Once on chopping block, Trump’s budget puts development finance in overdrive

On Monday, Feb. 12, 2018, President Donald Trump unveiled the second budget proposal of his presidency, which included the creation of a new Development Finance Institution (DFI) charged with leveraging private sector investment to advance U.S. foreign policy interests. It would seek the merger of USAID’s Development Credit Authority with the Overseas Private Investment Corporation (OPIC), a 47-year old self-sustaining U.S. agency established to help American businesses invest in emerging markets.

The DFI plan, described as a long-overdue modernization, includes new authorities, a doubling of the cap for annual loans and loan guarantees and additional staff. More than $90 million would be appropriated directly to the DFI for enhanced programming, and to take on a larger role in U.S. development and foreign policy.

{mosads}“Now is the time for an American push on development finance. Without a fully enabled development finance institution, we risk falling further behind, particularly as China pursues a very aggressive development strategy in critical parts of the world,” contends former OPIC president Robert Mosbacher Jr., who served the George W. Bush administration.

Just one year earlier, in Trump’s first budget as president, OPIC was listed as one of 62 agencies to be eliminated. From chopping block to outsized role, how did it happen?  

It begins with Ray Washburne, President Trump’s nominee to head the agency, formerly an entrepreneur and finance chair of the Republican National Committee.  In his confirmation hearing on July 11, Washburne was portrayed by the media as being both naïve and insubordinate for promising to “take the OPIC mission forward,” when his boss wanted to shut it down.

Did Washburne have special insight that Trump had a change of heart about the fate of the agency, or did he have a plan to save it from the budget hawks? Based on how events unfolded over the months that followed, it appears it was the latter: Washburne had a plan.

First, he staffed up with able tacticians who knew how to maneuver the interagency process. Among them Executive Vice President David Bohigian, an assistant secretary of Commerce under George W. Bush, Chief of Staff Douglas Sellers, poached from OMB, William Doffermyre, general counsel, partner from Williams & Connolly, LLP, and Ed Burrier, vice president for External Affairs and formerly the deputy staff director of the House Foreign Affairs Committee.

OPIC added the first-ever Cabinet secretaries to its Board including Wilbur Ross, secretary of Commerce, and close confidant of the president. Ross became one of OPIC’s most effective advocates within the administration.

Then it was time to demonstrate how OPIC’s development finance capabilities could help advance U.S. foreign policy challenges, specifically, responding to the threat posed by China to America’s economic and national security interests.

Since 2013, when China announced its infrastructure investment program, the Belt Road Initiative, it had been pumping huge flows of capital throughout Asia and across world markets. AIDDATA, a estimates that China spends $40 billion per year through its DFIs, including the Export-Import Bank of China, the China Development Bank, the Beijing-based Asia Infrastructure Investment Fund, the Shanghai-based New Development Bank BRICS and the Silk Road Fund.

Washington tops Beijing in overall spending in the developing world, however, the majority of U.S. funds go  official development assistance (ODA), whereas the bulk of Chinese spending focuses on other official flows (OOF), which is primarily intended for commercial projects. Further, Chinese lending is indiscriminate often leading to unsustainable debt burdens, particularly so in Africa.

While the president’s national security staff became increasingly focused on China, the Office of Management and Budget was simultaneously working to streamline and consolidate government as directed by the president in his March 2017 Executive Order.

Advocates across the interagency argued that America needed new tools, a consolidation of its instruments for development finance, while adding protections for the taxpayer.  Among them was USAID’s administrator, Mark Green, who was looking beyond contracting and grant-making to financing and co-financing.  

On the margins of the swearing-in of Bill Hagerty as the U.S. ambassador to Japan back in July, a discussion began with OPIC staff and Hagerty about establishing a cooperation agreement between  Japan’s Bank for Investment and Cooperation (JBIC) and OPIC as one of the new ambassador’s first initiatives.

Events unfolded from there. Washburne accompanied the U.S. president on his Asia trip and in Tokyo, on 7 November, he signed a cooperation agreement with JBIC for the promotion of quality infrastructure in emerging markets.

Standing alongside Ambassador Hagerty at the U.S. embassy in Japan, President Trump applauded OPIC, praising the MOU with JBIC as an example of promoting shared values with our allies. This was the first public mention of OPIC by the U.S. president since it was slated for elimination.

A few days later, at the APEC Summit in Hanoi, President Trump articulated the emerging consensus in the administration on DFIs stating, “We are also committed to reforming our development finance institutions so that they better incentivize private sector investment in your economies.”

Support further consolidated. In December, the administration released its National Security Strategy (NSS) making the DFI modernization proposal U.S. policy, calling for a “modernized approach by the US government to development finance.”

By the time the President’s Fiscal Year 2019 budget dropped, leaders in Congress saw an opening for a priority which many were working on since early 2016, in their efforts to innovate America’s foreign assistance.

On Feb. 27, the Senate introduced S.2463  the “Better Utilization of Investment Leading to Development Act” (BUILD), to establish the United States International Development Finance Corporation with lead sponsors the Chairman of the Foreign Relations Committee, Bob Corker (R-Tenn.), and Delaware Democrat, Chris Coons.

That same day, the House introduced H.R. 5105, (BUILD) under the sponsorship of Congressman Ted Yoho (R-Fla.) Chairman of the Subcommittee on Asia and the Pacific, and Adam Smith Democrat from Washington State.

A host of organizations from the Center for Global Development, the Center for Strategic and International Studies (CSIS), Brookings, and the ONE campaign have since lined up to endorse BUILD, throwing their considerable lobbying weight behind it.  This appears to be a rare moment of bipartisanship in today’s Washington D.C. As Thomas Hill, from the Brookings Institute, writes in referencing the DFI proposal, “those who think that polarization in Washington has gotten so bad that no one can agree on anything can take heart.”  

There is still a lot work to get to done, the administration and Congress must agree to the final details of the DFI, the bill must be passed in both houses of Congress, conferenced, and signed into law. But at this stage of the game, no one I know is betting against the BUILD Act.

K. Riva Levinson is the president and CEO of KRL International LLC, a D.C.-based consultancy that works in the world’s emerging markets and award-winning author of “Choosing the Hero: My Improbable Journey and the Rise of Africa’s First Woman President,” (Kiwai Media, June 2016). Follow her on Twitter @rivalevinson.