A Smart Power Tool for U.S. Leadership in the Global South
April 2025
*As published by the American Leadership Initiative: https://www.american-leadership.org/issues/a-smart-power-tool-for-us-leadership-in-global-south
Introduction
As the U.S. reimagines its development and economic statecraft tools in the wake of USAID’s dismantling, the U.S. International Development Finance Corporation (DFC) is the smart power tool that the United States needs to reach for in its toolbox. 1
The DFC must be reauthorized by October 2025, which presents an opportunity to expand and streamline this effective agency. A turbocharged DFC can play an important role in facilitating U.S. investment in key sectors abroad, augmenting U.S. national economic security, continuing collaboration with allies and partners amid current challenges, and strengthening the ability of U.S. companies to compete with China’s expanding global reach. Government leaders, the private sector, and NGOs – including those in the development community – would be well-served by working together to not only ensure the continued operation of this valuable entity, but also its improved functioning.
High-profile markers laid out in the early days of the second Trump Administration - whether with respect to Panama, Greenland, or the dismantling of the U.S. Agency for International Development (USAID) – all represent opportunities to forge broader initiatives for confronting U.S. strategic adversaries in the 21 century. The DFC, if used more broadly, could serve as a multiplier for the work of the private sector whether through partnerships in Latin America, in critical mineral supply chains, or in support of global health and food security issues. st Rallying behind the DFC’s reauthorization this year could offer a transformative, common sense, and economically prudent approach to bolster U.S. foreign policy goals and economic security going forward.
Background on the International Development Finance Corporation
The International Development Finance Corporation (DFC) was created by the BUILD (Better Utilization of Investments Leading to Development) Act in 2019 to serve as a 21 century tool to address development needs. It consolidated the services of the former Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority. Both agencies leveraged private sector investment in emerging markets through investment guarantees and other financial mechanisms. Congress conceived of DFC as an instrument to respond to China’s Belt and Road Initiative (BRI) – but more efficiently.
The DFC explains its mandate as “[making the United States] a stronger and more competitive leader on the global development stage with greater ability to partner with allies on transformative projects. Further, we provide the developing world with financially sound alternatives to unsustainable and irresponsible state-directed initiatives.”¹
China’s BRI focuses on larger infrastructure projects, while the DFC works with a diverse portfolio of investments, small and large. DFC’s ability to also work on small projects allows it to help scale small businesses and foster entrepreneurship around the world.
The DFC’s focused and practical mandate has been key to its bipartisan support. DFC’s attraction is not only that it helps U.S. businesses by offering investment guarantees for impactful ventures in high-risk environments -- which these businesses might not pursue without this critical government support -- but also that its investments generate returns for the U.S. government.
Latin America
While there may have been some debate in policy circles as to the actual security risks presented by a Hong Kong conglomerate’s port operations at the western and eastern ends of the Panama Canal, the Trump Administration’s concern about China’s geostrategic presence in the Canal is a recognition of the broader strategic competition issue that has been brewing in the Western Hemisphere for some time.
As the United States has let its relations with the region languish, China has moved in with a growing commercial presence and in some cases has replaced the United States as many Latin American countries’ leading trade partner.² The inroads China has made in Latin America and the Caribbean require a smart policy response. The DFC may provide just that, and the timing is opportune.
China’s investment in a new, US$3.5 billion port in Peru, which President Xi dedicated on the margins of APEC last year, has been described by Peru’s President as a “nerve center.”³ It is set to facilitate easier access to Asia for Chile, Ecuador, Colombia and Brazil with larger ships and reduced travel time. But this has implications for the United States that go beyond commercial competition. As the U.S. Naval Institute has pointed out, “when it comes to Chinese maritime infrastructure projects, there is no such thing as single-use.”⁴ Chinese infrastructure projects in Latin America are increasing in value and becoming more capital intensive, with less of a positive impact on employment.⁵ While some assessments focus on China’s US $140 billion in sovereign loans to Latin America and the Caribbean, that figure is probably outdated as it appears to account mostly for earlier projects on energy and traditional infrastructure.⁶
More recently, China seems to have shifted its Latin American funding to advanced technology projects (facial recognition, smart cities, social benefits payment cards, ecommerce and fintech) which offer access to enormous data caches and present challenges on matters related to privacy and individual freedoms. It may also leave countries vulnerable to Chinese cyberthreats.⁷
Also, China’s BRI projects have left the U.S.’ southern neighbors with significant amounts of Chinese debt. The dependency that debt creates has historically been a source of friction with the United States and the West. The DFC represents an opportunity to break that cycle.
