[Senate Hearing 115-829]
[From the U.S. Government Publishing Office]
S. Hrg. 115-829
MODERNIZING DEVELOPMENT FINANCE
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
MAY 10, 2018
__________
Printed for the use of the Committee on Foreign Relations
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web:
http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
40-668 PDF WASHINGTON : 2020
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COMMITTEE ON FOREIGN RELATIONS
BOB CORKER, Tennessee, Chairman
JAMES E. RISCH, Idaho ROBERT MENENDEZ, New Jersey
MARCO RUBIO, Florida BENJAMIN L. CARDIN, Maryland
RON JOHNSON, Wisconsin JEANNE SHAHEEN, New Hampshire
JEFF FLAKE, Arizona CHRISTOPHER A. COONS, Delaware
CORY GARDNER, Colorado TOM UDALL, New Mexico
TODD YOUNG, Indiana CHRISTOPHER MURPHY, Connecticut
JOHN BARRASSO, Wyoming TIM KAINE, Virginia
JOHNNY ISAKSON, Georgia EDWARD J. MARKEY, Massachusetts
ROB PORTMAN, Ohio JEFF MERKLEY, Oregon
RAND PAUL, Kentucky CORY A. BOOKER, New Jersey
Todd Womack, Staff Director
Jessica Lewis, Democratic Staff Director
John Dutton, Chief Clerk
(ii)
C O N T E N T S
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Page
Corker, Hon. Bob, U.S. Senator From Tennessee.................... 1
Menendez, Hon. Robert, U.S. Senator From New Jersey.............. 2
Washburne, Hon. Ray, President and CEO, Overseas Private
Investment Corporation, Washington, DC......................... 4
Prepared Statement........................................... 6
Runde, Daniel, William A. Schreyer Chair and Director, Project on
Prosperity and Development, Center for Strategic and
International Studies, Washington, DC.......................... 20
Prepared Statement........................................... 22
Ingram, George, Senior Fellow, Global Economy and Development,
Brookings Institution, Washington, DC.......................... 24
Prepared Statement........................................... 25
Additional Material Submitted for the Record
Statements by Habitat for Humanity and Holtec Submitted by
Senator Menendez............................................... 37
Letter From the Hon. Elizabeth L. Littlefield to the Senate
Foreign Relations Committee Submitted by Senator Coons......... 44
S. 2463 BUILD ACT................................................ 45
(iii)
MODERNIZING DEVELOPMENT FINANCE
----------
THURSDAY, MAY 10, 2018
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 10:02 a.m., in
room SD-419, Dirksen Senate Office Building, Hon. Bob Corker,
chairman of the committee, presiding.
Present: Senators Corker [presiding], Gardner, Young,
Menendez, Cardin, Coons, and Kaine.
OPENING STATEMENT OF HON. BOB CORKER,
U.S. SENATOR FROM TENNESSEE
The Chairman. Foreign Relations Committee will come to
order.
You seem awfully jovial on this side of the aisle----
Senator Menendez. We are.
The Chairman. --tonight. I do not--today--I do not know
what that is about, but I am glad to see it.
I thank our witnesses for being here today as we consider
how the U.S. can modernize our development finance efforts. Our
foreign assistance program should set the goal of putting
themselves out of business. We should promote economic growth
and job creation that will enable developing countries to stand
on their own and provide their citizens with opportunity, and
lead them out of poverty.
At no net cost to taxpayers, Development Finance
Institutions can play an important role in facilitating lending
to help local businesses in the developing world grow and
attract foreign investors. But, our current agencies are not
equipped for the 21st-century challenges and opportunities.
The Overseas Private Investment Corporation, OPIC, as we
call it, used--uses public-sector tools, such as loans,
guarantees, and insurance to provide private-sector investment
flows in the developing world--into the developing world, where
access to capital and market rates may not be accessible.
However, as OPIC approaches 50, the corporation lacks the
modern tools to fully engage the private sector in developing
countries.
To address those deficiencies, we have introduced the
Better Utilization of Investments Leading to Development, or
BUILD, Act. Our bipartisan legislation will reform and
consolidate financing activities of OPIC and USAID. The
administration and key stakeholders, including the ONE
Campaign, the U.S. Global Leadership Coalition, and the U.S.
Chamber of Commerce, have strongly embraced the goals and
concept of our legislation in a companion bill introduced in
the House.
In a statement of support released last month, the White
House said the BUILD Act is broadly consistent with President
Trump's commitment to the Asia-Pacific Economic Cooperation
Forum last November that the U.S. is committed to reforming its
Development Finance Institutions to better incentivize private-
sector investment in developing countries as a clear
alternative to state-led financing initiatives that undermine
state sovereignty. The White House also warned that our
development finance tools are outdated, fragmented, and often
not well-coordinated, hampering our ability to achieve key U.S.
foreign policy and national security objectives while
contributing to an inefficient use of taxpayer dollars. They
also agree that reform will help the U.S. compete more
effectively in a new era of strategic competition.
Establishing a new Development Finance Corporation provides
the private-sector alternative to China's aggressive and
potentially damaging lending through the Belt and Road
Initiative and other finance efforts. China seeks to promote a
state-led, centrally-planned development model that benefits
China, first and foremost. While China's lending practices are
opaque, estimates of Chinese current and planned lending often
to countries with high debt-to-GDP ratios ranges from 100
billion to into the trillions. The new U.S. International
Development Finance Corporation created by our bill instead
would advance responsible lending so citizens in recipient
countries will be full participants in economic growth. With a
modern Development Finance Corporation, we could increase the
effectiveness and reach of U.S. aid and strength market--
strengthen market economies abroad. We could better promote
private-sector economic growth that creates middle-class
consumers and industries. Not only would this growth help
reduce our foreign-aid budgets over time, it can lead to
consumers abroad who can buy U.S. exports. Both the public-
sector and private-sector interests can benefit from the growth
of market economies in developing nations. It is in our
national interest to encourage the opportunities that can
result from this common interest in economic growth in the
developing world.
We thank our witness for being here. We thank him for his
service to our Nation.
And, with that, turn to my friend, our distinguished
Ranking Member, Bob Menendez.
STATEMENT OF HON. ROBERT MENENDEZ,
U.S. SENATOR FROM NEW JERSEY
Senator Menendez. Thank you, Mr. Chairman, for calling this
hearing.
It is critical that this committee maintains oversight over
U.S. development efforts to ensure that they are effectively
promoting our interests abroad. And I have long supported
expanding our vision of development to ensure the United States
can best pursue broader economic statecraft rooted in sound
principles of development, diplomacy, and leveraging the
private sector. As a matter of fact, when I was chairman of the
committee, we authored a white paper on this topic, so it is an
issue of some importance.
Centuries of history have proved that using American
resources to help other countries lift their citizens out of
poverty, respond to disasters, and support private-sector
growth directly contributes to prosperity and stability
throughout the world. As we consider modernizing development
financing, we must ensure that development, along with defense
and diplomacy, remains a pillar of our foreign diplomacy.
Specifically, the U.S. Agency for International Development
must continue to lead our development efforts in advance of
national interests. I am disappointed that USAID does not have
a witness here today. USAID's perspective is essential as we
move forward. And I will certainly be looking forward to having
conversations with Administrator Green before I am personally
ready to move forward.
Around the world, nations, from the United Kingdom to
China, use various state-sponsored development financing
mechanisms to help their domestic industries invest in
developing economies, which, in turn, contribute to economic
growth and job creation in the partner countries. The United
States has a different history and model of private business
versus state-owned enterprises. The Overseas Private Investment
Corporation has an integral role in assisting U.S. to do the
business of development in emerging markets. USAID supports
private-sector partnerships through the Development Credit
Authority, the Global Development Lab, and the Private Capital
Group. These efforts leverage critical, sustainable
partnerships to transition communities towards self-reliance,
Administrator Green's central mission. We must take steps to
ensure that our government agencies are in the best position to
facilitate private-sector engagement abroad, to foster
entrepreneurialism and job growth, infrastructure, and raising
worker standard, which ultimately contributes to wider
prosperity and, potentially, new markets for U.S. goods and
services.
However, I remain concerned about the administration's
overall approach to development. The administration's first
budget shuttered OPIC. This year, it calls for an enhanced
Development Finance Institution with more resources and
authorities, and I still do not know what the administration
wants to do with the Trade and Development Agency.
So, I come to this hearing with real concerns about the
bigger picture of the administration's foreign policy vision
and how a new development finance entity will fit in. The BUILD
Act elevates and enhances OPIC's current authorities by
consolidating financing entities, including USAID's Development
Credit Authority. However, I have several concerns. First, we
must ensure that the new Development Finance Corporation's
mission has development at its core and does not just function
as a bank. Two, a new Development Finance Corporation must have
a board that reflects the dynamism and innovation occurring in
sectors ranging from finance and international development to
human labor and environmental rights. Thirdly, development
initiatives must serve our policy objectives while maintaining
high levels of accountability to the communities they serve and
to the American taxpayer.
In closing, I would like to offer two examples of how
development financing can contribute to job growth and U.S.
national security. OPIC has partnered with Habitat for Humanity
and MicroBuild to help build homes for 120,000 families in 19
countries, from Azerbaijan to Zambia. With a roof over their
head, individuals and families are far more likely to go to
school, to find a job, and to ultimately support their
communities. In another example, Holtec, based in Camden, New
Jersey, has partnered with OPIC to construct a long-term fuel
storage facility in the Chernobyl exclusive--Exclusion Zone of
Ukraine. This project, by breaking a Russian monopoly on
nuclear waste disposal, advances U.S. national security
priorities and is expected to generate more than $200 million
in procurements of American goods and services.
Mr. Chairman, I ask consent that the statements by Habitat
for Humanity and Holtec be added to the record at this point.
The Chairman. Without objection.
[The information referred to above can be found at the end
of this document.]
Senator Menendez. Because of stories like these, I have
long advocated for multiple tools to pursue a comprehensive
policy of economic statecraft.
So, as we move forward, I will look forward to working with
you, the administration, and critical voices from civil society
and international development organizations to diligently
ensure that we maintain the integrity of development operations
while building new development finance tools and explore new
investment options.
Look forward to the testimony and the questions. And thank
you, again, Mr. Chairman, for an important hearing.
The Chairman. Thank you.
Our first witness is Mr. Ray Washburne, President and CEO
of OPIC, our Nation's Development Finance Institution. He is a
real estate investor, restaurant developer. Mr. Washburne has
served on the board of--and loan committees of several banks,
infrastructure, construction, and manufacturing businesses.
Well-equipped to lead this great organization.
We thank you for being here and, again, for your service.
If you would keep your comments to about 5 minutes, that would
be great. And any written documents you have, we will be glad
to enter into the record. If you would begin.
Thank you.
STATEMENT OF HON. RAY WASHBURNE, PRESIDENT AND CEO, OVERSEAS
PRIVATE INVESTMENT CORPORATION, WASHINGTON, DC
Mr. Washburne. Chairman Corker, Ranking Member Menendez,
members of the committee, thank you for inviting me to testify
today on this critical topic.
Chairman Corker, I would like to acknowledge all the work
you have done to advance U.S. foreign policy. From Electrify
Africa to efforts to combat human trafficking, you have been a
champion for those in need around the globe.
Ranking Member Menendez, your leadership has been
instrumental in strengthening U.S. engagement in the world,
particularly in the western hemisphere.
Indeed, this committee's bipartisan work has helped set the
stage for the administration's proposal for the United States
to establish a reformed, more effective Development Finance
Institution with modernized tools and a focus on supporting
private-sector-driven development. When it comes to meeting the
massive development needs around the globe and advancing
American foreign policy, this proposal and the legislation the
committee is weighing is essential.
