Debt-for-Nature Swaps

In June, 2023, the Guardian asked the question; ‘Are debt-for-nature swaps the way forward for conservation?‘¹. And given their proclivity in terms of accuracy of reporting I think it safe to conclusively state that no; no, it is not.

Of course, the answer entirely depends upon perspective, but as I’m not a member of the vulture class, I think I can authoritatively state that debt-for-nature swaps are a terrible idea, but before we get to detailing why, let’s go through the Guardian article because in typical form, it misrepresents the issues in the way you… entirely expect the mainstream media to do.

‘Agreements to reduce developing countries’ debt burden in exchange for spending on nature will be on the agenda at a finance summit in Paris this week‘

‘After decades in the wilderness, and familiar to only those in the know, “debt-for-nature swaps” are becoming one of the hottest things in conservation finance. Last month, Ecuador struck the biggest deal of its kind: refinancing $1.6bn (£1.3bn) of its commercial debt at a discount in exchange for a consistent revenue stream for conservation around the Galápagos Islands‘

It… sounds good, no?

‘Other nature-rich countries that are struggling to pay their debts have taken notice and deals are rumoured in Gabon and Sri Lanka.‘

I’ve covered Sri Lanka before but unfortunately for all the wrong reasons -

Sri Lanka

‘The market for debt-for-nature swaps is poised to exceed $800bn, according to Bloomberg, prompting fierce competition between banks as demand for green investments increases.‘

Oh Bloomberg says, why didn’t you say so before? He’s all over Nyet Zero, so he simply must be reliable on the matter².

‘Debt-for-nature swaps mean reducing a developing country’s debt burden in exchange for guaranteed finance for nature. Supporters of the concept – which has its roots in the 1980s debt crisis and an idea from the late “father of biodiversity”, Thomas Lovejoy – say it is a win-win for financiers, countries and conservationists.‘

I didn’t realise that Thomas Lovejoy was given credit for ‘biodiversity’. To be quite honest, that appears somewhat strange, as he was fairly junior when this was sketched out in the late 60s and early 70s.

‘This week, the subject will be on the agenda at the Summit for a New Global Financing Pact in Paris, spearheaded by the French president, Emmanuel Macron, and the prime minister of Barbados, Mia Mottley. Barbados entered into its own $150m debt-for-nature deal in 2021.’

I don’t know about Barbados, but I know for sure I don’t trust anything associated with ex-Rothschild banker Emmanuel Macron -

’“The world is facing a biodiversity, climate and debt crisis, which is even more pronounced in the developing world,” says Slav Gatchev, managing director of sustainable debt for the Nature Conservancy (TNC), which is often involved in facilitating deals.‘

And I don’t really trust anything out of a representative of an organisation with a vested, financial interest either.

‘But detractors of the deals warn of greenwashing, and have criticised agreements in which banks often take large fees with comparatively small amounts going to conservation.‘

… but that part I can believe. The banks will make sure to primarily do what’s in the financial interests of the banks themselves.

‘Separately, Daniel Ortega Pacheco, a former Ecuadorian environment minister, is concerned about the potential implications of the agreements for sovereignty.‘

… and this is a claim which is discredited repeatedly, but its actually very important, and what matters in this regard is the framing of the question.

Because yes, it’s true that the lands are still under the jurisdiction of the nation itself, and yes, it’s true that no sovereignty has technically been lost. But that’s not to say that Pacheco doesn’t have a valid point - it’s just that it needs more accurate phrasing. More on that in a bit.

But before we venture further, let’s just - in detail - go through what these debt-for-nature swaps actually entail. And on that topic, UNESCO’s very own Man and the Biosphere released a primer titled the ‘Debt-for-Nature exchanges and Biosphere Reserves - Experiences and Potential’³ back in 1990. It’s a fairly in-depth document, with several very, very interesting examples, and it’s not overly technical. It even drags in a range of organisations, which have circled the ‘narrative’ for quite a while.

