In 2019, the United States will launch a streamlined and stronger development finance institution, called the International Development Finance Corporation (IDFC). The new agency will consolidate the Overseas Private Investment Corporation (OPIC) and the U.S. Agency for International Development’s (USAID) Development Credit Authority. The IDFC will continue the work of its predecessor institutions to promote private sector investment in developing countries, but with a number of policy changes expected to make its functions more effective.
The enabling legislation for the IDFC, the Better Utilization of Investment Leading to Development (BUILD) Act passed both houses of Congress with broad bipartisan support in October 2018. The bill also enjoyed the support of both OPIC and USAID administrators. The Trump Administration was given 120 days from the time enactment to report to Congress on its plan to structure the new agency, and the IDFC is expected to become fully functional in October 2019.
The IDFC responds to a number of policy priorities, including the desire to streamline overlapping government functions as well as to develop a more robust development finance authority along the same lines as allies such as Canada, Japan, and the UK. Most notably the IDFC has a number of new capacities tailored to make it a stronger U.S. foreign policy tool and a greater counterweight to China’s extensive development finance activities worldwide. These include a seven-year authorization to encourage private sector confidence (and to perhaps to avoid some of the difficulties of annual re-authorizations) and an increase in the authorized spending cap of the IDFC’s investments to $60 billion, compared to OPIC’s $29 billion cap. Additionally, the IDFC is not required, like OPIC, to work only with U.S. investors. The new legislation requires the agency only to have a “preference” for U.S. partners.
The new IDFC will continue the core functions of OPIC, but will have other expanded capacities of interest to private sector partners, including:
- the authority to take equity positions in investments;
- the capacity to make local currency loans; and
- the authority to make investments in “upper-middle income countries,” for either national security reasons and/or if targeting an underdeveloped area within the country.
The IDFC also incorporates some of USAID’s existing functions including the ability to provide grants for technical assistance – such as feasibility studies for investment projects – and the authority to establish self-sustaining enterprise funds.
“Development finance tools such as loans, guarantees, investment funds, and political-risk insurance facilitate private-sector investment in developing countries that will have positive . . . developmental impact. These are transactions the private sector will not do on their own because of risks associated with the developing world. Limited backing from the U.S. Government can help catalyze significant amounts of private capital into developing countries.” – Richard Shelby Chairman of the Committee on Appropriations United States Senate
While the full details of the how the IDFC will merge the functions of OPIC and USAID’s Development Credit Authority are unclear, these policy changes, particularly the increase in authorized spending and a seven-year congressional authorization, should increase opportunities for investors interested in developing economies and rapidly expanding markets.