As you know, development finance uses tools such as loans,
guarantees, and political risk insurance to facilitate private-
sector investment in emerging markets that will have positive
developmental impact. These are transactions the private sector
will not do on their own. Through OPIC, the U.S. Government has
used these tools to back projects in key sectors, such as
power, water, and health, that improve life for millions and
lay the groundwork for economic growth. Likewise, the U.S.
Government has used USAID's Development Credit Authority to
drive private investment into countries that have not had
access to commercial finance. This model for modernizing
private investment is only becoming more prominent as the needs
in the developing world are just too great to meet with
government resources alone. Yet, U.S. capabilities have become
outdated as we have gone without significant legislative
updates. As a result, we lacked the modern 21st-century
mechanisms needed to either compete with countries like China
or cooperate with allies like Britain, Germany, and Japan,
which are investing heavily in emerging markets.
And the global competition for influence is on. While I was
in Asia, I saw how China's Belt and Road Initiative is changing
the political and economic landscape. The amount of investment
China has planned for this initiative is staggering, aimed at
interconnecting 65 percent of the world's population, one-third
of the world's GDP, and a quarter of all goods and services. Of
course, a condition of many of these loans is that Chinese
firms and labor get the business. And we know what happens when
countries cannot pay.
In December, for example, Sri Lanka gave control of a
strategic port to Beijing for 99 years. This comes as China has
been stepping up its presence in the Indian Ocean and its
critical shipping lanes. Mr. Chairman, we have to be engaged in
the developing world with a robust alternative to these state-
directed investments which can leave developing countries worse
off. And we have that alternative in a new U.S. Development
Finance Institution, or DFI. This proposal is a result of the
President's executive order on reorganizing government, which
promoted a fresh interagency look over several months. We found
that the U.S. Government's ability to deploy these tools
strategically is limited by outdated legal authorities and
fragmentation.
With this in mind, the administration developed a proposal
to improve efficiencies, reform programming, and, as envisioned
by the National Security Strategy, elevate these tools to
advance U.S. foreign policy goals. The President's budget
proposes to consolidate multiple U.S. development finance
functions into a new standalone Development Finance
Institution. The DFI will have better policy alignment and
strong links to the State Department and USAID to ensure its
transactions align with U.S. foreign policy and leverage
USAID's programming. This includes funding for technical
assistance in grants for potential DFI projects that need a
bridge to becoming investment-ready. We also need governance
and management structures to ensure the DFI and USAID's field
missions work seamlessly.
The new DFI will include reforms to better manage taxpayer
risk and ensure its investments are additional to the private
sector. We do not support projects that could, or should,
proceed on their own. And we will also ensure that our work
upholds the highest environmental, social, and worker-rights
standards. Another part of a reformed DFI is increased
transparency and accountability through expanded inspection and
oversight.
In conclusion, Mr. Chairman, in 9 months as the head of
OPIC, I have seen the power of the private sector unleashed to
advance U.S. policy. OPIC approved the transaction which will
increase Ukraine's energy independence from Russia. OPIC
formally launched its 2X Women's Initiative to catalyze over a
billion dollars in capital to invest in projects that empower
women worldwide. And OPIC signed an MOU with our Japanese
counterparts to bolster investment in the Indo-Pacific region
and beyond. A new modernized DFI could be far more competitive,
creating countless opportunities throughout the developing
world, but this modernization of development finance cannot
happen without the support of this committee. I am extremely
thankful for the leadership of Senator Corker and Coons and the
many other Senators on the committee for embracing this concept
through S. 2463. Indeed, the administration has noted its
strong support for the goals of the legislation. I look forward
to working with the committee as the process moves forward to
ensure the DFI is structured for long-term success.
I will be happy to answer any questions you might have.
[The prepared statement of Mr. Washburne follows:]
Prepared Statement of Ray W. Washburne
introduction
Chairman Corker, Ranking Member Menendez, Members of the
Committee--thank you for inviting me to testify on this critical topic.
Chairman Corker--I'd like to acknowledge all the work you have done
to advance U.S. foreign policy. From Electrify Africa to efforts to
combat human trafficking, you have been a champion for those in need
around the globe. Ranking Member Menendez, your leadership has been
instrumental in strengthening U.S. engagement in the world,
particularly in the Western Hemisphere.
Indeed, this Committee's work has helped set the stage for the
Administration's proposal for the United States to establish a
reformed, more effective Development Finance Institution--with
modernized tools--and a focus on supporting private sector driven
development.
development finance and the international landscape
When it comes to meeting the massive development needs around the
globe and advancing American foreign policy, this proposal--and the
legislation the committee is weighing--is essential.
As you know, ``development finance'' uses tools such as loans,
guarantees and political risk insurance to facilitate private-sector
investment in emerging markets that will have positive developmental
impact. These are transactions the private sector won't do on their
own.
The U.S. Government has used these tools through the Overseas
Private Investment Corporation (OPIC) to back projects in key sectors
such as power, water, and health that improve the quality of life for
millions, and lay the groundwork for creating modern economies.
Likewise, the U.S. Government has used USAID's Development Credit
Authority (DCA) risk-sharing guarantee program to drive private
investment into countries and sectors that have not had sufficient--or
any--access to commercial finance.
This model of mobilizing private investment is only becoming more
prominent, as the needs in the developing world are just too great to
meet with official government resources alone.
Yet, U.S. capabilities have become outdated. We have been operating
for years without significant legislative updates.
As a result, we lack the modern, 21st century mechanisms needed to
either compete with countries like China, or cooperate with allies like
the United Kingdom, Germany, and Japan, which are investing heavily in
emerging markets.
And a global competition for influence is on. While I was in Asia,
I saw how China's One Belt, One Road initiative is changing the
political and economic landscape. The amount of investment China
reportedly has planned for this initiative is staggering--aimed at
interconnecting about 65 percent of the world's population, about one-
third of the world's GDP, and about a quarter of all goods and
services.
Of course, a condition of many of these loans is that Chinese
firms--and labor--get the business. And we know what happens when
countries can't pay. In December, for example, Sri Lanka gave control
of a strategic port to Beijing for 99 years. This comes as China has
been stepping up its presence in the Indian Ocean region and its
critical shipping lanes.
Mr. Chairman--we have to be engaged in the developing world with a
robust alternative to these state-directed investments, which can leave
developing countries worse off. This state-directed approach is not
consistent with our values, which incorporate the high standards of
international financial institutions related to governance,
transparency, debt sustainability, environmental, and social
safeguards.
the president's initiative
We have that alternative in a new, U.S. Development Finance
Institution (DFI).
This proposal is a result of the President's Executive Order on
reorganizing government, which prompted a fresh look at the issue. Over
several months, we worked closely with the Department of State, USAID,
and others through an inter-agency effort, led by the Office of
Management and Budget and the National Security Council, to discuss
challenges related to development finance. This group concluded that
the U.S. Government's ability to deploy these tools strategically is
limited by outdated legal authorities and fragmentation across
government.
With this in mind, the Administration developed a proposal to
improve efficiencies, reform programming, and, as envisioned by the
National Security Strategy, elevate development finance to help advance
U.S. foreign-policy goals.
proposed development finance institution
The President's Fiscal Year 2019 Budget Request proposes to
consolidate multiple U.S. development-finance functions, such as OPIC
and USAID's DCA, into a new, standalone, Development Finance
Institution (DFI) that will coordinate all development financing.
The DFI will have better policy alignment through updated
governance structures and stronger linkages to State and USAID to
ensure the DFI's transactions also align with U.S. foreign policy and
leverage USAID's programming. For example, the linkages include $56
million requested in Economic Support and Development Funding that can
be used to provide complementary technical assistance and grants for
potential DFI projects that need a bridge to becoming investment ready.
We also need to establish innovative governance and management
structures to make sure the DFI works closely with USAID's Bureaus and
field Missions, so USAID can invest in the DFI's transactions.
Similarly, U.S. Embassies and diplomats will explore and champion
new market opportunities on behalf of U.S. commercial, development, and
national security interests.
The Administration is requesting $96 million in administrative
expenses and $38 million for credit programing, project-specific
feasibility studies, and other tools for the DFI. However, through
careful loan and insurance underwriting, it is expected the DFI will
not only offset its own operation and program costs but also return
hundreds of millions of dollars to the Treasury.
The new DFI will include reforms to better manage taxpayer risk and
ensure that U.S. government investments are additional to the private
sector. We must ensure that while our work supports the creation of
economic growth in emerging markets, it will not displace the private
sector or subsidize projects that can or should find their own
financing. And we must also ensure that this work upholds the highest
environmental, social and worker rights standards.
Another part of a reformed DFI is increased transparency and
accountability. One example of how the DFI will achieve these
objectives is through an expanded inspection, oversight, and evaluation
function. The President's Budget requests a robust $2 million for this
purpose.
conclusion
Mr. Chairman: In 8 months as the head of OPIC, I've seen the power
of the private sector unleashed to advance U.S. policy:
OPIC approved a transaction which will increase Ukraine's
energy independence from Russia;
OPIC formally launched its 2X Women's Initiative to catalyze
over $1 billion in capital to invest in projects that empower
women and stabilize communities; and
OPIC signed a Memorandum of Understanding with our Japanese
counterparts to bolster investment in critical sectors in the
Indo-Pacific and beyond.
A new, modernized DFI could be far more innovative and competitive,
creating countless opportunities for communities throughout the
developing world who will benefit from the economic impact of its
investments.
But this modernization of development finance cannot happen without
the support of this Committee through authorizing legislation. We are
thankful for the leadership of Senator Coons and the many other
Senators on the Committee for embracing this concept through S. 2463,
and look forward to working with the Committee on the details of this
legislation to ensure it grants the DFI the authorities and creates the
structure needed to foster its long-term success.
I would be happy to address any questions you may have.
The Chairman. Thank you very much.
I know your statements indicate this, but, just for the
record, and for other members who are not here, the
administration fully supports the legislation that we are
discussing today. Is that correct?
Mr. Washburne. Yes, sir.
The Chairman. Yeah. You know, I listened to the Ranking
Member's comments, and I think we all have had concerns about
where we are going as it relates to being able to help other
nations. In some ways, it is somewhat surprising that we have a
piece of legislation that the administration is behind and, it
looks like, in a bipartisan way people want to see occur. Could
you share a little bit about some of the concerns that you and
others have about what China is doing in other countries today?
Mr. Washburne. Yes. Thank you.
OPIC currently operates in 90 countries around the world.
We are open in 130 countries. And, as we travel, whether I was
in Peru, at the Summit of the Americas a few weeks ago, to
Africa, the Chinese are everywhere. And we are--we cannot match
them dollar for dollar, and there is no intent to match them
dollar for dollar, but there is a lot of strategic investments
we can make to counter the Chinese influence around the world.
And that is why I have recently signed an MOU with the Japanese
government as well as the Australian government, in the Indo-
Pacific region specifically, to work together on projects that
we can not only source together, but also invest in together.
In fact, this week, the--my Japanese counterpart was in
Washington, and he came over to meet, and we went over multiple
projects we are looking at doing together.
The Chairman. What would the equity component--I know today
you are constrained only to loan money, but tell us the kind of
things that, with the addition of using equity--tell us what
that might mean to an organization like, hopefully, will be
created.
Mr. Washburne. Well, the way OPIC was originally set up in
1971, there has not been any change in our basic structure in
how we can invest in projects. And, as you know, the world has
changed substantially in the finance sector. We are being left
out of a lot of projects by other countries because their DFIs
all have the ability to actually be--put an equity piece in the
projects. And so, since we only have a debt product, we are
getting not only cut out of a lot of projects, but people just
do not want us involved because we are senior debt to everyone,
and they want to be pari-passu with us in the equity component
of it.
The Chairman. What--my understanding is, we have worked--
you have worked very closely with USAID. And actually, there
was a markup yesterday, as I understand it, in the House, where
some of the concerns that USAID had with this type of
legislation were addressed. And a number of amendments were
incorporated yesterday in the House to take care of some of the
objections that they had. Can you share with us a little bit
about how the process is working with USAID? There are numbers
of people on this committee that strongly support the work that
they do, and obviously do not want to diminish their ability to
do their job.