‘Debt-for-nature exchanges or swaps are one set of mechanisms for investing in conservation and sustainable development. The roots of the mechanisms lie in the Third World debts that can be bought at discount in the second hand debt market.‘

Yeah… this usually means debts which are at the cusp of outright default, ie next to worthless.

‘As of October 1990, some US $15 million have been invested by industrialized countries and various conservation and development groups in purchases of US $95 million of face value Third World debts, which then have been exchanged with the debtor countries for roughly US $58 million in conservation and sustainable development funds and bonds.‘

We’ve hardly entered the document, and already major alarms are going off everywhere. These are $95m of face-value bonds, bought for $15m (ie, ripe for collapse), which magically turn into $58m of conservation funds? OK, precisely who’s being ripped off?

‘Finally, therefore, a proposal for the establishment of an international fund for exchanging debt for the sustainable management of biosphere reserves is presented. Because of their characteristic emphasis on conservation in connection with sustainable development of human activities, the premise is that biosphere reserves will be able to attract more swap capital in the future.‘

… right. So the first casualty of… vulture capitalism… is the people of the debtor nation.

‘Debt-for-nature exchanges (or swaps), which were developed in the mid-1980s when Third World debts appeared at discount in a secondhand debt market, constitute one new type of instrument that seeks to explore the possibilities for linking additional money for the environment…‘

… on which set of terms?

‘Biosphere reserves (in mid-1990, there are 283 reserves in 72 countries covering an area of 1,500,OOO km2) have, however, not always reached their full potential in promoting the combined goals of development and conservation. A frequent explanation for this situation, particularly for Third World countries, is their lack of management and investment resources.‘

… setting the stage for…

‘… as one instrument for sustainable development investments, and to evaluate their benefits, constraints, limitations and future prospects from different perspectives. It includes an examination of some debt-for-nature exchanges where biosphere reserve management funding has been part of the agreement…‘

… which of course means setting aside nature reserves for ‘conservation’ through UNESCO Biosphere Reserves, through which the GEF will… ensure private equity is ok.

It carries on building the case, stating that the third world has seen net outflows since 1984, thus leading to a lack of investments, with those few investments which do make it focusing on short-term goals, as… well, because there are significant risks associated with investing in unstable economies in the third world in general. Either way, this is identified as a problem, as nature now won’t be preserved for the benefit of… future generations of ecosystem service monetising bankers.

… it carries on in a similar vein, outlining the need for cooperation with funding agencies, environmentalists (or good pretenders), and politicians looking for a cut.

‘A secondary market for Third World debt emerged in 1982 as a consequence of the accelerating international debt crises. Certain heavily indebted developing countries could at that time no longer service their debts and some private banks therefore found themselves better off selling these so-called ‘non-performing’ loans (i.e. credits that are not repaid according to the loan agreement) at a certain loss...‘

And - et voila - they are buying worthless bonds, expecting to encounter a bigger fool down the line. Which is typically where the taxpayer enters the frame…

‘The basic principle behind the debt-for-nature mechanism, first outlined by Lovejoy (1984), is that a debt holder negotiates with the debtor country on a deal where the former (the holder of the debt) forgives the indebted country’s debt in exchange for the debtor government’s commitment to invest in local currency in conservation and natural resource management projects in the debtor country‘

… but we still lack that crucial bit of detail - who pays?

It then goes to great lengths to detail the process, the early dialogue, the identification of ‘donors’, the swap arrangements and the use of proceeds, and - the important bit - the management of the ‘national parks’ in question, though in this context what we really speak of is UNESCO Biosphere Reserves. The management strategy will obviously an ‘Ecosystem Approach’, which hands land management rights over to the stakeholders.

Also, a letter of intent is expected, because the lengthy negotiation process costs a lot of money, and hey, the more time wasted the less ‘sustainable development’ can be carried out for sakes of saving… the bottom line, no? Also, the debtor nations will have to list areas eligible for monetisation, sorry, biodiversity conservation.

