Debt-for-Nature Swaps

Dear EarthTalk: As I understand it, “Debt-for-Nature Swaps” are arrangements by which countries can erase debt by preserving land. Are any being done today?

— Bill Hunt, Topeka, KS

The debt-for-nature swap concept, whereby a portion of a developing nation’s foreign debt is forgiven in exchange for local investments in environmental conservation measures, dates back to the mid-1980s when Thomas Lovejoy of the non-profit World Wildlife Fund (WWF) first proposed it as a way to deal with the problems of developing nations’ indebtedness and the negative consequences for their natural resources and diverse environments.

The theory goes that if a country with, say, valuable tropical rainforests, is up to its ears in debt, it will sell off or otherwise deplete those natural resources, instead of protecting or conserving them, in order to raise the money needed to pay off its debts. Debt-for-nature swaps can therefore be useful financial mechanisms for helping countries reduce debt without destroying their most valuable natural resources.

Since the first swap was brokered with Bolivia (to protect its Beni Biosphere Reserve and adjacent areas) by the non-profit Conservation International in 1987, many national governments and conservation groups have engaged in similar types of debt-for-nature swap negotiations, especially in tropical countries which contain diverse and threatened species of flora and fauna. Costa Rica has exchanged tens of millions of dollars in debt to protect some of its most pristine and biologically productive rainforests.

In 1998 the U.S. government passed the Tropical Forest Conservation Act to codify debt-for-nature swaps, including formally welcoming non-profit groups like Conservation International, the Nature Conservancy, WWF and others to help arrange the deals and oversee implementation of local initiatives. A 2010 Congressional Research Service report found that since 1987, debt-for-nature swaps have channeled upwards of $1 billion toward tropical forest conservation initiatives instead of back into creditor nations’ coffers.

But far fewer deals are occurring today for a number of reasons. For one, says the Congressional Research Service, other agreements for debt restructuring and cancellation have reduced developing nations’ debt by significantly more than debt-for-nature swaps can. Another is that the concept has fallen somewhat out of favor. Some experts argue that the financial benefits are overstated, that funds are misdirected to less needy countries, that external debt is not a primary driver of deforestation and other environmental ills, and that funding does not necessarily equate to effective implementation of conservation strategies.

Criticism aside, some deals are still getting done. In 2008, France forgave $20 million in debt owed by Madagascar to help the biodiversity-rich nation triple the size of its protected areas to better protect its native flora and fauna. In 2010, the U.S. forgave $21 million in Brazilian debt to fund several ecosystem protection initiatives in Brazil’s still vanishing tropical rainforests. The U.S. has also forgiven debt from the Philippines, Guatemala and Peru in recent years in exchange for on-the-ground conservation efforts. Germany and the Netherlands have each forgiven some of their foreign debt to tropical nations for forest protection as well. So while debt-for-nature swaps are not as popular as they once were, they are still a key tool in the toolbox of environmentalists looking to promote conservation in tropical countries.

CONTACTS: WWF; Conservation International; The Nature Conservancy.