The U.S. International Development Finance Corporation (DFC) has become a central instrument in advancing American economic statecraft, aligning national security, investment, and development goals. Since its inception in 2019, the DFC has deployed over $40 billion in private capital across 110 nations, supporting market-driven development initiatives that contrast sharply with the coercive economic models promoted by authoritarian regimes. Despite these achievements, the agency’s full strategic potential remains constrained by outdated limitations and procedural hurdles. Congress now has a timely opportunity to enhance the DFC’s effectiveness through reauthorization, enabling a more agile and impactful U.S. presence in global markets. n nBoth the House and Senate have introduced reauthorization bills featuring key improvements, including proposals to raise the DFC’s maximum contingent liability from $60 billion to between $200 billion and $240 billion. Such an expansion would significantly bolster the United States’ ability to compete in strategic regions where economic influence shapes geopolitical outcomes. Additionally, both chambers support establishing a revolving equity investment account, which would resolve longstanding barriers caused by federal accounting rules that have limited the DFC’s use of equity financing under the original BUILD Act. With adequate initial funding, this mechanism could allow for faster, more flexible deployment of capital. n nCurrent geographic restrictions on DFC investments—based solely on national income classifications—fail to reflect subnational disparities or broader strategic imperatives. These constraints should be lifted for projects that advance both development and security, or at minimum, allow presidential certification to override them in specific cases. Similarly, the current requirement for congressional notification on financial commitments exceeding $10 million slows decision-making. Aligning this threshold with the $50 million level that triggers DFC Board of Directors review would reduce politicization and streamline operations. n nFurther operational efficiency can be achieved by clarifying the conditions under which the DFC may take subordinated positions in financing structures. The Senate’s proposal identifies three valid justifications: coordination with other development finance institutions, increased private sector engagement, and advancement of core development goals. Codifying these criteria would provide much-needed clarity and encourage greater private investment by de-risking projects. n nAnother critical enhancement involves predevelopment funding. Project development grants are essential for bridging early-stage financing gaps. Research indicates that every $1 invested in predevelopment can yield $16 to $20 in total economic value and leverage. While the inclusion of such grants in reauthorization legislation is positive, capping assistance at $1 million per borrower may hinder large-scale initiatives. Given that predevelopment costs typically represent 2–10 percent of total project expenses, major infrastructure efforts—such as maritime construction, which averaged over $400 million per project in 2024—could face unnecessary delays. Removing or adjusting this cap would empower the DFC to launch high-impact, strategically significant ventures. n nIn an era of shifting global power dynamics, economic investment has become inseparable from geopolitical influence. Strengthening the DFC through smart legislative reforms will enhance supply chain resilience, support key industries, and reinforce U.S. competitiveness. With global conditions evolving rapidly, Congress must act decisively to ensure the DFC remains a vital tool for promoting international stability, inclusive growth, and long-term American leadership. n— news from Milken Institute
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International Security, Economic Development, and US Strategic Competitiveness: USDFC Reauthorization
That the US International Development Finance Corporation (DFC) has emerged as a focal point of strategies for advancing US economic statecraft is of little surprise. US strategic competitiveness is coextensive with international security, investment, and economic development. This confluence of factors helped drive the creation of the DFC. Since 2019, the organization has mobilized private capital through an active portfolio exceeding $40 billion across 110 countries, promoting development and enabling economic opportunities worldwide through market-based initiatives. This stands in stark opposition to the coercive economic practices characteristic of authoritarian models and their global investment initiatives. Yet DFC’s full potential remains unfulfilled, and more needs to be done to enhance its flexibility in maximizing the strategic impact of US investments abroad. n nCongress now has the opportunity to rapidly achieve this through reauthorization of the DFC. The Milken Institute has long supported efforts to fully realize the potential of DFC. Now that the government shutdown has passed, it’s time to expedite the ongoing shift in US posture from a largely reflexive position toward strategic competitiveness by