Details follow on page 20 where we learn that existing government bonds are retired at a discount - completely ignoring that said were bound to default, and hence were practically worthless in the first place - the restructuring will lead to long-term bonds with will ‘ease payments’ - again, doing an impeccable job ignoring that said debts now will likely take at least twice as long to be repaid, and -

‘Governments redeem the debt at a higher price than its present market value, resulting in reduced investment costs for the conservation investor;‘

And there’s the first con - rather than the government buying said worthless bonds on the open market, they will allow a facilitator, a middle-man, to cash in during the process. What this means is that instead of paying <x> for the worthless bond, they will now pay <x>+$10, meaning that the middle-man takes a $10 cut for doing… well, let me know when you find out.

‘Regarding the allocation of environmental goods and services, some services may not only benefit the country in which they are maintained but the whole international community, e.g. maintaining species diversity and the contribution of tropical rain forests to a stable climate”. This fact can help explain the conservation investor’s interest in the exchange‘

Oh but it does.
Oh but it does.

The ‘conservation investor’ is eyeing those delicious carbon credits from said tropical rain forests alright, but virtually no-one knew exactly what was planned back in 1990.

‘To some extent, it might be correct to conclude that the debt-for-nature exchange is a transfer of capital from taxpayers in the North benefitting conservation measures in the South. However, it is also true that banks in the North in many cases have made substantial interest revenues on their Third World loans before debtors stopped servicing their debt - revenues that benefitted share holders in the North.‘

Realise the implication here. They are admitting that this is a straight up tax transfer from the ‘North’ to the ‘South’ - but that’s ok, because this is attempted justified in the context of banks in the North have similarly benefited.

In other words, what’s really taken place in the North is a transfer of taxpayer funds to the banks. The ‘South’ was the just the conduit.

The document then continues outlining mainly… entirely predictable benefits and disadvantages, but with some bullet points worthy of note including for the debtor country; ‘Public misinterpretation of sovereignty issues‘, which really is one great, red herring because that’s not the legit issue, but also ‘Locking up natural resources for conservation’ which doesn’t capture the essence of what’s actually taking place,

Because resources aren’t really conserved, but rather, the control of said resources are transferred to those organisations with which they deal, which also explains why it’s not an actual matter of sovereignty. Incidentally, this was penned in 1990 - prior to the establishment of the Global Environment Facility, who now act in this capacity.

Page 25 then carries on, adding -

‘Finally, debt-for-nature exchanges have been criticized for not really contributing to any significant debt reduction‘

Which could be explained by their outlined strategy above to simply restructure through long-term bonds. Page 26 continues -

‘Factors that could be mentioned as possibly negative for the investor include restrictions in the projects that are available, because not all programmes suggested by the investor might meet the approval of the debtor country. Inflation might reduce the value of debt-for-nature proceeds unless they are protected from price rises…‘

In other words, during the process those ‘investors’ might be outed for being the greedy bastards that they likely are, asking for prime lands for ‘conservation’, or even demanding to be made whole in US Dollars thereby protecting themselves from losses due to currency instability, or sovereign credit worthiness - likely accelerated by people realising that no fundamental debt issue was ultimately solved through the last restructuring… I mean, you can see where this is going, no?

Adn there are times where the lies just become… infuriating, an example of which can be located on page 28 -

‘Potential disadvantages include the fact that when the bank sells or donates the debt it will appear as a loss on the balance sheets. Banks have often, however, already registered their non-performing Third World holdings as losses in the books; therefore, selling them to the conservation investor will not imply any further losses.‘

… in other words, what they pretend is an issue (total loss of investment) isn’t genuinely an issue, because it was already registered as such. In other words, they just magically generated money out of a worthless bond, and yet have the gall to pretend that they’re the ones losing out in this regard.

