Debt for nature swaps: proceed with caution (and low expectations)

Patrick Bigger, Climate and Community Institute

Debt for nature swaps are poised to be a key topic regarding resource mobilization for biodiversity action during COP 16.

The concept of a debt for nature swap is straightforward. Countries carrying heavy debt burdens generally have little public fiscal space to invest in critical priorities, from education, to healthcare, to environmental protection. Worse, the need to make debt payments denominated in global reserve currencies like US Dollars puts pressure on these governments to accelerate destructive economic practices like export-oriented agriculture, mining, or gas development. Debt swaps aim to alleviate these pressures by offering some level of debt relief in return for commitments to devote freed up financial resources toward achieving environmental objectives.

Modern debt swaps are often complicated feats of financial engineering, involving a range of investors and creditors bound by dense legal arrangements. The devil is truly in the details. Given the urgency of action, a major limitation is that debt swaps have been extraordinarily slow to deploy for limited funding and impact. For example, the much-vaunted 2015 debt for marine conservation swap between the Seychelles, private creditors, and the Nature Conservancy took four years to assemble, resulted in only US$21.6 million in restructured debt at only a 6.5% reduction in nominal value, and ultimately did little to reduce the Seychelles overarching debt burden - with unclear environmental impacts.

The IMF itself states that swaps are much (much!) too small to restore fiscal solvency for countries, and that “it’s more effective to address debt and climate or nature separately.” Most concerning, there is evidence that debt for nature swaps contributing to funding protected areas played a significant role in facilitating Indigenous and small holder dispossession. This is linked to questions about conditionality, or the policy demands that Northern Governments or NGOs make of Southern governments in return for debt restructuring or cancellation; done poorly, the imposition of conditions for debt relief are replay neocolonial structural adjustment policies, impinging on Southern sovereignty and limiting effectiveness as communities are left out of planning and implementing conservation plans. And there are serious concerns that Northern governments could use debt swaps to get around their obligations under Article 21 of the CBD, and under the Rio Principles of Common But Differentiated Responsibilities, not to mention their vast ecological debts.

It is clear that securing human rights and planetary health requires structural reform to the international financial architecture causing so much debt distress and attendant biodiversity loss. But in the absence of this, debt swaps could be a stopgap measure, if structured democratically. The Latin American Network for Economic and Social Justice and Center for Economic and Social Rights have proposed a draft of “High-Integrity Principles for Debt Swaps” that foreground 4 key points: transparency and accountability, inclusive governance, environmental and social safeguards, and global collaboration.

Read the full report at https://cdes.org.ec/web/newsletter-call-to-action-for-collective-effort…