Debt-Trade Follow-up in Ecuador

Abstract

The Debt-for-Nature swap is the newest, most innovative financial tool used in international conservation today. It is a mechanism in which any given Third World country exchanges a commitment to conservation for a portion of its outstanding commercial debt. In theory all of the involved parties benefit. The international conservation organization that buys the debt should get more accomplished for less money due to the heavily discounted prices of Third World debt. The debtor country benefits by a small reduction in its foreign debt as well as the allocation of local currency to finance domestic conservation projects. And finally, the banks that sell the debt on the secondary market are ridding themselves of these high risk loans that probably won't be paid back. The economic benefits of the debt-for-nature swap are minimal. What is at issue here is conservation in the Third World. Is the debt-for-nature swap an effective tool in the struggle to save the rain forests. And if so, is it being used effectively. That was the fundamental question that I wanted answered when I began my research on the debt-for-nature swap negotiated in Ecuador. As there is very little published on the debt-for-nature swap, it was necessary to go to Ecuador and do original research. Many of the involved organizations were less than willing to provide me with relevant information and my responsibilities became less like those of a researcher and more like those of an investigative reporter. I collected information from various conservation organizations, the central bank, the Ministry of Agriculture, the Tribunal of Constitutional Guarantees, independent environmental consultants, ex-government employees, and various newspaper and magazine articles. The information that I collected is organized into a three part analysis of the debt-for-nature swap. The first part is a detailed description of the mechanism beginning with a history and ·ending with an account of how the money from the swap is used. This first section shows in detail the very wide dispersal of the funds generated. The second section is a brief evaluation of the effectiveness of the debt-for-nature swap as a financial mechanism. In this section I illustrate how the debt-for-nature swap isn't necessarily the "great buy" that international conservation organizations hail it to be. In the third section I evaluate the effectiveness with which the debt-for-nature swap addresses the immediate conservation needs of Ecuador. I do this by focusing on one of the protected areas that is supposed to receive support from the debt-swap. I describe the immediate needs of that preserve and I describe the very limited support ·that it actually received once the proceeds from the $10 million debt-for-nature swap had been distributed throughout the bureaucratic system. My final conclusions indicate that the debt-for-nature swap is a potentially very powerful financial mechanism that could go a long way to protect the tropical rain forests of the developing world. In the case of Ecuador, however, it has been managed very poorly and any positive environmental impacts have been minimal.