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U.S. Revamps International Development Agency in Effort to Better Compete with Mainland China

The Better Utilization of Investments Leading to Development (BUILD) Act was signed into law on 5 October as part of “must-pass” legislation to re-authorise the Federal Aviation Administration. The BUILD Act establishes a new U.S. International Development Finance Corporation (IDFC) to replace the U.S. Overseas Private Investment Corporation (OPIC). Founded in 1971, OPIC has been limited by a cap on its portfolio size and a prohibition on equity investment. Whereas OPIC’s loan and insurance portfolio totalled US$23 billion, the IDFC’s US$60 billion portfolio will be used to take equity stakes as well as to provide loans and insurance. The IDFC will also supersede the Development Credit Authority operated by the U.S. Agency for International Development, the U.S. government’s main foreign aid agency.

Several press reports note that the BUILD Act passed more quickly through the U.S. Congress than most legislation, after its introduction by members known to otherwise oppose foreign aid. Many Americans believe foreign aid, which represents a mere 1.2 percent of the total U.S. budget, accounts for a significantly higher share of total U.S. expenditures. President Trump promised during his presidential campaign to slash foreign aid and threatened to close foreign aid agencies, but the BUILD Act was structured to overcome those arguments. A U.S. Congressional Budget Office analysis has predicted that the IDFC (like OPIC) would not increase costs to taxpayers and would instead return a profit to the U.S. Treasury.

Press reports have described the BUILD Act as a step to compete with mainland China’s Belt and Road initiative in developing countries. The White House noted that the BUILD Act will “better incentivize private-sector investment in emerging economies and provide strong alternatives to state-directed initiatives that come with hidden strings attached.” In the policy preamble of the BUILD ACT itself, one of the goals is “to provide countries a robust alternative to state directed investments by authoritarian governments and United States strategic competitors”.

OPIC President Ray Washburne hailed “a new era for development finance” characterised by “more tools, more flexibility and more running room.” According to the OPIC website, the next 120 days will be a transition period to allow for a reorganisation plan to transfer personnel, assets and obligations to the IDFC. Normal OPIC business operations will continue during this transition period.

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