International Finance

On Monday, October 6, the authority of the U.S. International Development Finance Corporation (DFC) to conduct its mission to eradicate poverty and advance U.S. foreign policy objectives through strategic investments will expire. In September, the House passed a Continuing Resolution (CR), which included language (Section 153) that would have temporarily extended the agency’s authority to operate. This would have ostensibly bought Senate and House negotiators more time to agree upon a comprehensive reauthorization bill for the agency. But when the Senate failed to pass the CR into law on Tuesday night, the U.S. government closed, and over two-thirds of DFC employees went home without a paycheck, unsure whether their organization would continue to exist.  Although the government shutdown will eventually end, and the CR that includes the DFC’s authorizing language will (likely) pass into law, this existential uncertainty fundamentally harms an agency tasked with acting as a reliable financial partner for the private sector. During a simple loss in appropriations, an agency continues to function and implement its funded activities directed or implied by the law. During a lapse in authorities, however, an agency is completely paralyzed.  For DFC, paralysis means pausing investment activity and dealmaking mid-transaction without a clear restart timeline; placing existing investments and commitments at risk; indefinitely holding project development activities; and potentially causing permanent harm to the international credibility of the United States’ leading development finance tool as a reliable long-term financial partner. This was an unforced error; a symptom of a fundamental breakdown in the ability of the legislative and executive branches of the U.S. government to work together on the most basic responsibilities of government across multiple sessions of Congress and administrations. For the U.S. government to function, Congress and the executive collaborate every year to establish, modify, and define in law what various federal agencies are allowed to do through authorization processes. In the case of major, multiyear reauthorization cycles, this regular-order process also allows for real debate about whether a federal agency should continue to exist or whether major changes to its mission and activities are needed. For the DFC, neither Congress, the Biden administration, nor the Trump administration questioned whether this critical instrument of economic statecraft should continue its work. It has found itself stranded in limbo all the same. The DFC reauthorization process began over two years ago, and involved a host of congressional and executive actors. That effort enjoyed consistent bipartisan support—the DFC even received a 280 percent increase in budgetary resources in the FY26 budget, a shocking endorsement especially when compared to the elimination of the U.S. Agency for International Development’s foreign assistance architecture. But as the Council on Foreign Relations’ Rush Doshi and I wrote recently, the danger of action-forcing moments (such as reauthorization processes) in the U.S. system is when gridlock or veto players prevent basic consensus-based decision-making. Reauthorization processes are hard even without partisan gridlock. They require technical expertise and intense attention from a capable executive branch, led by the White House and the Office of Management and Budget, who work in concert with their legislative counterparts in committee and at the leadership level. If the U.S. government cannot move its internal machinery to extend a popular agency’s basic ability to function, the United States will fail to outcompete its adversaries and to prove a democracy can run a more accountable and efficient government bureaucracy than an autocracy. The failure to reauthorize the DFC also signals trouble for the upcoming reauthorizations of authorities and agencies including the Defense Production Act, the Millenium Challenge Corporation, and the Export-Import Bank. It could also presage a possible breakdown in even more significant reauthorization processes for federal agencies such as the Departments of Defense and State. Although Congress continues to negotiate a bicameral and bipartisan authorizing bill for DFC that makes other much-needed structural changes to the agency’s authorizing statue, the debate about those modest improvements to the DFC’s overall effectiveness pale in comparison to the questions future partners of this agency—or other private entities and governments considering collaboration with the U.S. government on international projects—will ask themselves going forward. 

Taiwanese insurers are locked into holding U.S. dollar bonds that trade below par, putting pressure on Taiwan’s central bank to intervene to block currency adjustment to preserve their capital.

The CFR Sovereign Risk Tracker can be used to gauge the vulnerability of emerging markets to default on external debt.