What Private Capital Cannot Do Alone: The Future of Global Infrastructure Development

Introduction

The Partnership for Global Infrastructure and Investment (PGI) is a collaboration between the United States and partner nations in the Group of Seven (G7) to put $600 billion toward global infrastructure development by 2027. Spearheaded by the Biden administration in 2022, PGI is a thinly veiled reaction to China’s Belt and Road Initiative (BRI), which has already invested over $1 trillion abroad over the past decade.¹ PGI’s promise is that the investments under its umbrella, focused on energy, supply chain resilience, digital connectivity, health, and gender equity, will be safer and more transparent for Global South countries and communities than China’s more opaque deals.² To that end, the United States has committed to mobilize $200 billion of PGI’s $600 billion goal, and senior White House, State Department, and Treasury officials are helping oversee the program alongside their counterparts across the G7.³ So far, White House officials claim to have mobilized, or “catalyzed,” $60 billion. It is safe to say that the United States is no longer content with China’s dominance over global development.⁴

PGI’s emphasis on financing sustainable infrastructure development in the Global South is welcome, if late, particularly as climate change challenges the foundations of the global economy―to say nothing of the triple threat of the COVID-19 pandemic, the Russian invasion of Ukraine, and high interest rates, all of which have rattled the Global South’s economic stability. Even absent China’s challenge, PGI makes political sense. The United States and its G7 partners are staking a claim to global leadership through their acknowledgment that Global South countries, particularly their most vulnerable communities, require significant investment to prepare for the challenges of the coming century.

But there is a problem with PGI: it rests on the promise that G7 governments will mobilize private capital to meet the $600 billion target. The rhetoric around private capital mobilization is a long-standing plank of the Biden administration’s international development initiatives—from the Just Energy Transition Partnerships (JETPs) to the reform of the World Bank―but it is unrealistic to argue that the private sector can put up such sums for infrastructure in the Global South without significant public sector investment and policy innovation.⁵ Policymakers cannot coordinate private investment without significant public financial support. While the Biden administration has pushed the World Bank to lend more ambitiously, national-level action has been insufficient.

The incoming administration of President-elect Donald Trump can take initiative to realize U.S. leadership in global development finance by pushing to expand the mandates of and financing for the Development Finance Corporation (DFC) and the Export-Import Bank (EXIM), deploy the U.S. Treasury’s Exchange Stabilization Fund (ESF) creatively, and enable Global South countries to better use Special Drawing Rights (SDRs) from the International Monetary Fund (IMF). Just as importantly, the next administration should empower other countries to emulate the best parts of the U.S. Inflation Reduction Act (IRA) by building the state capacity needed to undertake their own industrial policies.

There is no question that incoming Trump administration officials will hold different global priorities from those of their Democratic counterparts. But, insofar as the Biden administration followed the first Trump administration in publicly positioning itself as opposed to Chinese dominance over the global economy, Trump administration officials will not entirely be working at cross-purposes with their predecessors. A U.S. retreat from significant investments in industrial capacity and, by extension, global infrastructure development is a planet-sized foregone business opportunity.⁶ If the United States truly wants to compete with China in the realm of global development through initiatives like PGI and put substance behind the style of American leadership, it needs to quite literally put its money where its mouth has been. For the sake of the planet and its people, creating a coherent global infrastructure development policy is a task the next administration should champion.

The Challenge of Mobilizing Investment

The logic of the prevailing American approach to infrastructure finance abroad goes something like this: Global South countries are staring down a “financing gap” between the resources they have and the investments they need to adequately mitigate and adapt to climate change.⁷ But, because there are not enough public budgetary resources to plug that gap, policymakers must incentivize the private sector, particularly institutional investors, to deploy the trillions of dollars on their balance sheets into investments that close the gap. Successfully mobilizing private investment, in this vision, requires using ostensibly scarce public financing to develop innovative “blended finance” and loan guarantee structures to “derisk” investments across the Global South―in other words, to make them safe, liquid, profitable, and worth holding for asset managers, pension funds, and others.

This derisking framework is not without merit. Policymakers are right to scope out the degree to which loan guarantees and credit enhancements, for example, could eliminate the credit risks of investing across the Global South and determine where technical assistance grants could support project planning and design among local developers. This is easy to justify for policymakers who are weighing the private sector’s trillions against the public sector’s political limits on spending. In this political context, it is worth pledging public support for crucial infrastructure projects to ensure that they remain solvent to the private sector.

