The International Development and Finance Act of 1989
Debt-for-Nature swaps were always going to make it into US legislation. And that happened immediately before Christmas; on December 19, 1989.
Of course, back then you might not have been aware - because in addition to, well, Christmas being just a few days away, on only the following day, the United Stated invaded Panama1.
Of course, Christmas and Panama weren’t the only events distracting Americans. Because December, 1989, in the United States further yielded a cold wave2, breaking many all-time record low temperatures on the US South-East, triggering the largest snowstorm in history.
In other words, it was a perfect time to push through legislation dragging in global warming.
The act in question - as outlined by the title - is ‘The International Development and Finance Act of 1989‘3. And though it’s rare that I cover legislation in full, here I will make an exception, because it… really, really is important given historical context. In fact, these initiatives almost astonishingly fit together, hand in globe. Yes, it’s yet another barrage of coincidences.
The first 5 pages aren’t terribly exciting, so we’ll skip right through. Most interesting parts are the headlines covered later, and the funding round of the IADB.
That’s of interest because said funding is contingent upon the bank establishing an environment unit, in order to promote environmentally sustainable development in borrower countries, and ultimately, increase the quanty of environmental projects and programs in said borrower nations. Another requirement is access to bank records, detailing ‘revised procedures issued in 1988 for collecting loan services in arrears’.
Natually, funding does come with limitations, some of which include aggregate values of lending - though with noted exception one of which is this one -
‘… (other than policy based loans made to any country which the Bank has determined is economically less developed or has a limited market economy, which are used to purchase sovereign debt of such country or to reduce the debt or debt service burden of such country)‘
Ie, debts issued for sakes of restructuring are not considered.
And in the part on ‘INCREASE IN LENDING TO THE CARIBBEAN‘ we see the gradual narrative creep, through ‘seek to ensure equitable and environmentally sustainable economic growth‘, a narrative-compatible message which continues a bit later on through - ‘the establishment of procedures which ensure the inclusion, in future economic reform programs approved by the Fund, of policy options which eliminate or reduce the potential adverse impact on the well-being of the poor or the environment resulting from such programs."‘
And then - after 9 1/2 pages of largely tedium - the foot is firmly placed on the accelerator, as we arrived at the section on ‘Foreign Debt Reserving Act of 1989’.
‘… since the adoption of the International Lending Supervision Act of 1983, the credit quality of loans by United States banking institutions to highly indebted countries has deteriorated and the prospects for full repayment of such loans have diminished‘
… which is… interesting, really, because a credit crisis was sparked in 1982 through a technical Mexican default -
‘… the level of country exposure and transfer risk associated with loans by United States banking institutions to highly indebted countries has not been adequately reflected in the reserve levels established by many individual United States banking institution…‘
In anticipation of losses, banks set aside reserves (funds) ahead of time. And these reserves are inadequate, given the scale of the issue.
‘… particularly in recent months, United States banking institutions have increased their reserves for possible losses from loans to highly indebted countries but such reserves remain, in some cases, significantly lower than reserves established by banking institutions in a number of foreign countries and may not be adequate to deal with potential risks‘
… though they are setting aside reserves for the inevitable collapse.
The financial authorities are in on this action, working to establish the level of overall risk, but naturally even when it comes to their efforts, exemptions are called for -
‘DETERMINATION OP INSTITUTIONAL EXPOSURE TO RISK.—In determining the exposure of an institution to risk for purposes of subsection (a), the appropriate Federal banking agency… (2) may exempt, in full or in part, from reserve requirements established pursuant to subsection (a), any loan… (B) secured, in whole or in part, by appropriate collateral for payment of interest or principal;‘
If a non-performing bond is secured against an underlying asset - then these will be excluded. Ie, should a bond fail, then the underlying asset - a deed of sorts - will be handed to the lender, in this case, the private bank.
Fast forward to SEC 406 and ‘SENSE OF THE CONGRESS THAT AGREEMENTS TO REDUCE DEBT BURDEN SHOULD BE ACCOMPANIED BY TRADE LIBERALIZATION‘ which in short is one of the most-oft complained about demands in this regard. Because said trade liberalisation in short generally tends to strongly favour the west.