Mr. Washburne. Yes, sir. We have worked very closely with
USAID. Administrator Green and I have met several times on
this. He is supportive. The White House has given us a letter
in support, which--what is being created through this new bill
is a chief development officer. It is a new position. And that
will ensure that we work seamlessly with USAID to meet their
objection--their objectives of what they want to do. And so,
what we are bringing in from USAID is actually fairly small. It
is an agency that has 30 employees, about $500 million
currently. But, we understand the importance that they are
doing, but we are going to give their field officers a lot more
tools to work with.
So, actually, it is a huge benefit to USAID. They are going
to go from being able to do one type loan, now they are going
to have seven to eight different products that they can do. And
it is important for us to have, because OPIC is really
Washington's center project. We do not have field offices. Is--
now USAID and ourselves will be able to work together. It gives
them a lot more capital to go out around the world and do
projects. And they have the boots on the ground.
The Chairman. So, USAID will actually be the face of the
organization in these countries. Is that correct?
Mr. Washburne. Well, they will be carrying--they will be
like a rainmaking source for us. Yes, sir. Just like we use
Commerce Department now, and their field officers, when we
travel around the world. When we land, we need people on the
ground that know the local markets.
The Chairman. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Mr. Washburne, thank you for your testimony.
We have come a long way from the administration's first
budget, which--where the fate of OPIC was uncertain. We have an
ambitious task before us.
So, let me just follow up on the last question of the
Chairman. So, if we bring Administrator Green here, put him
under oath, he is going to say that he fully supports the
legislation as it is?
Mr. Washburne. Well, I cannot speak to what he would say
under oath, but I do know----
Senator Menendez. You say he is supportive. Would it change
under oath?
Mr. Washburne. Well, I cannot speak to what his feelings
would be. He--I have not had any objections from him in my
meetings with him.
Senator Menendez. Can you--so, to understand where we are
headed, I think we have to understand a few questions with
regard to the financial health and development impact that you
are having at OPIC. So, can you discuss for us OPIC's current
portfolio as it relates to projects you deem highly
developmental? And how do you determine that?
Mr. Washburne. Yes, sir. Last week, we cut the ribbon in
Honduras on a geothermal plant that is going to supply
electricity to 40,000 homes in Honduras, not--these are homes
that either do not have electricity or very spotty electrical
service. It is not only going to transform that community, it
is also going to enable that area to have--businesses to
develop and economic activity happen; whereas, before, they had
no electricity whatsoever. Yesterday, at our investment
committee, we approved a loan in Africa to create cellphone
service into four countries that--average GDP income in those
countries is less than $500 a person. And so, those are two
examples of how we are changing lives in those two countries.
Senator Menendez. And what is your standard for the--
develop--saying something is highly developmental? What is your
rule? What is your standard? What is your process by making
that determination?
Mr. Washburne. Well, every project--we are currently at 675
projects. Every one has to stand on its own. Each one has its
own objectives. So, there is not an in-writing standard for
something, but we view everything through the lens of--through
our committees, and we have many people----
Senator Menendez. Does----
Mr. Washburne. --walking through----
Senator Menendez. Does something have to have a certain
outcome? Does it----
Mr. Washburne. Well----
Senator Menendez. --have to have a certain ripple effect?
There must be some----
Mr. Washburne. Well, we----
Senator Menendez. --paces by which----
Mr. Washburne. --we do have a developmental matrix, which I
am happy to get for you, on----
Senator Menendez. I would like to see that.
Mr. Washburne. --the impact, it happens.
Senator Menendez. Yeah, I would like to see that.
Mr. Washburne. Yes, sir.
Senator Menendez. Let me ask you this. In discussing OPIC's
current development scorecard, the methodology in measuring the
develop impact of a deal, how do you look at that?
Mr. Washburne. Developmental----
Senator Menendez. Yeah. Looking at your current
development----
Mr. Washburne. Yes, sir.
Senator Menendez. --scorecard, what is the methodology in
measuring the development impact of a deal?
Mr. Washburne. Well, that is the matrix, so that--I would
be happy to----
Senator Menendez. It is the same matrix?
Mr. Washburne. Yes, sir.
Senator Menendez. Okay. You will submit that to----
Mr. Washburne. Yes, sir.
Senator Menendez. --the committee?
Mr. Washburne. I will.
Senator Menendez. So, the question would be, can that
methodology, or your matrix, be enhanced to support the new
development corporation's approach to measuring its projects
and integrating a monitoring and evaluation protocol for
projects beyond the financial close of the project?
Mr. Washburne. I am sure--if that is what the committee
would like to present in the bill, yes, sir.
Senator Menendez. Is that something--but, is that
something----
Mr. Washburne. Well----
Senator Menendez. --that you have considered independently?
Mr. Washburne. I would have to look at what the language
would look like.
Senator Menendez. Let me ask you this. You have indicated
an interest in pushing OPIC to do more deals in Latin America,
something that I would like to see, as well. Tell us about the
profile of investors who are engaging OPIC to do deals in Latin
America. What countries and sectors are they gravitating
towards?
Mr. Washburne. Well, one thing, we have tried to be is a
little more outward-facing in projects. So, we have had teams
down in what is--the T&T, which is the northern triangle of El
Salvador, Guatemala, Honduras, looking for projects. So, rather
than waiting for incoming calls under those areas, we have gone
down to see what are the needs in those countries. For example,
in Honduras, the geothermal plant to supply electricity. And
then we try to match them up with development partners. We
support--right now, 24 percent of our portfolio is in Latin
America. And, like I said, I was recently in Lima. We were
looking at projects in Peru, Colombia, throughout the--Latin
America.
Senator Menendez. Let me ask you this. You noted that USAID
is supportive, but I understand that part of the challenge is
that USAID missions, which do much of this work on the ground,
do not have visibility or access to OPIC, which is demand-
driven from U.S. businesses. So, how can we increase
coordination and cooperation to support development on the
ground in pursuit of national interests?
Mr. Washburne. Well, that is what this bill proposes to do
with this--with our new USDFC established in those--we will
send out marketing and interface with those people so they know
they have a tool to go out and market with, just like we do at
the Commerce Department today. And our chief development
officer that will be--that will be his sole responsibility, is,
how do we integrate between USAID and their purposes and with
OPIC's or the new DFI's?
Senator Menendez. One final question. Can you tell us how
your board currently operates, the value of diverse opinions
and expertise it brings? And would you agree that a mix of both
finance and private-sector voices, as well as expertise from
labor, human rights, and the interagency process, is important?
Mr. Washburne. Yes. We have an excellent board today. When
projects go to them, they are thoroughly scrubbed down by them.
And I think a diverse opinion is very valuable.
Senator Menendez. Thank you, Mr. Chairman.
The Chairman. Thank you.
I know there was some discussion. You good with that? Okay.
Senator Coons.
Senator Coons. Thank you very much, Chairman Corker,
Ranking Member Menendez, both for holding this hearing, for the
witnesses who are with us here today, and for the opportunity
to legislate on an issue that I think is enormously important,
about how the United States mobilizes its world-leading mastery
of private capital to help the developing world.
I would also like to thank, Mr. Chairman, you,
specifically, for your leadership on this, and your staff, Andy
Olson, who is been great to work with. My own staff, Tom
Mancinelli and Anna Yelverton, have pitched in greatly. And
this has been a terrific experience.
I am also grateful for the other cosponsors of this bill,
Senators Isakson, Murphy, Young, Shaheen, Portman, and Kaine.
President Trump, as has been remarked, signaled his strong
support for the BUILD Act, from his statements in Vietnam about
development finance reform to references in the National
Security Strategy.
I also want to thank two former OPIC CEOs, Elizabeth
Littlefield and Rob Mosbacher, for their support. And, Mr.
Chairman, I would like to submit a letter from Ms. Littlefield
to the--to our committee, for the record.
[The information referred to above can be found at the end
of this document.]
Senator Coons. Mr. Washburne, I have greatly enjoyed
getting to know you, working with you, and look forward to
working together to implement this legislation.
Ms. Littlefield, a former OPIC CEO, in her letter
encourages members to support the BUILD Act, saying the
legislation, and I quote, ``is the right step at the right
time. It will advance America's national security aims, it will
tap into the dynamism of America's companies and investors, it
will project the best of America's values and accomplish all
these in an efficient, cost-effective, and time-tested way,''
close quote. I agree. And I am optimistic that this important
bill will move forward with broad bipartisan support.
Last, I am grateful to the ONE Campaign, the U.S. Global
Leadership Coalition, and the U.S. Chamber for everything they
have done to help make this ready to move.
Just in quick summary, it is because of the ways in which
this will change the scope, the tools that you have available
to you, and that the successor U.S. International Development
Finance Corporation will have accessible to it in order to face
the competition that we see in the developing world. In my 8
years in the Senate, in a number of trips to the developing
world, our competitors--the Chinese, principally, but many
others--are everywhere with far more sophisticated and broad
tools. So, I hope that we can work together to address concerns
raised today and to make sure that this moves quickly through
this committee.
Thank you for a chance to make a statement. And, Mr.
Washburne, it is been a delight to work with you, and with you,
Mr. Chairman.
The Chairman. Thank you, sir.
Senator Gardner.
Senator Gardner. Thank you, Mr. Chairman.
Mr. Washburne, welcome to the committee. Thank you for your
service. I will be in Colorado Springs tomorrow.
Mr. Washburne. Okay.
Senator Gardner. So, I do not know when the last time you
were able to make it out there, but I look forward to being out
there.
Mr. Washburne. I will be there in June.
Senator Gardner. Very good. Thank you.
Talking about some of the work that we have been doing in
Asia, I know you and I have had an opportunity in the past to
talk a little bit about this. Obviously, an important hearing
to talk about how we can be expanding opportunities around the
globe. The world's largest armies stand in Asia, five of seven
U.S. defense treaty allies are in Asia. We cannot simply let
China go unchallenged as--in terms of the tools of economic
coercion that they continue to use and threaten U.S. national
economic interests. According to projections, by 2030, 66
percent of the global middle-class population will be in Asia,
99 percent of middle-class consumption will be in Asia. It is a
region very much to determine our future.
Therefore, I wanted to talk a little bit about the bill
that I have introduced recently, bipartisan legislation, along
with Senator Markey, Senator Cardin, Senator Rubio, and I. The
Asia Reassurance Initiative Act, S. 2736, introduced 2 weeks
ago, calls on the administration to engage in, one,
multilateral, bilateral, or regional trade agreements that
increase U.S. employment and expand the economy; formal--two,
formal economic dialogues that include concrete outcomes;
three, high-standard bilateral investment treaties between the
United States and nations in the Indo-Pacific region; four,
negotiations of the Trade and Services Agreement and
Environmental Goods Agreement that include several major Asian
economies; five, the proactive strategic and continuing high-
level use of the Asia-Pacific Economic Cooperation Forum, the
East Asia Summit, and the Group of 20 to pursue U.S. economic
objectives in the Indo-Pacific region.
ARIA also provides an authorization for a more robust U.S.
commercial presence throughout the Indo-Pacific to improve U.S.
exports, to promote U.S. exports, additional trade facilitation
efforts, authorizes the imposition of penalties on entities and
governments engaged in the theft of U.S. intellectual property,
and requires a new comprehensive U.S. policy to promote energy
exports to the Indo-Pacific.
I give you that summary, Mr. Washburne, to ask you this
question. Do you believe that the initiatives, like those I
referenced in ARIA, would be a help, a boost to the United
States to build a--help build a more robust, long-lasting
economic/commercial presence in the Indo-Pacific?
