Politics of Poverty

BUILD a better world, not a race to the bottom

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A group of 30 women in Nepal work to build an irrigation channel. The old irrigation channels were destroyed by a landslide caused by the 2015 earthquake. (Photo: Kieran Doherty / Oxfam)

The BUILD Act is a good start, but it must be an opportunity to build on US development best practice, not dismantle it.

For decades, the United States has been the world’s leader in supporting poverty reduction in emerging markets and fragile countries.  This in turn has been good for US business and trade opportunities and created a safer world for us all.  But unless the US government now modernizes and streamlines its development finance tools, it will lose its competitive edge.

That is why we are excited to see a bipartisan effort underway in both the House and Senate to consolidate existing tools and create new ones in one full-service, self-sustaining US International Development Finance Corporation.  However, we’re hoping this legislative proposal will improve further as it progresses through Congress.

The Better Utilization of Investments Leading to Development Act (BUILD Act) would modernize development finance by creating a new institution with authorities for equity investments in addition to loans, guarantees, and enterprise funds, and by doubling the amount of financing available at any given time to developing countries.  In partnership with the private sector, this innovative approach would allow the United States to help poor countries develop their economies in sustainable and meaningful ways.

If done right, the BUILD Act has the potential to showcase the best of US overseas lending: building up the economies of developing countries to create the trading partners of tomorrow for American companies and goods.

However, more work must still be done on the BUILD Act to realize its full potential.  In its current form, the bill doesn’t include US best practices on respecting human rights, protecting the environment, and promoting transparency which undermines the very goals the bill purports to achieve. Ironically, by rolling back current environmental, social, and gender policy and practice used by US government agencies like the Overseas Private Investment Corporation (OPIC), US Agency for International Development (USAID), and the Millennium Challenge Corporation (MCC) follow, the new development finance institution could create a global race to the bottom in international lending. At a bare minimum, the BUILD Act should carry over the existing human rights, labor rights, and environmental standards enacted in the current OPIC authorization and up the ante on transparency by including project-level reporting.

Congress should also consider how it can increase its return on investment by focusing more strategically within the BUILD Act on the economic earning power of women. Research shows that if women had access to equal opportunities – including lending – the global economy would grow by $28 trillion. OPIC, USAID, and MCC all have robust women’s empowerment portfolios and initiatives that bring women out of poverty and add to global prosperity.  It would be a missed opportunity for a new development finance institution to not do the same.

Lastly, there are important questions that need to be addressed on the governance and operation of the new institution:  Who will chair the board of directors? What criteria will be used to decide which countries receive investments? What protections will be included to ensure the development agency is not co-opted by national security interests? Setting clear parameters upfront to ensure the fiscal and operational independence of this institution and prevent politicization will yield dividends in the future under both Republican and Democratic administrations.

The creation of a new development finance institution will be a legacy of the Trump administration for years to come just as the establishment of MCC was during the Bush administration in 2004. Getting the model right up front is critical to our long-term success. Just as MCC has successfully reduced poverty while contributing to private sector growth and adhering to international performance standards, this new development finance institution should not lower the bar.

The United States should continue to be the global leader in fighting poverty and opening up new economic markets. The Senate Foreign Relations Committee should improve upon the newly amended House version to ensure that current OPIC human rights, labor and environmental standards apply to the US International Development Finance Corporation and improve upon transparency by including project-level reporting. With the right improvements, Congress can responsibly advance US leadership, reduce global poverty, and signal to the world that our economic growth policies will not come at the expense of human rights and environmental sustainability.  It should seize the moment.

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