Brazil Opens Door to Environment Funding

ECONOMY Ministry officials formally approved Brazil's first debt-for-nature swap yesterday, opening the door to a new financing mechanism for environmental projects here.

Debt-for-nature swaps have taken place in several Latin American countries since the mid-1980s. But the Brazilian government has banned them until now because of concern about the impact of funding inflows on inflation. Attitudes changed last year, however, when Marcilio Marques Moreira left his job as ambassador to the United States to become economy minister.

"Marcilio is a friend of [Smithsonian Institution science department director] Thomas Lovejoy, they know each other from Washington and this helped," says Dagoberto Koehntopp, an adviser at the Economy Ministry.

In the last decade, a secondary market for debt titles has sprung up around the world, as banks have reduced their exposure to debt-ridden countries by selling their credits at a discount.

The Brazilian debt-for-nature conversion program allows environmentalists to purchase parts of Brazil's $121 billion foreign debt at a discount and donate the debt titles to local nongovernmental organizations. The NGOs then trade the titles for special government bonds, which earn 6 percent interest a year. The interest funds environmental projects.

The conversion approved yesterday is to help conserve and manage the 200,000-acre Grande Sertao Veredas Park in central Brazil, in a unique region of cerrados, or savannah lands. In the last decade, the cerrados have been rapidly giving way to large farms, as Brazil turns to export agriculture.

The Nature Conservancy, a US environmental group, plans to purchase $2,192,000 in face value debt at a discount, using donated funds. The Conservancy will then donate the titles to a Brasilia-based NGO, Fundao Pro-Natureza, or Funatura. The American Express Foundation has donated the first $150,000 toward the debt purchase.

"Now we need to raise the rest, and until we do that, we'll use an internal loan out of our endowment fund, which we have to pay interest on," explains Bill Possiel, director of the Nature Conservancy's Brazil Program, adding that NGOs can buy $1 million worth of debt for $350,000 to $375,000.

The cerrados, he says, "are Brazil's most threatened ecosystem, because of soybeans, even more than the Atlantic rain forest. It has incredible species diversity ... plants there can be used for medicinal purposes."

According to The Nature Conservancy, the cerrados topography covers 28 percent of Brazil's total land area and is being deforested faster than the Amazon region. Home to endangered species such as jaguars, pampas deer, wolves, giant anteaters, and harpie eagles, the region is dotted with veredas, striking oasis-type areas with palm trees and parrots.

The project, which also involves Brazilian government participation, addresses the fact that many parks here exist only on paper. Since government funds for maintenance are inadequate, squatters live, farm, and hunt on the parks, often destroying them in the process.

In this case, the Nature Conservancy, Funatura, and the Brazilian government have drafted a 20-year plan to beef up the park infrastructure, create educational programs, and develop new income sources for the local community.

Mr. Koehntopp says he hopes yesterday's approval will "set off a process" for additional debt-for-nature proposals. His office has so far received only three proposals, including that of the Nature Conservancy.

The government turned down the other two, which included one for $2 million from Conservation International, a US-based environmental group. According to Koehntopp, that one would have led to underfunding because it proposed to split the 6 percent interest earnings among six different projects across the country. Officials say that the US World Wildlife Foundation has also expressed interest in doing a swap.

Compared to some environmentalists' dreams, This first swap is small. Debt swaps are "a very controversial issue in Brazil and other countries," says Fabio Feldmann, a congressman who represents environmental activists in Brazil. He disagrees with the view that this swap will lead the way for others. "The Brazilian government didn't know how to use debt conversion," he concludes.