Earlier this autumn, senior officials from the Overseas Private Investment Corp (OPIC) went elephant hunting in Sri Lanka. But the executives from the United States’ development finance agency weren’t trying to relive a nineteenth century colonialist dream. They were there to see one of the biggest ‘white elephants’ in China’s Belt and Road Initiative (BRI): the Mattala Rajapaksa International Airport.
Opened in 2013 at a cost of $282 million, the Chinese-funded facility hasn’t welcomed any passengers since Flydubai, the last airline to use it, pulled out over the summer.
In fact, a more appropriate word to describe the airport might be a dead duck as it is dangerously located: it’s on the flight path of birds migrating to nearby Bundala National Park.
Poorly thought out projects like this meant that Sri Lanka couldn’t pay back billions of dollars of loans it had taken from China on commercial rather than multilateral terms. They were also one of the reasons why former president, Mahinda Rajapaksa, was booted out of office in 2015.
The coalition that succeeded Rajapaksa promised a more sustainable approach to investment but it has been characterised more by infighting than initiating new projects, much to the annoyance of the electorate.
Sri Lanka’s messy politics took a new turn at the end of October when the current president, Maithripala Sirisena, suspended parliament and sacked his coalition partner and prime minister, Ranil Wickremesinghe.
In an unlikely twist, he replaced him with his former rival, Rajapaksa himself.
Rajapaksa’s return has reignited fears in Washington and Delhi that Sri Lanka will once again fall firmly under China’s orbit.
While the Indian government responded to the shake-up cautiously, asking for respect for “democratic values and the constitutional process”, the Chinese were quick to recognise Rajapaksa, with their ambassador turning up personally to congratulate him.
This was not what the OPIC officials had been hoping for. Their visit to Sri Lanka was supposed to signal a renewed campaign of American economic diplomacy across Asia.
Development finance has always been deployed by wealthier countries to win the hearts and minds of developing ones, and one of the first moves in this new skirmish has been a reconfiguration of OPIC itself.
Its remit has been significantly expanded and it will be renamed as the International Development & Finance Corp (IDFC) as part of new legislation under the Better Utilisation of Investments Leading to Development Act (BUILD).
The Trump administration, which started office with proposals to deny OPIC new funding, will now submit a detailed plan to Congress early next year. The new agency should be formally up and running next autumn and once that happens, its budget will expand from the $29 billion it currently oversees to $60 billion.
It will also be able to invest in new projects on an equity basis for the first time. This will give it more financial flexibility to back projects in the way it sees fit. Previously it was limited to offering senior, secured debt, which ranks higher than equity in the capital structure.
Another significant change is the international partnerships that OPIC has been establishing. These will create a much larger pot of capital to counter Belt and Road’s financial firepower and symbolise the hardening of the new economic and diplomatic alliances that the Americans are trying to muster, apparently to counter Chinese influence.
So far, most of the attention has focused on the Indo-Pacific region where a triumvirate of the US, Japan and Australia have announced their intention to work more closely. The trio started coming together a year ago when OPIC signed an MOU with Japan’s Bank for International Cooperation and the Nippon Export Import Bank.
This February it added Australia’s Department of Foreign Affairs and Trade to the mix, followed by the Japan International Cooperation Agency in September.
In July OPIC signed another MOU with the Association of European Development Finance Institutions, covering the EU and member states of the European Free Trade Association.
This autumn it opened negotiations for a similar agreement with India.
Officially, these groupings hope to make it easier for the different agencies to collaborate in establishing common standards and financing formats. Unofficially, the collaboration is being seen more as an effort to contain Beijing’s Belt and Road Initiative (BRI) and the influence that infrastructure brings.
So geopolitics may also achieve what many borrowing nations have longed for: a consolidation of the fragmented development finance agencies that bombard them with competing and overlapping requests.
Well, that is not entirely accurate: developing nations will have at least two bidders to choose between (China versus the US and its allies).
OPIC officials are framing their remit as a 21st century version of the Marshall Plan, the $13 billion aid package (as much as $124 billion in today’s money) to Europe after the Second World War. Back then a key goal was to contain the spread of the Soviet Union’s influence, as well as creating consumers for American exports to make sure that the US didn’t relapse into an economic depression once the wartime production cycles had ceased.
Two recently published books (Lords of the Desert and The Lion and the Eagle) have both argued that it was erstwhile ally Great Britain which felt the full force of American geopolitical power in the post-war years as a rising superpower used its financial muscle to hasten the demise of the declining one.
And now it is China – which has spent upwards of $340 billion on BRI since 2013 – that is making a similar challenge to the primacy of the US, says the American Enterprise Institute.
OPIC officials have claimed that competition with other development agencies can be beneficial as long as it takes place within defined parameters. But the rules it has in mind seem to highlight what critics commonly cite as the shortcomings of China’s Belt and Road campaign.
For instance, they say that countries should do more to consider a project’s lifetime costs. They should examine whether it erodes national sovereignty, maintains world-class environmental standards, enhances local skills and deploys local labour, and operates on transparent procurement processes.
No prizes for guessing whether Washington thinks that the Chinese meet all of these standards. But in many developing countries they represent a high bar, which is precisely why some governments have welcomed quicker-to-access BRI funds rather than go to other lenders like the World Bank.
That notwithstanding, Ray Washburne, chief executive of OPIC, spelled out his concerns for reporters in September, warning that China isn’t offering loans “to help countries out, they’re in it to grab their assets”.
“They’re interested in industrial mines, we’re more interested in creating jobs to stabilise those economies,” he said.
Mike Pompeo, US Secretary of State, was equally critical in a radio interview last month.
“When China shows up with bribes to senior leaders in countries in exchange for infrastructure projects that will harm the people of that nation, then this idea of a treasury-run empire build is something that I think would be bad for each of those countries, and certainly presents risks to American interests,” he warned.
Whether the IDFC can wrest back the initiative from the Chinese in development finance is open to question.
There are estimates that China spends $40 billion a year through agencies including the Export-Import Bank of China, the China Development Bank and the Beijing-based Asia Infrastructure Investment Fund.
Compared to that, the IDFC’s likely resources look less compelling, although it plans to work with the private sector to magnify its $60 billion budget by at least a 2:1 ratio with private sector capital.
Project finance bankers hope that this will provide a platform for some of America’s mightiest companies to participate. One example is IBM, which might be convinced to help developing countries build ‘smart’ cities.
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