Mr. Washburne. Well, thank you, Senator. I am not familiar
with your legislation, but what you just said is--yes, I would
be. We--as I stated earlier, we just recently signed an MOU
with the Japanese government and the Australians--we are
currently working on them with the Indian government--to
provide more vehicles for us to invest in throughout that
entire region, in all areas. But, it is very important to us,
with the Chinese influence in that area, and their Belt and
Road Initiative, that OPIC, or the new DFI, would be used as--
in that region to find the type investments to the--what you
speak to.
Senator Gardner. Yeah. And when we talk to governments
around the region--around the world, quite frankly--that have
seen Chinese investments from the government, they talk about
the sustainability of those investments, those projects. Could
you talk a little bit about whether or not you believe these--
China's--China's investments, particularly in Asia, are
sustainable in the long run?
Mr. Washburne. Well, what the Chinese are doing is what, in
the real estate business, they call ``loan to own.'' And what
they are doing in these projects--and they did this in Sri
Lanka--they are overloaning on projects, they are bringing
their own workers in, and, in fact, leaving them behind
afterwards, not even using local workforces. By putting so much
leverage on these projects, like they did in Sri Lanka,
foreclosing a port that was brand-new built, but it had so much
debt on it, there was no way it could service it, and they just
took it away. So, they are using too much debt and throwing too
much money at these projects to force these countries into
submission on giving these key resources up.
I spent a lot of time in Zambia. In the summer, we built an
orphanage there. And I will be out there again 2 weeks this
summer. And, when you land at the airport there, it is a
Chinese terminal. As you are driving into town, it is a new
soccer stadium built by the Chinese. It is all over. And this
is a small country in the middle of Africa. So, if you can
imagine it is happening there, think what it is doing in
strategic sea lanes and ports around the world.
Senator Gardner. Well, thank you. And I think, particularly
on this area, a U.S. presence--long-term strategy is incredibly
important, and U.S. presence means a lot. And so, if we are
going to take an opportunity to benefit and help people learn
from sub-par investments that China may be making, or at least
the penalties that a country may face as a result of
cooperating with what once was a beneficial agreement, then we
have to be present. And I think ARIA legislation to provide
that reassurance is necessary to our allies.
Thanks, Mr. Washburne, Mr. Chairman.
Mr. Washburne. Thank you.
The Chairman. Thank you.
Senator Cardin.
Senator Cardin. First, thank you for your service. I
strongly support OPIC's functions. We have many Maryland
companies that have benefited by it.
But, I want to drill down a little bit on your efforts in
regards to small businesses, minority businesses, and women-
owned businesses. OPIC has a goal of producing a certain amount
of its business in small businesses. I believe your goal is 30
percent. Could you just go over with me how you are making sure
that that goal is achieved, and how you go about determining
what businesses qualify for that type of analysis?
Mr. Washburne. Sure. Thank you for the question.
Our initiative that we set up last fall is our--what we
call our 2X Women's Initiative. And we are catalyzing a billion
dollars of investment to go to--focused on women-owned
business. And a specific example would be in Costa Rica. We
went in and put a lending vehicle, with Citibank, into a bank
in--called the Bank of San Jose in Costa Rica. OPIC put in 50
million, Citibank put in 20, and the local bank put in around
10 to 15 million dollars. Of that, 20 percent is specifically
targeted to women-owned businesses. OPIC has never done that
before, so we are now doing that throughout our portfolio. And
small and medium enterprises, SME lending--as we do this
throughout the world, that is how we get loans down to small
businesses. This week, we did a loan, $100 million project for
another bank in debt focuses in El Salvador and Guatemala. What
they do is, they take small, medium enterprise loans, and 20
percent of that is targeted towards----
Senator Cardin. Can you define for me what a small, a
medium-size----
Mr. Washburne. It would be someone who needs a truck to go
deliver, you know, bakery goods, because they own a bakery,
or--I cannot give you the dollar, because every country is
different, but a small and medium-sized business would be--not
a GE or somebody, but a smaller--and I can come to you with our
exact terms of what an SME loan would be. But, what we do is,
we find the local banks, know their customer, they know the
lenders, so, by putting the money into those banks, they were
able to spread it out organically throughout their--you know,
the ecosystem of the banking market that they are in.
Senator Cardin. And I would appreciate it if you could----
Mr. Washburne. Yes, sir.
Senator Cardin. --supply that information to us as to how
you go about determining--30 percent is a goal. There is no
legal requirement, as I understand.
Mr. Washburne. That is correct. And it is extremely high
priority. That is why--the first thing I did when I came in was
set up the Women's Initiative, to kick that off, because that
showed--when I was in--I recently was in India. We are helping
the finance a--FinTech, in India, to where women, on their
phone--well, any small-business person, will have the ability
to borrow money, like $5, on their phone, which, in a country
with a very small GDP, is----
Senator Cardin. So, if you would get us that information--
because, as we look to trying to partner with you, there are
things that we might be able to do to help you----
Mr. Washburne. Yes, sir.
Senator Cardin. --in being able to evaluate these types of
opportunities in a more aggressive manner.
I want to go into minority businesses, as well, and what
you are doing there. The Minority Business Development Agency
is slated, I think, for termination under the President's
budget. And that is an arm within Commerce. I think the
President says that that duplicates the work being done by the
Small Business Administration. I want to know what efforts and
services you use in order to reach out to minority businesses
as part of OPIC's function.
Mr. Washburne. Well, I personally, as president of OPIC,
have reached out. I have spoken to many minority groups. I have
promoted--75 percent of our business is with small U.S.
businesses that go abroad. So, we are out--we actively do
market to all commerce.
Senator Cardin. Seventy-five percent would be the number
of----
Mr. Washburne. Companies, yes.
Senator Cardin. --number of companies. And again, how do
you determine that they are small?
Mr. Washburne. I would have to get you the terminology.
Senator Cardin. Okay. I would be interested how that----
Mr. Washburne. Yeah.
Senator Cardin. And how many of those are minority
businesses?
Mr. Washburne. I would have to get you that number.
Senator Cardin. Yeah. Okay, if you could get that
information----
Mr. Washburne. Yeah.
Senator Cardin. --to us, I think it would be very helpful.
As you know, during the debate on OPIC, there was a
challenge as to whether this is really just for big companies
or--who benefits from OPIC. We want to make sure that it is an
inclusive operation, giving opportunities for minority
businesses, small businesses, to participate. And we have
found, in the small-business arena, there are certain programs
that we have. We would like to see how well that is coordinated
by what OPIC is doing in order to make sure that we really are
providing opportunities for diversity in American businesses
participating in export.
Mr. Washburne. Okay.
Senator Cardin. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Just a couple of last questions. Is the India project you
are referring to the one that the President's counselor, Ivanka
Trump, was promoting when she was on the trip?
Mr. Washburne. That Ivanka was on?
Senator Menendez. Yes.
Mr. Washburne. Well--no.
Senator Menendez. That is----
Mr. Washburne. When I was in India and Ivanka was there, we
were promoting a--just women's businesses, in general, which
she was not part of. Actually, I did not even speak on a panel
with her or anything. She was there marketing her own agenda.
Senator Menendez. And so, the--any loans that you made
there are not in connection with that?
Mr. Washburne. Oh, no.
Senator Menendez. No.
Mr. Washburne. No, sir, not at all.
Senator Menendez. Let me ask you this. The BUILD Act very
intentionally removes the U.S. nexus requirement----
Mr. Washburne. Right.
Senator Menendez. --that OPIC has exercised for over 30
years. Why do you think that is the way to go?
Mr. Washburne. Well, that is what the committee has
decided. The U.S. Chamber of Commerce came out in support of
this bill and that provision. And we have got a letter of
support, which we are happy to submit to the committee, and--
submit it. But----
Senator Menendez. I am asking you, as the----
Mr. Washburne. But, we have----
Senator Menendez. --president of OPIC----
Mr. Washburne. Well, we have a U.S.-company preference on
every loan we look at. And everything we look at is--goes
through that lens.
Senator Menendez. Yeah, but a preference does not mean you
have to have a U.S. nexus, right?
Mr. Washburne. Yes, sir, but that is--correct.
Senator Menendez. That is correct. And you think that is
the way to go?
Mr. Washburne. That is how the committee has presented it
to us.
Senator Menendez. I did not ask you that.
Mr. Washburne. Well, I think it gives OPIC the ability to
have greater flexibility in doing projects.
Senator Menendez. What assurances can you give the Congress
that, if this is the law, that you will be financially prudent
in entering into deals with non-U.S. companies and potentially
state-owned enterprises?
Mr. Washburne. Well, again, we believe that there is going
to be preference given to U.S. companies. As far as--the board
signs off on projects, so I--all I can say is, it goes through
a lens of ``America first.''
Senator Menendez. That is not the--that is not very
reassuring.
Mr. Washburne. Well, Senator, I--the language presented to
us, and then it came out of the House and then it is going to
come out of your committee, is--that was the language that was
in the----
Senator Menendez. Well, my point--the reason to have
witnesses is not to tell me what the----
Mr. Washburne. Right.
Senator Menendez. --committee wants. I understand what the
Chairman and----
Mr. Washburne. Right.
Senator Menendez. --and the--Senator Coons and others want.
The reason to have you here is to gather your expertise. So, my
question is--let me repeat it again--how are we going to have
an assurance that you are going to be financially prudent in
investing in non-U.S. companies or, you know, state-owned
enterprises, which you would be allowed to do under this
version of the law?
Mr. Washburne. Sure. Well, look, in OPIC's history, I think
the agency's been extremely prudent. It has made a profit for
40 years in a row. And our lens that we go through on loan
committees or investment committees is a very stringent process
to go through. And so, we have the ``American first'' lens on
everything that we do. I--the assurance I can give you is just
my assurance that, you know, this is an American agency, and
that is the focus on what we are doing. The U.S. Chamber,
again, looked at it and issued a letter in support.
Senator Menendez. Well, I appreciate that the U.S. Chamber,
which is about promoting business at the end of the day, has
its interests. But, my job here, as a United States Senator, is
to promote the national interests of the United States, the
national security of the United States, and development policy
across the globe that pursues that national interest. That may
not be bottom-dollar oriented, which the U.S. Chamber of
Commerce does. So, that they have issued an endorsement is
fine, but it is not my guiding post to understand whether or
not something is good.
So, I am looking forward to getting a better understanding
as to how--since you do not have the U.S. nexus anymore,
notwithstanding with a lens of ``America first,'' but it is a
lens that is not 20/20, because you can invest in foreign
entities, you can invest in state-owned enterprises. And when
we do that, that changes the dynamics for me about what our
focus is.
Thank you, Mr. Chairman.
The Chairman. Thank you.
If I could, just on that note, I mean, right now, I guess,
through USAID, we grant money to various entities around the
world. We just give it away, right?
Mr. Washburne. Uh-huh, yes.
The Chairman. Is that correct? And so, I guess the purpose
of this is to try to have a return on investment and to get
other enterprises in these countries that are impoverished to
flourish by loaning them money based on free-enterprise kinds
of standards. Is that correct?
Mr. Washburne. Yes, sir. And, look, our goal is to
strengthen these markets through private investment. And if a
U.S. Company is not going to go into a market that needs a
specific thing, and another----
The Chairman. Yeah. Well----
Mr. Washburne. --is willing to----
The Chairman. --if I could, I mean, one of the issues that
I think has existed, and certainly been an issue to me, is
that, when we have U.S.-centric-only lending, which we want to
make sure that our U.S. companies are doing business around the
world, no question, as Senator Menendez was just alluding to,
but we also want the economies of these countries to flourish;
and many of the companies there obviously are not owned by U.S.
companies, but we want them to be on their own feet. Is that
correct?
Mr. Washburne. That is correct.
The Chairman. And so, this is a way of leveraging U.S.
resources, where we are not giving it away, it is actually
returning back to the taxpayers, but allowing development to
take place in a real market-oriented way, versus just granting
money away, which is the way our existing programs are,
typically, with USAID. Is that correct?
