Corporation is one of those rare government creatures that enjoys relative bipartisan support — relative being the operative word. It remains to be seen if that support will continue as it pushes for a congressional reauthorization of the BUILD Act, which established the agency in 2019. Since then, DFC — which funds private sector development projects abroad — has grown exponentially, with staff members roughly doubling in size from around 300 to 600 today and its original $29 billion lending exposure cap expanding to $60 billion. It hopes to go even further — and putting the wind at its back is one of DFC’s core missions: offering developing countries an alternative to China, a geopolitical self-interest that appeals to many Republicans and Democrats alike. “Part of the idea was to show up to make sure that we were answering the call in the developing world for choice,” said Scott Nathan, the head of DFC, who spoke at a Devex event held in Washington, D.C., on Wednesday. “And I have really found that when I meet with world leaders, when I meet with African heads of state, leaders in Latin America, they're looking for diversity in their partnerships,” Nathan said. “They're looking for support that doesn't have strings attached, that's focused on high standards, high-quality projects, [on] support for the private sector. And I think that's a major differentiator — that by supporting the private sector, we're leading to a more sustainable source of finance and replacing a kind of dependency type of relationship.” Rep. Andy Kim, a Democrat from New Jersey who also spoke at the event, said that the competition with China has only heightened in the current political environment, which could help propel the BUILD Act’s reauthorization. “It is about the global strategic competition,” he said. “Everybody in Congress wants to make sure that we can meet that moment, that we can use these tools in a way that betters our strength and our foundation.” But Kim said it’s not just about reflexively trying to counter China’s every move and only seeing countries as geopolitical “chess pieces,” but also about building coalitions so that countries view the United States as a reliable partner. “This is not a time when America can or should bully other countries to pick a side on this great power competition … and frankly, you know, especially in the Indo-Pacific, I talked to leaders in other countries and they're like, ‘Look, if you're gonna make us choose between the U.S. and China, you may not like the answer to that.’ You know, we need to be very mindful and bring a lot of humility to the work that we do,” he said. “There has, unfortunately, become this growing strand of neo-isolationism in our country that is trying to make it seem like everything's zero-sum. And where I like to bring it back to is this question of what does American global leadership mean at this moment?” he added. “We get value out of this. This isn't charity. This is about our sense of what our country stands for and our ability to try to impact others.” “I don't see developing impact and advancing our national security as [separate]. They actually are woven together.” --— Scott Nathan, CEO, U.S. DFC Former Republican Rep. Ted Yoho of Florida agreed that the work of DFC can be mutually beneficial. “We want to do what that country needs, for the benefit of that country, not for the benefit of another nation. We want that country to grow and prosper … to where they're not migrating, and it's a safer country for us. So it's really a national security issue too,” Yoho said at the event. The DFC’s raison d’etre has been debated by lawmakers, with some saying it’s primarily a development agency for lower-income countries and others saying its fundamental purpose should be advancing U.S. geopolitical aims. Nathan said his agency can thread the needle and be both. “I don't see developing impact and advancing our national security as [separate]. They actually are woven together. And the projects that we do that are highly developmental are also strengthening our national security, promoting our foreign policy interests, leading to economic growth, opportunity, and stability,” he said. Just as DFC wants to boost economic growth abroad, its supporters want the agency to broaden its mandate. They’re advocating members of Congress for a reauthorization that would, among other things, broaden the number of upper-middle and high-income countries DFC can work with — DFC’s website lists over 100 countries where it cannot do business for a smorgasbord of reasons — change the current income-based restrictions, expand its lending cap, and loosen onerous restrictions placed on it by Congress. “As someone who's been in four different agencies in the executive branch, you know, I see how sometimes we really hold ourselves back from operating in the way that we need to, and we need a tool that can be fast and nimble. And I just don't want the DFC to just become another big executive branch institution in that same way. It's meant to be different,” Kim said. Another reauthorization priority would be allowing DFC to expand its private equity portfolio. Currently, the U.S. government treats DFC’s equity investments as a grant, assuming a total loss of money, even though data indicates the investments would generate money over time. It also requires direct appropriations from Congress to cover the costs, further restricting the amount of equity DFC can invest. The agency, along with a group of lawmakers and advocates, want to change that and treat equity investments more like loans, where a smaller pool of money can be leveraged to make more investments. “The history of private equity investing in emerging markets shows high single-digit annualized returns over long periods of time, and I think we should be able to achieve that,” Nathan said. None of these fixes are guaranteed — nor is reauthorization by Congress. For example, one Republican lawmaker, Rep. Mario Diaz-Balart, recently blasted DFC for pursuing a “woke agenda” by funding areas such as gender equity and climate change, undercutting our competitive edge with China, he argued, because Beijing doesn’t push such investments. Meanwhile, a Democratic lawmaker, Rep. Joaquin Castro, warned about eroding the agency’s development mandate by focusing too heavily on China. “I fear that if this agency simply becomes a bank to execute the foreign policy priorities of the United States, the bipartisan coalition that supports the DFC will splinter,” Castro said at the House Foreign Affairs Committee hearing last month. Despite the squabbles, Nathan, Kim, and Yoho were hopeful that the BUILD Act would be reauthorized. “I'm optimistic that it will happen. If it doesn't happen this year, it will happen next year,” Yoho said. “It needs to. If not, we lose our credibility … and somebody will fill that, and so this is something that we can offer a better product to raise these countries out of their situation so that they can have a flourishing economy.”
The U.S. International Development Finance Corporation is one of those rare government creatures that enjoys relative bipartisan support — relative being the operative word. It remains to be seen if that support will continue as it pushes for a congressional reauthorization of the BUILD Act, which established the agency in 2019.
Since then, DFC — which funds private sector development projects abroad — has grown exponentially, with staff members roughly doubling in size from around 300 to 600 today and its original $29 billion lending exposure cap expanding to $60 billion.
It hopes to go even further — and putting the wind at its back is one of DFC’s core missions: offering developing countries an alternative to China, a geopolitical self-interest that appeals to many Republicans and Democrats alike.
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Anna Gawel is the Managing Editor of Devex. She previously worked as the managing editor of The Washington Diplomat, the flagship publication of D.C.’s diplomatic community. She’s had hundreds of articles published on world affairs, U.S. foreign policy, politics, security, trade, travel and the arts on topics ranging from the impact of State Department budget cuts to Caribbean efforts to fight climate change. She was also a broadcast producer and digital editor at WTOP News and host of the Global 360 podcast. She holds a journalism degree from the University of Maryland in College Park.