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Conservation Finance
Debt-For-Nature Swaps
WWF pioneered commercial debt-swaps and executed one of the first debt-for-nature swaps in Ecuador in 1987. After helping to structure several commercial debt-for-nature swaps in the late 1980s and early 1990s, WWF has more recently designed bilateral and multilateral swaps. WWF has worked with the US, French, German, Dutch, and other creditor countries to structure foreign debt-for-nature swaps.
Since 2001, WWF has helped design several debt-for-nature swap agreements under the Tropical Forest Conservation Act (and previously under the Enterprise for the Americas Initiative). Both mechanisms were formed to relieve the debt burden of developing countries owned the US government while generating funds in local currency to support tropical forest conservation activities.
WWF has also helped to structure debt-swap agreements under the Debt Cancellation and Development Contract (C2D), the French bilateral component for the alleviation of debt contracted within the framework of Official Development Assistance.
Capital raised through debt-for-nature swaps can be applied through trust funds or foundations specifically set up to channel funding to local biodiversity conservation.
Recent Debt for Nature Swap Largest in Madagascar’s History
Madagascar has a very distinct ecosystem and endemic species found no where else on earth.
© R.Isotti, A.Cambone - Homo ambiens / WWF-Canon
In 2008 WWF helped to structure and facilitate the largest debt-for-nature swap in Madagascar’s history that will commit about $20 million towards preserving the country’s rich biodiversity. The debt swap, negotiated with the Government of France, will directly fund the Madagascar Foundation for Protected Areas and Biodiversity for long-term support of the country’s protected areas. With the assistance of WWF and other partners, the Foundation was established in 2005. This debt swap has helped to exceed the Foundation’s endowment goal of $50 million.
Two US Debt Swaps Protects Peru’s Endangered Forests
In 2002, and again in 2008, the governments of Peru and the US agreed to debt forgiveness agreements totaling $40 million. The swaps help to ensure the protection of some of the most biologically diverse and critically endangered rainforests in Peru. In return, Peru agreed to commit to conservation initiatives over 12 years to fund the preservation of more than 27.5 million acres of rain forest that provide a habitat for a host of rare species including jaguars and pink river dolphins.
Cameroon Debt Swap as First French Government Debt Reduction for Nature
In 2002, the governments of Cameroon and France signed the first ever debt-for-nature swap agreement, allocating $25 million over five years to protect part of the world's second largest tropical forest, home to elephants, gorillas, hundreds of bird species and indigenous groups such as the Ba'Aka pygmies. It was the first time that the French Government dedicated part of its debt relief budget to the protection of natural resources. WWF worked with both countries to include conservation in Cameroon's debt forgiveness plan.
Different Types of Debt-for-Nature Swaps
A debt-for-nature swap is a financial mechanism that has enabled developing countries to reduce their foreign debt while generating additional money for conservation activities. Two main types of debt-for-nature swap exist: commercial debt-for-nature swaps that involve debt owned by developing countries to international commercial banks; and bilateral debt reduction programs that involve debt owed to other governments.
In a commercial debt-for-nature swap, a commercial creditor sells debt owed by a foreign government at a discount on the secondary market. A third party, such as an NGO, will purchase the discounted debt and negotiate with the debtor country to cancel the debt in exchange for local currency payments for environmental conservation.
Bilateral debt reduction is similar to commercial debt-for-nature swaps but involves “sovereign” debt owned by one government to another rather than commercial debt owed to a bank. In bilateral debt agreement, the creditor government cancels or discounts a portion of debt in exchange for the debtor country’s commitment to finance local conservation activities. Agreements are negotiated between government ministries but are often facilitated by conservation NGOs. Bilateral debt reduction is currently the mechanism used the most often to provide debt relief for the environment.
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