Debt-for-Nature Swaps

1. Debt-for-Nature Swaps An analysis of debt-for-nature swaps as a mechanism for reducing environmental degradation in debtor countries

2. Introduction • Natural resources are critical to economic growth. • The poor suffer disproportionally from environmental degradation • I primarily looked at U.S. debt-for-nature swaps: • U.S. is percieved as an environmental leader. • U.S. has been most involved in debt-for-nature swaps.

3. I focused on deforestation. Most debt-for-nature swaps have addressed deforestation. Deforestation is immediate and more easily monitored than some other kinds of environmental degradation. Deforestation is an indicator of primary development (World Commission on Environment and Development).

4. LIC Crises

5. Deforestation • 53,000 square miles of forest were cleared each year during the 1980’s; pace has slowed but is still unsustainable (FAO). • Tropical rain forests are important • Biodiversity- medicine, keystone species, agriculture, recreation. • Agriculture- oxygen levels, erosion, soil impoverishment. • Global warming- could cause famine, disease, weather pattern changes, reduced agricultural productivity

6. Hinders social and economic structures of the people who live in and near the forests. • Destroys a valuable resource base.

7. Debt • Origin of the debt crisis. • LIC debt is unsustainable- Many LICs owe over $3.5 million for each citizen, and compound interest raises the amount each year.

8. The Link between Deforestation and Debt • Other factors contribute to deforestation- cattle ranching, search for energy sources, population growth, etc. • Deforestation largely occurs to improve the balance-of-payment and reduce poverty. • SAPs limit environmental and social spending.

9. The Evolution of Debt-for-Nature Swaps The debt-for-nature swap mechanism

10. U.S. Legislation • Global Environmental Protection Assistance Fund • Enterprise for the Americas Initiative • Tropical Forest Conservation Act

11. International Initiatives • International Tropical Timber Agreement • Tropical Forest Action Plan • Foreign countries have offered debt-for-nature swaps- Norway, the Paris Club, Germany, etc. • No movement from international lending institutions.

12. Case Studies • Bolivia • Ecuador • Costa Rica • Madagascar • Philippines • Poland

13. Examination of Arguments

14. Sovereignty • Concerns • Colonialism • Debt-for-equity swaps • Brazil • U.S. policy agendas

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

16. Ways to address sovereignty concerns • Use local NGOs • Ensure central bank involvement • Assure that resources remain in the debtor country

17. Inflation • Inflation is possible with large debt-for-nature swaps • Would decrease the value of the swap • Debt-for-nature swaps thus far have not triggered inflation. • Debtor countries usually have high inflation rates regardless of the existance of debt-for-nature swaps. • Risk of inflation undermines debt-for-nature swaps; must engineer swap to prevent inflationary tenancies.

18. Potential solutions • EAI and TFCA require that the debtor country maintain the fund in US dollars. • Amount of swap should be limited

19. Overall debt levels • Debt-for-Nature swaps have never significantly lowered any country’s debt. • Debt-for-nature swaps were never intended to be a cure-all • Debt-for-nature swaps have snowballed • Reducing debt reduces future interest

20. Indiginous Peoples • Indiginous peoples base their livlihood on forest products. • Debt-for-nature swaps have historically excluded these people: • Did not allow them to enter the forests. • Disallowed them to collect forest products and failed to provide them with other income-generating opportunities.

21. Potential Solutions • Include indiginous peoples as enforcers of the swap – Philippines • Restrain from eviction • Use a portion of the funds to provide education on deforestation and educational and employment opportunties.

22. Debt Legitimacy • Some contend that because LIC debt was accrued illegitly, LIC citizens cannot be held responsible for paying said debts. • Ecological debts owed to LICs- • Most environmental destruction is caused by HICs. • Environmental degradation disproportionally affects LICs, leaving them responsible for paying debts and compensating for environmental damage they did not commit. • Ecological debt would be difficult to measure.

23. Hypocrisy • The United States has failed to participate in international environmental protection measures. • HICs were able to develop by freely exploiting their natural resources. • HICs, particularly the United States, are often the most heavily indebted countries.

24. Implementation and Enforcement Barriers • Funnel swaps are common • Expropriation • Not illegal according to international law • NGOs have some informal resources, but these are not foul-proof. • Need an international treaty to ensure that debt-for-nature swaps are not expropriated.

25. Diverting Attention • Debt-for-nature swaps don’t address the root economic problems that cause debt accumulation and deforestation. • Debt-for-nature swaps are comparatively advantageous.

26. Conclusions and Recommendations • Organizers of debt-for-nature swaps must be attuned to the people with whom they are working. • Donor countries must integrate themselves more fully with the international community. • The swap concept should be expanded to other areas- debt-for-development and debt-for-education swaps, international lending organizations