As the world braces for a potential invasion of Ukraine by Russia and NATO debates response options, America has a long-term, valuable tool in its arsenal to counter Chinese and Russian influence that is going unused: the Three Seas Initiative Fund.
The invasion watch in Ukraine is both a challenge and an opportunity. The U.S. has more economic levers than just sanctions. One of the best levers of long-term security of the nations on the Baltic, Black and Caspian seas is to start doing what Congress mandated the DFC (Development Finance Corporation) to do, which is to utilize this fund.
As bipartisan majorities in Congress have affirmed, America must use its development resources as a strategic instrument to further U.S. foreign policy. China and Russia are threatening to invade their neighbors, and the U.S. departure from Afghanistan only serves to embolden them, and radical groups, in the region and beyond.
Congress created the Development Finance Corporation in the BUILD Act to be the pointy end of the spear of U.S. economic statecraft, with a mandate to align the agency’s investments with U.S. foreign policy priorities. The BUILD Act’s framers expected the agency to use its expanded authorities to counter and balance malign actors, including China and Russia.
In a time of Great Power competition, countries around the world are looking for the United States to provide balance as they navigate their own relations with China and Russia. Nowhere is this truer than in the former Warsaw Pact nations that are now in the European Union. Decades of Communist rule left the eastern and central European Union member states with an infrastructure deficit. While European Union investments have happened, there is still a gap in energy, transportation and digital infrastructure between these countries — and the Chinese Communist Party is more than happy to meet those needs. The U.S. response is to invest in the Three Seas Initiative Fund, which includes 12 countries (on the Baltic, Black and Adriatic seas).
These countries agreed in 2018 to establish a privately managed infrastructure investment fund as a commercial and market-driven initiative for diversified investment with an attractive return to investors. In 2020, the U.S. announced it was prepared to invest up to $1 billion in the Three Seas Fund. This pledge garnered bipartisan approval in Congress.
Congress has given the DFC the authority to make energy-related investments in Europe and Eurasia. In December 2020, the DFC’s board of Directors approved an initial $300 million down payment on the $1 billion U.S. pledge. The investment focused on energy-related projects as mandated by law. The Three Seas nations themselves have agreed to invest over $1 billion into the Three Seas Fund.
China is more than willing to secure its interests in eastern and central Europe with infrastructure investments and loans. Now, in the face of Russian aggression and manipulation of energy markets in the dead of winter, the wisdom of the DFC board’s approval of the initial Three Seas Fund investment is clearer than ever. The Three Seas countries want and need the United States to be their anchor investor; they need our reassurance and our support.
A DFC investment is a sovereign guarantee from the United States. When Americans invest abroad, they bring the rule of law. Unlike China, a DFC investment carries environmental, labor and social standards. And DFC’s engagement is not just needed in Eastern and Central Europe; the DFC opened offices in Southeast Asia to boost investments as well. A strategic framework for a shared investment fund with Kazakhstan and Uzbekistan is waiting to be implemented. DFC can and should deploy a director to the investment office opened in Belgrade in a region that is looking West but feels the chill winds from the east at their backs.
The Biden administration has all these tools at its disposal, and it should begin using them. The most compelling to start is to implement the decision already in place — for DFC to invest $300 million in the Three Seas Fund. As we all know too well, China certainly won’t wait.
• Adam Boehler was the first CEO to the Development Finance Corporation and is now the founder and CEO of Rubicon Founders. Caleb McCarry was counselor to the DFC CEO and is now a principal with Yorktown Solutions.
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