Environmental groups pioneer `debt-for-nature' swaps

Developing nations are being offered new incentives to preserve their environments. As financial managers meet here this week for the annual meeting of the International Monetary Fund and the World Bank, one topic high on the agenda is debt relief - an idea strongly supported by environmentalists.

Environmental advocates argue that heavy foreign debts, coupled with slumping economies, force nations to pursue short-term development projects that are environmentally destructive. But now, innovative financial arrangements to ease the burden of debt while enhancing the environment are emerging.

This summer, the environmental group Conservation International used a $100,000 donation from the Frank Weeden Foundation to buy heavily discounted Bolivian debt certificates with a face value of $650,000. The group then returned these to Bolivia in exchange for a pledge to establish and maintain a buffer zone around an already existing preserve.

Dubbed ``debt-for-nature swaps,'' similar agreements are now in the works for several other Latin American countries.

``In terms of the overall debt, deals like this won't even make a dent,'' says Barbara Bramble, director of international programs at the National Wildlife Foundation. ``But if you compare it to what's usually available for conservation, it's gigantic.''

Ms. Bramble is part of an informal group of environmental activists grappling with the debt issue. Once on the fringes, these environmentalists are now finding themselves near the center of environmental debates, particularly in the United States. This reflects the growing concern among environmentalists with issues such as the loss of biological diversity and the destruction of tropical rain forests.

Environmental groups tend to badger governments in the developing world to promote conservation.

One way they do this is by putting pressure on international lending institutions. The Inter-American Development Bank, for instance, recently threatened to cut off a loan to Brazil for a road-building project after environmentalists charged that the project was leading to massive deforestation and human suffering.

As the Bolivian deal illustrates, however, environmentalists are beginning to recognize the need for carrots as well as sticks.

Legislation introduced in both houses of Congress this year would extend the concept of debt-for-nature swaps to the World Bank. The bill directs the US representative to the bank to set up a pilot program that would allow the bank to cancel some debt obligations in return for pledges from developing countries to preserve tropical forest.

This new approach is at least partly a recognition of rough realities.

For many developing countries, environmental concerns remain a low priority. There's also an emerging view that the preservation of global resources may need to be paid for by groups in the wealthier nations.

``If we want the global benefits of resources in the developing world, we should be willing to pay for it,'' says Theodore Panayotou, a research associate at the Harvard Institute for International Development. Mr. Panayotou advocates changes in the way foreign debts are structured so that repayment is tied directly to export earnings. That way, when earnings drop, the cost of servicing the debt would decline along with it.

Still, many economists, including Mr. Panayotou, caution that the relationship between debt and environmental decay is impossible to document. Indeed, no complete study has ever been done. At a recent international conference on wilderness issues, held in Colorado, participants discussed the latest ideas for encouraging conservation in developing regions.

Yolanda Kakabadse, executive director of the Ecuadorean conservation group Fundacion Natura, told the environmentalists gathered there, ``As long as exploitation of the resources within wild areas means business, there will be little that we can do to stop the process. International commerce between developed and developing nations has no pity on local resources.''

One possible solution, discussed extensively at the conference, was a proposal for an International Conservation Bank.

The bank, the brainchild of banker Michael Sweatman, would act as an intermediary between borrowing nations and the financial markets. The institution could take on conservation projects that other institutions are unwilling to finance.

``You have to create a mechanism that allows conservation projects to get a fair hearing - right up there alongside the development projects,'' Mr. Sweatman says. The bank could also act as a broker for the type of debt-for-nature deals being developed in Latin America.

The plan for the conservation bank is still vague, however. Sweatman says he hopes to launch a feasibility study within the next two months.

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