CGD in the News

A New Law Passed by Congress is “The biggest step forward in U.S. development policy” in 15 Years (UN Dispatch)

November 15, 2018

By Joanne Lu

From the article:

U.S. Vice President Mike Pence is on a mission this week to win the hearts and minds – and cooperation – of Southeast Asian leaders. He’s doing so with the help of a recently passed bill that creates a new U.S. development bank that will help American businesses invest in developing economies.

In a recent op-ed for the Washington Post, Pence said the Better Utilization of Investments Leading to Development (BUILD) Act will “spur renewed private investment in regional infrastructure.” And it will more than double the U.S.’ current development finance capacity to $60 billion.

Politically, many analysts say it’s a move to counter China’s growing influence in developing countries, as China has financed and built hundreds of millions of dollars’ worth of infrastructure and other development projects over the last couple decades. Pence himself described it as part of the Trump administration’s “Indo-Pacific strategy.”

But experts and organizations within the global development sector are also praising the passage of the BUILD Act as a much-needed move to modernize U.S. development efforts. The Center for Global Development called it the “the biggest step forward in U.S. development policy” in 15 years.

What is the BUILD Act?

In short, it will consolidate the U.S.’ existing development finance institutions –  the Overseas Private Investment Corporation (OPIC) and the U.S. Agency for International Development’s (USAID) Development Credit Authority  – into one new agency. That agency will be called the U.S. International Development Finance Corporation (USDFC).

The new bank will not only have a much higher investment ceiling than the current institutions, but it will also offer technical assistance, give “preference” but not be limited to U.S. investors and have new finance capabilities, like making limited equity investments (buying shares of stock in companies). Doing so will give the U.S. “more flexibility to support investments in developing countries to drive economic growth, create stability, and improve livelihoods,” says OPIC.

The new bank also aims to have a stronger focus on low-income and low-middle income countries, be more transparent with project-level reporting and maintain stronger human rights, labor and environmental standards.

To be clear, the push for a new agency wasn’t because the existing agencies were defective. In fact, in 2016, the Center for Global Development described OPIC as a “high-performing, if still little-known, agency.” That year was the 39th year in a row that OPIC, running at a profit, paid into the U.S. Treasury. OPIC says that over the last decade, it has contributed $3.7 billion to reducing the deficit. It just hasn’t been significantly updated since it was founded in 1971.

“OPIC is a very influential development finance agency, but it operates using old methods and outdated authorities,” wrote Daniel Runde and Romina Bandura, senior vice president and senior fellow, respectively, of the Center for Strategic and International Studies. “OPIC needs a remodeling to allow it to fully compete in today’s global economy.”

And that’s why more than seven years ago, the Center for Global Development proposed a new consolidated finance agency. Sponsored by Senators Bob Corker (R-TN) and Chris Coons (D-DE) and Representatives Ted Yoho (R-FL) and Adam Smith (D-WA), the BUILD Act was finally signed into law on October 5. By October next year, the bank is expected to be operational. Meanwhile, the president, Congress, OPIC and USAID will work on a reorganization plan.

Read the full article here.