Mr. Washburne. That is correct, sir.
The Chairman. So, it is another tool that uses the kind of
standards that we use in our own country to help these
countries flourish.
Mr. Washburne. That is correct.
The Chairman. Senator Kaine.
Senator Kaine. Mr. Chair, I am going to save my questions
for panel two.
The Chairman. Okay.
Senator Menendez. All right. Chairman, just a comment, in
response to your comments about mine.
There are times in which you say ``giving it away'' is--I
am sure when I----
The Chairman. Right.
Senator Menendez. --when I see--when I--well, I am sure,
when I see your methodology, your matrix, whatever, there are
important development projects in the world that would not meet
the matrix that OPIC puts out. So, there is a balance between
that which we do through the private sector----
The Chairman. Yeah.
Senator Menendez. --and that which we do because we think
it is in our national interests. It is not just about giving it
away. We never give it away without a purpose, right?
The Chairman. Sure. No, no question. And I support that,
also. My point is, is that what this development organization
would be doing under this redefined--certainly, you are going
to give preference to U.S. businesses, but it is not unlike
what we do every single day with USAID, only, in this
particular case, we are asking for repayment and return on
investment. So, it is another way of helping these very
entities that we are already helping through USAID, that I also
support.
Any other questions?
[No response.]
The Chairman. With that, we appreciate your----
Mr. Washburne. Thank you.
The Chairman. --leadership. Thank you for being here. And
we look forward to continuing to work with you.
Mr. Washburne. Thank you.
The Chairman. Call the second panel up.
Thank you, Bertie.
Our first witness is Mr. Daniel Runde, Director for the
Project on Prosperity and Development at the Center for
Strategic and International Studies. He was previously the
Director of the Office of Global Development Alliances at
USAID. He has also worked with global private foundations and
corporations to leverage funds for the development finance
partnerships.
Our second witness is Mr. George Ingram, Senior Fellow at
the Global Economy and Development at Brookings Institution. He
previously served as Principal Deputy Assistant Administrator
at USAID and has an extensive background in public and private
sectors on development policy.
We thank you both for being here. And it is likely that I
think you will be able to answer some of the questions that
were asked just a moment ago. We thank you so much for your
previous service for our Nation and what you are doing now.
And, with that, Mr. Runde, if you would just begin. And
limit your comments to about 5 minutes. Any written materials,
we will be glad to enter into the record.
STATEMENT OF DANIEL RUNDE, WILLIAM A. SCHREYER CHAIR AND
DIRECTOR, PROJECT ON PROSPERITY AND DEVELOPMENT, CENTER FOR
STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC
Mr. Runde. Thank you very much. Chairman Corker, Ranking
Member Menendez, and distinguished members of the committee,
thank you for asking me to testify before you today. It is a
privilege and an honor.
I want to recognize the incredible work of dozens of
staffers on this committee, HFAC, a number of key congressional
offices, the team at OPIC, and at the Trump White House, who
have made all this possible. I want to especially single out
you, Senator Corker and Senator Coons, for--and your teams--for
your leadership on this.
Let me make several key points with my time today. First is
that this committee and Congress should approve the BUILD Act,
for four reasons:
The first is, the world has changed. The developing world
needs more American investment and more private investment,
generally.
Two, China is currently filling the void. A new Development
Finance Corporation, a DFC, can be part of the answer to the
China challenge. Frankly, China is eating our lunch around the
world. We cannot change China's policy, but we can have a
better offer than China. This new DFC is part of that better
offer. We need a new national economic strategy to organize
ourselves better, and this new DFC will be a part of that
larger strategy.
Third, foreign assistance is still a very necessary
component of U.S. development, but foreign aid will not be
enough or may not be, at times, the right kind of money to
solve every challenge that we are going to encounter. The
Young-Shaheen Task Force on Reforming Foreign Assistance talked
about foreign assistance as a catalyst and bringing others in,
including the private sector.
Fourth, the new DFC can help with a series of national
security and foreign policy challenges better than our current
set of development finance instruments. Refugees, drug-financed
gangs, terrorists, and human trafficking all are challenges
that can be partially addressed with projects financed by this
new DFC. We have a youth bulge in places such as Africa, the
Middle East, and in the northern triangle of Central America,
where a possible demographic dividend could turn into a
demographic nightmare without enough economic growth and jobs
for these young people.
The Overseas Private Investment Corporation is a powerful
development agency, but it is in need of a refresh to allow it
to fully compete. Our allies want to work with OPIC. But, given
some of its limitations, it is difficult for them to work with
us and to work with OPIC.
The current Senate version of the BUILD Act provides
several important improvements to OPIC. It makes--allows it to
make equity investments, to provide technical assistance,
provides a 20-year authorization, and creates a preference for
American investors. Let me address, specifically, Senator
Menendez's point in this, in that, rather than our climate.
This is important in contexts such as Afghanistan, where we
need American soft power at work, but it is almost impossible
to get an--a credible American investor to go. So, that would
be the reason to have a preference. I am happy to talk about
that further in the Q&A, Senator.
And let me just make a couple of other points. Having said
all this, the bill could benefit from some small improvements
that can happen in the normal market process. My suggestions
for improvements are related to the more explicit institutional
linkages between USAID and the new Development Finance
Corporation. When USAID reaches for finance tools, they should
understand the breadth of what the new DFC can do. And when the
new DFC is thinking about an investment, it needs to understand
what AID can do. USAID will still need to work with and support
the private sector through host-country regulators across an
industry, through Chambers of Commerce, or sometimes with
particular companies. For example, AID helps set the table for
the kinds of massive investments in the telecom sector in
places like Africa or Afghanistan. They do technical
assistance, working with regulators to allow for private
investments to happen. So, the kinds of things I am describing
are setting-the-table kinds of work, not making investments.
Some specific improvements for your consideration for the
bill:
First, the Development Credit Authority has been
tremendously successful as a part of USAID. The person who runs
the Development Credit Authority function needs to know AID.
And the best way to ensure this would be to make the new office
director dual-hatted as a USAID and DFC employee and making the
office director a USAID Senior Foreign Service slot.
Second, the position of chief development officer
envisioned at the DFC should also be dual-hatted, accountable
to USAID and the DFC. This chief development officer could also
be a USAID Senior Foreign Service slot.
Third, I think the new DFC is going to need a small cadre
of full-time investment officers overseas. These investment
officers should be embedded in USAID missions and should work
as part of the USAID mission team.
This is not your grandparents' developing world. It is
richer, freer, and has far more agency than it did 40 years
ago. If we do not meet the hopes and aspirations of our friends
and allies, they will take their business to the Chinese. At
the same time, a number of national security challenges require
private-sector solutions as part of our response. Rather than
look at many developing countries as simply recipients of aid,
we must look at them as partners who desire a new relationship
built around trade, investment, and economic growth. The BUILD
Act, when passed, will help us to respond to all this. And I
consider the BUILD Act to have the potential to be the most
important development legislation that will be passed in the
next 10 years.
So, thank you for this opportunity to testify before the
committee on this important topic. And I look forward to your
questions.
[The prepared statement of Mr. Runde follows:]
Prepared Statement of Daniel F. Runde
introduction
Chairman Corker, Ranking Member Menendez, and distinguished members
of the committee, thank you for asking me to testify before you today.
It is a privilege and an honor.
I want to recognize the incredible work of dozens of staffers on
this committee, HFAC, a number of key congressional offices, the team
at OPIC, and at the White House who have made this all possible. I also
want to single out Senator Coons and his team for their leadership on
this important issue.
Currently, I hold an endowed chair at the Center for Strategic and
International Studies (CSIS), researching how we might use American
soft power and influence around the world. I served in the Bush
Administration at USAID and worked for a time at the World Bank Group
after starting my career in investment and commercial banking. I have
been working and writing on the issue of development finance for more
than 15 years.
I am submitting a series of my reports and articles published by
CSIS, Forbes, and Foreign Policy--for the record. Let me make several
key points with my time today.
evolved development finance and the build act
My message is: this Committee and Congress should approve the BUILD
Act for four reasons:
1) The world has changed. The developing world needs more American
investment and more private investment generally.
2) China is currently filling the void created by a lack of funds.
A new Development Finance Corporation (DFC) can be part of the answer
but it cannot be the full response of the United States to the China
challenge. Frankly, China is eating our lunch around the world,
especially in Southeast Asia, Africa, and Latin America. China offers
quick financing and no questions asked infrastructure projects in these
places. We cannot change China's policy, but we can have a better offer
than China. This new DFC is part of that better offer.
3) Foreign assistance is still a necessary component of U.S.
development, but ODA and aid will not be enough, or the right type of
funds. Confronting poverty requires more investment capital. The Addis
Ababa Financing for Development Conference of 2015 saw foreign
assistance as a ``catalyst'' and put a greater emphasis on other forms
of financing including private financing. The phrase that was adopted
was ``from billions (in foreign assistance) to trillions (in the form
of private investment, taxes collected, local private savings, etc.).''
The challenges we face are going to be bigger than the billions that we
can mobilize through foreign aid. We need to move from billions to
trillions. For example, in 2016, total global ODA amounted to $142.6
billion.\1\ However, according to the Asian Development Bank Institute
meeting infrastructure investment needs in Asia alone will require $1.7
trillion annually over the next 25 years.\2\
4) The new DFC can help with a series of national security and
foreign policy challenges better than the current set of development
finance instruments that the United States has at its disposal. Someone
once said, ``the best social program is a job.'' Illicit drugs,
refugees, drug financed gangs, terrorists, and human trafficking all
can be partially addressed with projects by this new DFC. We have a
youth bulge in places such as Africa, the Middle East, and the Northern
Triangle of Central America, where a possible demographic dividend
could turn into a demographic nightmare without enough economic growth
and jobs for these young people. These young people could be customers
for American goods and services or they could be sources of danger for
us and our allies. The key differentiator is meaningful work. In places
such as Afghanistan, getting electricity, growing licit agricultural
crops, and starting new companies are directly linked to the security
of our troops. In many post-conflict situations, having alternatives to
being a soldier or a member of a militia is dependent on real economic
alternatives. The new DFC will be able to help with these challenges.
The Overseas Private Investment Corporation (OPIC) is a powerful
development finance agency, but one that operates with outdated
instruments and authorities. OPIC is in need of a refresh to allow it
to fully compete in today's world. Our allies, such as Japan and the
UK, have DFIs and want to work with OPIC but given OPIC's current
limitations it can be difficult to work in a coordinated way with OPIC.
The current Senate version of the BUILD Act provides several important
improvements to OPIC, allowing the new DFC:
1) To make equity investments,
2) To provide technical assistance,
3) To take smart risk using local currency loans, first loss
guarantees, and provision of small grants,
4) To raise the spending cap on the DFC's investments to $60
billion, more than doubling OPIC's current $29 billion funding cap.
5) To provides a 20-year authorization,
6) And to create a preference for American investors, rather than a
requirement. This is important in contexts such as Afghanistan where we
need American soft power but where it is almost impossible to get
credible American investors to go due to security or the absence of
legal and regulatory frameworks.
I am encouraged to see that the BUILD Act includes a strong
preference for the new DFC to work in lower-income and lower-middle
income countries. There will be times where the new DFC should make
investments in poorer parts of wealthier emerging markets, but the
emphasis should be on poorer, more conflict affected countries.
I was also encouraged by the inclusion of the potential for future
enterprise funds which are an underutilized tool of the United States,
and a complement to the new Development Finance Corporation. The United
States should update enterprise funds to the 21st century and we should
use enterprise funds much more often. A future round of enterprise
funds should be considered as an important supplement to the new DFC.
recommendations
Having said all of this, this bill could benefit from some small
improvements that can happen in the normal markup process.
