Trees Growing on Money

Summit of the Americas gives US opportunity to promote debt swaps

LATE last year, Vice President Gore delivered a speech in Mexico City in which he announced that the United States would soon host a summit of Western Hemisphere leaders designed to lay the groundwork for closer economic and political ties among the states of the region. It was hailed as a major foreign-policy initiative that promised substantive benefits for states that had been excluded from the North American free-trade process.

Yet now that planning for the summit has begun in earnest in Washington (the date has been set for December in Miami), the Clinton administration faces the daunting challenge of satisfying the high expectations of Western leaders at a time when raising new money for international initiatives is problematic.

Countries of the region have traditionally requested two things of the US: access to cutting-edge science and technology and, more importantly, the mobilization of financial resources on concessional terms. Both are seen as prerequisites for economic development, the region's number one priority.

Responding to the first of these at the Summit of the Americas is within the administration's financial means. A number of relatively low-cost, high-impact initiatives could be announced, such as providing technical support to Western governments for regulatory restructuring in the environment and energy sectors and expanding ``sister'' laboratory agreements linking centers for science and technology in the North and South.

Responding to the second regional priority - mobilizing financial resources on concessional terms - seems more problematic, given the tight budgets in Washington. But even here options exist. In particular, the administration should consider revisiting ``debt for nature swaps,'' with an eye toward expanding them to include projects that foster sustainable development.

Debt-for-nature swaps was an idea originally proposed in 1984 by naturalist Thomas Lovejoy. He recognized in the third-world debt crisis an opportunity to promote environmental protection. In the most recent manifestation of the swap idea, the Enterprise for the Americas Initiative (EAI) - introduced by President Bush in 1990 - included a provision allowing Latin American and Caribbean countries to exchange bilateral official debt owed to the US for new restructured debt with a reduced face value.

Because investors doubted that this debt would ever be repaid at the face value, it could be purchased cheaply on the open market. In 1991 Peru's debt sold for about 19 cents on the dollar. Under the plan, the debtor countries could use a variety of procedures to apply the money they saved to fund environmental conservation projects, such as protecting rain forests.

Congress enacted most of the EAI debt-for-nature plan in 1990 within the Food, Agriculture, Conservation, and Trade Act of 1990. It appropriated $50 million to continue the debt restructuring in fiscal year 1993. Yet last year the swaps received no new funding because the EAI's debt restructuring provisions were eliminated by a cost-conscious Congress. Since in theory the swaps should have no budgetary impact on the US (because the funds involved would represent the difference between the face value of the debt and the amount of the debt Washington actually expected to receive back), this development was unfortunate.

The Clinton administration should consider the debt-swap ideas in connection with the forthcoming summit. It should change the focus to emphasize the region's top priority: sustainable economic development.

A ``debt for sustainable development'' swap initiative would make available significant additional funds for the diffusion of environmentally friendly technologies in areas such as alternative energy and energy efficiency. This would be greeted enthusiastically by countries of the region that have always placed economic developments above purely environmental initiatives, such as preserving rain forests. They have frequently claimed that a root-cause of rain forest destruction is underdevelopment and poverty.

The swaps would allow the US to influence regional economic development in a direction that is economically and environmentally sustainable. Given the short time remaining to plan the summit, the administrative framework for the initiative would not have to be developed from scratch; a rough outline already exists within the EAI legislation.

Interesting precedents exist for moving in this direction. In 1993, UNICEF varied the swap idea to a ``debt for child development'' swap. Some $15 million in developing country currency was generated to help fund programs in primary education and primary health, water supply, and sanitation. Similarly, Harvard University recently implemented a ``debt for education'' swap. It purchased Ecuadoran debt, which it donated to the country to finance educational initiatives.

According to the Treasury Department, the countries of Latin America and the Caribbean currently owe the US about $11 billion in bilateral official debt. Only a small fraction of this amount is likely to be applied to swaps, but that in itself represents a major opportunity to fund sustainable economic development in the region. Money may be tight in Washington, but with a little creativity the Clinton administration can announce major initiatives at the Summit of the Americas that directly and substantively address the region's most pressing economic priorities. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.

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