December 2018

By Jesica Lindgren and Gabriella Ippolito

Matching the Trump Administration’s aim to streamline international development assistance, the U.S. Congress recently passed the BUILD (Better Utilization of Investments Leading to Development) Act. With China now gaining as a leading global donor, the U.S. Government wants to make its own international development assistance more focused and coordinated, now under one agency: the U.S. International Development Finance Corporation (USIDFC). The new agency will offer increased flexibility in lending with the aim of spurring greater U.S. private sector participation in international development assistance.

Once Congress passed the Act, the White House said in a statement that Congress had taken an important step toward fulfilling the President’s commitment to reform development finance institutions “so that they better incentivize private-sector investment in emerging economies and provide strong alternatives to state-directed initiatives that come with hidden strings attached.” OPIC’s president, Ray Washburne, said that the Act would allow the new development agency to take an equity stake in projects and will let the agency provide political risk insurance to help foster private investment in emerging markets.

The BUILD Act consolidates the Development Credit Authority (DCA) of the U.S. Agency for International Development (USAID) and the Overseas Private Investment Corporation (OPIC). And it more than doubles OPIC’s current $29 billion funding cap to permit USIDFC’s investments to reach $60 billion. The Act also has a “preference” for U.S. investors, rather than a requirement. USIDFC merges OPIC with some key private capital functions, such as USAID’s very successful Development Credit Authority, which provides guarantees up to 50 percent of financing made by developing countries’ local banks or financial institutions to small companies that might be deemed too risky for bigger financial players.

The BUILD Act has generated particular interest in Latin America and the Caribbean, which has long perceived the United States as in retreat from supporting the large infrastructure projects that will be required to advance regional development. The BUILD Act may now better position the United States to engage in Latin America at a moment when China has increasingly become the infrastructure provider of choice in a growing number of countries that have historically preferred to partner with the United States.

USIDFC has three objectives: (1) to align the U.S. Government’s development finance tools with broader foreign policy and development goals to enhance U.S. competitiveness; (2) to establish appropriate risk-management protocols for U.S. taxpayers, including for co-investment with the private sector; and (3) to increase efficiency by reducing duplicate efforts in the existing programs. The new agency is not prohibited from working in upper-middle income countries, and it can do so on two grounds: for national security reasons, or to support development of an underdeveloped part of the country in question.

What’s exciting about USIDFC is the opportunity to offer more flexibility in lending and U.S. private sector participation in international development assistance. The Administration is expected to take one year to structure the new agency, primarily with OPIC and USAID staffing, and is sending positive signals that the U.S. wants to compete internationally in the “soft power” arena.

USIDFC will offer welcome opportunities for collaboration and investment and interested private sector entities are now actively investigating areas to participate in what its proponents believe promises to be a win-win public-private partnership.