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Swapping Debt to Preserve Nature

PERSUADING debtor nations to preserve specified regions of their deteriorating environment, in exchange for a slight reduction in their often massive foreign debt, has become a popular concept embraced by environmentalists, creditor banks, and the governments of a number of debtor and creditor nations. The same notion recently has been suggested by President Bush in his ``Enterprise for the Americas'' initiative as a possible method of reducing the $12 billion Latin America owes to the US government. Debt-for-nature swaps, the code name for the deals, may superficially appear to be the solution to the region's environmental and economic woes. But they often fail to fully handle the complex nature of the problems they attempt to address. The idea for these swaps arose in 1984 when it was hypothetically proposed by Thomas Lovejoy, then-vice president of the World Wildlife Fund. Suggesting that ``debtor nations willing to protect natural resources could be made eligible for discounts or credits against their debts,'' Mr. Lovejoy triggered the interest of international conservation organizations. Shortly afterward, these groups developed proposals that would enable debtor nations to cancel small amounts of their obligations in exchange for a commitment from local authorities to protect threatened areas of biological importance within their country.

The process begins when a private conservation organization pays off part of a nation's debt to a commercial bank, usually at a discount. That nation then agrees to allocate a specified amount of funds to protect the environment, usually the face value of the debt relieved. The revenue obtained by the host country is then transferred to local conservation societies that monitor.

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Numerous problems plague these agreements. Programs mandated by international environmentalists often do not fit the needs of local organizations or the individual country's political and economic agendas. A simple government proclamation to protect a specified area of land, or the allocation of funding for environmental programs, frequently will not withstand internal and external pressures for attention to other areas, such as creating hydroelectric power, development of roads, and additional social programs. Local nationalists may charge that their country's sovereignty is being demeaned when a government adopts conservation programs developed by foreign organizations. Though overseas groups don't own land, they are involved in its preservation, often considered a strictly internal affair.

Economically, the benefits for the debtor nations are slim. Only a small percentage of the nation's foreign debt is actually relieved, the maximum to date being 10 percent, since swaps affecting more than that amount of a country's foreign debt could induce runaway inflation. Additionally, most swaps require that the debt bought off by a conservation organization, or relieved by a foreign government, be converted into national currency bonds and sold to the public, a process that only adds to domestic debt.

Results from the earliest swaps in Bolivia, Ecuador, and Costa Rica are now beginning to be evaluated. Many of their problems are logistical, political, or economic. In Bolivia, for example, due to government budget problems and the slow process of bureaucratic change, most of the funding generated by swaps was not appropriated for two years. As a result, $60,000 in interest was lost. Legislation aiming to provide legal protective status for the Beni Biosphere Reserve, the area designated for protection in a 1987 agreement worked out between La Paz and Conservation International, has yet to be acted upon by the Bolivian legislature. In Costa Rica as well as Ecuador, inflation is a problem, deflating the value of the earned interest on the bonds used by the local conservation groups to fund the projects. Domestic debt in these countries is also rising as debt-equity and debt-for-nature swaps simply convert external into internal debt.

Debt-for-nature swaps have not yet proven themselves. Simply demanding the preservation of land cannot inculcate in the local population the value of conservation or the importance of irrigation and crop rotation. Money will have to be spent developing education and social programs if any future exchanges are to bring long-term economic and environmental solutions.