Swap debt for nature is a financial transaction in which a portion of the external debt of developing countries is forgiven in lieu of local investment in environmental conservation measures.
Video Debt-for-nature swap
Histori
The concept of debt-for-nature swaps was first compiled by Thomas Lovejoy of the World Wildlife Fund in 1984 as an opportunity to deal with growing sovereign debt problems and the detrimental effects on the environment. In the midst of the Latin American debt crisis that resulted in a sharp reduction of environmental conservation capability of the big debt nations, Lovejoy suggests that improving conservation promoting debt can be done at the same time. Since the first exchange took place between Conservation International and Bolivia in 1987, many national governments and conservation organizations have been involved in debt-for-nature swaps. Most swaps occur in tropical countries, which contain many different species of flora and fauna. Also, countries that have engaged in debt-for-nature transfers typically have some threatened or endangered species, have rapid deforestation, and have relatively stable, often democratic, political systems. Since 1987, the debt-for-nature agreement has generated over US $ 1 billion for conservation in developing countries.
Maps Debt-for-nature swap
Process
The mechanism of financing for debt-for-nature swaps is an agreement between the funder (s), the national government of the debtor country, and the conservation organization (s) using the funds. The national government of the indebted country agrees with the payment schedule of the amount of debt forgiven, usually paid through the central bank of the country, in local currency or bond. This process is shown in Figure 1. Participation in debt-to-nature swaps has been restricted primarily to countries where the risk of default on high debt repayments. Under these circumstances, funders can buy debts below their face value.
Type
In the debt-for-nature swap commercial or swap-debt-for-nature three-party , non-governmental organizations (NGOs) act as donors and purchase titles debt from commercial banks in the secondary market. Since the late 1980s, organizations such as Conservation International, The Nature Conservancy, and the World Wildlife Fund have participated in international debt-to-nature exchange. NGOs transfer debt titles to debtor countries, and instead the state agrees to enact certain environmental policies or bless government bonds on behalf of conservation organizations, with the aim of funding conservation programs. In total, it was recorded that the three-party Swap debt-for-nature has generated nearly US $ 140 million in conservation funding from 1987-2010 (see Table 1).
Bilateral debt-for-nature swap occurs between two governments. In bilateral exchanges, the creditor state forgives some of the debtor's public debts in exchange for the environmental commitment of the country. Examples of bilateral exchanges occur when the US Government, under the Enterprise for the Americas Initiative, forgives some of Jamaica's official debt obligations and allows payments on balances for entry into national funds that finance environmental preservation. This fund established the Jamaican Environment Foundation in 1993. Multilateral debt-to-nature transfers are similar to bilateral exchanges but involve international transactions of more than two national governments. Bilateral and multilateral bilateral debt-for-nature records have generated nearly US $ 900 million in total conservation funding from 1987-2010 (see Table 1). A closely related form of debt swap is debt-for-efficiency exchange.
Participation and results
The following table shows the countries that have received funds from the swap and the total recorded funds generated by each type of swap
Funders
The Nature Conservancy, the Leonardo DiCaprio Foundation, the Oak Foundation and the Global Environment Facility have previously provided funds to repay debts.
Benefits
Debt for natural swaps is often described as an agreement in which all parties are profitable and there is no loss. Benefits for debtor countries, creditor, and conservation organizations are described below.
For debtors
Through debt-for-nature exchange, the debtor country reduces its total foreign debt. State debtors are able to buy back part of its debt in more favorable terms and pay for conservation initiatives rather than debt service. This leads to higher international purchasing power for the debtor country. Also, some argue that transforming extraordinary debt in USD into local currency debt lowers the burden of long-term debt in developing countries. In addition, the term debt-for-nature allows long-term planning and funding.
If the country is interested in conservation funding, the debt-for-nature swap provides additional resources for that purpose. Unlike the debt-for-equity swap, debt-for-nature swaps do not harm national sovereignty because no exchange of property takes place.