The DFC has already executed numerous successful projects in Latin America and is currently supporting US$11 billion of projects. These include a loan to Ecuador to offer new financing tools and credit programs through digitization; improving water quality and security and stimulating economic development in El Salvador with political risk insurance; and an equity investment in Mexico for transportation, digital connectivity, renewable energy, water, sanitation, and hygiene that will support North American supply chains.
More recently, the DFC has considered a US$30 million loan facility (representing 40% of the project’s needed capital) for a nickel and cobalt project in Brazil expected to advance critical mineral development there and diversify critical supply chains away from China.⁸ A project like this reflects exactly how the United States should be thinking about employing the DFC, because it will reduce Latin American as well as U.S. dependence on China while strengthening U.S. economic security.
Reauthorization of the DFC is an opportunity to increase the entity’s portfolio cap so that the DFC can recommit the United States to broader, impactful engagement in the region.
Greenland
Perhaps the DFC can also offer an elegant solution to the tensions recently created by the Trump Administration’s interest in Greenland’s critical minerals and rare earth elements. Greenland’s strategic location in the Arctic has come into sharper focus more recently as China and Russia augment their commercial and military training activities in Arctic waterways. With the United States actively searching to secure new sources for critical minerals and rare earth elements as China places export restrictions on these minerals and becomes a less reliable supplier, a partnership with Greenland is attractive.
Greenland is said to have significant deposits of copper, graphite and lithium as well as 25% of global demand of certain rare earth elements – all necessary to fuel smart electronics, electric vehicles and advanced manufacturing.
The territory lacks infrastructure to develop these minerals, however, and Danmarks Nationalbank reports labor market pressures due to a lack of education and qualifications. More than half of the working population between the ages of 25 and 64 has only a primary or lower secondary education.⁹
Leveraging the DFC to support Greenland’s develop of its critical minerals and rare earths would be an opportunity to promote environmentally sustainable mining and local capacity building.
Recalling that when Congress expanded the remit of the DFC in higher-income countries with certain energy investments, it highlighted that DFC’s investments should support “significant developmental outcomes” or “developmental benefits [for] the poorest population.” With Russia and China increasingly encroaching in the Arctic with commercial and military activities, Greenland is also a territory which fits Congress’ other aim for DFC to “preempt or counter efforts by a strategic competitor of the United States to secure significant political or economic leverage … in a country that is an ally or partner of the United States.”¹⁰
This could be part of a broader engagement with Greenland through a negotiated agreement on critical minerals: Currently, a bipartisan bill is pending in Congress that recognizes it is in the U.S. national interest to negotiate and enforce free trade agreements with market economies and their territories that focus exclusively on critical minerals and rare earth elements and their supply chains. The legislation specifically mentions the importance of advancing sustainability, workers’ rights, child labor laws, and worker health and safety.¹¹
Utilizing the DFC in Greenland could be a test case for collaboration and shared positive outcomes that strengthen the U.S.-EU alliance if the matter is approached in a cooperative fashion.
Filling Gaps Presented by USAID’s Dismantling
The DFC cannot and was never intended to supplant the work of USAID, which has a much broader and deeper work scope.
But the DFC reaches into critical areas of development with economic and security gains for the United States – and it is a multiplier. Its impact reaches far beyond the specific programs that it funds. By providing concrete benefits to emerging markets and fragile economies, the DFC is a powerful connector for the United States in less developed countries. It can also be a connector with traditional allies to leverage investment, best practices and power.
The recently created Africa Resilience Investment Accelerator (ARIA), a G7 mechanism that boosts investments in war-torn African countries, is a prime example.¹² Last year, ARIA made its first investment in Sierra Leone to support longer-term lending and a comprehensive technical assistance program to SMEs, increasing private sector participation in the economy.¹³
On the development spectrum, DFC financing has a strong track record in ensuring food security and positive health outcomes in low-income countries – and recent accomplishments substantiate its value.
