What are so-called “debt-for-nature swaps” and how do they work?

What are so-called “debt-for-nature swaps” and how do they work?

—Howard W., via e-mail

A debt-for-nature swap is an agreement by which a wealthier, developed nation like the United States forgives debt owed to it by a developing country in exchange for a promise to use some or all of the money instead to preserve critical environmental areas. Typically, such deals are brokered by international non-profit organizations like The Nature Conservancy or Conservation International, which sometimes contribute additional funds to provide grants to local community organizations participating in the projects.

One of the largest debt-for-nature swaps to date occurred just recently, in October 2006, when the U.S. agreed to forgive $24.4 million in debt from Guatemala to free up the money for use in forest conservation efforts there. The Nature Conservancy and Conservation International were instrumental in putting that deal together, and each committed $1 million toward Guatemalan conservation initiatives as well. A similar deal will allow Botswana to repurpose $8.3 million in debt payments owed to the U.S. for conservation and restoration of its tropical forests in the Okavango Delta and Chobe National Park regions.

To date, the U.S. has arranged a dozen debt-for-nature swaps (one under President Clinton and the rest under George W. Bush), forgiving $135 million worth of loans for conservation”s sake from not only Guatemala and Botswana, but also Bangladesh, Belize, Colombia, El Salvador, Jamaica, Panama, Paraguay, the Philippines and Peru. Under the terms of the Tropical Forest Conservation Act, enacted in 1998, developing countries with a tropical forest of global or regional significance, a democratically elected government and plans for economic reform are eligible for debt forgiveness from the U.S. as long as they are willing to undertake conservation efforts accordingly. They also must cooperate with the U.S. on international narcotics control measures while neither supporting terrorism nor violating human rights.

While the U.S. has been the leader in encouraging debt-for-nature swaps, other developed countries are starting to get in on the act as well. Germany has forgiven tens of millions of Euros owed it by the governments of Indonesia and Bolivia, among others, for the benefit of the environment. And last June, France joined the fray by forgiving $25 million in debt from Cameroon in the name of protecting still pristine stretches of the Congo River Basin, the world’s second largest tropical forest after the Amazon.

Debt-for-nature deals have not all taken place without some controversy. According to the Uruguay-based World Rainforest Movement (WRM), last September Canada forgave $680,000 in debt from Honduras in exchange for that country”s establishment of tree planting and forest conservation programs. Arranged primarily within a debt-for-nature framework, Canada will actually get credit in the deal toward the greenhouse gas emissions reductions it promised under the international Kyoto Protocol. Says WRM, “The powerful hand of industry is behind this project this allows a major carbon dioxide-producing country to be able to avoid implementing real measures to either reduce carbon emissions at their source or to implement the conservation of its own forests.”

CONTACTS: Conservation International, www.conservation.org; The Nature Conservancy, www.nature.org; World Rainforest Movement, www.wrm.org.uy.