When the axe fell at most American development agencies this year, the US International Development Finance Corporation remained standing.
The nation’s development finance institution, revamped during President Trump’s first term, looks set to play a key role as an international investor, especially after the decimation of USAID, which had provided a mix of grants, technical assistance and other support to companies and fund managers in emerging markets.
This week, the Senate confirmed Ben Black, the son of the billionaire co-founder of Apollo Global Management, Leon Black, as the Trump Administration’s choice to lead the agency. Black has highlighted the need for the Development Finance Corp, or DFC, to serve as a “substantive economic counterweight to China.”
And the White House, in contrast to the axe it has taken to many other agencies, has sought to quadruple the agency’s lending cap. The idea was well received in Congress by leaders of both parties.
All would seem to be humming along, except… The DFC’s mandate quietly expired on October 6. Efforts to reauthorize the agency before that deadline were unsuccessful, despite bipartisan support. The continuing resolution at stake in the government shutdown included a provision to temporarily extend the agency’s mandate, but that legislation also failed.
With the authorization lapsed and the government shut down, the DFC’s investments – which had slowed while staff waited for leadership to be confirmed – have now ground to a halt.
Reauthorization proposals
“If DFC is not reauthorized prior to the lapse in appropriations, the Agency will not enter into new agreements,” according to the agency’s shutdown plan. The DFC will continue to honor existing insurance and contracts and meet its contractual obligations – and the plan specifies that the agency has sufficient carryforward balances to operate with a limited staff.
But even with a temporary extension for the DFC along with the rest of the government, Congress will still need to hash out the details of the agency’s reauthorization. That could be a lengthy process given the significant changes on the table.
Existing reauthorization plans in the House and the Senate would turn the DFC into a much larger and more flexible agency – including by raising the DFC’s lending cap from $60 billion to at least $240 billion.
One proposal in particular has raised eyebrows: The Trump Administration wants DFC 2.0 to have the authority to lend and invest in high-income countries – a seeming departure from its mission of encouraging development in low- and middle-income countries. Previous proposals, including a bill in the House of Representatives last year, also contained this provision.
To determine where it can invest, the DFC uses the World Bank’s country income classification system, which places countries into four categories based on their gross national income per capita in the previous year. But these classifications can mask income inequality within a country, making them an imperfect yardstick.
“The proposed changes are not totally new,” said one former DFC staffer. “Most of them originated in the Biden Administration during earlier reauthorization conversations to address constraints DFC faced in achieving its ambitious development and foreign policy impact goals.”
For example, countries can move from one classification to another from year to year. That means a DFC team could be working on a deal with a six-month timeline in a permitted country, only to see the country reclassified as high income before the deal could close. In some cases, these constraints have limited the DFC’s ability to target poor regions in richer countries, or to close certain deals, despite their significant developmental or strategic value.
Both the House and Senate bills contain some guardrails around investing in high-income countries, with the House requiring the president to certify that a project advances US interests and the Senate capping DFC investments in high-income countries at 8%.
Mining, markets and geopolitical power
While the proposals for increased flexibility are not new, the context surrounding them has changed dramatically. In an era of transactional foreign policy – with a president who dreams of an American sovereign wealth fund – the big question is how the DFC would use its new powers.
Since President Trump’s reelection, investment decisions have taken on a stronger political bent. DFC staff and investment seekers have been asked to detail the benefits that the US is getting out of particular deals, such as support for US jobs, the ability to counter strategic competitors, and mitigation of the influence of malign actors. One practitioner said at least one claim from a climate fund was denied even though the transaction fit its existing guarantee agreement.
The Trump administration established the DFC in 2018 via the BUILD Act. It combined previous authorities under the Overseas Private Investment Corp., which mobilized private capital for development, and USAID’s Development Credit Authority, which issued loan guarantees. The agency was designed to mobilize private investment in less-developed countries – but also to promote the economic and foreign policy interests of the United States.
The DFC also plays a key role in securing American access to critical minerals, including those needed for the clean energy transition. China dominates the world’s supply chain, and the DFC offers a way for the US to secure alternative sources – for example by financing or de-risking large-scale mining or processing projects.
And it figures prominently in the agreement giving the United States a stake in Ukraine’s critical minerals. The agency recently announced a $75 million commitment to a joint investment fund with the government of Ukraine.
The heads of the DFC in both the Biden and Trump administrations, Scott Nathan and Adam Boehler, highlighted the agency’s ability to counter China’s Belt and Road initiative. DFC talking points described a clear alternative to predatory financing – and one that secured American influence and access to emerging markets.
In his nomination hearing before the Senate Foreign Relations Committee, Ben Black, played it safe, highlighting the agency’s “dual mandate of both economic development and strategic foreign policy priorities.” He has also characterized the Biden administration’s funding of green development projects as “virtue-signaling.”
Yet Black seems determined to move the DFC closer to Wall Street – including by opening an office in New York City and pursuing more deals with Wall Street investors. “If confirmed, I will do my utmost to integrate and partner with private sector capital providers and effectively scale capital deployment, increase opportunities for American companies and workers, and help DFC become a best in class financial institution and resource for the United States,” he testified.
Equity authority
The reauthorization process is a chance to increase the agency’s resources while addressing some of its challenges. The House bill (which largely mirrors the Trump Administration’s reauthorization proposal) and the Senate bill both include provisions to address key constraints.
One major issue is the DFC’s equity authority. Current rules about how the government scores equity transactions have limited how many equity investments the DFC can make – significantly constraining its authority. Both congressional bills propose a revolving equity account at Treasury as a workaround – specified at $3 billion in the Senate bill.
The house bill increases the threshold for notifying Congress of a transaction from $10 million to $100 million, which would speed up many deals. The House bill eliminates the DFC’s Chief Development Officer and adds the Secretary of Defense to its Board, but the Senate bill does neither. Both bills task the agency with increasing its risk tolerance and setting clear strategic priorities.
Allowing the DFC’s authorization to lapse even for a short period will damage its credibility as a financial institution and partner. Still, with support for the agency from the White House and both parties in Congress, it seems that the most likely ultimate outcome – though the timeline is unclear – is a bigger, faster, more flexible DFC.
What remains to be seen is whether an agency born to mobilize capital for development can retain that purpose in a whole new world.