In the past five years, the DFC assisted more than 1.7 million small farmers and was involved in projects that sustainably managed more than 2.3 million hectares of farmland.¹⁴ With famine and food security challenges around the world, the DFC is making a difference. A US$20 million loan in Kenya will enable an innovative aquaculture company using technologies to provide affordable, protein-rich fish to local communities in sub-Saharan Africa, an area where reliable electricity is scarce, complicating transport and storage.¹⁵ In India, a DFC investment is enabling technology tools to reach millions of farmers with information and advice to facilitate purchases of seeds and fertilizers, improve their yields and access larger customer bases.¹⁶
The DFC has provided healthcare to nearly 45 million patients over the last five years. With 2 billion people worldwide unable to access essential healthcare, DFC can play a small part by harnessing private investment to address these challenges. In scores of countries, the DFC has partnered with a vaccine alliance and leveraged its US$1 billion liquidity facility to offer critical and routine vaccines in a timely manner. Also, the DFC has been on the forefront of a G7 effort to provide innovative financing for the procurement, production and distribution of medicines and treatments for low- and lower-middle income countries.
Increasing access to water and sanitation are critical for community health. With a US$100 million loan to a global water fund, the DFC is ensuring that at least 5 million people in Africa, Asia and Latin America will have better access to household water and sanitation.¹⁷
The DFC also has a recognized role to play in fragile economies, where stepping in and preventing crises is more productive and cost-effective than trying to stabilize a country in crisis.¹⁸ The unique offerings of the DFC are its ability to catalyze risky investments with its programs that supports those willing to take on projects in these challenged geographies – but don’t have the scale or credentials to secure the necessary financing elsewhere.¹⁹
Reauthorization and Reform
DFC’s reauthorization offers an opportunity. While, as of this writing, legislation has not been introduced for its modernization and reauthorization, a bipartisan House bill passed the House Foreign Affairs Committee last year with overwhelming bipartisan support. It sharpens the DFC in ways that could significantly improve its impact and effectiveness, and it was largely supported by development groups. Specifically, the legislation, among other things, would:²⁰
1. Increase the statutory cap on the institution’s investment lending ceiling from US$60 billion to $US120 billion.
2. Score DFC’s equity on a “net present value” basis, which would take into account the rate of return expected from the DFC investments and not treat its investments as outright losses – allowing, as HFAC Chairman and the bill’s sponsor Rep. Michael McCaul (R-TX) said, “make the taxpayers’ money go further” because DFC would be able to increase its investments using the same amount of appropriations.
3. Enable 34 additional countries to be eligible as recipients of DFC-supported projects.
4. Increase the risk profile of the scope of DFC’s work to support more projects in low income and lower middle-income countries, by, for example, allowing the DFC to accept subordinated credit under certain conditions; and
5. Permit, under certain specific conditions, DFC to work in high-income areas and countries.
It would be wise for Congress to start the work to strengthen and improve the DFC, which provides concrete benefits to geographies which are strategically important to U.S. national economic security equities. It is important to note that for DFC to scale investments and outcompete BRI, it still needs to grow its infrastructure and staff. Recent blunt staff reduction measures have already reduced the capacity of DFC.
A straightforward reauthorization of the DFC should be an easy policy choice – offering tangible, positive benefits to both communities in need and the capacity to offer meaningful partnerships to our neighbors and friends. In its work to expand the U.S. private sector’s presence around the world, the DFC also empowers the ability of U.S. companies and their representatives to serve as U.S. ambassadors for transparency, accountability and good governance.
Conclusion
The DFC is a viable and valuable tool for positive impacts around the globe while actively promoting U.S. national economic and national security interests.
Its resources can make critical differences where U.S. interests face serious strategic challenges, and it offers can be a channel for increased cooperation with our allies.
By reimagining and revitalizing this smart power tool, the U.S. Congress has an important opportunity to offer the U.S. taxpayer an investment that provide excellent returns while supporting U.S. values and enhancing our economic security.
It’s not a hard decision to get behind. Let’s get it done.