Halfway through the document already, and on page 16 it really picks up steam - ‘International Debt Exchanges and the Environment‘ -
‘… the Secretary of the Treasury should include support for sustainable development and conservation projects when providing a framework for negotiating or facilitating exchanges or reductions of commercial debt of foreign countries;‘
Ie, they will play hardball unless their ‘conservation projects’ demands are accepted…
‘… the Secretary of State and the Secretary of the Treasury should… support efforts to provide adequate resources for sustainable development and conservation projects as a component of the restructured commercial bank debt of that country… in providing such support, seek to assure that… the host government, or a local nongovernmental organization acting with the support of the host govemment, has identified conservation or sustainable development projects it will target for assistance‘
They request highly indebted nations identify natural areas of particular importance, from which the Secretary of State can then cherry pick…
‘The Secretary of the Treasury shall direct the United States Executive Directors of the multilateral development banks to… (1) negotiate for the creation in each respective multilateral development bank, except where the Secretary of the Treasury determines that the provisions of this subsection have previously been met, of a department that will— (A) be responsible for environmental protection and resource conservation, including support for restoration, protection, and sustainable use policies; "(B) develop and monitor strict environmental guidelines and policies to govern lending activities; and (C) actively promote, coordinate and facilitate debt-for-nature exchanges and the restoration, protection, and sustainable use of tropical forests, renewable natural resources, endangered ecosystems and species in debtor countries;‘
In other words - if you want bailout funds, you need to clear the hurdle of claimed ‘environmental efforts’ - and these funds include debt-for-nature swaps. In an important message, which is repeatedly hammered home, continuing through -
‘… a sound and effective environmental policy in the borrowing country… encourage the banks to assist such countries in reducing and restructuring private debt through the use of a portion of a project or policy based environmental loan in ways which will enable such countries to buy back private debt at a rate of discoimt available for such debt, at auction in the secondary market or through negotiations with creditors holding such debt‘
A range of the early loans, trading at 15-20 cents on the dollar (meaning they’d lost 80-85% of their value), then mysteriously were refinanced at 95 cent on the dollar. Where the money for that came from? Well, that’s the question isn’t it. Could it be NGO’s funded through USAID using taxpayer funding perchance?
And why would that even happen? Because private banks were sitting on no less than $400bn of distressed bonds in Latin America alone, per David Rockefeller in 1987. Assume an 80% loss that would mean they were sitting on a combined loss of $320bn - far higher than total capitalisation of those banks.
In other words - they were bankrupt, and this was a bailout.
‘… (5) seek to ensure that each bank adopts policy guidelines which to the maximum extent possible provide for— "(A) the inclusion of sustainable use policies in loan agreements negotiated with borrower members; "(B) the adoption of economic programs to foster sound environmental policies…‘
And those refinance agreements simply had to include ‘sustainability’ clauses at a time where… no-one really knew what that means. Helpfully, this is outlined next -
‘"(C) the provision of debtor countries policy changes or significant increases in financial resources for use in at least 1 of the following—
(i) restoration, protection, or sustainable use of the world's oceans and atmosphere;
(ii) restoration, protection, or sustainable use of diverse animal and plant species;
(iii) establishment, restoration, protection, and maintenance of parks and reserves;
(iv) development and implementation of sound systems of natural resource management;
(v) development and support of local conservation progirams;
(vi) training programs to strengthen conservation institutions and increase scientific, technical, and managerial capabilities of individuals and organizations involved in conservation efforts;
(vii) efforts to generate knowledge, increase understanding, and enhance public commitment to conservation;
(viii) design and implementation of sound programs of land and ecosystem management; and
(ix) promotion of renerative approaches in farming, forestry, and watershed management.‘
Points 1, 2, and 9 relate to… contemporary identicals, 3 relates to setting aside lands as UNESCO Biosphere Reserves, 4 and 8 demands new methods of resource and land management… yeah, that’s where the Ecosystem Approach comes into play no doubt.
And it very much continues in the same vein -
‘… support development that maintains and restores the renewable natural resource base so that present and future needs of debtor countries' populations can be met, while not impairing critical ecosystems and not exacerbating global environmental problems‘
In other words - retains the value of the ‘Natural Resources’ and hence guarantees the future delivery of ‘Ecosystem Services’…
‘… promote the maintenance and restoration of soils, vegetation, hydrological cycles, wildlife, critical ecosystems (tropical forests, wetlands, and coastal marine resources), biological diversity and other natural resources essential to economic growth and human well-being and shall, when using natural resources, be implemented to minimize the depletion of such natural resources’
… yes, ‘Natural Assets’ and ‘Ecosystem Services’. But - in the context of those forests and wetlands - one very important ‘Ecosystem Service’ is yet to be mentioned -
’…take steps, wherever feasible, to prevent pollution that threatens human health and important biotic sytems and to achieve patterns of energy consumption that meet human needs and rely on renewable resources‘
… but don’t worry. It’s coming. Up next - ‘PROMOTION OF LENDING FOR THE ENVIRONMENT.‘
‘…the bank establish a project and policy based environmental lending program (including a loan a portion of which could be used to reduce and restructure private debt), to be made available to interested countries with a demonstrated commitment to natural resource conservation, which would be based on… (1) the estimated long-term economic return which could be expected from the sustainable use and protection of tropical forests, including the value of tropical forests for indigenous people and for science…‘
… aaaaand… there it is -
"(2) the value derived from such services as—
(A) watershed management;
(B) soil erosion control;
(C) the maintenance and improvement of— "(i) fisheries; "(ii) water supply regulation for industrial development; "(iii)food; "(iv)fuel; : "(v) fodder and "(vi) building materials for local communities;
(D) the extraction of naturally occurring products from locally controlled protected areas; and
(E) indigenous Knowledge of the management and use of natural resources; and
(3) the long-term benefits expected to be derived from maintaining biological diversity and climate stabilization.’