Environmental benefits for the debtor country include but are not limited to:
- promote responsible use of resources
- help preserve biodiversity
- maintain ecosystem services
- reduce deforestation
Investments in conservation also show economic returns. For example, Costa Rica has placed debt funds for nature to be well used in building and upgrading parks and maintenance, and has seen marked improvements in tourism, improved water quality, and increased energy output even in the short term.
For creditor
Creditors see the debt-for-nature swap as a method to break free from high-risk claims. By selling debt claims, they can reinvest the proceeds in higher performing businesses. Creditors faced with low-performing loans may also seek to limit their exposure, that is, to avoid further loans to debtor countries until their loans are serviced.
For conservation organizations
The debt-for-nature agreement is a long-term funding source for conservation initiatives, so that both international organizations acting as donors and local organizations using the funds are able to improve their conservation goals. Donor organizations also buy debt at a value below par value and usually redeem it above its market value. In this way, swaps are considered to generate conservation funds at a discount.
Decline
The decline in the number of debt-for-nature swaps in recent years is likely in part due to the high price of commercial debt in the secondary market. In the late 1980s and early 1990s, conservation organizations were able to purchase relatively large debt obligations in the secondary market at very high prices. During this period, conservation organizations and national governments negotiated swaps at a rate of about five agreements per year. Since 2000, the number of swap agreements has fallen to about two per year. In addition, other agreements for debt restructuring and cancellations, such as the Greater Poor State (HIPC) initiative, lowered the debt obligations of developing countries by far more than the relatively small contribution of the debt-to-nature exchange. Also, debt-to-nature swaps have been thoroughly criticized by skeptics; these criticisms may have contributed to the reduction of the debt-for-nature financing mechanism.
Criticism
Excessive financial benefits
Debt swaps for nature only result in a small debt reduction and result in much less funding than the nominal value of debt purchased on the secondary market. The amount of debt publicly exempted by debt-for-nature swaps, even in countries that participate in swaps on a regular basis, accounts for less than 1% of total external debt. Also, if the indebted country is not involved in conservation without a debt-to-nature agreement, the swap can not provide the indebted country with an increase in social welfare or fiscal space within the national budget. The government of the indebted country is still responsible for debt repayment, even for conservation organizations rather than to creditors. Also, funds generated through the agreement can replace other forms of assistance, debt relief, or conservation funding.
Fundraiser
Critics of the debt-for-nature swap state that they do not generate funds where their needs are greatest. At the beginning of the history of debt-for-nature swaps, nearly three-quarters of the total funds generated went to Costa Rica, while other countries with similar needs or surpassed Costa Rica received nothing. Brazil, for example, has limited involvement in debt-to-nature exchange despite rapid deforestation.
Environmental damage and external debt
Research has shown that debt relief alone does not spur environmental conservation. Although debt shows a positive correlation with deforestation rates, most researchers believe that the owed countries are very short of political institutions and enforcement structures that would limit environmental degradation. Highly indebted nations can engage in high-level deforestation because of petty policies. Some suggest that solutions to environmental degradation are effective political institutions, democracies, property rights, and market structures, and this development theory is consistent with many Washington Consensus principles. Others claim that wealth creation and income generation have a positive impact on environmental conservation. This approach considers the environmental Kuznets curve, by which environmental degradation increases, reaches a critical point, then decreases as income or wealth increases.
Inadequate environmental protection fund
Ultimately, conservation responsibility lies with local non-governmental organizations implementing protective measures. Debt swaps for nature are only effective when conservation organizations are respected by local people, have good financial management capacity, and have good relationships with government and other non-governmental organizations.
Impact on the poor
Debt for natural swaps is usually followed up by elite debtors, not farmers who may have traditionally owned or at least used the land in question. Land rights are often expressed in different ways and possessions in various forms. Some early debt-for-nature swaps tend to ignore people who live on land set aside for conservation. Subsequent transitions have sought to include local people, especially indigenous peoples, in the process of decision-making and land management. Although "looking" for inclusion does not mean that the locals have been included. Reports of recent debt swap cases in Madagascar, for example, show local resentment towards conservation projects.
References
Source of the article : Wikipedia
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