Development Finance is the Future of US Economic Assistance

July 07, 2016

On July 7, CGD chief operating officer and senior fellow Todd Moss testified before the Senate Foreign Relations Committee at a hearing titled “An Assessment of US Economic Assistance.” Moss’s remarks emphasized the role development finance in promoting market solutions to poverty and insecurity.

From the testimony:

First, development finance, rather than aid, is the future. Aid is the right tool for tackling health challenges and humanitarian crises. Aid has been much less effective at generating broad economic growth. However, when carefully targeted, aid can be useful in addressing specific barriers to business. The Millennium Challenge Corporation model, which uses five-year compacts to explicitly attack constraints to growth, is a great example. So too are the US Treasury’s technical assistance programs and USAID’s laudable coordination of the Power Africa initiative.

Yet it is development finance—or the deployment of commercial capital for public policy purposes—that is the most potent weapon we have for expanding markets and spurring private sector growth. When the United States wants to encourage job creation in Tunisia, wants to catalyze infrastructure investment in Nigeria, wants to bring Pakistani women into the banking sector, we turn to development finance.

Development finance is the future because of the changing global landscape. Many previously poor countries are richer today and are looking for more than aid. They want to partner with the United States to deliver jobs, roads, and electricity.

Development finance is the future because of the rise of China, India, and other emerging markets. These countries, along with our traditional allies in Europe, are using development finance to bolster their influence and to expand investment opportunities. The United States has made a start, but risks falling further behind.

Most of all, development finance is the future because of who we are as a country. Americans believe in our model of private sector-led capitalism. Our deep capital markets, our culture of entrepreneurship, and our belief in free markets all provide a unique platform for using development finance to promote prosperity.

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