putting DFC and the United States on the offense. Both the House and Senate have advanced their own versions of reauthorization. Both contain a number of significant upgrades to the existing authorities granted to DFC, as well as discrepancies that will need to be resolved. n nIncreasing the maximum contingent liability to the degree that both the Senate ($200 billion) and the House ($240 billion) vehicles for reauthorization propose is a fantastic starting point for consensus. The current level is $60 billion. The quality of all capital may not be equal, and although US investment can certainly be first among equals, current levels aren’t enough to fully advance US strategic interests on a global scale. The magnitude of the proposed increases addresses that challenge, as does the equity-focused solution. To date, the equity authority granted to DFC in the original Better Utilization of Investments Leading to Development Act has been inhibited by government accounting rules. The establishment of a revolving equity investment account should alleviate the challenge, presuming the account receives sufficient start-up appropriations from Congress. That both chambers have included this in their reauthorization language, combined with the increase in liability, will help ensure that the strategic allocation of resources can be both nimble and done at the scale needed to compete across geographies. n nUnfortunately, therein lies another challenge. Geographical limitations on where DFC can invest, based on country income levels, are too restrictive. National income classifications do not capture subnational variation, nor do strategic interests stop at the border of high-income countries. Final reauthorization should remove geographical limitations for projects that can contribute to both economic development and international security. At a minimum, presidential certification to Congress should be enough to remove these restrictions in specific instances. n nCongressional notification is currently required before the DFC makes financial commitments exceeding $10 million. The Senate’s version maintains this level, while the House increases it to $100 million. Syncing this threshold with the level at which the DFC Board of Directors is needed for approval of a commitment, currently $50 million, would help streamline the DFC’s operations and avoid unnecessary politicization. n nThe opportunity to streamline operations doesn’t end there. Through the greater use of subordinated positions in the capital stack (or junior/mezzanine positions), the DFC is able to crowd in additional private investment for economic development and international security objectives. This helps reduce the risk for the private sector and maximizes the impact of the DFC portfolio, ultimately enhancing the value of the US taxpayer’s investment. However, it is currently only able to do so through the citation of an undefined “substantive policy rationale” for taking such a subordinated position. The Senate version lays out a number of qualifying rationales, including 1) for a project receiving support from a development finance institution, 2) facilitating greater private sector participation, and 3) furthering DFC’s development objectives in the project. Meeting these is both reasonable and achievable, and their inclusion in the final reauthorization would help provide DFC with the clarity necessary for maximizing its portfolio. n nOther opportunities for maximizing the portfolio exist through reauthorization. The Institute has long supported predevelopment spending as a crucial catalyst to close funding gaps for economic development projects. As we have previously noted, each $1 spent on predevelopment can generate $16–20 in total economic outcomes and funding leverage. The inclusion of project development grants for technical and other forms of predevelopment funding assistance in the legislation is vital. However, limiting the level of this assistance to small borrowers at $1 million may inhibit the realization of larger projects. Typical predevelopment costs range from 2–10 percent of total project costs. For larger projects, these costs may amount to only 2 percent of total project costs, but they can easily exceed $1 million in total. As a notable example, the average cost of 128 major maritime construction projects in 2024 was over $400 million. Limiting all project development grants to $1 million per project could inhibit DFC from initiating major projects of strategic importance. n nFor too long, too few have recognized that the strategic investment of capital has once again become indistinguishable from agency and power on the global stage. Today, it’s as core a component in the toolkit of economic statecraft as it has ever been. Against the backdrop of a multipolar world, the need for enhancing supply chain resilience through investments in key sectors and industries is paramount. The clock is ticking amidst tectonic geoeconomic shifts. Opportunities don’t last forever. Congress has the ability to secure a vital component in the US toolkit through smart reauthorization of DFC, and by doing so, help ensure international security, economic development, and US strategic competitiveness in the decades ahead.