I genuinely hate these con artists. They prey on people not properly informed. But worse is to come on page 29 -

‘Bolivia is the first country to have reached a debt-for-nature agreement. The Bolivian government signed the deal in July 1987 with Conservation International (CI), a Washington-based non-profit NGO, after eight months of negotiations. CI bought, through Citicorp Investment (a Citibank subsidiary), US $650,000 of Bolivia’s debts from unnamed private debt holders for US $100,000 (donated to CI by the Frank Weeden Foundation), which meant that CI got one dollar of Bolivian debt for about 15 cents. The agreement states that: 1. Bolivia will be given the right of writing off the US $650,000 debt obligation in exchange for the establishment of a local currency endowment fund equalling US $250,000‘

Right, so -

• CI bought $650k worth of face value Bolivian bonds, which would have defaulted within… weeks?

• CI paid $100k for said… worthless bonds.

• Bolivia will write off $650k worth of debt, but -

• Bolivia will establish a $250k endowment fund.

In other words - Bolivia just paid $250k for what the free market priced at $100k. They overpaid by $150k. They could have tossed aside Conservation International, traded the bonds themselves, and made $150k in mere minutes.

And this, of course, comes on top of having to set aside areas for UNESCO Biosphere Reserve inclusion…. but as though that wasn’t rather the amazingly bad deal already -

‘Furthermore, the Bolivian government promised that the highest degree of legal protection for the Beni Biosphere Reserve would be enforced, and agreed to establish three buffer zones adjacent to the reserve: Chimane Sustainable Production Forest (670,000 ha), Cordebeni Watershed Protection Zone (225,000 ha) and Yacumi Regional Park (130,000 ha).‘

It just… mind-boggling. How many lobbyists did it take to bribe that agreement out of those politicians? Not only did they overpay for worthless bonds, but they also set aside areas for conservation far in excess of the required Biosphere Reserves. The Bolivian Government essentially handed the best ‘carbon sinks’ in the nation to the vulture capitalists for… what, exactly? What did the Bolivian people get out of it, precisely?

‘Bolivian newspapers published articles saying that it would result in conserved areas being given away to American conservation agencies, an impression which gave rise to immense public criticism. In fact, land ownership remained with the Bolivian government…‘

And the Bolivian newspapers were spot on. Because that’s exactly what happens when you place areas under ‘UNESCO Conservation’. They even - predictable - had the gall to slip in the ‘land ownership’ irrelevancy at the end. It’s the sort of breathtaking arrogance which I’d entirely expect out of someone with a Margin to uphold.

The other two examples aren’t really worth covering in detail, because the interest rates on the restructured debts are already in default territory, meaning no-one but those with an agenda would have any interest in said ‘conservation investment’ whatsoever.

The ITTO are then dragged into the fray, matters pertaining to competing Indian tribes are outlined, and - somewhat astonishingly - a solution of clearly ripping off said ‘indigenous peoples’, yet claiming this would have happened regardless of whether said debt-for-nature deals going through… so don’t judge.

And on page 34 it is further revealed that the interest payments on those Bolivian bonds weren’t being paid, meaning that those bonds were worth… well, certainly not the $250k which the Bolivian government paid. But it does helpfully add that Conservation International took a healthy $150k for… ‘helping’ poor Bolivians.

There are times where I read these documents, and feel despair. Because the Bolivian government should have defaulted on those bonds, yet some swarmy DC arseh-s flew in to La Paz and convinced that government that it should do what expressly was not in the interests of the people.

I mean realistically - how thick were those brown envelopes, exactly?

But - sadly - it’s not the end of the story, as detail is added through this 1993 World Bank document titled ‘Debt-for-Nature Swaps‘⁴ -

‘Debt-for-nature swaps were begun by private, nongovernment environmental groups as a way to preserve rapidly disappearing tropical rain forests in Latin America. The first swap was in Bolivia where the Beni biosphere reserve was protected in 1987 when Conservation International bought $650,000 worth of Bolivian debt owed to Citicorp for $100,000.‘

So far, so good. Story matches up.

