Debt-for-Nature SwapsDebt-for-Nature Swaps

An analysis of debt-for-nature swaps as a An analysis of debt-for-nature swaps as a mechanism for reducing environmental mechanism for reducing environmental

degradation in debtor countriesdegradation in debtor countries

IntroductionIntroduction

Natural resources are critical to economic Natural resources are critical to economic growth.growth.

The poor suffer disproportionally from The poor suffer disproportionally from environmental degradationenvironmental degradation

I primarily looked at U.S. debt-for-nature I primarily looked at U.S. debt-for-nature swaps:swaps: U.S. is percieved as an environmental leader.U.S. is percieved as an environmental leader. U.S. has been most involved in debt-for-nature U.S. has been most involved in debt-for-nature

swaps.swaps.

I focused on deforestation.I focused on deforestation. Most debt-for-nature swaps have addressed Most debt-for-nature swaps have addressed

deforestation.deforestation. Deforestation is immediate and more easily Deforestation is immediate and more easily

monitored than some other kinds of environmental monitored than some other kinds of environmental degradation.degradation.

Deforestation is an indicator of primary Deforestation is an indicator of primary development (World Commission on Environment development (World Commission on Environment and Development).and Development).

LIC CrisesLIC Crises

DeforestationDeforestation

53,000 square miles of forest were cleared each year 53,000 square miles of forest were cleared each year during the 1980’s; pace has slowed but is still during the 1980’s; pace has slowed but is still unsustainable (FAO).unsustainable (FAO).

Tropical rain forests are importantTropical rain forests are important Biodiversity- medicine, keystone species, agriculture, Biodiversity- medicine, keystone species, agriculture,

recreation.recreation. Agriculture- oxygen levels, erosion, soil impoverishment.Agriculture- oxygen levels, erosion, soil impoverishment. Global warming- could cause famine, disease, weather Global warming- could cause famine, disease, weather

pattern changes, reduced agricultural productivitypattern changes, reduced agricultural productivity

Hinders social and economic structures of the Hinders social and economic structures of the people who live in and near the forests.people who live in and near the forests.

Destroys a valuable resource base.Destroys a valuable resource base.

DebtDebt

Origin of the debt crisis.Origin of the debt crisis. LIC debt is unsustainable- Many LICs owe LIC debt is unsustainable- Many LICs owe

over $3.5 million for each citizen, and over $3.5 million for each citizen, and compound interest raises the amount each compound interest raises the amount each year.year.

The Link between Deforestation and The Link between Deforestation and DebtDebt

Other factors contribute to deforestation- cattle Other factors contribute to deforestation- cattle ranching, search for energy sources, ranching, search for energy sources, population growth, etc.population growth, etc.

Deforestation largely occurs to improve the Deforestation largely occurs to improve the balance-of-payment and reduce poverty.balance-of-payment and reduce poverty.

SAPs limit environmental and social spending.SAPs limit environmental and social spending.

The Evolution of Debt-The Evolution of Debt-for-Nature Swapsfor-Nature Swaps

The debt-for-nature swap mechanismThe debt-for-nature swap mechanism

U.S. LegislationU.S. Legislation

Global Environmental Protection Assistance Global Environmental Protection Assistance FundFund

Enterprise for the Americas InitiativeEnterprise for the Americas Initiative Tropical Forest Conservation ActTropical Forest Conservation Act

International InitiativesInternational Initiatives

International Tropical Timber AgreementInternational Tropical Timber Agreement Tropical Forest Action PlanTropical Forest Action Plan Foreign countries have offered debt-for-nature Foreign countries have offered debt-for-nature

swaps- Norway, the Paris Club, Germany, etc.swaps- Norway, the Paris Club, Germany, etc. No movement from international lending No movement from international lending

institutions.institutions.

Case StudiesCase Studies

BoliviaBolivia EcuadorEcuador Costa RicaCosta Rica MadagascarMadagascar PhilippinesPhilippines PolandPoland

Examination of Examination of ArgumentsArguments

SovereigntySovereignty

ConcernsConcerns ColonialismColonialism Debt-for-equity swapsDebt-for-equity swaps BrazilBrazil U.S. policy agendasU.S. policy agendas

Sovereignty is not threatenedSovereignty is not threatened Debt-for-nature swaps are voluntary.Debt-for-nature swaps are voluntary. Creditors cannot accumulate assets.Creditors cannot accumulate assets. Aid is often tied to objectives.Aid is often tied to objectives.