My suggestions for improvement are largely related to more explicit
institutional linkages, or ``jointness'' between USAID and the new
Development Finance Corporation. Legislation should require regular
secondments/rotations among USAID, MCC, the new DFC and perhaps other
agencies.
When USAID reaches for finance tools, they should understand the
breadth of what the new DFC can do. When the new DFC is thinking about
an investment that might lead to reform of a sector like the telecoms,
the DFC needs to understand what USAID can do.
The Congress should make explicit that it expects USAID to continue
to work on ``private sector development''--a central part of USAID's
work. USAID will need to continue to work with and support the private
sector, with host country regulators, across an industry, through
chambers of commerce, or with particular companies. For example, the
massive private sector investments in the telecoms sector in Africa and
Afghanistan required changes in the rules about how many cell phone
companies could operate and under what rules of the game. These changes
to the rules of the game were often done by agencies such as USAID.
USAID does much of the work to ``set the table'' to enable investments
by DFIs such as OPIC.
Here are some specific additional improvements for your
consideration:
First, the Development Credit Authority has been tremendously
successful as a part of USAID. The person who runs the DCA function
needs to know USAID. The best way to ensure this would be to make the
new office director ``dual hatted'' as a USAID and DFC employee, and by
making the office director role a USAID senior foreign service slot.
Second, the position of the Chief Development Officer at the DFC
should also be ``dual hatted'' accountable to USAID and the new DFC.
The Chief Development Officer should also be a USAID senior foreign
service slot.
Third, I think the new DFC is going to need a small cadre of full
time investment officers overseas. There is a reason why DFIs such as
CDC in the United Kingdom have their own field staff: they need people
on-site who understand development finance. These investment officers
should be embedded in USAID missions and should work as part of the
USAID mission team.
Fourth, I would also urge the Committee to give the new DFC the
capacities to support early stage investments, many entrepreneurs
cannot get access to this type of investment which requires higher risk
tolerance and more patience.
conclusions
This is not your grandparents' developing world--it is richer,
freer, and has far more agency than it did 40 years ago. If we do not
meet the hopes and aspirations of our friends and allies, they will
take their business to the Chinese. At the same time, a number of our
national security challenges require private sector solutions as part
of our response. Rather than look at many developing countries as
simply recipients of aid, we must look at them as emerging or even
emerged partners who desire a deeper relationship built around trade,
investment, and economic growth. We should not let this moment pass.
The BUILD Act, when passed, will be the most important piece of
international development legislation in more than a decade.
Thank you for the opportunity to testify before the Committee on
this important topic, I look forward to your questions.
----------------
Notes
\1\ http://www.oecd.org/dac/development-aid-rises-again-in-2016-
but-flows-to-poorest-countries-dip.htm
\2\ https://www.forbes.com/sites/danielrunde/2017/04/05/we-
shouldnt-be-eliminating-opic-we-should-be-putting-it-on-steroids/
#1cdcf0173156
The Chairman. Thank you. Thank you very much.
Mr. Ingram.
STATEMENT OF GEORGE INGRAM, SENIOR FELLOW, GLOBAL ECONOMY AND
DEVELOPMENT, BROOKINGS INSTITUTION, WASHINGTON, DC
Mr. Ingram. Chairman Corker and Senator Menendez, my
appreciation for the invitation to testify today. And special
thanks to the Chairman and Senator Coons for introducing the
BUILD Act, recognizing the importance of strengthening the U.S.
economic development toolkit.
Dan has laid out the rationale for a more robust U.S.
development finance instrument and the strengths of the BUILD
Act, so I will focus on just four ways in which I believe the
act could be--the bill could be strengthened.
The development mandate. To your point, Senator Menendez,
the bill establishes development as the mission, but without
clarity and definition of scope. I think that gap can be filled
very easily with a definition of ``development'' in the bill.
And the example I would use, a good model, is the MCC statute,
which establishes as the purpose of the MCC to promote economic
growth, the elimination of extreme poverty, and strengthen good
governance, economic freedom, and investment in people. The
Modernizing Foreign Assistance Network, which I co-chair, has
shared with committee staff this and other improvements to the
development mandate covering accountability, evaluation,
learning, and transparency.
And, with respect to transparency, language should be added
to the bill to specify that the data must be publicly
available, and it must be available on a project-by-project
basis, not just on a country basis, as provided by the bill,
and that data must be timely, comprehensive, and comparable, as
is provided in the Foreign Aid Accountability and Transparency
Act, which this committee authored.
Second point, on the IDFC-USAID relationship, a strong and
proactive relationship between the two is critical to U.S.
achieving its development objectives. The bill seeks to do this
through designating the Administrator of USAID as the vice
chair of the board, and suggests the position of a chief
development officer. I would suggest that that position should
be mandated by the bill, and the duties of that officer should
be enumerated as I lay out in my submitted--my statement for
the record.
The fact is, legislation can only lay the framework, but
not hard wire relations between two agencies. And, while agency
coordination has improved in recent years, particularly through
such programs as Power Africa, it ultimately comes down to
personalities, who is in the right place. And this committee
can facilitate the relationship through its advice-and-consent
authority to ensure that the appropriate person, someone with
extensive development expertise, hopefully at USAID, fills that
position.
Third point, the Office of Private Capital and Micro-
Enterprise. The bill would move the office to the IDFC. This is
unnecessary and a mistake. This relatively small office serves
as USAID's center of excellence in technical knowledge for
private-sector activities. My written statement illuminates the
centrality of private enterprise to USAID's activities. If the
office were moved, USAID would simply have to recreate the
technical capacity so as to maintain the ability to provide
advice and guidance to country missions and other units. In
fact, given the importance of the two agencies collaborating on
programs and projects, and the role that USAID performs in
advancing business-friendly environments, the IDFC needs AID to
have this technical expertise.
Finally, on labor, environment, and human rights, the OPIC
statute sets out specific mandates in these areas. Today's
expectations and sound business practices are even stronger
than when these provisions were written into law. Business
leaders have come to understand that these are not just nice
cosmetic social concerns, that following them can benefit the
bottom line. Companies today are adopting comprehensive
commitments on sustainability, as reflected by some 7,500
companies issuing sustainability and responsibility reports. In
complying with its legislative mandate in this arena and
following corporate practice, OPIC utilizes the performance
standards on environmental and social sustainability of the
International Finance Corporation. A simple and elegant
legislative alternative to the multiple legislative provisions
is simply to mandate that the IDFC should follow the IFC
guidelines.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Ingram follows:]
Prepared Statement of George M. Ingram
Chairman Corker and Ranking Member Menendez, my appreciation for
the invitation to testify today, and to Chairman Corker and Senator
Coons for introducing the BUILD Act in recognition of the importance of
strengthening the U.S. economic development tool kit.
I am George M. Ingram, senior fellow at the Brookings
Institution\1\ and co-chair of the Modernizing Foreign Assistance
Network (an alliance of individuals and organizations committed to
improving the effectiveness of U.S. assistance).
Data speaks volumes as to the importance of building out the nearly
50-year-old Overseas Private Investment Corporation into a new, strong
instrument of development finance.
The seminal Better Business Better World\2\ asserts that achieving
the Global Goals will not just help our planet, it will help our
wallets. The report estimates that accomplishing the 17 global
Sustainable Development Goals across four economic systems opens market
opportunities of $12 trillion, a figure which may double or triple if
the full scope of the SDGs is achieved. Aside from trillions in value
being at stake, as the report states, ``there is also the opportunity
to shape a safer, more prosperous world with a more predictable future
in which to invest and innovate. There is the chance to rebuild trust
between business and wider society.''
In 2015, the Overseas Private Investment Corporation (OPIC) held a
total portfolio of $20 billion, while its European sister agencies held
more than twice that amount ($45 billion).\3\ Outstanding balances for
the China Exim Bank totaled $378 billion in 2016, and the China
Development Bank held $360 billion in international assets. The
opportunities are vast, the competition is intense, and the U.S. needs
to step up to the challenge.
The BUILD Act addresses that challenge, among other ways, in
providing the authority to make equity investments and extend technical
assistance; raising the contingency liability to $60 billion; providing
a multi-year authorization; and creating strong links between the IDFC
and USAID. However, there are ways in which it can be strengthened.
clear development mandate
The bill establishes development as the mission of the IDFC, but
without clarity as to definition or scope. This gap can be filled by a
clear definition of, or vision for, development.
A good model is the purpose set forth in the statute establishing
the Millennium Challenge Corporation (MCC) to promote ``economic growth
and the elimination of extreme poverty and strengthen good governance,
economic freedom, and investments in people''. Today that objective
would be updated by inserting ``broad-based'', ``equitable'', or
``inclusive'' before ``economic growth''.
The Modernizing Foreign Assistance Network has shared this, and
other improvements to the development mandate covering accountability,
evaluation, learning, and transparency, with the committee in specific
line item suggestions. Especially important is that data be publicly
available on a project basis, not just by country, and that the data be
timely, comprehensive, and comparable, consistent with the Foreign Aid
Accountability and Transparency Act (FAATA).
A further guarantee of a strong development mandate is that some
private members of the board have backgrounds, not just in business and
finance, but relevant development expertise and experience.
idfc-usaid relationship
A strong and productive relationship between the IDFC and USAID
will be a lynchpin to the U.S. achieving development objectives.
USAID has been a pioneer in leveraging the private sector in its
development programs. In the past decade and a half, USAID has
participated in more than 1,600 public-private-partnerships. Two
signature initiatives are Power Africa, which works with 142 private
sector partners (including 69 American companies) to build energy
capacity in Africa, and Feed the Future, which has leveraged nearly
$830 million in private sector capital investment since 2011.
The bill designates the administrator of USAID as the vice-chair of
the IDFC board and suggests the position of chief development officer
to coordinate with USAID and the MCC.
The position of chief development officer should be mandated, not
permissive. The duties of the office should be enumerated beyond
``policy and implementation'' to, among other responsibilities:
coordination of IDFC development policy and technical assistance
collaboration with USAID and the MCC; sharing of resources, data,
analyses, and evaluations with USAID and the MCC; oversight of the
agency's responsibilities for monitoring, evaluation, and transparency;
and management of the annual report. The officer should be held
responsible, in the statute or committee report, for leading a learning
agenda with other agencies and a government-wide development finance
strategy, both of which will help solidify IDFC-USAID collaboration and
program integration.
A mechanism to build collaboration across agencies that has worked
well among the military services is employee secondments, assigning
members of one agency to another for periods of one to several years.
The fact is, productive bureaucratic relationships cannot be
hardwired through statute. While interagency coordination has improved
in recent years through initiatives like Power Africa, it ultimately
comes down to personalities--the right people in the right places. The
committee can play a role in facilitating the relationship. The
committee can use its advice and consent to ensure that an appropriate
person, someone with extensive development experience, preferably with
USAID, fills the position of chief development officer. It also can
exercise its oversight role to review how the relationship is
functioning.
development credit authority
The Development Credit Authority (DCA) is a prime example of the
critical relationship between the new IDFC and USAID. DCA extends a
guarantee (typically up to 50 percent) to an entity to catalyze its
activities so they are more developmental. For example, a DCA guarantee
can facilitate a financial institution to be more inclusive in its
lending. The legislation would move this program to the new agency.
If DCA is transferred to the IDFC, policymakers should consider
that demand for DCA guarantees comes from USAID missions, so USAID
country staff are the field operatives for DCA. Further, DCA programs
sometimes are linked to a USAID program. For example, 10 DCA
guarantees, supporting $530 million in finance, are involved in Power
Africa.
The draft legislation appears to move the DCA program to the IDCA,
but not any underlying authority. So, with appropriate funding, both
USAID and the IDFC could operate guarantee programs. It is not
currently contemplated for the IDFC to have field staff, so USAID
mission staff would, in essence, have to serve as the field staff for
guaranty projects of both. Given the difficulty in breaking down agency
siloes, it is essential that both agencies establish appropriate policy
and employee inducements to catalyze collaboration.
the office of private capital and microenterprise
The bill would move the Office of Private Capital and
Microenterprise to the IDFC. This is unnecessary and a mistake.
