During his bombastic speech at the United Nations, Donald Trump reiterated his "America First" promise to back away from supporting the liberal international order. He rejected "globalism" in favour of "the doctrine of patriotism", threatened to cut foreign aid to disrespectful nations, and failed to even mention his administration's signature Asia strategy for fostering a "free and open Indo-Pacific".
But the United States government isn't waltzing to Trump's tune when it comes to actually implementing a geo-economic strategy for the region. Spurred on by the perceived urgency of strategic competition with China, officials from across the bureaucracy are working around Trump with some success.
In July Secretary of State Mike Pompeo unveiled the first instalment of the administration's upgraded economic commitment to the region in the form of a $US113 million ($155 million) investment in regional technology, infrastructure and energy initiatives – a small, albeit significant demonstration of his department's commitment to providing alternatives to China's Belt and Road Initiative.
Now, a potentially far more significant plan is poised to clear Congress in the next few days that will see American development finance enlisted as a frontline tool in the growing US-China competition for regional influence.
The Better Utilisation of Investments Leading to Development Act – or BUILD for short – is a major bipartisan legislative reform that will double America's capacity to channel private investment into development-oriented projects in low and middle-income nations.
Championed by chief executive of the Overseas Private Investment Corporation (OPIC), Ray Washburne, these reforms will promote sustainable infrastructure projects with high standards of transparency, environmental impact and social safeguards as better options for Indo-Pacific nations than the development model China is seeking to export.
Triumph of strategy
As Trump last year sought to eliminate OPIC and its development financing operations, the likely success of BUILD marks a triumph of bureaucratic strategy over presidential folly. It couldn't come at a better time.
As Indo-Pacific economies develop, their burgeoning infrastructure demands – for ports, roads, railways, digital networks and electricity grids – dwarf the investments that can be provided by traditional sources of finance, creating a need for new investors and sources of capital.
According to the Asian Development Bank, about $US1.7 trillion in annual investment is required to maintain growth, eradicate poverty and respond to the increasingly urgent realities of climate change by 2030. The financing gap to meet these needs is about $US500 billion a year.
While China's trillion-dollar BRI has so far led the way in meeting this shortfall – committing $US90 billion for transportation projects alone between 2014 and 2017 – concerns are growing in the US, Australia and other like-minded nations about the strategic and political influence this affords Beijing. But cash-strapped aid budgets alone are insufficient to meet this challenge.
This is where development finance institutions have a growing role. By combining public spending with private funds in pursuit of profitable but development-oriented projects, development finance institutions – such as OPIC and the Asian Development Bank – reduce the risks to investors in emerging economies and aim to bridge the investment gap that wouldn't otherwise be filled by business or government.
While the US cannot match Chinese investments dollar-for-dollar, the BUILD Act will consolidate its existing development finance agencies – including OPIC and USAID's Development Credit Authority – into a larger one-stop-shop for attracting private capital into projects with a dual developmental and strategic objective.
The new agency will expand on OPIC's current authorities, be given the permission to own equity stakes in development projects, and will have its exposure limit doubled to $US60 billion to facilitate more significant – and profitable – US investments in telecommunications, power generation, critical infrastructure and financial services.
And as it will continue to operate along OPIC's self-sustaining model – which has contributed $US3.7 billion to deficit reduction over the past decade at no cost to American taxpayers – it is also a politically attractive model.
Its strategic rationale is similarly clear. According to the Senate Foreign Relations Committee chair Bob Corker, "establishing a new development finance corporation provides the private sector an alternative to China's aggressive and potentially damaging lending through the Belt and Road Initiative and other finance efforts".
Once it is set up, Washburne intends to double the agency's $US4 billion investment in the Indo-Pacific over the next few years in an effort to counteract the prevalence of Chinese money in the region.
All of this is welcome news for Australia and America's other regional partners, not least because it reveals that bureaucratic efforts in Washington to implement a whole-of-government strategy for the Indo-Pacific are finally starting to take effect.
More specifically, the BUILD Act reforms will also provide new opportunities for collaboration with the region's own geo-economic initiatives.
Canberra has already outlined its intent to work with the new agency and its Japanese equivalent, the Japan Bank for International Cooperation, through the recently announced Australia-US-Japan trilateral partnership for infrastructure in the Indo-Pacific. Given that all three nations are aligned on the need to offer "quality" infrastructure alternatives to China's BRI, this cooperation makes strategic sense.
But key details need to be resolved before this becomes a reality. Australia has yet to announce how much funding it will contribute to the trilateral scheme – or to regional infrastructure more generally – leading to a degree of uncertainty around its commitment.
Broad policy focus
Plus, unlike the US and Japan, Australia doesn't have a dedicated development finance institution, adding an additional layer of complexity to effective regional coordination. While the government's Export Finance and Insurance Corporation works to support investments in emerging markets, its lack of a specific development mandate means Canberra's involvement in development assistance remains largely coordinated by the Department of Foreign Affairs and Trade.
Given the department's broad policy focus and limited capacity for such projects, coupled with the growing need for a multilateral approach to strategic infrastructure financing across the Indo-Pacific, it may be time to reconsider the Joint Standing Committee's 2015 recommendation to not pursue a standalone Australian development finance institution.
America's overhaul of its development financing architecture marks a crucial step in reassuring the region that Washington's commitment to the Indo-Pacific extends beyond President Trump's often parochial rhetoric. But work remains on both sides of the Pacific to ensure that Washington and Canberra are able to deliver on their promise of a free and open Indo-Pacific.