But to assume that private institutional investors will pick up on these investments at scale amounts to financial fantasy; fixing an investment’s risk-adjusted returns will not necessarily mobilize private capital from institutional investors, which have a fiduciary duty to their shareholders and limited partners that prevent them from making investments unless they meet certain profitability thresholds.⁸ These “hurdle rates” are independent of broader economic conditions and any one investment’s cost of capital.⁹ This means that many projects with decent return profiles, positive debt service coverage ratios, and low costs of capital may still never secure investment―they are just not good enough for the investment funds seeking to optimize their portfolios to the demands of Global North investors. Indeed, institutional investors, particularly pension funds, have liability management strategies that compel them to treat the emerging market infrastructure assets they hold as short-term, speculative investments, in part because they are often denominated in local currencies prone to lose value against their home currencies.¹⁰ Investors’ systemic bias toward short-termism is not just harmful for the quality of services that infrastructure assets provide―it lays bare the fact that institutional investors are not prepared to invest at scale across much of the Global South.¹¹

It does not help that infrastructure is a patchy, illiquid asset class. Infrastructure assets―including projects in the energy, transport, logistics, water, waste, mining and extraction, digital infrastructure, and (sometimes) healthcare sectors―are hard to value and therefore trade, and investor demand for them has always depended on broader market conditions. This illiquidity ensures that infrastructure valuations will plummet during worse economic conditions;¹² and because many investors earn income on trading fees, they are not prepared to hold assets to maturity.¹³ Institutional investors are also biased toward larger project sizes in countries with adequate capital markets―so, not most Global South countries.¹⁴ The ultimate constraint on infrastructure, and on investment in Global South countries writ large, is the U.S. Federal Reserve’s interest rate. Higher rates send finance flying back into the safety of the U.S. market.

The data bear out these claims. Private investment in infrastructure not only skews heavily toward high-income countries, but infrastructure funds themselves are also sitting on billions more in cash they refuse to deploy―in part because potential projects do not meet their hurdle rates and in part because interest rates remain so high.¹⁵ Indeed, private infrastructure funds saw a 95 percent year-on-year drop in capital raised in 2023.¹⁶ In particular, the volume of blended finance transactions, where state participation in projects through loan guarantees and credit enhancements helps derisk private sponsors, hit a ten-year low.¹⁷ Additionally, it is not clear that most private investors are themselves well-set-up to prepare project pipelines or structure them financially. There is not enough project preparation capacity within the private sector to deal with unfamiliar economies and financing sources in order to actually make projects bankable, particularly in the energy sector, which is organized differently in every country.¹⁸ This is why the U.S. Treasury requested $40 million for the World Bank’s Global Infrastructure Facility in fiscal year 2024; project preparation is not something private institutional investors can handle themselves.¹⁹

Policymakers can keep pushing to mobilize private capital through project-level derisking, but they should not place their faith in investors, which are uniquely unequipped to lead ambitious infrastructure transactions in emerging markets. The JETPs, a high-level diplomatic effort spearheaded by the United States and key partner countries to mobilize private investment into decarbonization in Indonesia, South Africa, and Vietnam, have taken years to spin up. Almost three years since announcing South Africa’s JETP and two years after confirming Indonesia’s, these attempts to build robust project pipelines are proceeding at a snail’s pace. There is no doubt that the lack of significant new public spending for international development priorities has slowed down this process. Private investors are still struggling with securing bankable projects in these countries, and it is all too likely that the Biden administration will exit office with one of its higher-profile climate diplomacy initiatives left hanging.²⁰ If the Trump administration pursues any similar investment partnerships, it should not ignore these lessons.

PGI―where the sums targeted are ten times as large as the JETPs and which covers far more industries, each of which needs patient and forgiving investment―should not suffer the same fate. Public financial capacity must be applied liberally, first toward overcoming the structural barriers to mobilizing investment and then toward ensuring the coordination of market actors in pursuit of public goals. Just as with any other industry, the state learns by doing and can lead by example. PGI’s ability to achieve its specific, sectoral goals depends on this demonstration effect. It can take almost twenty years to build new mines for critical mineral production,²¹ renewable energy projects face structural and financial barriers to profitability, and infrastructure improvements to supply chains require immense coordination.²² Yet PGI has no additional money appropriated toward it and has limited coordination capacity standing behind it. It is currently overseen from the White House to coordinate diplomatic and investment offices across the U.S. government to brand appropriate projects with a “PGI” label. Under these conditions, PGI will mobilize capital only toward the most bankable, most profitable investments that private investors can identify―in other words, the lowest-hanging fruit. The U.S. government should aim higher.