End Notes
¹ https://www.dfc.gov/who-weare#:~:text=DFC%20makes%20America%20a%20stronger,and%20irresponsible%20state%2Ddir ected%20initiatives https://www.reuters.com/world/chinas-trade-dominance-south-america-tempers-trumpsinfluence-2025-03-03/
2 https://www.reuters.com/world/chinas-trade-dominance-south-america-tempers-trumpsinfluence-2025-03-03/ 2
3 https://www.bbc.com/news/articles/ckg79y3rz1eo
4 Now Hear This: China Is Gaining Access, Influence in the Americas, by Lieutenant Allison Scott, U.S. Navy, December 2018. https://www.usni.org/magazines/proceedings/2018/december/nowhear-china-gaining-access-influenceamericas#:~:text=China%20has%20distinguished%20itself%20as%20Latin%20America's,valued %20at%20approximately%20$140%20billion%20since%202009.
5 MONITOR OF CHINESE INFRASTRUCTURE IN LATIN AMERICA AND THE CARIBBEAN 2024, Technical Report, Enrique Dussel Peters, July 2024. https://www.researchgate.net/publication/382719053_MONITOR_OF_CHINESE_INFRASTRUCT URE_IN_LATIN_AMERICA_AND_THE_CARIBBEAN_2024?enrichId=rgreq61f59c732d57e2500a4d5253a458c205- XXX&enrichSource=Y292ZXJQYWdlOzM4MjcxOTA1MztBUzoxMTQzMTI4MTI2NDE4MjE3M0Ax NzIyNDQ3NDcwMzI4&el=1_x_2&_esc=publicationCoverPdf
6 https://www.gisreportsonline.com/r/chinas-economic-power-grows-in-latinamerica/#:~:text=These%20companies%20have%20invested%20in,Latin%20America%20and%2 0the%20Caribbean
7 https://www.riotimesonline.com/digital-strings-chinas-tech-web-across-latinamerica/#:~:text=The%20company%20signed%20agreements%20to,internet%20services%20to %20the%20region.
8 https://www.braziliannickel.com/u-s-international-development-finance-corporation-issuesletter-of-interest-to-brazilian-nickel-for-up-to-us550-million-loan-as-part-of-overall-financingpackage-for-piaui-nickel-project/
9 Labour shortages increase the need for tight economic policy in Greenland, Danmarks Nationalbank, November 2023. https://www.nationalbanken.dk/en/news-andknowledge/publications-and-speeches/analysis/2023/labour-shortages-increase-the-need-fortight-economic-policy-in-greenland
¹⁰ https://uscode.house.gov/view.xhtml? path=/prelim@title22/chapter102/subchapter3&edition=prelim
¹¹ S. 429, 199 Congress. https://www.congress.gov/bill/119th-congress/senate-bill/429/text? s=1&r=1&q=%7B%22search%22%3A%22strategic+minerals+act%22%7D th
¹² https://www.dfc.gov/media/press-releases/g7-development-finance-institutions-createplatform-boost-investment-fragile
¹³ https://www.bii.co.uk/en/news-insight/news/british-international-investment-and-ecobanksierra-leone-sign-25-million-risk-sharing-agreement-to-boost-private-sector-growth
¹⁴ https://www.dfc.gov/sites/default/files/media/documents/DFC_AnnualReport_2024_v6.pdf
¹⁵ https://www.dfc.gov/sites/default/files/media/documents/DFC_AnnualReport_2024_v6.pdf
¹⁶ https://www.dfc.gov/our-work/food-security-and-agriculture
¹⁷ https://www.dfc.gov/media/press-releases/dfc-strengthens-global-health-infrastructure-andservices-nearly-2-billion-new#:~:text=A%20%24100%20million,%23%23%23
¹⁸ https://www.brookings.edu/wp-content/uploads/2024/10/GFA-Assessment_Minor-Ingram.pdf
¹⁹ https://www.state.gov/wp-content/uploads/2021/01/2020-US-Strategy-to-Prevent-Conflict-andPromote-Stabilit-508c-508.pdf
²⁰ https://foreignaffairs.house.gov/press-release/chairman-mccaul-speaks-in-support-of-h-r-8926- the-dfc-modernization-and-reauthorization-act-of-2024/
