Debt-for-nature Swaps in Belize and the Galapagos

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Debt-for-nature swaps originated in the 1980s in Latin America, due to high debt burdens in the region and increased public interest in global nature protection in the United States. The first debt-for-nature swaps were conducted by non-profits like Conservation International, which bought back part of a country's debt in exchange for that country protecting a tract of forest land. Later on, with the Tropical Forest Conservation Act in the U.S., bilateral debt swaps between the U.S. and countries in the tropics became more common. However, because these swaps were small scale both in their financial and conservation terms, they didn't catch on until recently, when The Nature Conservancy revived the idea in the form of marine debt-for-nature swaps, at a far larger scale. These swaps have reduced significant portions of country debt and a key feature of these swaps is to create marine protected areas, as part of addressing the international goal of protecting 30% of land and oceans by 2030, as outlined in Target 3 of the Kunming-Montreal Global Biodiversity Framework.

The financial framework of these modern swaps is different than previous exchanges. Departing from the simplicity of a direct exchange between two governments or a government and a non-profit, these now include many players in order to increase the monetary scale. The swaps still have a key facilitator, like The Nature Conservancy, who brings together parties and helps develop the conservation commitments. They then partner with a bank, like JP Morgan, Bank of America, or Credit Suisse, which issues a "blue bond." This blue bond is insured by an entity like a multilateral development bank, who promises to pay off the loan in full if the country defaults, promising security to investors. Impact and institutional investors are able to invest in this bond, providing funds for the bank to transfer to the debtor country government, so they can pay off their old creditors and retire a portion of their debt. Given the debt burden of these countries, this debt is often selling at a discount because it is believed the country might "default," so creditors would prefer to receive a portion of their money than none at all. The debtor country, then, is able to decrease its debt by repurchasing it at a discount with the blue loan from the bank. They are then indebted to the bank, but with a reduced debt burden, better interest terms, and a longer period of time to pay off the loan. The money they save is directed to domestic conservation efforts and an endowment to allow for continued environmental efforts after the loan ends. Countries are held legally accountable to achieve a set of conservation commitments and time-bound milestones, like designating MPAs, restoring mangroves, or installing monitoring systems on fishing vessels.

In the past 10 years, debt for nature swaps have occurred in the Seychelles, Belize, Ecuador, Barbados, Gabon, Indonesia, The Bahamas, and El Salvador, and continue to be announced. 

As part of an interdisciplinary team lead by Dr. Liz Losos at Duke University, I am researching the social and conservation impact of these swaps and opportunities for improvement. First, I evaluated scientific, policy, management, journalism, and financial documents of the Belize swap to write a case study. Then, I co-created and calculated metrics to measure the increased conservation financing in each country and its efficacy in funding the stated commitments. I conducted GIS analyses of the effectiveness of blue bond financing on industrial fishing reduction in Ecuador's Hermandad Marine Reserve using Global Fishing Watch data and made a story map. I am now beginning research on equity and social impact in Belize and The Galapagos via interviews using the Ocean Equity Index.