BUILD Act must build in US values for global development projects

Earlier this year, the then-U.S. Secretary of State Rex Tillerson told African and Latin American countries to stop taking billions of dollars in financing from China for infrastructure, energy and industry. 

Tillerson said Chinese finance “encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth.”

{mosads}Most foreign leaders defended their new relations with China, which is fast becoming the No. 1 trading partner and financier in both Africa and Latin America. Compare that to the stance of Trump administration, which has largely turned inward. In addition, recall the president allegedly referred to many of the nations as “shithole countries.”

In a welcome move, the U.S. is now looking to put its money where its mouth is in the Better Utilization of Investments Leading to Development Act of 2018 (BUILD Act) proposal that is rapidly moving through Congress. In its current form however, the BUILD Act is inconsistent with America’s development finance standards, traditions and values.

Stemming from an idea originally proposed by President Trump, the BUILD Act would consolidate the Overseas Private Investment Corporation (OPIC) with the U.S. Agency for International Development’s Development Credit Authority, Enterprise Funds and Office of Private Capital and Microenterprise into a new “International Development Finance Corporation” (DFC).

The DFC would have more capital than the sum of these entities had, and expand the array of financial instruments at the United States’ disposal to not only loans, but grants and equity as well. 

A DFC for the United States is long overdue. Germany, France, Japan and South Korea all have their own massive international development banks (ironically, they were encouraged and at times financed by the U.S. in post-war reconstruction efforts).

The China Development Bank is the largest of all such banks, with a balance sheet of over $2 trillion dollars, about one-fifth of which goes to foreign governments for energy and infrastructure projects across the world. Other emerging markets also have development banks that are active globally — notably Brazil and India. 

A DFC could help developing countries meet their development goals while at the same time create business opportunities for U.S. companies and advance America’s broader image and foreign policy goals.

In order for the BUILD Act to be able to achieve these goals, it needs to be made consistent with U.S. standards and traditions for development finance.

For decades now, the International Financial Institutions Act and the Foreign Assistance Act govern America’s involvement in international financial institutions such as the World Bank and U.S. institutions like OPIC.

Enshrined in these acts and institutions are the principles of transparency, accountability and strong social and environmental standards. While not perfect, OPIC was moving in an exemplary direction in this regard. 

The BUILD Act transfers few of these provisions from OPIC to the new DFC. Rather than OPIC’s accountability office that allows actors in the U.S. and host countries to monitor the institution, the proposed act only has an “inspector general” that cannot provide redress for communities being impacted by the DFC’s projects.

The BUILD Act is also yet to include the International Finance Corporation’s environmental standards or greenhouse gas caps and accounting processes — all of which OPIC currently has. What is more, the bill lacks strong human rights provisions that protect those involved in development projects and affected communities.

The BUILD Act has to build in these pillars of American values and tradition if it is to truly help host nations and their citizens meet development goals while also advancing U.S. commercial and foreign policy interests.

There is still time as this bill moves through congress to explicitly transfer OPIC’s accountability, environmental and human rights standards into the broader DFC. Without these provisions, the U.S. will only win a race to the bottom, and further tatter our standing and example in the global economy. 

Kevin P. Gallagher is director of the Global Development Policy Center at Boston University’s Pardee School for Global Studies, and the co-chair of T-20 Task Force on an International Financial Architecture for Stability and Development. Follow him on twitter @KevinPGallagher.