Upgrading PGI

The first and best thing the United States could do to really put PGI on its feet would be to appropriate the billions of dollars in financing such an ambitious undertaking deserves. The U.S. government should cut through the middlemen of institutional investors to do three tasks: (1) identify projects around the world within PGI’s focus umbrella that, if completed, would make good toward the United States’ promise to be an engine for global sustainable development; (2) lead the project preparation and financial structuring process; and (3) provide those projects with the long-term, patient capital they deserve to reach completion. The government is simply better poised to accomplish these tasks than institutional investors are. The next administration has the power to act on all three through better empowering the DFC, creatively deploying EXIM and the Treasury’s ESF, and authorizing the use of bonds backed by SDRs, among other policy changes. The suggestions offered below are more than tweaks to the status quo―implemented correctly, they could positively transform the international development landscape and help realize PGI’s lofty ambitions.

Legislative Upgrades: DFC and EXIM

The DFC, the U.S. government’s international investment arm, was remade and recapitalized during the first Trump administration to support development projects abroad, particularly in lower- and middle-income countries.²³ But it still faces limitations that hinder its ability to support PGI. First, rather than relying solely on a competitive application process whereby project developers solicit the DFC’s loans or loan guarantee support for projects they have prepared, the DFC should also directly undertake project pipeline development itself.²⁴ Like any other commercial bank, it should lead the process of structuring projects’ finances, serving as lead underwriter and deploying concessional finance to derisk potential private co-investors, thereby familiarizing them with new financial structures and asset classes.²⁵ Second, the DFC cannot issue any loan or loan guarantee with a principal amount greater than $1 billion, an artificial per project exposure ceiling that seems small relative to PGI’s ambition.²⁶ Its total portfolio exposure limit is $60 billion, which is also puny in comparison to, say, the Loan Programs Office, which can handle exposure as high as $250 billion. The DFC deserves more. Additionally, federal accounting rules force the DFC to treat equity investments as loss-making grants rather than as high-risk, high-reward investments, making it incredibly challenging for the DFC to provide creatively designed forms of patient capital, such as equity warrants or hybrid capital, to projects that might need the flexibility.²⁷

All these changes require legislative reform. The recently proposed―and bipartisan―DFC Modernization Act of 2024 is welcome in this regard.²⁸ Anticipating the DFC’s reauthorization deadline next year, it doubles the DFC’s exposure cap to $120 billion and directs the DFC to treat equity like the investment it should be, not as a grant. It also directs the DFC to, within statutory limits, consider financing projects in higher-income countries that still meet key U.S. foreign policy goals―a provision that dilutes the DFC’s mandate, to be sure, but may give it greater capacity to cross-subsidize riskier investments elsewhere. While this bill is not necessarily ambitious enough, it goes some way toward endowing the DFC with greater capabilities to become a development bank fit for this century’s climate and geopolitical challenges.

One other institution that deserves legislative upgrades is EXIM. The Center for Strategic and International Studies’ Daniel Runde recently proposed various tweaks to the institution―perhaps most important among them an increased default cap, which would allow EXIM to make more risky investments.²⁹ Given EXIM’s mandate to promote American exports and the fact that so many PGI industries can make ample use of American technology, EXIM should also set up a loan facility that specifically allows foreign governments and developers to import U.S.-made capital goods at concessional interest rates and with longer repayment schedules. As it stands, Global South countries cannot access leading-edge technology at scale without exposing themselves to significant foreign currency debt liabilities.³⁰ This lack of access to the productivity improvements that come from deploying better technology significantly complicates their paths to industrialization and development. A concessional loan program for capital goods imports helps blunt the risks of industrial upgrading and helps standardize the uptake of American technology abroad.

EXIM could also encourage the use of joint venture partnerships to promote responsible technology transfer, both from the United States for technologies like geothermal energy―which is witnessing rapid innovations domestically―and to the United States for technologies like floating offshore wind from countries like Denmark.³¹ Proactively identifying foreign partners that can contribute to the U.S. innovation ecosystem and providing concessional finance to ensure those contributions stick are appropriate goals for EXIM given American industrial policy aims. But partner countries want to build clean technology development ecosystems, too; EXIM’s support for their industrial policy goals supports PGI’s larger thrust toward eliminating the barriers to global economic development.

