Development Finance More than China, Reps. Told

U.S. International Development Finance Corp. Chief Executive Scott Natan met with the House Foreign Affairs Committee Tuesday to discuss the "DFC's Efforts to Out Compete China's Belt & Road Initiative," as the committee looks to prepare funding for FY 2025.

"Last year, DFC committed a record $9.3 billion across 132 transactions, nearly double our fiscal year 2020 total," Mr. Nathan told the lawmakers. "We're investing to build roads, ports, airports and other large scale infrastructure projects in the developing world."

"DFC has active projects in 112 countries, but our primary focus is the world world's poorest countries. Last year nearly 3/4 of our projects were in low or lower middle income countries. 

Accounting Treatment in Focus

A concern of lawmakers as they consider the DFC reauthorization is how resources are accounted for. The DFC uses a "net present value" model to score equity investments so that their budgetary cost reflects their fair market value.

This means an equity investment is reflected in the DFC accounts as an expense, while loans are booked as assets.

"Not saying DFC is going to be the 'best' equity investor, but theres no way we're going to lose 100 cents on every dollary, and that's the way it is accounted for now," Mr. Natan told the committee.

"While we work to mark up a bipartisan reauthorization of the DFC next month, it is imperative to highlight the priorities....a critical component of this bipartisan, bicameral legislation will be an equity solution," said Rep. Ann Wagner (R-MO). 

Development Focus

Rep. Kathy Manning (D-NC) cautioned members against viewing the DFC only as a tool to promote rivalry with the PRC.  "We cannot be seen as a reliable partner if our motivations are viewed only through the prism of some great power competition, or if we only show up when we need something.

"As we look to DFC's reauthorization this year, we need to make sure that development remains squarely at the center of its mandate. We also need to make sure DFC can make equity investments, taking an equity stake in projects and not just offering finance in the form of a loan. This is key to getting more projects off the ground."

Rep. Joaquin Castro (D-TX) reminded committee members of that primary purpose.  "The DFC is first and foremost a US International Development institution and the BUILD Act of 2018 is clear about the DFC's development mandate. As we consider the reauthorization of the BUILD Act, which expires next year, I believe that it's essential that we defend and strengthen the agencies development mandate. I fear that if this agency simply becomes a bank to execute the foreign policy priorities of the United States. The bipartisan coalition that supports the DFC will splinter."

Income Limits Constrain Deal Flow

"The majority of countries in Latin America and the Caribbean are upper middle income or high income.  In high income countries, we can't work at all.," Nathan noted.

"An example of that is Panama. That's a country where we would like to be able to pursue deals, but we can't because of the income classification in our reauthorization. We're hoping that this issue will be addressed.

To my knowledge, we're the only development finance institution that uses the World Bank income classification categories. The World Bank doesn't even use them as the the way to determine lending eligibility. They have a more multi factored approach."

[Scott Nathan's Statement]