Senate Bill 2463: The BUILD Act of 2018
On February 27, 2018, a bipartisan group of nine U.S. Senators1 introduced Senate Bill 2463 to create a wholly owned government corporation, the U.S. International Development Finance Corporation (the IDFC). The IDFC is a brand-new U.S. development finance institution (DFI) meant to (i) replace the Overseas Private Investment Corporation (OPIC) and (ii) take control of the Development Credit Authority (DCA), the Enterprise Funds, and the Office of Private Capital and Microenterprise currently run by the U.S. Agency for International Development (USAID). The initial response to the legislation has been positive, and the bill is currently with the Senate Foreign Relations Committee for further consideration.
On February 12, 2018, just two weeks prior to the bill's introduction, the White House submitted its FY19 foreign affairs budget proposal to Congress. It speaks to the creation of a new U.S. DFI that consolidates OPIC and DCA (see pages 129-130). In contrast to initial rhetoric from the White House that OPIC was to cease business operations and wind down in connection with overall budget cut proposals for the FY18 and FY19 foreign affairs budget, the FY19 foreign affairs budget essentially expands OPIC under the guise of a new U.S. DFI with an increased administrative budget of $96M (OPIC's current administrative budget is $70M) and an increased credit subsidy of $38M (OPIC's current credit subsidy is $20M). The IDFC can further supplement these budget amounts with authorities under the bill to accept gifts and donations, sell direct investments to private investors, and issue up to $1B in debt instruments to the Treasury. The current president and CEO of OPIC, Ray Washburne, a Dallas-based real estate investor appointed by the President, is in favor of the FY19 budget proposal and IDFC legislation. This is an initiative that is being closely coordinated between the Executive and Legislative branches.
Similar to OPIC's mission of helping American businesses invest in emerging markets, the IDFC will continue to focus on helping U.S. businesses and nonprofits invest in low-income and lower-middle-income economies by offering (i) loans and loan guarantees, (ii) equity investments, (iii) political risk insurance, (iv) grants, (v) promotion of private investment opportunities, (vi) financial and advisory services, and (vii) enterprise funds. Clients utilizing OPIC and USAID products will immediately notice four prominent expansions of IDFC capabilities under the bill:
- $60B contingent liability cap over the next five years, which represents a doubling of OPIC's $29B lending cap ($23B of which has been committed already);
- equity investments of 20% positions (cap of 35% of IDFC's aggregate exposure);
- grants for advisory services, project studies, and project promotion; and
- products denominated and repayable in foreign currency, not just U.S. dollars.
The IDFC will maintain strong ties to the State Department, USAID, and the Millennium Challenge Corporation (MCC). This should help the IDFC advance U.S. foreign policy and national security interests more effectively. Its nine-person Board of Directors will consist of a Chief Executive Officer appointed by the President, the Secretary of State, the Administrator of USAID as permanent Vice Chair, the Secretary of Treasury, the Secretary of Commerce, and four experienced members from the private sector appointed by the President for three-year terms, as proposed by the House and Senate majority and minority leaders in consultation with their respective foreign affairs committees. Its officers will consist of a CEO and Deputy CEO appointed by the President, a Chief Risk Officer appointed by the CEO and approved by the Board, and a Chief Development Officer appointed by the CEO to coordinate development finance policy and implementation efforts with USAID and the MCC.
Congress and OPIC have advocated for the expansion of U.S. DFI capabilities for years. Former and current OPIC leaders worked closely with Congress on this latest bill. The hope is that it puts U.S. DFI capabilities on an equal footing with DFIs from other G-8 and East Asian nations, especially China, which have made sizeable development investments in recent years. The IDFC's increased cap, its new equity investment capability, and its centralized debt, equity, and grant-making capabilities mean greater product variety and simplified product access in greater amounts for clients, which should improve U.S. competitiveness in emerging market investing. Moreover, the IDFC's expanded capabilities mean that it can make more down-market investments in smaller deals historically overlooked by DFIs that are rising in frequency and importance thanks to impact investors. But the bar for U.S. DFI success is high. OPIC currently operates in 108 countries, has earned profits for 40 straight years ($268M in 2017), and has less than a 1% default rate since its inception in 1971, so even if Congress and the White House pass this bill and create the IDFC, the IDFC will have a high water mark for success on day 1. We will update you with new developments as they become available from Congress.