Debt-for-nature swaps: an overview

Abstract

SUMMARY The debt crisis of developing countries in the early 1980s has been linked with environmental degradation. In order to combat the debt and environmental crisis, debt-for-nature swap transactions were proposed by Lovejoy in 1984. They involve a mechanism of exchange in which a certain amount of the debtor's foreign debt is cancelled or forgiven, in return for local currency from the debtor government to be invested in a domestic environmental protection project. The swaps may involve two governments, and in most cases, are aided by an International Non-Governmental Organization (INGO), who must have a local contact with a domestic NGO. The first swap (1987), between Bolivia and Conservation International (US-INGO) involved cancellation of $650 000 Bolivian foreign debt for exchange of $100 000 worth of local currency to be used towards the Beni Biosphere Reserve. Since 1987, swaps have resulted in an excess of US$1.5 billion in transactions. Debt-for-nature swaps may not provide debt relief of significant magnitude nor solve the world's environmental or conservation problems, they have enabled provision of additional funding to ailing environmental organizations (more than $100 million), raised a sense of awareness about environmental protection, and some environments especially in Costa Rica are benefiting from the process.