Debt-for-nature swaps: an overview

The debt crisis of developing countries in the early 1980s has been linked with environmental degradation. In order to combat the debt and environment al crisis, debt-for-nature swap transactions were proposed by Lovejoy in 19 84. They involve a mechanism of exchange in which a certain amount of the d ebtor's foreign debt is cancelled or forgiven, in return for local currency from the debtor government to be invested in a domestic environmental prot ection project. The swaps may involve two governments, and in most cases, a re aided by an International Non-Governmental Organization (INGO), who must have a local contact with a domestic NGO. The first swap (1987), between B olivia and Conservation International (US-INGO) involved cancellation of $6 50 000 Bolivian foreign debt for exchange of $100 000 worth of local curren cy to be used towards the Beni Biosphere Reserve. Since 1987, swaps have re sulted in an excess of US$1.5 billion in transactions. Debt-for-nature swap s may not provide debt relief of significant magnitude nor solve the world' s environmental or conservation problems, they have enabled provision of ad ditional funding to ailing environmental organizations (more than $100 mill ion), raised a sense of awareness about environmental protection, and some environments especially in Costs Rica are benefiting from the process.