A Shift in Mindset? ESF and SDRs

Some necessary changes would not require legislative approval. The U.S. Treasury’s ESF, for one, is a flexible pool of capital that the next Treasury secretary will already have the authority to deploy ambitiously, creatively, and generally without need for legislative approval.³² The ESF, which currently has a net position of $40 billion (with around $211 billion in assets and $171 billion in liabilities), can be used to purchase and sell foreign currency, make loans to foreign governments, and deploy the IMF’s SDRs.³³ This fund could be used specifically over short time horizons―the Treasury must notify Congress if it intends to extend dollar loans to foreign governments through the ESF for more than six months in a year―to surgically target two risks that could sink critical infrastructure projects: construction risk and currency risk.

Infrastructure projects take years to build, and delays are the occupational hazard of ambition. But, on private capital markets, every month of delays represents another floating rate interest payment developers have to pony up the cash for. Offering short-term, fixed-rate concessional loans to partner governments for them to on-lend to developers of crucial projects facing unexpected construction bottlenecks could provide significant insurance against the failure of those projects at their riskiest periods.

Once built, however, most infrastructure projects in the Global South still face a fundamental asset-liability mismatch between the currency their debts are denominated or measured in (usually U.S. dollars) and the currency their revenues are denominated in (usually not U.S. dollars). The risk of currency depreciation can deter investment in non-export-related infrastructure in countries that do not have an existing dollar swap line arrangement with the Federal Reserve―that is to say, most countries.³⁴ The ESF can plug this gap by promising to deploy exigent short-term currency swaps during market downturns and liquidity crunches that might otherwise deter investors and developers from financing infrastructure in the first place. This kind of standing swap arrangement might also improve the financial sustainability of existing public and public-private currency risk mitigation platforms, insofar as the ESF’s shorter-term liquidity pledge should decrease longer-term foreign exchange hedging costs for investors and developers alike.³⁵ The ESF could potentially earn from this arrangement, too, as it could profit from private investors’ likely overestimation of currency risk―a phenomenon identified by former Barbados climate envoy Avinash Persaud, whose Bridgetown Initiative plan calls for currency risk hedging facilities to better smooth investment into the Global South.³⁶ Creatively deploying the ESF to ameliorate the kinds of unexpected financial shocks that could derail a developer’s investment plans also has the happy result of derisking DFC and EXIM.

The ESF also holds the United States’ allocation of SDRs, an IMF-designed synthetic reserve asset that all governments can use as a claim on the five global reserve currencies―dollars, renminbi, yen, euros, and pounds―to finance import purchases, service debt, and meet other crucial macroeconomic liquidity objectives.³⁷ Thanks to IMF quota allocation rules, most SDRs sit on the balance sheets of richer Global North countries that do not need them. At the Council on Foreign Relations, Brad Setser and Stephen Paduano have long called for the World Bank to set up an SDR-denominated bond facility, whereby countries like the United States could use their SDRs to help capitalize a massive long-term expansion of the World Bank’s lending headroom.³⁸ The World Bank and its counterpart multilateral development banks could use this new financial firepower to scale up investment into longer-term sustainable infrastructure across lower- and middle-income countries, particularly in regions or in technologies that the private sector would otherwise be reluctant to invest in. All the United States would have to do is greenlight the World Bank’s creation of this SDR bond facility and use its ESF-held SDRs accordingly. And there is precedent: the United States already authorized the use of SDRs to capitalize the African Development Bank’s balance sheet, so it is not a stretch to allow the World Bank to get creative, too.

Other Good Ideas

It is worth highlighting a few other proposals that could support PGI and the broader suite of American international development policy. Jonas Goldman, Bentley Allan, Noah Gordon, and Dan Baer―of the Net Zero Industrial Policy Lab and the Carnegie Endowment for International Peace―suggested setting up a public fund, hosted between the DFC and EXIM, to undertake hundreds of billions worth of strategic equity and concessional debt investments in a global battery supply chain over the next decade.³⁹ Brian Deese, the former director of Biden’s National Economic Council, proposed standing up a Clean Energy Finance Authority and a Clean Energy Resilience Authority that would provide patient capital to rapidly deploy renewable energy and strengthen supply chains, respectively, around the globe.⁴⁰ Deese and Setser, alongside Tess Turner, Michael Weilandt, and Lily Bermel, put forward a suite of avenues through which the United States could better support the multilateral development banks beyond current reform efforts.⁴¹ Finally, Arnab Datta of Employ America and Daleep Singh, the Biden administration’s deputy national security advisor for international economics, argued in favor of creating strategic commodity reserves, modeled after the Strategic Petroleum Reserve, as backstop sources of demand and supply for critical minerals.⁴²

What these proposals recognize is that absent massive public financial support for long-term, patient, creative, and ambitious infrastructure investment programs, the United States would not only fail to mobilize private capital but also make the global economy increasingly vulnerable to climate, health, and geopolitical shocks. Public investment is insurance; it also serves the geopolitical purpose of demonstrating actual commitment to a rules-based international order where the United States pulls its weight on its commitment to responsibly address global challenges.

