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Friday, November 21, 2008

Debt-for-Nature Swap

Debt-for-nature swaps are financial transactions in which a portion of a developing nation's foreign debt is forgiven in exchange for local investments in conservation measures. The concept of debt-for-nature swaps was first conceived by Thomas Lovejoy of the World Wildlife Fund in 1984 as an opportunity to deal with the problems of developing-nation indebtedness and its consequent deleterious effect on the environment. In the wake of the Latin American debt crisis that resulted in steep reductions to the environmental conservation ability of highly-indebted nations, Lovejoy suggested that ameliorating debt and promoting conservation could be done at the same time.

A commercial debt-for-nature swap involves an international non-governmental organization that purchases debt titles from commercial banks on the secondary market. The NGO transfers the debt title to the debtor country, and in exchange the country uses the funds to establish conservation programs. Bilaterial debt-for-nature swaps take place between two governments when one country forgives a portion of the public bilateral debt of a debtor nation in exchange for environmental commitments from that country.

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