The US government’s International Development Finance Corporation (DFC), combining the Overseas Private Investment Corp (OPIC) and credit operations of the United States Agency for International Development (USAID), has formally opened for business under an overarching aim to compete with China’s multitrillion-dollar Belt and Road Initiative. It has a higher exposure cap than OPIC at $60 billion and wider array of debt, equity and guarantee tools to spur direct and portfolio inflows into low- and middle-income economies, and is also designed to promote national-security migration and counterterrorism priorities.

According to a report last month by the Center for Strategic and International Studies (CSIS), the new entity will counter China’s “aggressive influence” funding infrastructure and natural-resource projects throughout Asia, Africa and Latin America, even though it cannot match Beijing’s heft dollar for dollar through state enterprises and policy banks.

Supporters believe the DFC’s comparative advantage could be in peer collaboration and technology transfer, and targeting small and mid-size companies and capital-market creation, where Beijing lags. However, CSIS notes that even as Washington’s approach is reinforced to contrast with China’s “export-based politically driven” model, early expectations should be modest. Annual financing will remain below $10 billion, and internal organizational delays could combine with geographic, sectoral and structural confusion in the initial roll-out.

The launch coincides with the Donald Trump administration’s continuing efforts to slash foreign aid, with the first-year budget request below $1 billion. OPIC during an almost 40-year life had no net cost to the taxpayer as proceeds were returned to the Treasury, but this argument did not sway the proposed appropriation despite bipartisan consensus on modernizing the US financing apparatus and arsenal.

Foreign-policy officials weighed in that expanded job-creation sources were needed to combat violent extremism in the Middle East and Africa, and curb mass emigration from Central America’s Northern Triangle, but immediate intelligence and security considerations drove allocation.

The DFC starts with 300 staff and a 90-country portfolio, and a liability limit doubled from the previous $30 billion. It relaxed criteria for US company participation, formerly at one-quarter of equity, for more local investor scope. Along with the 15-member board of directors from the cabinet and outside government, an independent advisory panel was set up drawing from think-tanks and advocacy groups.

The DFC inherits a $23 billion portfolio about evenly split by region and 25% geared toward fragile states, with financial and power sector concentration. Direct loans were 70% of activity, followed by political-risk insurance and investment-fund stakes at 15% each. With additional powers it can take equity positions, offer technical assistance and local-currency guarantees, and start venture-capital enterprise funds.

An immediate focus is women’s economic empowerment, and it has signed agreements with the Inter-American Development Bank and World Bank to back Latin American and global business growth. In Africa the intent is to leverage the existing Power and Prosper Africa initiatives and work with the Millennium Challenge Corp, which uses specific economic policy and performance criteria, on country-designed infrastructure frameworks and schemes.

The CSIS paper warns that contrary to hype, the DFC is unlikely to double legacy commitments in the near term as it undergoes teething pains and looks for openings to balance heightened risk and impact. Its role is to catalyze private financing where unavailable, and otherwise to complement foreign aid for humanitarian and environmental purposes. The DFC should fit with USAID’s “Journey to Reliance” strategy for concessional assistance graduation, with local capital-market development reprised from decades ago, during the post-communist transition, as a major theme.

Low-income-country engagement may have to be subsidized from high-earning assets, and the initial seven-year authorization should not be a deadline to rush internal and external preparations, especially to shift OPIC’s traditional demand-driven tendency, analysts believe. Functioning money and government bond markets may have to precede corporate debt and equity emphasis, and the Treasury Department has a dedicated technical expert program for support.

The CSIS study calls for a new generation of enterprise funds in overlooked locations like Central America, currently reeling from poverty and safety threats in El Salvador, Guatemala and Honduras with consequent waves of emigration. With such innovation the ecosystem there could eventually evolve to gain admittance to the MSCI frontier equity index, with a 6% gain through the third quarter double the core roster’s.