Building a Path Forward

These policy reforms to scale up investment and deployment must be matched with better public-sector coordination. PGI and ambitious plans like it require the budgetary and staff capacity to meet their mandates. Maybe policymakers will decide that creating new institutions, like the aforementioned Clean Energy Finance Authority, is the best way to centralize these capacities, but it is just as true that existing institutions, if appropriately supported and coordinated, can build the capacity to deliver on these ambitious tasks.⁴³ Either way, what matters most are a mandate for risk-taking, the capacity for business development, and increased staffing at the level of the White House and National Security Council to properly oversee and coordinate those functions, whether between a new institution and the rest of the U.S. government or between existing institutions with expanded authorities. The first Trump administration delivered Operation Warp Speed to respond to the pandemic, suggesting optimistically that a second Trump administration could recreate this kind of bold governance approach for global decarbonization and energy abundance if it so chooses.

No matter which institutions are created or expanded, they also require flexibility and the freedom for interagency and international collaboration. Congress should not seek to arbitrarily restrict the kinds of financial tools that agencies like the DFC and EXIM can deploy, even if they set legislative mandates for the kind of projects or countries those institutions can lend to or investment standards for labor, social, and environmental impact, like the restrictions in the IRA.

In fact, the IRA is a workable model for the end goal of these proposals. Eligible clean energy projects can receive tax credits, projects in vulnerable communities can get extra support through both tax credits and other investment programs, developers of ambitious and large-scale decarbonization projects can access extremely concessional financing from the Loan Programs Office, and green banks around the country are building the capacity to support all these projects. That is not to say that the IRA will solve all the United States’ domestic decarbonization problems—not by a long shot. But these facets of the IRA represent the dual principles that the U.S. international development financing agenda should aim for: first, that any good investment deserves the financing it needs to succeed and, second, that this only happens through a massive down payment on state capacity across the Global South.

Unfortunately, U.S. policymakers are further away from achieving this goal than they might imagine. A looming debt crisis across the Global South has left governments without the budgetary resources to co-invest in critical infrastructure alongside Global North partners and spend on the education, health, and adaptation priorities crucial to ensuring sustainable, equitable, and growth-enhancing industrial development.⁴⁴ Yet 40 percent of developing country governments spend 10 percent of their revenues to cover interest payments on debt, with some spending much more than that.⁴⁵ Moreover, these figures obviously do not include the debts that individual private firms take on to import capital goods and finance, say, energy infrastructure—liabilities that some scholars refer to as “budgetary time bombs” for the state.⁴⁶ Concurrently, the IMF and the World Bank continue to compel Global South countries to cut spending on public programs and necessary administrative institutions to coddle creditors at the cost of sustainable development.⁴⁷

At first glance, it may not be obvious why efforts to support PGI through adequately derisking and coordinating key project investments should also prioritize these larger macroeconomic concerns. But the uncertainties of JETP implementation highlight the political, reputational, and development risks of policymaking that focuses too narrowly on infrastructure absent its macroeconomic context. South African and Indonesian civil society alike have pilloried not just the paltry size of the grant financing included in the JETPs but also the lack of attention the JETPs seem to pay toward standing up employment stabilization and retraining programs in affected communities, to say nothing of environmental remediation.⁴⁸ These issues are related, insofar as less grant money means less support for social priorities. In two years, Indonesia has received less than $300 million in grant and technical assistance funding―less than 2.5 percent of the $11.5 billion in pledged public finance―and grants are only 4 percent of South Africa’s $8.5 billion package.⁴⁹ South African journalists have also alleged that financing intended for community benefits has ended up circling back into the hands of Global North consultants and development organizations.⁵⁰

News like this is more than a political risk to the success of a holistic infrastructure-led development program.⁵¹ Neglecting investments in societal resilience merely exacerbates the vulnerabilities that transition and frontline communities already face, and this widespread vulnerability will only make financing growth-enhancing investments more risky in the future. Private investors cannot do the labor-intensive and longer-term work of undertaking dedicated technical assistance and participatory stakeholder engagement. Building consensus around investment plans, especially those aimed at preserving societal resilience against climate change, requires the state. Yet without spending the time and money to build state capacity in both the Global North and the Global South to ensure that the gains of investment are distributed equitably, infrastructure programs like the JETPs and PGI may never create mass popular support; they will more likely become political albatrosses around all their stakeholders’ necks.

