Setting the Gold Standard for Transparency: The Opportunity for the New U.S. Development Finance Agency

In a rare example of agreement from Capitol Hill to the White House to the development community, the Better Utilization of Investments Leading to Development Act (BUILD Act), P.L. 115-254, was signed into law on October 5, 2018. This legislation creates the U.S. International Development Finance Corporation (DFC). The new agency not only combines the functions of some existing agencies, including the Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority, but it expands the mandate, authorities, flexibility, and size of what the U.S. can do to promote development using both public and private money.

It is now with the administration to submit a plan to Congress within 120 days from the date of signing, with the aspiration for the new agency to become operational in October 2019.  There are lots of questions to answer and details to be addressed to ensure that the potential of this new initiative is best poised to meet the challenges of effectively using both its development mandate and its resources.

The opportunity

OPIC, the agency charged with leading the transition, has been engaged in a series of discussions to seek a wide range of opinions on a variety of issues, from smaller operational details to broader philosophical approaches.

OPIC’s current president, Ray Washburne, has stated that he wants the new DFC to set the gold standard for a modern and transparent development finance institution. We applaud that sentiment. It is a rare opportunity to set up an agency from the beginning, being able to learn from other DFIs as to what worked and what did not. This is an opportunity to reach higher, to innovate more, and to truly set a gold standard.

Publishing project level data

We want to call attention to one specific provision of the BUILD Act. As part of the transparency goals that underpin U.S. foreign assistance strategy, the law requires that the DFC publish its data at the project not country level. Although this is the norm globally for traditional aid, it is not common for DFIs. For example, the OECD DAC collects information on private flows mobilized by public resources, but maintains that the granular data on projects is confidential and does not publish it (see here). That doesn’t make sense from a planning or an accountability perspective. If we want a strategic use of both public and private money to address global development needs, meaningful transparency must move beyond collecting and publishing just traditional foreign aid data.

As the U.S. defines what transparency looks like for this new agency, the following kind of project level data[1] – already the norm through the Foreign Aid Transparency and Accountability Act and the International Aid Transparency Initiative (IATI) – should be the minimum required:

• Basic DFC project-level information (e.g., project titles, descriptions, planned and actual          project dates)
• Project level financial information on the particular investment (e.g., type of finance, commitments, disbursement, forward looking finance/budget data (critical for planning), and amounts mobilized from other DFIs and the private sector)
• Other partners and/or implementers and their role
• Detailed descriptions of objectives and project design
• Subnational location information
• Disaggregated gender data
• Sector identification
• Impact, results, and other performance data to inform development impact assessments

Defaulting to transparency

We realize that this is a complicated issue, where there will necessarily be a tug between commercial sensitivity and publication of information. The use of public money, however, requires a strong default to transparency. The DFC needs to establish norms and practices from the start to ensure clarity on its development role, the level of risks that are appropriate, and how its interventions will affect the overall investment market in a country or sector.

Transparency around financial performance can help demonstrate the DFC’s contribution to its development mandate, such as how it has mobilized the private sector and/or spurred market-oriented development in emerging economies. Finally, the DFC can provide a leadership role in helping companies comply with global disclosure and reporting standards to avoid investments that contribute to tax evasion.

Topics for consideration

All of this requires more conversation than can fit into a single blog, but as a start, the following issues are worthy of a deeper discussion:

• Transparency requirements need to be established as part of the terms of initial investment so that there is a clear understanding among all parties of what will be made public. The DFC can also create incentives for greater transparency during negotiations.
• Create a set of publicly available metrics that will govern how the DFC will assess and evaluate development impact. This will help inform what the DFC sets as the expected benefits for the investment in both the short and long term. The Global Innovation Fund has a Practical Impact Assessment that is one model to consider, as well as the new IFC AIMM approach and soon to be published operating principles for impact management.
• Publish the overall investment strategy which sets out the DFC’s thesis for what, how, and where it will operate. Is it trying to open up new markets, for example? It would also be helpful to include independently verified metrics to measure the strategy against performance.

Balancing transparency and competitive information

We recognize that there are legitimate commercial confidentiality issues that will require balancing the need for transparency against releasing truly competitive information. Publish What You Fund is currently investigating this as part of a new piece of work (see here).

Significant benefits

Some DFIs are already moving toward greater transparency, both because they understand the benefits and their shareholders are demanding it. However, there is still much work to be done to reach meaningful project-level transparency which can only be enhanced by more institutional transparency about goals, processes, and strategies. Informed by the significant benefits of comparable, comprehensive, and accessible data and smart policy decisions, the USDFC can be positioned to set the transparency gold standard.

[1] It is also important that the new agency publish its strategic documents that apply more to the organization as a whole. In IATI, this kind of information is known as “organizational level” data and can be enormously helpful.