In March 2017, US president Donald Trump unveiled his so-called ‘hard power’ budget blueprint. On foreign policy, the premise was more military spending, coupled with deep cuts to diplomacy and development institutions.
In a curious turnaround, however, the Trump administration is now poised to create a US development bank with a $60bn lending cap and a mandate to take equity in projects in some of the world’s most challenging markets.
The Better Utilization of Investment Leading to Development (Build) Act sailed through a House of Representatives vote at the end of July. A Senate vote is expected soon. Many believe the new development bank’s legislation could be signed into law before the end of 2018.
The Build Act’s rapid progress is refreshingly out of step with other Trump era foreign policy. It has strong bipartisan support in an era of vicious division. It will modernise US development policy at a time when foreign relations are an afterthought at best or actively antagonistic at worst.
If it passes, Build will revitalise the Overseas Private Investment Corporation (Opic) – one of the agencies originally slated for the hard power chopping block – as the backbone of the development bank. Opic's current lending capacity will be doubled.
Why is this happening now?
Opic’s investment tools have not been updated much since it was created in 1971. Countries such as the UK and South Korea have had development finance arms for years. In many ways Build is playing catch up rather than developing something cutting-edge.
For many Republican lawmakers, catching up is a key consideration in their support: namely, with China. This, along with Build’s focus on business, underpins its across the aisle appeal.
China has enterprisingly expanded its influence across Africa, Asia and Latin America in recent years. Financing projects through policy banks has played a huge role. For US policymakers, competition is a great motivator.
While many kinks remain to be worked out, creating a US development bank will – barring an unlikely catastrophe in the Senate – be a Trump-era legacy.
Adrienne Klasa is the development finance editor at fDi Magazine.