Reauthorizing DFC in Lame Duck Period Avoids Disrupting an Important Foreign Policy Tool

The US International Development Finance Corporation (DFC) was created in December 2019 after President Donald Trump signed into law the BUILD Act in October 2018. In the five years since, it has become one of America’s most effective tools for building geopolitical relations and advancing foreign policy priorities. The incoming Secretary of State will want to be able to quickly deploy this high-impact tool after taking office in January. Yet unless it is reauthorized during the congressional “lame duck” period this fall, it could be constrained in its ability to operate even as the need to provide developing economies an alternative to China grows in importance.

Even though the DFC is authorized through 2025, its firepower may expire before that. The DFC has “a statutory cap of $60 billion on its maximum contingent liability (MCL) at any one time for its investment support.” With the DFC’s portfolio having reached $41 billion in FY 23 and its committing a record $12 billion in investments in FY 24, its MCL is expected to reach $50 billion by the end of the year, bumping up against the $60 billion cap. This could result in a need for the DFC to slow its activities as 2025 progresses.

US House Foreign Affairs Committee Chairman Michael McCaul has offered H.R. 8926, the DFC Modernization and Reauthorization Act of 2024. Among other provisions, it would increase the MCL to $120 billion. The passage of reauthorization with such terms would let the new team hit the ground running, focused on advancing transactions consistent with the new administration’s priorities rather than being preoccupied with getting DFC reauthorized.  

The bill proposed by Chairman McCaul includes several of the changes that Wahba Institute working groups proposed to strengthen the DFC, including treating equity more in line with the original intent of Congress to allow the DFC to activate more private investment. The bill also expands “country eligibility to allow the DFC to invest in an additional 34 countries” while also creating “a waiver for the DFC to work in high-income areas and countries.” These are important improvements, considering today’s strategic competition and China’s ability to offer financing to all countries. 

The incoming Trump administration may want to have a greater focus on financing projects more central to strategic competition, such as trusted, secure communications and ports. They may also want to support more liquified natural gas projects and fewer projects related to the priorities of the Biden administration. In large measure, those shifts do not require legislative adjustments in the authorization. 

The Senate is reportedly close to introducing its version of the bill. Chairman McCaul has asked to have the House bill included in the National Defense Authorization Act. Therefore, multiple paths to achieving reauthorization remain. 

Reauthorization now would allow the new administration to focus on advancing its priorities. Waiting might consume a full year to focus on reauthorization. Reauthorizing in the new congressional term would require the new administration getting appointed, confirmed, and acclimated.  Then they would need to align the many parts of the government that feel they have equity in the DFC. They would need the DFC board and Office of Management and Budget approvals. Finally, they would need to align with the relevant congressional committees that will welcome new members. All these processes are well advanced in this Congress and poised for completion, but all that would expire if not completed in the lame duck period.

Failing to reauthorize the DFC in the lame duck period would likely force it to slow down when America needs it to be speeding up. Reauthorizing now is important for America in today’s strategic competition and allows the new Trump team to be on point when it takes office in January.