Debt-for-Nature Swaps Essay ⋆ Environment Essay Examples ⋆ EssayEmpire

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Debt-for-Nature Swaps occur when a creditor reduces or forgives a country’s external debt in exchange for the debtor country redirecting a portion of its debt repayment to conservation and other environmental projects. In commercial swaps, a commercial bank donates or sells at a discount a country’s debt to an international nongovernmental organization (INGO). The INGO (most commonly Conservation International, World Wildlife Fund, and the Nature Conservancy) separately negotiates a contract with the debtor government. The INGO cancels the original debt, and the debtor government pays a percentage of the original debt toward conservation projects.

A bilateral swap operates similarly, except that the creditor is a country. INGOs play a role either as an intermediary in the debt transaction or by designing conservation projects. In both commercial and bilateral swaps, resultant funds for conservation are paid in local currency and managed by an in-country NGO or conservation trust fund. Although multilateral lending institutions are prohibited from participating as creditors, the World Bank provides technical assistance.

History of Debt

Debt-for-nature swaps are part of a larger history of debt renegotiations that became necessary in the early 1980s, when debt-ridden third world nations were unable to meet repayment schedules. The first debt-for-nature swap occurred in 1987, when Bolivia owed $650,000 to a commercial bank. Conservation International purchased this debt for $100,000 with funds provided by the U.S. Agency for International Development (USAID). In return for cancellation of the original $650,000 debt, Bolivia created a $250,000 endowment to support the Beni Biosphere Reserve. A Bolivian foundation managed the endowment.

The Paris Club, a consortium of 19 creditor countries that sets debt restructuring policies, first permitted bilateral swaps in 1990. Creditor countries in North America and Europe, including Germany, Holland, Finland, and Canada, have participated in bilateral swaps. Also in 1990, the Enterprise for the Americas Initiative endorsed U.S. debt-for-nature swaps with select Latin American countries that met financial austerity and democratic governance criteria. In 1998, the Tropical Forest Conservation Act promoted U.S. swaps with countries containing significant tropical forests, including the Philippines, Bangladesh, and Latin American and Caribbean nations.

Debt-for-nature swaps are touted as beneficial for creditors, debtors, and nature. However, they do incur high transaction costs and require cooperation among multiple governmental agencies. To date, commercial and bilateral swaps have provided over $117 million and $1 billion for nature, respectively. The majority of beneficiary countries are Latin American, such as Costa Rica, Belize, and Ecuador. Swaps in Peru alone have endowed $57 million for conservation. Other beneficiaries include Madagascar, Vietnam, Jordan, and Moldova. Thirty beneficiary countries have created conservation trust funds. The largest swap provided $570 million for environmental restoration in Poland.

One justification for swaps is that external debt causes deforestation, since debtor nations attempt to repay debts via commercial agriculture and logging. Thus, reducing debt decreases environmental threats. However, concrete links between external debt and deforestation rates are inconclusive. Moreover, swaps to date have diminished total third world debt by less than 1 percent.

Another justification is that debt-for-nature swaps provide funding for on-the-ground management of “paper parks.” Yet creditors worry that beneficiary nations depend too heavily upon external funding for parks. Debtor countries, on the other hand, express sovereignty concerns because of the broad role of INGOs in swaps; these intermediaries are seen as an external (and even neocolonial) authority, beyond the control of both the state and local people. Moreover, though swaps involve complex contracts, their enforceability is often unclear. So while swaps have put a tangible value on nature and have provided significant funding for the environment in countries that otherwise have little, questions still remain.

Bibliography:

Alan Thein Durning and Lisa Stark, , How Much Is Enough?: The Consumer Society and the Future of the Earth (Norton, W. W. & Company, 1992);
William Ginn, Investing in Nature (Island Press, 2005);
Edward O. Wilson, The Future of Life (Knopf Publishing Group, 2003).