Debt for nature swaps

Abstract

Debt -for-nature swaps (DFNS) involve an exchange or cancellation of a foreign country's debt in return for the debtor country's commitment to use a given amount of local currency funds to protect national parks, establish environmental education programs or train people in natural resource conservation and management. DFNS have been used worldwide since the 80´s and the first record we have dates back to Bolivia in 1987. During those years, many commercial banks and multinational corporations found this to be a cheap way of financing new investment and reducing debt at the same time. However, although in the market for 26 years now, DFNS are not as common as one could expect. Their practical application can be a quite complicated process involving as many as twelve steps. It starts with a common interest from the creditor and the debtor, followed up by serious negotiations, the draft of a formal debt conversion agreement and finally executes the conservation program. On the other hand, nature is starting to be scarce resource and more valuable every day. Therefore, I believe DFNS have a lot of potential and can become more widely utilized if properly structured and understood by all parties.