Reauthorizing the U.S. Development Finance Corporation

Asia and the Pacific

2025-03-11

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Source: Congress.gov

Summary

The hearing aimed to discuss necessary reforms for the U.S. Development Finance Corporation (DFC) as it approaches reauthorization this year, emphasizing its role as a critical instrument for American economic and foreign policy. The DFC, born from the 2018 BUILD Act, promotes private sector-led development and advances U.S. national security interests, demonstrating profitability by exceeding costs by $341 million in fiscal year 2023 alone. With its current lending cap of $60 billion nearing exhaustion, the reauthorization process is urgent to ensure the DFC remains agile, effective, and aligned with America's global priorities.

Themes

DFC Reauthorization and Modernization

The DFC's reauthorization is urgent as its seven-year authorization ends in October and it is already nearing its $60 billion lending cap, having lent over $49 billion. <citation data-id="1.17" data-id="1.18"></citation> A prompt, bipartisan reauthorization is imperative for the DFC to achieve its goals of making America safer, stronger, and more prosperous. <citation data-id="4.4"></citation> The DFC Modernization and Reauthorization Act, which passed the House Foreign Affairs Committee last year, serves as a strong foundation, proposing to increase the maximum contingent liability (MCL) cap from $60 billion to $120 billion or even $150 billion. <citation data-id="2.23" data-id="2.24" data-id="4.27" data-id="4.28"></citation> Without increased funding, the DFC cannot approve new deals as it has already utilized over 90% of its MCL by late 2024. <citation data-id="4.31"></citation>

Equity Investment Scoring

A significant hurdle is the Office of Management and Budget (OMB) scoring method, which treats DFC equity investments as grants, assuming a dollar-for-dollar loss, contrary to private sector practices. <citation data-id="4.36" data-id="14.4"></citation> This method restricts the DFC's effectiveness and prevents it from reaching its full potential, as it was originally intended by Congress to evaluate investments on a net present value basis. <citation data-id="4.37" data-id="4.39" data-id="15.10"></citation> Fixing this issue is crucial for the DFC to fully utilize its equity investment tool, which would allow for greater flexibility, increased leverage, and enhanced attraction of private capital for projects. <citation data-id="14.6" data-id="15.10" data-id="54.1" data-id="54.2"></citation>

Competition with China's Belt and Road Initiative (BRI)

The DFC is recognized as a preeminent tool to counter China's Belt and Road Initiative, which has involved over $1 trillion in investments across 147 countries since 2013, compared to the U.S.'s $76 billion. <citation data-id="4.10" data-id="4.11" data-id="6.8"></citation> China's strategic investments in infrastructure, minerals, and telecommunications often create debt traps and expand its communist influence. <citation data-id="4.14" data-id="4.17" data-id="49.4"></citation> The DFC offers a value-driven alternative that promotes transparency, environmental standards, and good governance. <citation data-id="103.12" data-id="103.13"></citation> The U.S. should leverage its free market, rule-of-law, capitalist strengths rather than imitating China's state-led investment model. <citation data-id="50.1" data-id="50.5"></citation>

Flexibility in Country Eligibility and Risk Tolerance

The DFC needs more flexibility in the income levels of eligible countries, moving beyond low and lower-middle income to include strategically important middle and upper-income nations like Panama. <citation data-id="4.24" data-id="4.26" data-id="6.15"></citation> This expansion would allow the DFC to conduct more projects that strengthen national security and increase trade. <citation data-id="4.25"></citation> The agency also requires a higher risk tolerance and creativity in structuring deals to de-risk projects and attract greater private sector investment, potentially through tools like concessional finance, blended finance, and risk-sharing with other institutions. <citation data-id="6.13" data-id="6.24" data-id="6.25" data-id="6.26"></citation>

Role of USAID and Interagency Coordination

USAID has historically played an "outsized role" in helping DFC generate projects through its field staff globally, and concerns were raised about the negative impact of USAID's dismantling or hindering its operations. <citation data-id="2.12" data-id="2.14" data-id="45.2" data-id="45.7"></citation> USAID's grant-based programs are critical for identifying and de-risking investments for the DFC, allowing for initial investments that attract private equity. <citation data-id="4.44"></citation> Strengthening coordination between the DFC and other development agencies like the Millennium Challenge Corporation (MCC) and the State Department is essential to maximize overall effectiveness and address the lack of DFC's overseas presence. <citation data-id="4.42" data-id="105.3"></citation>

Transparency, Accountability, and Efficiency

The DFC has enhanced transparency by providing project-level data on its website, including a framework for assessing and tracking development impact. <citation data-id="10.27" data-id="10.28"></citation> However, calls were made for further improvements such as merging data sets, ensuring regular updates, providing disaggregated data on private capital mobilization, and publishing ex-post evaluation results. <citation data-id="10.29"></citation> Streamlining and accelerating the deal-processing timeline is also necessary to maintain market confidence and attract private sector partners, as current delays deter businesses. <citation data-id="8.16" data-id="8.19" data-id="117.2" data-id="117.3"></citation>

Energy Investment Policy

Concerns were voiced about the DFC's perceived sole focus on climate-focused and renewable energy projects, with an apparent absence of investments in fossil fuels. <citation data-id="97.4" data-id="97.6"></citation> Panelists argued that developing countries require reliable baseline energy, which often includes natural gas, and the DFC should be flexible in supporting various fuel sources based on host country needs. <citation data-id="98.1" data-id="99.3" data-id="100.2" data-id="100.3"></citation> The current environmental and social policy and procedures may inadvertently deter applications for traditional energy projects, limiting crucial development opportunities for some nations. <citation data-id="97.11" data-id="97.13" data-id="101.5"></citation>

