Summary of the BUILD Act of 2018

Summary of the Better Utilization of Investments Leading to Development Act of 2018

Overview: On October 5, President Trump signed into law the Better Utilization of Investments Leading to Development Act (BUILD Act), authorizing the creation of a new U.S. International Development Finance Corporation (IDFC). Through consolidation of various development finance agencies and offices and the modernization and enhancement of U.S. development finance tools, the passage of the BUILD Act represents one of the most significant reforms to U.S. foreign assistance over the last two decades.

 

Background: Effective U.S. foreign assistance programs advance American interests through increased global stability and security and have achieved an impressive record of accomplishment in reducing global poverty and human suffering. Traditional public sector aid alone, however, is unlikely to transform developing economies and achieve broad-based, sustainable development where lack of access to capital is a critical limiting factor for economic growth. U.S. businesses have capital to invest and lead the world in the understanding of capital markets and sophisticated financial transactions. Despite our comparative advantage, other countries, especially China, are using development finance institutions more effectively to expand their influence in the developing world. U.S. government tools for international development finance are dispersed across too many federal agencies, and the primary U.S. development finance institution, OPIC, is effective but small, relying on outdated authorities and limited staff without the capacity to deploy the full array of tools that are transforming global finance.

 

Key Provisions: The BUILD Act of 2018 will establish a full-service, self-sustaining U.S. International Development Finance Corporation (IDFC), reforming and streamlining the tools of OPIC, and USAID’s Development Credit Authority. The BUILD Act raises the lending limit for the IDFC from the current cap of $29 billion to $60 billion, and it provides a seven- year authorization for the IDFC.

 

The IDFC will have the authority to:

  • participate in equity investments;

  • issue direct loans, including local currency loans;

  • issue guaranties, including local currency guaranties;

  • provide political risk insurance;

  • fund first loss guarantees;

  • provide limited grants and technical assistance to unlock larger investments

Process for Establishing the International Development Finance Corporation: The BUILD Act requires that the President submit a reorganization plan to Congress within 120 days of enactment, outlining the Administration’s plans for establishing the new IDFC, including the transfer and consolidation of agencies and personnel. The transfer of agencies and personnel cannot occur prior to 90 days after the submission of the reorganization plan.

 

The legislation also requires that prior to the transfer of any agencies and personnel to the IDFC, the President and CEO of OPIC and the USAID Administrator submit to Congress a report outlining how the new IDFC and USAID will coordinate with regard to transferred functions. It is expected that the new IDFC will be fully up and running within 12 months.

 

Strengthened Development Mandate: The BUILD Act includes a number of provisions that will increase the development focus and mandate of U.S. development finance programs. Among other provisions designed to enhance the development impact of the IDFC, the BUILD Act includes the following new directives and authorities:

  • The IDFC will focus its operations in low-income and lower middle-income countries, where the need for access to finance and improved development is greatest

  • A  new Chief Development Officer position is created to oversee the development focus of the IDFC

  • The USAID Administrator shall serve as the Vice Chair of the DFC board

  • The IDFC shall transition away from the 25 percent U.S. nexus requirement to a new U.S. preference policy

  • A new Development Advisory Council shall be established to advise the board on the development mission and objectives of the IDFC. The advisory council shall be composed of 9 members broadly representative of nongovernmental organizations, think tanks, advocacy organizations, foundations, and other institutions engaged in international development.

 

Oversight: Congress will maintain oversight of the IDFC by reviewing the agency’s public reports on its development impact and through independent audits and the establishment of an Inspector General in the Corporation.

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