Republican and Democratic U.S. lawmakers are in the thick of negotiations for reauthorizing and turbocharging a key international development agency with an eye toward allowing it for the first time to invest in projects in high-income countries.
The U.S. Development Finance Corporation (DFC) not only survived President Donald Trump’s blitzkrieg earlier this year through the U.S. foreign aid bureaucracy but also is now positioned to become the centerpiece of his “America First” approach to international assistance.
Republican and Democratic U.S. lawmakers are in the thick of negotiations for reauthorizing and turbocharging a key international development agency with an eye toward allowing it for the first time to invest in projects in high-income countries.
The U.S. Development Finance Corporation (DFC) not only survived President Donald Trump’s blitzkrieg earlier this year through the U.S. foreign aid bureaucracy but also is now positioned to become the centerpiece of his “America First” approach to international assistance.
But first, the agency, which offers low-interest loans for infrastructure projects in developing countries, needs to pass through the dense thicket of negotiations between the Senate and House over just how much to accede to the Trump administration’s push to weaken the agency’s congressional mandate to focus on global poverty alleviation.
The DFC was established with wide bipartisan support during the first Trump administration with two main goals. The first: to enhance the U.S. government’s ability to foster sustainable economic development in low-income and middle-income countries and to offer those foreign governments desperate for financing to build infrastructure in their developing countries an alternative to the frequently risky loans pushed by Beijing through its Belt and Road Initiative.
With the federal funding shutdown finally over, passing annual U.S. defense policy legislation—which the DFC reauthorization measure is expected to be attached to—is a top priority for both the House and Senate and is anticipated to happen after the Thanksgiving break.
It is expected that the final version will, for the first time, permit the agency to issue U.S. taxpayer-backed loans for projects in high-income countries, according to conversations with multiple congressional staffers and outside experts following the negotiations.
The biggest sticking points between the negotiators, who are the top Republicans and Democrats on the Senate Foreign Relations and House Foreign Affairs committees, are how much lending to permit to wealthy countries in Europe, the Asia-Pacific, and elsewhere; how much flexibility to give the administration in choosing which projects to invest in in those high-income countries; and whether to forbid lending to any specific nations.
“We are concerned about how the administration’s proposal would basically open the DFC up to work anywhere, anytime on basically any project as long as they do some very easy-to-pass certifications,” said a House Democratic staffer, who was not authorized to be named. “The overwhelming number of Democrats on Capitol Hill do not approve of giving this administration free rein to do whatever project they want.”
Because the Senate-passed version of the reauthorization bill was approved with strong bipartisan support (27 Democrats voted in favor of it in October as part of the chamber’s vote on their yearly defense policy legislation), its provisions are seen as having the edge in bicameral conference negotiations with the House, which hasn’t passed its own version but is relying on a partisan measure from Republican Rep. Brian Mast that was approved at the committee level this summer over the protests of all committee Democrats.
The Mast bill adheres closely to the changes that the White House proposed for the DFC, including allowing a massive increase in the agency’s total lending cap to $250 billion from its current ceiling of $60 billion and allowing financing to high-income countries with few restrictions other than certifying to Congress that the loans serve U.S. national economic and foreign-policy interests.
But a senior Republican House aide involved in the deliberations said Mast is now closely negotiating with his Democratic committee counterpart, Gregory Meeks, and with Sens. James Risch (Republican) and Jeanne Shaheen (Democrat) on a final bill that would maintain the heart of DFC’s work around providing financing to low- and middle-income countries.
“All four corners agree that this is the Development Finance Corporation, and the development piece is critical to why this organization exists and there is no attempt to shift DFC off that,” said the staffer, who was not authorized to be named, referring to the four lawmakers. “I think everyone recognizes that in the absence of a lot of the development organizations that would traditionally work in this space, some of that gap will be filled by projects supported by the DFC.”
Staffers said the final compromise bill will likely put a ceiling of between 8 percent to 15 percent on the total contingent portfolio of loans that DFC can issue to high-income countries. There is also a good chance of some language in the bill that would limit what types of projects the agency can fund in high-income countries, such as prohibiting funding for tourism sector projects.
Trump has been using the DFC to pursue multibillion-dollar investment deals in critical mineral mining and processing, including in places such as Ukraine and Argentina, as part of the U.S. drive to expand access to the vital commodities that China currently monopolizes. The administration believes that a turbocharged DFC that is empowered to finance critical mineral projects around the world would significantly enhance these efforts.
But development experts argue that the DFC’s ability to make a foreign-policy difference lies in its ability to foster economic growth in areas where private capital has stayed away.
“I think development finance has the greatest impact where it is really catalyzing or mobilizing the private sector, and it can do that most effectively in lower-income markets where, by definition … there is not as much private capital to be had,” said Erin Collinson, the director of policy outreach at the Center for Global Development, a liberal-leaning think tank. “I think that is really DFC’s sweet spot.”
Assuming that the DFC is reauthorized and allowed to permit financing to high-income countries, if its total contingent liability cap is increased to somewhere between $200 billion and $250 billion, as is likely, the negotiators point out that the expansion of the lending pie by such a large amount would mean that there would still be dramatically more funding available for projects in low-income countries than there currently is.
A main sticking point among the negotiators is whether to include a country exclusion list that DFC is banned from providing loans to as well as which nations should be on the list.
The House Republican staffer said his side is open to a list but said there needs to be a waiver accompanying it.
“The list can be whatever we want it to be: 15, 20, it can be 40 countries long. It’s just got to have a waiver,” the aide said, noting that national security waivers typically accompany other congressional foreign-policy interventions on things such as imposing sanctions or export controls.
However, because of the actions already taken by Trump and the semiofficial Department of Government Efficiency earlier this year to eliminate billions in congressional funding for foreign aid, there is little trust on the part of Meeks and other Democrats that Trump can be counted on to keep DFC focused on poverty reduction if his hands are untied by congressional rules.
“The Trump administration has absolutely attacked international development, not only illegally dismantling USAID [the U.S. Agency for International Development] but also going after a number of these other independent agencies and slashing funding unilaterally, as we saw with the pocket rescission that took away billions of dollars of international development,” said a second House Democratic staffer. “It ultimately harms U.S. national security interests as well as moral imperatives across the board.”