Tone of the Meeting

The overall tone of the meeting was constructive, bipartisan, and focused on enhancing the DFC's effectiveness. <citation data-id="2.8" data-id="10.5" data-id="103.7"></citation> There was strong consensus on the DFC's vital role in U.S. foreign policy and economic interests, particularly in countering China's influence. <citation data-id="1.6" data-id="1.12" data-id="6.5" data-id="10.9" data-id="4.10"></citation> Speakers expressed urgency for reauthorization and largely agreed on key reforms, including addressing the equity scoring issue and increasing the lending cap. <citation data-id="1.18" data-id="4.4" data-id="10.13" data-id="14.5"></citation> While concerns were raised about bureaucratic obstacles, interagency coordination, and policy direction in energy investments, the discussions remained geared toward practical solutions and strengthening the DFC's operational capacity. <citation data-id="2.12" data-id="4.39" data-id="6.15" data-id="8.16" data-id="97.4"></citation>

Participants

Transcript

will come to order.  The purpose of this hearing is to discuss the needed reforms of the DFC to be considered for the reauthorization.  I now recognize myself for an opening statement.  Again, welcome to the East Asia and the Pacific subcommittees hearing on reauthorizing the U.S.  Development Finance Corporation.   I want to welcome and thank our witnesses for joining us today as we discuss the future of the US International Development Finance Corporation, or DFC, which is a vital tool of American economic and foreign policy.   And I want to thank the witnesses and thanks to your valuable input, the DFC was recreated through the 2018 BUILD Act.  And it builds upon its predecessor, the Overseas Private Investment Corporation, or OPIC, by integrating other development finance tools to better mobilize private capital.   Despite being a younger agency, DFC has demonstrated a significant step forward in enhancing our nation's ability to promote private sector-led development in emerging markets, advancing the U.S.  national security interests and status on the global stage, and strengthening communities and livelihoods around the world.   When U.S.  foreign assistance is used efficiently, it can have a great impact in advancing the U.S.  national security and economic interests.  In fact, it can even make a profit for U.S.  taxpayers.  For instance, in the fiscal year 2023, the DFC's revenue exceeded cost by $341 million.   The DFC is approaching the end of its seven year authorization in October of this year.  While DFC's current lending cap stands at 60 billion, double that of OPIC, it has already lent more than $49 billion, so if the current deal flow in the pipeline continues at this rate, the DFC will reach its lending cap before October, making this reauthorization process more urgent.
Our subcommittee has the unique opportunity to shape and reauthorize the DFC with much needed reforms to ensure that it remains agile, effective, and aligned with America's national security priorities.  The Biden administration had an ambiguous definition of national security and thus pushed through projects that advanced the administration's diversity and green agenda.   Furthermore, we know that the DFC was unable to fully utilize its equity investment tool and was prohibited from operating in countries that would be particularly useful to advancing U.S.  national security.  These are just some of the evident issues that must be addressed in the reauthorization this year.  Today's hearing will therefore explore several important questions.   One, how can the DFC better address emerging threats and opportunities such as energy security and supply chain resilience?  Two, what reforms or additional authorities are needed to enhance the DFC's ability to compete with the Chinese Communist Party's Belt and Road Initiative?   And third, how can we ensure that the DFC's operations remain transparent, accountable, and targeted to deliver measurable outcomes for our partners abroad and American taxpayers?   We must ensure that the DFC is equipped to face the 21st century challenges with cutting edge approaches.  The modernization and reauthorization process offers an opportune moment to amend the DFC's mandate to expand its flexibility and financial toolkit.  With that, we have a distinguished panel of witnesses before us today whose insights will inform the reauthorization process.
And their testimony will help us assess DFC's progress, identify gaps and areas for improvement, and chart a path forward to ensure this institution remains a cornerstone of U.S.  global leadership.  The chair now recognizes the ranking member, gentleman from California, Mr. Barra, for any statements that you may have.
Thank you, Madam Chairwoman, for hosting today's important hearing.   I also want to thank the witnesses for bringing their expertise before the subcommittee today.  As the Chairwoman mentioned, it's been less than seven years since Congress passed and President Trump signed into law the BUILD Act, establishing the U.S.  International Development Finance Corporation, or DFC.  The DFC was created to modernize how the United States approaches development and better allow us to compete with our strategic competitors.  The DFC was built to catalyze our nation's strength   namely our strong, vibrant private sector, which is the envy of the world.  I also, since our former colleague and my good friend Ted Yoho is here, he was instrumental in putting that bipartisan piece of legislation together that passed with a big vote.  And again, I think President Trump should be proud of his legacy in helping create the Development Finance Corporation.  When the BUILD Act passed, a mentor to both of us, HVAC Chairman Ed Royce,   noted that one of his goals was to create lasting institutional linkages with other development agencies.  Today, one of those development agencies that DFC works closely with, USAID, has effectively been dismantled through the illegal cancellation of programs and that really does damage U.S.  security.  USAID played an outsized role in helping DFC generate projects through their field staff stationed at U.S.  missions throughout the world.  In addition,   The foreign assistance freeze has also prevented the DFC from the timely delivery of payments, damaging the U.S.

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