Development, Environment and Debt-For-Nature Swap

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Authors
Remlein, Patricia González
Issue Date
1997
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Thesis
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en_US
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Abstract
The external debt has been one of the major obstacles to economic growth in developing countries since the early 1980s. The conservation and sustainable use of natural resources have consequently been negatively affected by the form of development pursued, and by the economic crisis that was particularly severe in the Latin American countries during the last decade. The idea of using 'Debt-for-nature Swaps' to solve the problem took form in 1986 in certain Latin American countries, and the concept was supported by several North American and European conservation groups and various industrialized countries governments. Historically, the dramatic increase in OPEC oil prices considerably raised the flow of capital to the oil countries, and placed large amounts of oil revenue in the hands of the international private banks. Money availability in the private banks and the capital needs of developing countries provided the perfect equation for the external debt crisis. The loan maturities were generally long and interest rates relatively low in the 1970s, and the debtor countries had optimistically calculated their repayment capacity on the basis of the satisfactory prices that their raw materials had fetched on the international market. But the external debt crisis was hatched in the 1970s due to the sharp increase in international oil prices and the deflationist policies of the main world economies, which reduced commodity prices. This increase in international oil prices was most sharply felt in Latin America, domestic savings fell and expensive loans were increasingly secured from private banks, which further restricted loan-servicing availability. The debt negotiation process began in the early 1980s. New loans were secured to finance interest and principal payments, which in effect raised the level of debt even further without offering any overall solution to the problem. From 1982, the small US regional banks began to sell loans that were difficult to recover at a much lower price than their face value, in this way a secondary market emerged. In October 1984, Dr. Tom Lovejoy from the United States suggested that the external debt crisis in the developing countries could be used for environmental purposes. Countries interested in protecting their natural resources would be able to reduce their debts if they swapped their external debt notes for natural resource conservation and development programs. A 'debt-for-nature swap' has generally two process-strands: One external, involving an international bank or institution willing to negotiate part or all of its loan to a specific country at below face value, and an international donor or supportive government interested in conservation projects in the debtor country. And another internal, that includes negotiations between the central government, the central bank, and the national nongovernmental organization receiving the international assistance for mutually established objectives. The use of swap funds has enabled a number of developing countries to invest in wildlands conservation projects, land purchase, surveillance systems, technical and financial support, funding of projects through national Non-Governmental Organizations (NGOs), and forestry projects.
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iv, 131 p.
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