Capitol Hill is reviewing legislative initiative aimed at expanding the powers of the Development Finance Corporation, which would act going forward as a system of economic and legal benefits designed to counter the commercial offensive by China in Latin America.
The Development Finance Corporation (DFC), the United States’ development bank, partners with private companies to advance the White House’s foreign policy and international free trade.
It was created in 2018 by Trump’s decision—the BUILD Act—and is now on hold due to an executive order by the President of the United States. Congress plans to reformulate the Corporation’s powers and increase its funding in October, as there is some consensus between Republican and Democratic caucuses.
Xi Jinping leverages the Belt and Road Initiative to challenge the influence of the United States in Latin America. China’s business model is straightforward: Beijing does not seek economic profits and there is no corruption control.
In this context, competition between US private companies and Chinese-funded firms is nearly impossible.
That is why, on Capitol Hill, debate is already underway regarding the potential powers of the future DFC, which would include—among other things—the creation of Strategic Economic Zones.
Once Trump releases the funds allocated to the Development Finance Corporation, the proposal from lawmakers in both parties is for these strategic economic zones to facilitate investments by US companies in Latin America.
The Hudson Institute organized a debate to discuss the geopolitical implications of the Development Finance Corporation. The panel, moderated by Daniel Battle, included Rob Mosbacher Jr—CEO of Private Investment Corporation—Laura Burns—Senior Vice President for Political Risk at Willis Towers Watson—and Erick Brimen, CEO of Próspera.
“If you think about what a US company needs to make a multi-hundred-million or even multi-billion-dollar investment over several decades, it needs stability and the rule of law,” Brimen said.
He added: “If you offer a solution that, instead of trying to reform the entire system, allows for the creation of these strategic economic zones, it provides a much lower threshold and, I think, also gives them the opportunity to demonstrate their seriousness. It’s a step toward broader reform that allows testing policies that will prove themselves over time, creating an overall development intent behind this, as a space where good policies can be tested at the national level.”
In his turn, Rob Mosbacher Jr described the deep commercial offensive China is carrying out in the region through soft financing and the opening of its own commercial markets.
“China is taking advantage of the fact that the United States has neglected the area (Latin America) and left the field open. China has invested approximately one hundred thirty billion dollars over these years, and the investments they have made range from infrastructure, port facilities, and the like, to a wide variety of critical minerals,” Mosbacher Jr stated.
He added: “China is the largest trading partner for most of the region’s major economies, with the exception of Mexico and Colombia. They control a third of the energy sector in Chile. They practically control all energy in Peru. During a CELAC (Community of Latin American and Caribbean States) conference in Beijing, Xi announced more infrastructure commitments, spoke of a nine-billion-dollar credit line, and was joined by three heads of state, including Lula (da Silva) of Brazil.”
Midway through the panel, Laura Burns focused on the political risks faced by US companies when investing in Latin America. These risks become an advantage for Chinese companies, which invest to influence recipient countries rather than to make annual profits.
“We researched alongside our partner Oxford Analytica and recently conducted a survey. We’ve been doing this for about ten years on the perception of political risk. In this year’s survey, which we just published, over 74% of investors consider political risk, classified as geopolitical risk, the main concern,” Burns stated.
She provided an example:
“I have several initiatives on my desk right now for an energy project in Bolivia, and they won’t proceed without political risk insurance.”
From this perspective, Burns suggested that the new powers of the Development Finance Corporation should address the political risk faced by US companies when deciding to invest in Latin America.
If Trump releases the funds, Congress could address the DFC’s future regulations in October.
Image: Infobae