‘The government also established three additional reserves totaling 3. 7 million acres. Then, the United States Agency for International Development (USAID) provided $150,000 and the Bolivian government the equivalent of $100,000 for personnel to manage and protect the reserve. All of that not only protected the forest, watershed, and native inhabitants, but it permitted some grazing, some logging, and the expansion of settlements as necessary‘

Right. Right. So $150k of the $250k came courtesy of… the American taxpayer! In other words, the US taxpayer paid Conservation International… for what, exactly?

This - of course - is very much how contemporary efforts work. The West pays for ‘Ecosystem Service’ and ‘Biodiversity Restoration’ somewhere in… Vietnam, after which the vulture class monetises the lot, and charges you for ‘carbon credits’ through higher prices on your food and energy bills.

In other words, first you pay through taxes for ‘conservation efforts’, and then you pay through price inflation through rising cost of ‘carbon credits’.

And to facilitate this effort, they put the debt squeeze on third world nations, ensuring that their most valuable nature reserves are put into ‘conservatorship’ through those UNESCO Biosphere Reserves - which, incidentally - is where they find those sites marked out for ‘ecosystem service restoration’ in… Vietnam given as an example above.

-

But - aha! - those documents are old! Surely, they bear no relation to more contemporary efforts. Well, yes… and no. While some things have changed, others very much have remained as they were. Here’s a contextually appropriate document, titled ‘DEBT-FOR-NATURE SWAPS: A NEW GENERATION‘⁵, courtesy of Clifford Change, released in late 2023 - though - in fairness - I’ve browsed a fair few contemporary… identicals, and they’re all the same.

‘Urgency around climate change, and the growing number of countries with high levels of debt vulnerability, in part as a consequence of the COVID-19 pandemic and monetary tightening, are driving renewed interest in debt-for-nature and debt-for-climate swaps. These factors, coupled with the general growth and mainstream acceptance of ESG investments, are reflected in investors' increased appetite for climate and conservation linked debt instruments‘

Oh wait - Covid-19, you say? You mean, that financial destruction caused by those very same indiders are now capitalised on, now that we’re on the other side? Utterly ruthless and shameless, if I may so add.

‘Two broad factors have contributed to renewed interest in debt-for-nature, or more generally debt-for-climate, swaps. Firstly, increased attention to, and urgency associated with, environmental and climate related issues. Secondly, as a direct consequence of the COVID-19 pandemic, the realisation that many countries are under considerable fiscal strain to the point where they now have high levels of debt vulnerability…‘

No, it was no mistake. Sorry, it’s not personal. It’s just that psychopaths… just don’t care.

Skipping to page 4 -

‘SeyCCAT uses its funds to finance (through grants and loans) work in Seychelles that advances marine and coastal conservation, including strategies for ecosystem-based climate adaptation and disaster risk reduction. This has included funding projects related to the management of coasts, coral reefs, mangroves and sustainable fisheries, as well as expanding marine protected areas to safeguard 30% of the Seychelles Exclusive Economic Zone (which was achieved in 2020).‘

Ah yes, hits all the high marks, including the UNDRR and 30% by 2030, set out by the Convention on Biological Diversity, the Global Biodiversity Framework 2030, the Terra Carta, the… wait, all these documents… they’re not in sync, are they?

But there are some minor changes (apart from Covid-19) -

‘The savings generated from debt conversion operations for a sovereign will be two-fold. Firstly, the sovereign will be buying back its existing debt at a price below par, funded out of new debt, meaning that not only will the sovereign not be incurring new external indebtedness (on a net basis) but it will ultimately be reducing its overall external indebtedness. Secondly, the sovereign will be replacing more expensive commercial debt with cheaper guaranteed debt, delivering a debt service cost reduction for the sovereign (both due to the expected lower coupon and the lower principal amount on the new debt, although noting some costs will be incurred in respect of any premium payable in connection with the relevant credit enhancement).‘

OK… who is the guarantor in this equation, and… well, I can only assume that the cost of insuring said debt will be high given circumstances, meaning that ‘some cost’ likely will translate into ‘rather a lot’. But of course, if this is saddled on a third party like the Western taxpayer……….