The United States should not relegate Global South partners into becoming sites of extraction for U.S.-based supply chains or captive markets for U.S. clean technology. Holistic investment planning today hedges against this outcome and paves the way for greater investment in the future. But the Global North does not insist on it, nor is it something the Global South has the state capacity to arrange.

Under such conditions that militate against longer-term economic growth, U.S. infrastructure finance is more likely to exacerbate debt burdens than drive broad-based development.⁵² It will also do little to build state capacity to manage collaboration with the Global North. Without that capacity, attempts to plan ambitious interlinked infrastructure projects threaten to fall apart into sites of debt collection rather than zones of industrialization.⁵³ Indeed, the purpose of industrial policy, writ large, is to choose what needs to be built and why, under conditions of an uncertain future and imperfect governments; this is the telos of the IRA. Programs that rely on mobilizing private capital toward vaguely defined “sustainable infrastructure” to the neglect of building the state capacities to coordinate investment and development, in both the Global North and Global South, amount to an industrial policy failure. If the United States will commit to upgrading its institutions to deliver on their global investment targets, it should also endow them with greater capacity to work with Global South governments on the kind of holistic investment planning characteristic of industrial policy and a just transition for communities.

Conclusion

The flagship PGI project currently rolling off the assembly line is the Lobito Corridor railway and port project in Angola and the Democratic Republic of the Congo―and it neatly illustrates the challenges facing the entire initiative.⁵⁴ The Lobito Corridor project is billed as an investment in the African continent’s infrastructure, a new route for transporting critical minerals, primarily copper, from the Congo to the Atlantic Ocean, and an effort to counter China’s dominance of the global infrastructure finance landscape.⁵⁵ The railway investment is anchored by investments in solar energy and agribusiness around the corridor; financing from the DFC and EXIM for various parts of the corridor totals to $1.3 billion, all of which supports various private developers across these sectors. President Biden himself recently visited Angola to affirm U.S.-Angola ties and to highlight these PGI investments, which he stated total up to $6 billion, with $4 billion from the United States.⁵⁶

Negotiating the creation of this corridor took the better part of the Biden administration’s four years in office, a testament both to the administration’s commitment and the complexity of such a public-private megaproject. But risks remain. Angola may not have the state capacity to manage the new rail line, and waning political commitment in Angola, the Congo, or the United States could quite literally stop investment in its tracks.⁵⁷ And, while this project is impressive, slashing travel times for freight, there is no indication it advances sustainability or industrial development. The corridor’s investment plan suggests no spending on environmental remediation for all the copper extraction it incentivizes, nor does it support the development of mineral refining infrastructure in the region―the exact kind of value-add investment that is supporting rapid industrialization in other mineral-endowed countries like Indonesia. Some Angola analysts are also concerned that the Lobito Corridor will mostly benefit Angolan elites while failing to address the country’s high youth unemployment.⁵⁸ What PGI portends, its promises and pitfalls, are already plain to see.

The next administration would be right to continue pursuing PGI’s ambitious goals by supporting greater financing for and fewer restraints on institutions like the DFC and EXIM, not to mention more creative use of the ESF and U.S. SDR holdings. These reforms would empower the United States to do what private capital on its own could not: provide much more patient, longer-term, concessional financing to critical infrastructure and development projects across the Global South, in a holistic and coordinated manner. This also happens to be the best way to compete with China, which just pledged $50 billion in additional financial support toward African countries’ energy transitions.⁵⁹ This is a promise the Chinese government has proven it can act on. No doubt it will rattle U.S. policymakers and ratchet up the U.S.-China rivalry―but the United States cannot keep criticizing Chinese lending practices without providing a substantive alternative. 

Still, U.S. policymakers should not lose sight of the crucial role that state capacity-building must play in structuring industrial policy programs and their constituent investments. For Global South governments to treat the United States as a credible partner in their economic development plans, U.S. policymakers must also tackle the macroeconomic and structural constraints that kneecap not just programs like PGI but the overall goals of sustainable development.

Notes