This relatively small office serves as USAID's center of excellence
and technical knowledge for private sector activities and
microenterprise. The centrality of USAID's work with the private sector
to its programs has already been noted. If the office were moved, USAID
would simply have to recreate the technical capacity so as to maintain
the ability to provide advice and guidance to country missions and
other operating units. In fact, given the importance of USAID/IDFC
collaboration on projects, and the role that USAID performs in
advancing business friendly environments, the IDFC needs USAID to have
the technical expertise provided by this office.
Furthermore, consider whether microenterprise activities are more
naturally aligned with poverty alleviation, therefore more akin to
USAID programs, or to development finance. If the latter, how would
moving the office impact the USAID microenterprise legislated mandate?
labor, environment, and human rights
The OPIC statute sets out mandates on labor rights, environmental
impact, and human rights. Today expectations and sound business
practices are even stronger than when these provisions were written.
Business leaders have come to understand that these are not just
cosmetic social concerns, that following them can benefit the bottom
line. Companies today are adopting comprehensive commitments on
sustainability, as reflected by some 7,500 companies issuing
sustainability and responsibility reports consistent with global
guidelines. As one example, a broad coalition of international
companies that operate in Cambodia are calling on the government to
honor the rights of workers to organize and to a minimum wage and to
cease harassment and criminal charges against union leaders.
In complying with its legislated mandate in this arena and with
corporate best practice, OPIC follows the 2012 Performance Standards on
Environmental and Social Sustainability of the International Finance
Corporation (IFC). A simple and elegant legislative alternative to the
multiple provisions in current law and the draft bill is to substitute
for those provisions the mandate that ``The IDFC shall follow the
guidelines set forth in the 2012 IFC Performance Standards on
Environmental and Social Sustainability.''
relevance of enterprise funds
The bill provides the authority to establish enterprise funds by
reference to certain sections of the original authority to create the
Polish and Hungarian enterprise funds in the 1991 Support for East
European Democracy Act (SEED Act). The intent is to transfer the
responsibility for enterprise funds from USAID to the IDFC.
The enterprise fund model was innovative in its time, a creative
response to the opportunity to introduce private enterprise into
Central and Eastern Europe and the former Soviet Union after the demise
of the Iron Curtain. Of the resulting 10 enterprise funds, two were
shuttered early and the others, having completed their original
mission, have closed their doors and used the income from selling their
portfolio to repay the U.S. Treasury and to finance legacy development
functions. Only the Western NIS Fund (in Ukraine and Moldova) retains
investment activity for a few more years. Two more recent enterprise
funds are operating in Tunisia and Egypt.
Several matters to consider:
The legacy foundations and scholarship funds are grant-type
activities currently overseen by USAID that would be irrelevant and a
distraction to the new entity, so the relationship should remain with
USAID.
The bill continues the practice of a White House-appointed board
for enterprise funds. Is this useful? While some board members have
possessed the expertise to perform well, the primary qualifications of
others were political connections. What is the value of taking 6-to-9
months or so for the White House to appoint the board, another 6-to-9
months or so for the new entity to get up and running, and at best 2-
to-3 years before investing begins?
In fact, is specific enterprise fund authority necessary or
relevant? As to necessity, the reason for the original statute was to
provide authority for USAID to engage in equity investment. The bill
already does that in the basic authorities.
As to relevance today, the introduction to a recent USAID
evaluation\4\ of the enterprise funds suggests the answer:
``Despite the enormous challenges of the transition from
planned to market economy, the former Soviet bloc countries
were very different from today's developing countries in
several important ways . . . . These (i.e., Soviet bloc)
countries did not have, however, a private sector, and in
particular, a diversified private financial sector that could
support the financial investments needed to transform the
economy into a market-based system. This is the gap that the
enterprise funds were designed to help to address. They were a
solution to a problem in a very specific context.''
Today, just a handful of countries lack some private sector and
financial markets. Furthermore, unlike when the enterprise fund
authority was first established, if analysis of a country's financial
markets suggests that equity fund activity is appropriate, why go to
the time and trouble of creating a new entity? The first step should be
to pursue a market option, such as contracting with an existing fund, a
social impact fund, an NGO with experience operating in this arena, or
issue a request for a proposal. Only if there is insufficient market
interest should the enterprise fund option be exercised.
Further, why use scarce grant assistance money when market finance
is available? Since 1987, OPIC has committed $4.1 billion in 62 private
equity funds in emerging markets. Those equity funds in turn have
invested more than $5.6 billion in more than 570 privately owned and
managed companies in 65 countries.
Finally, the bill provides authority for the IDFC to establish
enterprise funds through referencing relevant provisions in the SEED
Act and adding further provisions.
There are several legislative options on enterprise fund authority.
If it is determined that specific authority is relevant to the
IDFC, then pull the relevant provisions from the SEED Act into this
bill, thereby creating a clean, clear authority. However, I would
recommend removing the provision of a White House appointed board, and
making clear in the committee report that the existing legacy
operations remain with USAID.
Alternatively, as in the past enterprise funds have been authorized
by the Congress, let future Congresses decide whether circumstances
justify spending grant assistance to establish an enterprise fund.
closing
In closing, I would suggest that the Committee has three balancing
tasks in finalizing this legislation.
Build a strong development finance agency without
diminishing USAID's capability to fulfill its development
mission, including on economic growth.
Establish a clear mandate on the primary mission of
development while at the same time providing for a nimble
development finance agency.
Facilitate collaboration and coordination between USAID and
the IDFC without one unnecessarily interfering with the
functioning of the other while embracing strong accountability
mechanisms that have served both OPIC and USAID well.
Chairman Corker and Senator Menendez, I thank you for the
opportunity to submit these views in support of the BUILD Act with
these workable improvements.
----------------
Notes
\1\ The views expressed in this statement are solely those of the
author and do not reflect the views of other staff members, officers,
or Trustees of the Brookings Institution.
\2\ Business and Sustainable Development Commission, 2017
\3\ Congressional Research Service, OPIC, USAID, and Proposed
Development Finance Reorganization.
\4\ USAID, Europe and Eurasia Enterprise Fund and Legacy Foundation
Final Evaluation Report
The Chairman. Thank you both very much.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Thank you both for your testimonies. Very worthy.
Mr. Ingram, I listened to your suggested improvements with
interest. What are your--I think you have made it pretty clear
that the merging of OPIC and AID's developing credit authority
will--how do you think that will affect the overall development
approach and impact?
Mr. Ingram. The overall development impact----
Senator Menendez. Approach and impact.
Mr. Ingram. I think there is a strong case to be made to
bring--for the development finance instrument to have all the
tools of development finance. And guarantee is that. OPIC has
a--USAID has a history of creating new programs--OPIC, TDA--and
spinning them off. And I look at the Development Credit
Authority as that. But, I think that the opportunities and
the--the potential for business in this arena is so vast that--
I like the way the bill is written now, in that it moves the
DCA over to the IDFC, the new entity, but it does not take that
authority away from AID. And, in the end, you could have both
agencies engaging in different types of guarantee programs.
Senator Menendez. Now, what are your thoughts on the
financial tools that are expanded in this legislation? Is there
a need for Congress to legislate more financial risk mitigation
transparency in the bill? You did mention the one element of
having every project publicly listed. Especially as it relates
to the new proposed equity authority and a reboot of enterprise
funds.
Mr. Ingram. The answer is, I think the equity authority is
very important. All of OPIC's European sisters have the equity
authority. I sit on a board of an organization that set up an
equity fund, and it had to go to the European DFIs to get the
financing. It could not go to OPIC. OPIC only came in at the
end with debt finance. So, OPIC was not competitive with its
Europeans. And I think OPIC's existing risk mitigation
processes will serve the equity just as well as it serves the
financing today.
Senator Menendez. Okay. And last question for you. Is OPIC,
and potentially the new development corporation, working in the
right countries? What is your opinion to access to markets in
highly development countries versus the current proposed target
countries that appear to be more middle-income?
Mr. Ingram. I think the legislation is correctly written
today, which it emphasizes, gives priority to poor, developing,
transitioning countries, but allows OPIC to operate in all
developing countries. Because I think there will be
opportunities in more advanced developing countries where it is
appropriate for OPIC to be active.
Senator Menendez. And, Mr. Runde, in your testimony, you
emphasize how this is not our grandparents' development
financial institution. And I get that. Can you provide
specifics on how we can update the enterprise fund mechanism?
In my experience, these funds have largely been signs of
political support for market reforms in countries coming out of
conflict, but the development and economic results of these
funds have been very limited. Can you speak to that?
Mr. Runde. Yes. I think that the enterprise funds, as they
were imagined 25 years ago, were ahead of their time, but they
were very important. There were a number of enterprise funds in
eastern Europe that were very successful. Poland, for example,
and others. Actually, they were--when they were set up, did--
that no one imagined that they would return a financial return.
That was not the idea what they were supposed to do. But, I
think it is a little bit of a function if we want to make a
full market return or we want to make specific development
outcomes as our priority with the enterprise funds. But, I do
think they are an important complement to what this new DFC can
do. And in my written testimony, I reference the fact that I
think that finding new generation of enterprise funds would be
important.
I think--several things we might do. I do think it is
important to have--name somebody as a--an activist board chair.
I think we should keep that. That was one of the innovations
and, in many instances, that has been successful. There were a
few that it was not. And I think we need to learn from our
mistakes. But then, second, I think that we ought to be able to
bring in other forms of--other private capital and other
investors. Originally, as they were envisioned, it was only
U.S. Government money that could be brought to the table. So, I
think those would be two things that I would think about. One
is to keep the--having a board that is brought in from the
outside. I would keep that. But, I would allow them to raise
capital from other sources, as well, and bring them in.
Senator Menendez. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Kaine.
Senator Kaine. Thank you, Mr. Chair.
And thanks, to your--the witnesses for being here today.
I want to ask about fragile states and combating violent
extremism, and how a more comprehensive financial tool,
development strategy, can help us with that. Our Chair had
David Cameron here a few months back, and he talked about work
he is doing on fragile states, and the need to invest more in
them to deal with some of these national security issues. I had
a briefing 2 days ago about the deaths of American soldiers in
Niger, which was very troubling. And this is in a part of
Africa where we have had a lot of requests for more U.S.
investment and involvement.
Two years ago, I think, in the NDAA process in the Armed
Services Committee, AFRICOM came to us, and they asked for the
ability to transfer monies. If they felt like the best way to
counter violent extremism was to do development projects, they
asked for the ability to transfer monies with the SECDEF
signoff over to USAID and State. So, they also believe the
power of development in combating violent extremism. The fact
that they had to ask us, though, suggested that we maybe were
putting our dollars in the wrong places. And I am very troubled
about an administration that is proposing significant reduction
to development funding.
But, talk a little bit about if we do development right,
and especially if we attract private investment the right way,
how that can be beneficial as we try to help fragile states and
counter violence in those nations.
Mr. Runde. Thank you very much, Senator. And I want to also
thank you for all your leadership in the northern triangle.
Thank you for all you are doing on that important region for
the United States.
I think the most important social program is a job. And I
think, in some ways, some of the most important things we can
do to make ourselves secure is to have broadbased economic
growth in some of the world's toughest places. And so, I think
a new Development Finance Corporation should be willing and
able to lean in and make investments, not making a full market
return, but a mixture of investments, technical assistance,
working with AID to create an enabling environment for jobs so
that people feel they have got a shot at life where they are
living.
And so, I mean, young people are going to use their energy
in either good ways or bad ways, and we want to channel this
large youth bulge in places like Africa, where we are going to
have a doubling or tripling of the population--we have a youth
bulge in Central America and a youth bulge in the Middle East--
young people are going to use their energies either for good or
for not so good. And so, I think we want to be using the new
DFC, in partnership with AID, to try and create the
opportunities for these young people to live the lives that
they--that God wanted them to live, and have a--you know, use
their God-given talents in ways that make sense.