Ways to address sovereignty concernsWays to address sovereignty concerns Use local NGOsUse local NGOs Ensure central bank involvementEnsure central bank involvement Assure that resources remain in the debtor countryAssure that resources remain in the debtor country

InflationInflation

Inflation is possible with large debt-for-nature swapsInflation is possible with large debt-for-nature swaps Would decrease the value of the swapWould decrease the value of the swap Debt-for-nature swaps thus far have not triggered inflation.Debt-for-nature swaps thus far have not triggered inflation. Debtor countries usually have high inflation rates Debtor countries usually have high inflation rates

regardless of the existance of debt-for-nature swaps.regardless of the existance of debt-for-nature swaps. Risk of inflation undermines debt-for-nature swaps; must Risk of inflation undermines debt-for-nature swaps; must

engineer swap to prevent inflationary tenancies.engineer swap to prevent inflationary tenancies.

Potential solutionsPotential solutions EAI and TFCA require that the debtor country EAI and TFCA require that the debtor country

maintain the fund in US dollars.maintain the fund in US dollars. Amount of swap should be limitedAmount of swap should be limited

Overall debt levelsOverall debt levels

Debt-for-Nature swaps have never Debt-for-Nature swaps have never significantly lowered any country’s debt.significantly lowered any country’s debt.

Debt-for-nature swaps were never intended to Debt-for-nature swaps were never intended to be a cure-allbe a cure-all

Debt-for-nature swaps have snowballedDebt-for-nature swaps have snowballed Reducing debt reduces future interestReducing debt reduces future interest

Indiginous PeoplesIndiginous Peoples

Indiginous peoples base their livlihood on Indiginous peoples base their livlihood on forest products. forest products.

Debt-for-nature swaps have historically Debt-for-nature swaps have historically excluded these people:excluded these people: Did not allow them to enter the forests.Did not allow them to enter the forests. Disallowed them to collect forest products and Disallowed them to collect forest products and

failed to provide them with other income-failed to provide them with other income-generating opportunities. generating opportunities.

Potential SolutionsPotential Solutions Include indiginous peoples as enforcers of the Include indiginous peoples as enforcers of the

swap – Philippinesswap – Philippines Restrain from evictionRestrain from eviction Use a portion of the funds to provide education on Use a portion of the funds to provide education on

deforestation and educational and employment deforestation and educational and employment opportunties.opportunties.

Debt LegitimacyDebt Legitimacy

Some contend that because LIC debt was Some contend that because LIC debt was accrued illegitly, LIC citizens cannot be held accrued illegitly, LIC citizens cannot be held responsible for paying said debts.responsible for paying said debts.

Ecological debts owed to LICs-Ecological debts owed to LICs- Most environmental destruction is caused by HICs.Most environmental destruction is caused by HICs. Environmental degradation disproportionally Environmental degradation disproportionally

affects LICs, leaving them responsible for paying affects LICs, leaving them responsible for paying debts and compensating for environmental damage debts and compensating for environmental damage they did not commit.they did not commit.

Ecological debt would be difficult to measure.Ecological debt would be difficult to measure.

HypocrisyHypocrisy

The United States has failed to participate in The United States has failed to participate in international environmental protection international environmental protection measures.measures.

HICs were able to develop by freely exploiting HICs were able to develop by freely exploiting their natural resources.their natural resources.

HICs, particularly the United States, are often HICs, particularly the United States, are often the most heavily indebted countries.the most heavily indebted countries.

Implementation and Enforcement Implementation and Enforcement BarriersBarriers

Funnel swaps are commonFunnel swaps are common Expropriation Expropriation

Not illegal according to international lawNot illegal according to international law NGOs have some informal resources, but these are NGOs have some informal resources, but these are

not foul-proof.not foul-proof. Need an international treaty to ensure that debt-Need an international treaty to ensure that debt-

for-nature swaps are not expropriated. for-nature swaps are not expropriated.

Diverting AttentionDiverting Attention

Debt-for-nature swaps don’t address the root Debt-for-nature swaps don’t address the root economic problems that cause debt economic problems that cause debt accumulation and deforestation.accumulation and deforestation.

Debt-for-nature swaps are comparatively Debt-for-nature swaps are comparatively advantageous.advantageous.

Conclusions and RecommendationsConclusions and Recommendations

Organizers of debt-for-nature swaps must be Organizers of debt-for-nature swaps must be attuned to the people with whom they are attuned to the people with whom they are working.working.

Donor countries must integrate themselves Donor countries must integrate themselves more fully with the international community.more fully with the international community.

The swap concept should be expanded to other The swap concept should be expanded to other areas- debt-for-development and debt-for-areas- debt-for-development and debt-for-education swaps, international lending education swaps, international lending organizationsorganizations