The new US development finance agency

WASHINGTON — The United States will have a new development finance institution.

On Wednesday, the U.S. Senate passed the Better Utilization of Investment Leading to Development, or BUILD Act, which will create a new U.S. government agency — the U.S. International Development Finance Corporation. Development experts called it the biggest change in U.S. development policy in 15 years.

The DFC will combine the Overseas Private Investment Corporation and the U.S. Agency for International Development’s Development Credit Authority, add new development finance capabilities, including equity authority, and have a higher lending limit than its predecessor.

A year or two ago, few would have thought a new U.S. DFI possible. The Trump administration had recommended eliminating OPIC in its first budget, previous attempts to reauthorize OPIC had failed, as recently as 2015, and it has operated without a long-term reauthorization for more than a decade.

But a dedicated bipartisan group of lawmakers, administration officials, advocates, and think tank experts worked to make it happen. Consolidating some government functions to create a new agency that was seen as more efficient helped, as did a growing desire within the administration to find tools to counter China’s influence.

A few weeks ago, there was still uncertainty over whether it could pass in the Senate. But in the last two weeks, the BUILD Act was attached to the Federal Aviation Administration reauthorization bill in an effort to work around challenges presented by some senators opposed to the act. The overarching FAA bill passed by a vote of 93 to six.

“I think it was the right vehicle at the right time,” said Representative Ted Yoho, a Republican from Florida, who was a co-sponsor of the House bill and played a key role in creating Freedom Caucus support for the legislation.

Yoho, who chairs the Caucus on Effective Foreign Assistance, pushed for the legislation to improve aid effectiveness and help countries transition from aid to trade. “This will be a significant enhancement to our foreign aid.”

Next comes the hard part of setting up a new federal agency. Some planning has already begun but the process begins in earnest when President Donald Trump signs the bill into law, likely within the week.

Moving forward

Once signed, the administration will have 120 days to create and submit to Congress a transition plan for the new DFC, though the new agency may not open its doors for about a year, several people who worked on the bill said.

Some lingering questions to be answered include where USAID’s Office of Private Capital and Microenterprise and its Enterprise Funds will end, along with details about personnel, assets, and functions of the DFC, a senior government official told Devex. OPIC has already been working with USAID’s DCA on fiscal year 2020 budget requests and USAID will play a key role in the discussions about the new institution, he explained.

The administration, likely led by OPIC, will have to work on a number of policy issues related to the new authorities or instruments the DFC will have. This includes creating criteria for the use of equity investments, how it will use technical assistance grants, what framework it will use to decide if it will make a local currency loan, and when it will invest in non-U.S. businesses or projects, which is also new.

By Adva Saldinger     @AdvaSal// 04 October 2018

Source: A new US development finance agency takes flight

About the author  ⁄ AmCham Vietnam

AmCham is an independent association of companies with the objective of promoting trade and investment between Vietnam and the U.S. With two chapters, one in Ho Chi Minh City and one in Hanoi, our membership of 700 companies and 1,500 representatives is unified by a commitment to promote trade and investment between Vietnam and the United States.

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