Congress Aims New Development Agency at China and Russia

Trump has taken a friendlier stance toward development assistance than humanitarian aid.

Senate Foreign Relations Committee members Chris Coons (left) and Cory Gardner
AP Photo/J. Scott Applewhite
March 18, 2019, 8 p.m.

Although President Trump has made no secret of his dislike for foreign-aid programs, his administration stood up a new development agency last year. Lawmakers now hope to direct funding from that agency toward projects that will compete with Russia and China.

The Build Act, signed into law by the president in October, consolidates foreign-development aid under the U.S. International Development Finance Corporation, a federal agency meant to spur private-sector-led development in emerging markets by disbursing loans, political risk insurance, and equity investments.

USIDFC has a $60 billion lending mandate—twice the size of the Overseas Private Investment Corporation, which it will replace. It’s also authorized for seven years, rather than on a yearly basis.

Trump’s support for USIDFC is surprising, given his hostility toward overseas-development programs. Early in his administration, Trump pushed to shut down the Overseas Private Investment Corporation, and he has repeatedly requested significant cuts to the U.S. Agency for International Development budget, which Congress has rebuffed. His most recent budget request would shave roughly $10 billion from the international-affairs budget.

Yet in tandem with the cuts, the Trump administration tried to reframe development aid as an important tool in great-power competition.

Daniel Runde, chair of the Project on Prosperity and Development at the Center for Strategic and International Studies, chalked up the change to the administration's fear of China.

“This isn’t your grandparents' developing world,” Runde said. “It’s richer, freer, and more capable. And if we don’t meet the hopes and aspirations of developing countries, they will take their business to the Chinese.”

The USIDFC is expected to become operational this October, and Trump submitted his reorganization plan to Congress last Friday. Lawmakers are now directing the agency to spend money on specific projects meant to compete with Chinese and Russian investments.

Sens. Ron Johnson and Chris Murphy introduced legislation last week authorizing the government to provide $1 billion in support to energy projects in Eastern Europe, funds Murphy said would come from USIDFC. Identical legislation was introduced in the House by Reps. Adam Kinzinger and William Keating.

“This bill is in many ways an answer to Nord Stream,” said Murphy, referring to Russia’s offshore natural-gas pipeline. “Europe does not have enough financing options for big energy projects, so often they’re dragged into Russian subsidies for energy connections. So, if you were to put a billion dollars into energy independence in the region, there’d be less temptation to agree to something like Nord Stream in the future.”

“It’s important to recognize Russia has a history of using energy to weaponize what they do,” Keating said. “And with Ukraine, with the position they’re in now, with Hungary and Russia talking about nuclear facilities … and, frankly, with the Chinese moving in on areas, it’s really important that we have a presence.

“When we did the Build Act ... this is what we envisioned—trying to take the financing that’s available through that and being able to strategically use that,” he added.

In the Senate, lawmakers are focused on using USIDFC to combat China’s massive Belt and Road Initiative. The new agency was explicitly stood up to offer alternatives to “state-led initiatives from countries like China,” according to OPIC’s website.

The Senate Foreign Relations Committee held a hearing Wednesday on U.S.–China competition, which Sen. Chris Coons called “essentially a Build Act hearing.”

“The Chinese are so active in so many countries and in so many sectors that you almost can’t make loans in the developing world and not compete with China,” said Coons, who cosponsored the legislation with former Sen. Bob Corker.

“The Build Act is certainly part of our strategy going forward,” Foreign Relations Chairman James Risch said following the hearing. Risch has made economic competition with China the centerpiece of the committee.

In September, Trump nominated former Rep. Darrell Issa to lead the U.S. Trade and Development Agency, a small agency charged with connecting U.S. companies to emerging markets. Secretary of State Mike Pompeo has repeatedly emphasized the importance of building energy infrastructure in developing economies, to reduce their reliance on Chinese or Russian systems.

Although development experts applauded the formation of USIDFC, they cautioned that the new agency would not necessarily be able to direct funding toward specific projects. Compared to other government development agencies, USIDFC manages a small overseas staff, and disburses loans only to companies requesting help.

“If they wanted to go find the Zambian car dealership, or the Zambian mining company, they may or may not find what door to knock on on New York Avenue,” Runde said. “You may actually need to have … people beating the bushes for transactions way out in the developing world, in emerging markets. They currently don’t have it. If they wanted to increase the chances of finding projects like that … they would hire a lot of people to live overseas, like [the International Finance Corporation] does, or [USAID] does.”

Lawmakers acknowledged that investments need to be part of a larger development framework, saying they are clear-eyed about USIDFC’s ability to compete with China’s signature infrastructure program. Coons is now looking for cosponsors for a bill that directs the executive branch to implement the strategy from the congressionally created U.S.–China Economic and Security Review Commission.

Sen. Cory Gardner touted legislation that he sponsored, the Asia Reassurance Initiative Act, which Trump signed into law in late December. That bill utilizes Build Act lending authorities, but also outlines a broader strategy on human rights, intellectual property, and basing issues.

“While we utilize the Build Act tools, we really implement the full strategy of [the Asia Reassurance Initiative Act],” Gardner said. “And if that is done, the United States will have made a remarkable turn toward Asia.”

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