Africa

Debt-for-Nature Swaps: Revisiting the Concept Following the Seychelles Deal


At the end of February 2018, the Leonardo DiCaprio Foundation announced that it reached a debt-for-nature agreement with the Republic of Seychelles.  As part of the deal, private investors (including the Foundation) purchased $20 million of Seychelles’ sovereign debt at a discount.  Seychelles will now make debt repayments—at a lower interest rate because of the restructuring—to the Seychelles Conservation and Climate Adaptation Trust.   The Trust will direct savings reaped from lower interest payments to ocean conservation projects intended to protect approximately 81,000 square miles of the Indian Ocean.  Supporting and encouraging debt-for-nature swaps led by the private sector, along with further enhancements to the mechanisms underlying the swaps, could pose a great opportunity for the United States to lead on environmental conservation.

Image Courtesy of Tristan Denyer (c) 2004

This arrangement is novel insofar as it focuses on sustainability of the ocean, rather than land, but debt-for-nature swaps are not a new concept.  In 1998, Congress passed the U.S. Tropical Forest Conservation Act with the goal of providing debt relief to developing countries who protected forests. Using this law, the U.S. government has effectuated debt-for-nature swaps throughout South America.  In 2010, the United States and Brazil signed an agreement converting approximately $21 million of Brazilian debt into tropical conservation.  Other examples include agreements signed with Bangladesh, Colombia, and Panama.

Debt-for-nature swaps can be attractive to countries because they allow them the chance to obtain much-needed relief from their sizable national debts.  Countries with the combination of a crushing sovereign debt, an economy that is quickly developing, and unique natural resources within their borders may simply not have the capacity or interest to devote sufficient resources to environmental conservation.  Simultaneously, conservationist organizations like debt-for-nature swaps because it is possible to build in greater structure and accountability for the country in how the funds are used long-term, compared to a one-time donation.

Of course, debt-for-nature swaps are not without criticism.  Opponents argue that there are other alternative mechanisms for providing far more debt relief, such as more comprehensive debt relief offered through a joint World Bank-International Monetary Fund initiative for heavily indebted poor countries.   Even supporters of debt-for-nature swaps acknowledge the risks associated with relying on donor funds.  Other critics believe that debt-for-nature swaps encroach on sovereign immunity, even though the ultimate result of the swap is not the sale of territory to a trust or foundation.  Still, others argue that such deals are simply another example of arrangements between governments and wealthy organizations, locking out the input or involvement of indigenous people who these deals would affect most.

While it seems unlikely that the Trump Administration would support environmental conservation efforts built solely on the forgiveness of debt owed to the United States, the Foundation’s recent debt-for-nature swap in the Seychelles suggests that U.S. foreign policy may want to consider more openly supporting private sector financial initiatives, like the consortium put together by the Foundation, as an element of the United States’ commitment to the environment.  The U.S. should take the lead on addressing some of the critiques of debt-for-nature swaps, such as helping to assemble larger consortiums so that a greater portion of a country’s sovereign debt may be restructured, or proposing initiatives on how to better involve local stakeholders in the conservation projects.

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