So, I think it is very, very important. We have--I--when I
talk to military officers--General Kelly, I think, really
understands this in the administration, so I think there is a--
I think Mark Green, Ambassador Green, really understands this--
so I think you have folks in the White House, you have folks in
the development side of the House and in the military who
understand this. So, I think, in partnering with the Senate and
with the Congress, I think we could find our way to do yet more
in fragile states along those lines.
Senator Kaine. Can I ask you this? Since you are not
currently part of the administration, so you do not have to
give us a party line, how do you square that, that there are
people who seem to understand that, with these budgets that
come over to us that suggest we want to cut these priorities?
Is it just a----
Mr. Runde. Well, thanks.
Senator Kaine. --just a----
Mr. Runde. Yeah, I was in the----
Senator Kaine. --big tug-of-war between the people who know
stuff and those who do not? Or----
Mr. Runde. I am a Republican.
Senator Kaine. Yeah.
Mr. Runde. I was in the Bush administration.
Senator Kaine. Yeah.
Mr. Runde. But, I would say half of my job at CSS right now
is trying to stop stupid things from happening. And I think
cutting the budget by 30 percent is a bad idea. I think it is a
mistake. And I think that the Congress, in its wisdom, has had
a different view. And so, I think--but, I think there is plenty
of smart folks, and I think they are just--we are having to
balance a number of different positions in--in any
administration, there is different viewpoints. And so, I think
the Congress has an important role to help have a dialogue with
the administration. I think there are many reasonable folks.
I also think--the other thing I would say is, as the
administration has come online, they have had conversions, sort
of ``Road to Damascus'' conversions on a number of different
issues. If you just look at this conversation that we are
having, the first budget that they put out said, ``We are going
to zero out OPIC.'' That was a terribly stupid idea. And I
wrote an article, said, ``We should not be eliminating OPIC, we
should be putting it on steroids,'' among many of the other
things I will be submitting for the record. And so, I am
pleased to see that they are putting it on steroids.
So, I think some of it is about having a dialogue with
Senators here, and staff, to say, ``Let us not do stupid
things.'' And I also think, to make sure that we understand our
security interests and that this is enlightened self-interest.
And the administration, over time, has under--has seen that.
And actually, I think the National Security Strategy they put
out was an excellent National Security Strategy. So, I give--we
need to work with them and partner with them and have a
dialogue.
Senator Kaine. Mr. Chair, could I have Mr. Ingram--if you
have additional thoughts, Mr. Ingram, on this national security
interlink with appropriate development, including private
development--if I could have him--extend my time?
The Chairman. I am glad to have it. I have enjoyed this.
[Laughter.]
Mr. Ingram. Thank you, Senator Kaine.
I was going to start just the way Dan started: jobs, jobs,
jobs. And what I would add is: A couple of years ago, I looked
at USAID's 1600 public-private partnerships that it had
supported over the prior decade and a half. And, at the end of
all this, I said, ``I wonder if any of them are in fragile
states.'' And what I found was that a quarter of them were in
fragile states. My skeptical colleagues said, ``Well, it is all
in natural resource extraction.'' I looked at that. It was not.
It was in home products. It was in technology.
And to go to Senator--to skip from here to Senator
Menendez's point on the U.S. nexus, you have made the point for
why we need to soften the U.S. nexus. Because, in some of those
fragile countries, there will not always be an American company
there that you--that offers the opportunity to create the jobs,
to promote the development. And OPIC's European sisters do not
have a national nexus. And just as Senator Corker, the
Chairman, is trying to provide more flexibility in U.S. food-
aid programs, from always having to buy U.S. products, and all
development agencies have moved away from ``buy national,'' we
need to do that in the development finance area. And I think
this legislation does it in a very smart way of saying there is
a preference for U.S. companies, but it does not always have to
be a U.S. Company.
Mr. Runde. May I? Let me just add to what George has just
said. On this issue of preference, I think it is very, very
important. I think we should always prefer to work with an
American company. And I think we might even have some
limitations as to how much ought to be non-American. But, there
are going to be instances--if we are going to go down-market,
we are going to go to the toughest places in the world--Niger
or the Sahel, or we are going to go Afghanistan--most American
companies are not going to go there, or they are going to
have--we are--or they are--we are going to have to prove to
them that there are opportunities. And sometimes it is going to
be working with a local company or it is going to be working
with a European company or a South African company. So, I think
there are going to be instances where this new DFC needs the
ability to do that in these toughest places. We want to go to
the poorest places. We need to give them a little bit more
flexibility.
Senator Kaine. Thank you, Mr. Chair.
The Chairman. Mr. Runde, we were--Senator Menendez and I
were commenting at--obviously, you are not lobbying for a job
within the administration.
[Laughter.]
The Chairman. And so----
Mr. Runde. I am working on my subtlety and nuance, Senator.
[Laughter.]
The Chairman. Well, you are providing a lot of
entertainment, and we appreciate it.
[Laughter.]
Senator Menendez. But, we think it is extraordinarily
refreshing, Mr. Chairman.
The Chairman. So, you have had some concerns about the
development budgets in the past, in just foreign aid budgets.
It would appear to me that those initial budgets coming in were
possibly an attempt to show that you were trying to cut
government spending because you were unwilling to deal with the
entitlement piece. And yet, if you look at what we have
actually done, we have not cut those budgets, have we? And so,
I think there has been an evolution here, and I know that,
while many--some of the members here have been critical of the
administration in that regard, it does seem as if this is a
very enlightened approach. Is it?
Mr. Runde. Senator, I think that the administration is
willing to have a dialogue and to have a conversation about
these issues. And I think it has been learning on the job in a
constructive way, if I can say that. And so, I think this is an
example--this topic is an example of that. And so, I do not
think we can balance the American national budget on the back
of the 150 account, which is the account for----
The Chairman. Right.
Mr. Runde. --foreign assistance. It is too teeny. And it is
a part--we need it. And if we talk to our military leaders and
our diplomats, they say we need it.
The Chairman. Yeah.
Mr. Runde. We cannot just use foreign aid, alone. I pay my
mortgage. I am paying, you know, on about--typical foreign
assistance--we need foreign assistance, and it is an important
part, but we need this additional set of tools, because the
world has changed. And so, I think the administration
understands that, and I am so pleased that the two of you
gentlemen are convening this meeting today to have this
conversation.
The Chairman. And so, as we look at this--but, you know, I
know there is always skepticism. I understand the world we live
in. If the administration happens to support something, then--
in this environment, it can create some skepticism. Let us be
honest. But, what you would say, as someone who apparently has
had concerns with the administration in some of the things that
may have been put forth, this is something that you think is a
huge step forward for our Nation, has nothing to do with
partisan politics. This is actually something we should have
done years ago.
Mr. Runde. I think this is one of the things--keeps me in
the business. This legislation keeps me in the business. I
think the bipartisan nature of this--this is about the changed
world. If you care about international development, you care
about poor people, if you look at the Addis Ababa Financing for
Development Conference of 2015--if you have trouble sleeping at
night, you can read the communique of the Addis Ababa--but,
truly, what it said is that foreign assistance is a catalyst,
that we need to bring in other--we need to move from billions
to trillions. We are going to need to finance $1.7 trillion a
year of infrastructure in Asia every year. We are not--there is
not enough foreign aid in the world. We still need foreign aid.
And we need AID. But, we need this new DFC and AID to work
together.
And so, I know that we are in a particularly partisan
moment, but I would just, respectfully, for the record, say
that this has been a truly bipartisan exercise. I have been so
encouraged by the work of you, Senator Corker, and Senator
Coons and their staffs. People have worked tirelessly across
the political spectrum on this. I have been particularly
gratified by the way the Trump administration--the Trump
administration staff has been great on this.
And so, I know there is distrust and there is tension. But,
I just way to say, this has been a very important bill, and I
think the current version that you have in front of your
committee is an excellent bill. And I--you know, I have worked
on these issues for 7 years full time. Like I said, if you have
trouble sleeping at night, I have written several papers on
this topic, as well, myself. So----
The Chairman. I think your oral presentations are probably
more enlivened. But----
[Laughter.]
Mr. Runde. Yeah. So----
The Chairman. Mr.----
Mr. Runde. --less soporific. But, yes.
The Chairman. Mr. Ingram.
Mr. Runde. But, look--anyways, I will stop there.
The Chairman. Okay.
Mr. Ingram, what is your view of the administration
evolving to a place where this type of legislation would be
supported?
Mr. Ingram. The answer is, I am very pleased to the--see
the administration change its position and recognize the
importance of development finance. I think we--as Dan says,
grant assistance is very important in promoting development,
but it is--in this day, it is in a static stage at a time when
private finance is growing. And the U.S. needs a stronger tool
to be able to engage that private finance with those companies,
and to help edge them into activities that have a stronger
development impact.
The Chairman. Do you have any other----
Senator Menendez. Yeah, just a comment, Mr. Chairman, since
we are having fun.
So, first of all, let me say that, with all the remarks
about partisanship, I am proud that the--this committee
overwhelmingly, for the most part, works in a very bipartisan
manner. Some of us have very deeply held views about
development assistance in the world, and how it promotes it.
So, we are just trying to reconcile that with a new paradigm.
And I do not think that should be seen as partisan.
As it relates to the administration's budgets and their
attempts to cut, I just find it interesting that some of us
consider a $2 trillion tax bill, unpaid for, largely focused on
corporations as an entitlement, as well. So, it is just--I
guess, depends how you look at the world.
So, thank you, Mr. Chairman, for that opportunity.
The Chairman. Would you guys like to----
[Laughter.]
Mr. Ingram. I would not disagree with Senator Menendez. I
would not disagree with him at all.
Mr. Runde. I am generally very talkative, but I have
nothing to add.
[Laughter.]
The Chairman. Do you have any other comments?
Listen, thank you both very much for being here. you are
both former USAID employees and leaders. My guess is, you come
from different sides of the aisle.
Mr. Ingram. We do.
The Chairman. And it appears to me that both of you, with
some changes, I know, strongly, strongly endorse this ability--
the ability that this bill provides to help us really move into
the 21st century as it relates to helping people in poverty not
be in poverty. Is that correct?
Mr. Ingram. That is correct.
Mr. Runde. Yes, sir.
Mr. Ingram. And the other thing I would say, Senator
Corker, it is particularly--I love seeing this bipartisanship,
because I cut my teeth on the first OPIC reauthorization as a
House staffer in 1974, and the Democrats were attacking OPIC.
Five years later, when the next reauthorization came up, the
Republicans attacked it. And it is really very gratifying to
see both parties coming together now and understanding the
importance of its activities in the world.
Mr. Runde. Let me just add, Senators, that I think, if
this--once this bill gets passed--and I hope it does get
passed--that I think it could create an icebreaker for other
projects that need to be done. And so, I think this coalition--
I think it is going to create momentum, I think, for other
things that we need to tackle in this sphere.
The Chairman. Well, thank you both.
The record will remain open for written questions through
the close of business on Monday. If you could--I know you have
other jobs, but, to the extent you could answer those fairly
promptly, we would appreciate it.
We thank you both for your service to our country.
And, with that, the meeting is adjourned.
[Whereupon, at 11:20 a.m., the hearing was adjourned.]
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Additional Material Submitted for the Record
Statements by Habitat for Humanity and Holtec
Submitted by Senator Menendez
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
__________
Letter From the Hon. Elizabeth L. Littlefield to the Senate Foreign
Relations Committee Submitted by Senator Coons
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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S. 2463 BUILD ACT
[This document can be found online at: https://www.congress.gov/
115/bills/s2463/BILLS-115s2463is.pdf .]
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