Young Kim Presses Witness On How US Can Reduce Foreign Nations' Reliance On 'Continuing Aid'

4 days ago

During a House Foreign Affairs Committee hearing earlier this month, Rep. Young Kim (R-CA) spoke about how the United States can adopt the U.S. International Development Finance Corporation's model to reduce foreign nations' reliance on aid.

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00:00I now recognize myself with five minutes of questioning. The DFC certainly has

00:06demonstrated its ability and its effectiveness to use our taxpayer

00:12money very wisely. As noted in my opening statement, in the fiscal year 2023 alone

00:19the DFC's revenue exceeded cost by 341 million dollars and that is the money

00:25returned to our U.S. Treasury. So Mr. Yoho, as you've seen in recent months, we

00:32witnessed a significant shift in the U.S. approach to international development

00:37assistance. So how can the DFC's model of leveraging the private sector to

00:42provide a return on investment serve as a framework for broader U.S. foreign

00:47assistance efforts, particularly in helping countries reduce dependence on

00:53continuing aid? Thank you. I think that's the ultimate goals. We need countries

00:59from aid to trade and move that and the DFC can do that with the tools that they

01:04have but only if they stay focused on what I call the purity of purpose of

01:08what they were designed to do. When we envision this and put this together we

01:11were looking at major infrastructure projects that we could partner up and we

01:15weren't able to do this with OPIC, the predecessor, to partner up with other

01:20DFI's from other countries or to bring in that private equity and what they

01:25needed, they needed to have an investment vehicle that we could come to the table

01:30first with and that's where organizations like MCC or USAID did on

01:36their grant basis. You know I know USAID right now is this terrible image but yet

01:41there was some good that they did and we don't we want to make sure that we don't

01:45lose that because they're often the ones that are on the grounds, the boots on the

01:50ground that invite in that private equity. So I look forward to you guys

01:55fixing this soon and I'm sure you will. So continuing on that I want to talk

01:59about the equity scoring issues and ask the question to you Mr. Mosbacher.

02:06You know in fiscal year 23 the DFC committed 9.3 billion dollars in new

02:12investments. Of that 8.8 billion were direct loans that required only 110

02:19million in appropriations. Meanwhile the 500 million dollars equity investment

02:24required 500 million in appropriations. That treatment of equity

02:30investments which assumes that every dollar of the investment will be lost is

02:35out of step with the private sector. So the DFC needs an equity fix which we all

02:42agree on that would account for this on a net present value basis which evaluates

02:48future probability and investment returns bringing the equity in line with

02:52Congress's original intent. That fully allows the DFC to invest in countries

02:58that advance the U.S. objective in the long run. So could you talk to us about

03:03the you know OPIC never had the ability to make equity investments

03:08right? So can you explain to us why the DFC's ability to make equity investment

03:14is so important and how would this ability have changed your approach to

03:19OPIC? Okay well yes I mean we did not have the authority to do equity

03:29investments and it actually cost us in terms of many deals. Even going in to

03:35private equity funds which OPIC did for years as senior secured debt we were

03:40sort of the skunk at the party because when you exited those funds OPIC

03:46came out first got its principal back plus interest before any of the other

03:50investors got a return and so it was not well received internationally and many

03:55who are our allies did not like to be in funds with us. Today I would say equity

04:02is even more important than it was back then. Equity is so critical particularly

04:06as we look at how we're going to counter China's on some of the competitive deals

04:10in the infrastructure or critical minerals we have to have access to

04:15equity authority that's treated on a net present value basis. The way I've always

04:19explained equity is or the issue of how to account for it from on a net present

04:25value basis say it's a little bit like a hundred dollar loan at the bank. The bank

04:29has a loan loss reserve. That loan loss reserve gives you some sense of what's

04:34the probability that that loans going to default or go go off the ditch. We could

04:40use a small portion of funds as subsidy it's called in this context to cover

04:46loans or cover investments that frankly will probably turn out to be very

04:52productive but the lack of capacity because we have to charge these on a

04:57dollar-for-dollar basis is a huge impediment to our performing at that

05:01level. I just say one more thing when Ted and and the group put the build act

05:06together we thought it would be with a 60 billion dollar contingent maximum

05:12contingent liability we thought up as much as 35 percent of that 60 billion

05:16could be invested in equity. That's in the bill and and so we anticipated it

05:22being a huge piece of our toolkit and clearly it hasn't been so that's been a

05:27wonderful I mean an unfortunate piece of this. Thank you.

Young Kim Presses Witness On How US Can Reduce Foreign Nations' Reliance On 'Continuing Aid'

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