President Donald J. Trump quietly approved the creation of a new foreign assistance agency on October 5, named the United States International Development Finance Corporation (IDFC).

Several existing US agencies will be combined to form the new IDFC over the coming year, armed with a larger budget and new mandates to support projects and invest in the developing world as a counter to growing Chinese power. This is a major change for the Trump Administration which came to office promising to slash US foreign assistance spending globally.

Upscaling and refocusing America’s soft power, driven by the private sector

Trump signed the bill on October 5 which, among other almost routine functions, authorises the Federal Aviation Administration, while quietly creating the International Development Finance Corporation. IDFC’s creation has strong bipartisan support in Congress had been envisioned under the “Better Utilization of Investment Leading to Development,” or BUILD Act, which was merged with the FAA reauthorization for the president’s signature earlier this month.

The IDFC will combine the Overseas Private Investment Corporation (OPIC) and the U.S. Agency for International Development’s Development Credit Authority. Development experts are labelling this the biggest change in U.S. development policy in 15 years. The IDFC will be authorized to provide up to $60 billion in insurance, loans and loan guarantees for projects in developing countries, with a focus on infrastructure.

Not quite a new idea…..

Experts believe the IFDC will be more competitive than OPIC, and it will have a much larger budget. However, in many ways, the IDFC is an improvement and rebranding of OPIC, rather than a new creation. The new IDFC, like OPIC, is funded primarily through fees. The IDFC will have the ability to make equity investments and to make loans in local currency, reducing investor currency exchange risk, something OPIC could not do.

An American counter to China’s “Belt and Road Initiative”

High-level concern about China’s growing influence in developing countries has been the driver of the Trump Administration’s new embrace of development assistance and soft power, being that in Trump’s first years, foreign aid had been targeted for massive cuts and the subject of great concern within the Washington foreign policy bubble and Congress. It is not clear when Trump himself revised his approach, but it is consistent with other Trump Administration policy lines on trade and tariffs as well as investment controls and fits perfectly into an overall “get tough” approach to China globally. China’s well-funded One Belt One Road (OBOR) initiative has a primary focus on infrastructure projects and the development of extractive industries of interest to China in a range of developing countries, and the new IDFC will finally generate a “toolbag” which will allow the US to provide competition to China’s standard “take it or leave it” approach to many of these projects when it is the sole interested donor.

Merging existing agencies could take over a year

The administration now has 120 days to create and submit to Congress a transition plan for the new IDFC, though the new agency may not open its doors for about a year. OPIC policies and procedures, along with its senior leadership, will transfer to the new agency, though the top posts will probably need to be re-confirmed by the Senate. While it is presumed OPIC senior management will handle the transition to the IDFC, the top job in this dynamic new agency is likely to be contested; assignment of a senior State Department official or officials to the top echelon is also possible. Merging existing personnel from OPIC and USAID into the IDFC is expected to take some time and is never an easy task in Washington. Tough policy challenges include the creation of new criteria for making equity investments, the use of technical assistance and for making local currency loans. A new framework for reviewing investments in non-US projects and businesses also needs to be developed.