‘… the sovereign will need to agree to utilise a certain percentage of the fiscal savings in furtherance of agreed conservation objectives, with robust contractual protections to ensure that these are adhered to. This usually involves providing funding to the NGO (or similar) that is sponsoring the transaction, so as to fund its conservation work in the country. The legal documentation for the transaction will also require robust monitoring…‘

In other words - the likes of the Conservation International has not disappeared with the Global Environment Facility arriving on the stage. They just take up a different role. And in the Barbados case study we further find -

‘Alongside the funding, Barbados agreed to a number of conservation commitments, including to protect and sustainably manage up to 30% of its Exclusive Economic Zone and Territorial Sea – an area of more than 55,000 square kilometres...‘

Golly - there’s that 30% figure again. What an extraordinary coincidence.

‘For example, directing funds from the government to an NGO or CTF could be perceived as a surrender of sovereignty over the area in question when in fact the government retains ownership over the area and has significant control over the decision-making process…‘

Ah yes, can’t have one of these documents without that line. And finally, in the ‘looking forward’ section we find -

‘We also see no reason why debt conversions must be limited to debt-for nature or debt-for-climate transactions. The structure is versatile and can be applied to almost any objective, provided that an MDB or other highly-rated entity is willing to provide credit enhancement in furtherance of such objective, and an NGO or international organisation with sufficient experience in the relevant field is willing and able to sponsor such a transaction. This might include furtherance of any of the United Nations Sustainable Development Goals, Paris Agreement objectives, food security objectives or healthcare objectives. At a time when huge amounts of funding will be needed by the developing world to achieve such objectives, this is a key advantage of these structures.‘

… and that’s what they plan on similarly monetising. No biggie - just those SDGs, those ‘carbon credits‘, your food, and your healthcare.

What could possibly go wrong?

… and I think that pretty much wraps up the full ‘pipeline’. We’ve seen how blended finance fits in. Which role the Global Environment Facility plays. How the Ecosystem Service Valuation is… complete fraud. We’ve seen how this doesn’t deter, and how those will be used for sakes of those ‘Natural Asset Companies’. We’ve gone through the ‘Landscape Apprach’, how that relates to the ‘Ecosystem Approach’, how the ‘stakeholders’ are identified in that regard, and what is meant when they speak of ‘Resilience’. We’ve seen how ‘Offsetting’ is required, how the ‘best available scientific consensus‘ is fabricated, and how the UNFCCC and CBD in reality are flip sides of the same coin, and how that coin will be targeted by continuous, round-the-clock global surveillance.

The one thing missing is a detailed example of how these ‘conserved’ ‘reserves’ really turn out. Fortunately, there’s one documenting exactly that, otherwise known as Iwokrama in Guyana. Pretty much the very first GEF grant of its type.

Oh, and though I may have spoken exclusively of the UNESCO Biosphere Reserves, I admit this isn’t the full story. Because UNESCO Heritage Sites ultimately are no different in that regard⁶.

1. https://www.theguardian.com/environment/2023/jun/21/are-debt-for-nature-swaps-way-forward-for-conservation-aoe

2. https://www.gfanzero.com/about/#leadership

3. https://unesdoc.unesco.org/ark:/48223/pf0000092771

4. https://documents1.worldbank.org/curated/ar/572271478249749992/pdf/109380-BRI-WBG-PUBLIC-date-04-01-1993-Debt-for-Nature-Swaps.pdf

5. https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2023/11/debt-for-nature-swaps-a-new-generation.pdf

6. https://whc.unesco.org/en/news/2524