Biological Diversity and Climate Stabilisation. The Convention on Biological Diversity, and the UNFCCC. This is then followed by a section on NGO collaboration which for sakes of brevity I will skip.
Next follows 4 largely uneventful pages outlining environmental assessments - which drags in the Council on Environmental Quality - which should be based on UNEP principles. Amercan personnel should further be of services to dish out ‘advice’ on environmental matters and training of staff. But the statement of policy is worthy of cover, and we see -
‘… debt-for-development swaps, where payment is made in local currency at the free market rate, serve a useful purpose by providing banking institutions with constructive opportunities for the reduction of the external debt of highly indebted developing countries in a process that involves the participation of private, nonprofit groups in providing a stimulus to the economic and social development of such developing countries…‘
Ah, it’s for the benefit of those nations, sure it is -
‘… debt-for-development swaps provide highly indebted developing countries wim a creative method of reducing external debt burdens, while promoting their economic growth and restructuring objectives;‘
Honest, mate, this is altriusm in a high gear -
‘… banking institutions should give carefiil consideration to engaging in such swaps as one means of strengthening overall loan portfolios through the reduction of high external debt burdens while expanding economic opportunities through private sector initiatives;‘
Oh wait, no - it’s a way for the private banks to get a toxic loan portfolio cut down to size, all they need is a greater suck-…. er, sophisticated investor. Oh hi, NGOs, USAID, and ultimately - the American Taxpayer.
But look, it’s not as though the US Taxpayer will receive nothing, no -
‘COMBINED REPORT ON EFFECT OF PENDING MULTILATERAL DEVELOPMENT BANK LOANS ON ENVIRONMENT, NATURAL RESOURCES, PUBUC HEALTH, AND INDIGENOUS PEOPLES‘
That last part is really, really important, provided valuable resources aren’t discovered on their lands, of course. But that’s where those ‘grievance mechanisms’ come into play, so it’s ok, really.
Fast forward more pages until we hit the ‘Global Environmental Protection Assistance Act of 1989‘. ‘CHAPTER 7—DEBT-FOR-NATURE EXCHANGES‘ -
‘For purpose of this chapter, the term 'debt-for-nature exchange' means the cancellation or redemption of the foreign debt of the government of a country in exchange for—
(1) that government's making available local currencies (including through the issuance of bonds) which are used only for eligible projects involving the conservation or protection of the environment in that country (as described in section 463); or
(2) that government's financial resource or policy commitment to take certain specified actions to ensure the restoration, protection, or sustainable use of natural resources within that country‘
(3) a combination of assets and actions under both paragraphs (1) and (2)’
Which gives a somewhat clearer definition, followed by -
‘ASSISTANCE FOR COMMERCIAL DEBT EXCHANGES.—(a) The Administrator of the Agency for International Development is authorized to furnish assistance, in the form of grants on such terms and conditions as may be necessary, to nongovernmental organizations for the purchase on the open market of discounted commercial debt of a foreign government of an eligible country which will be canceled or redeemed under the terms of an agreement with that government as part of a debt-for-nature exchange‘
Yeah, this is where taxpayer-funded USAID rears its ugly head. Buy distressed debts, retire, governments accept new debts and interests are spent on nature. Sounds good, no? Of course, which open market, and at which price? And by how much will USAID subsidise the efforts, and as for the new bonds - on which terms?
The USAID in fact is ‘encouraged’ to request as many nations as possible to submit lists of their most valuable tracts of land-… er, information relating to threatened ecosystems for sakes of ‘sustainable development’.
Naturally, only nations fully committed with long-term plans established, and with plans to create an oversight capacity should bother even responding. A pilot program in Sub-Saharan Africa is outlined iterating… more of less exactly the same before we get to the final section on multilateral foreign assistance coordination, which in its general policy kicks off with a zinger -
‘It is the sense of the Congress that the Secretary of State should seek to develop an increased consideration of global warming, tropical deforestation, sustainable development, and biological diversity among the highest goals of bilateral foreign assistance programs of all countries.‘
Reminder that this document is from 1989. We see global warming (UNFCCC), we see trophical deforestation (UN REDD), we see sustainable development (UN SDGs), and biological diversity (UN CBD). Impressive, no? Or - perhaps - just a little too accurate to appear believable. The following iterates the same -
‘The Secretary of State, acting through the United States representative to the Development Assistance Committee of the Organization for Economic Coordination and Development (OECD), should initiate, at the earliest practicable date, negotiations among member countries on a coordinated approach to global warming, tropical deforestation, sustainable development, and biological diversity…‘
And in more detailed fashion -
‘increased consideration of the impact of developmental projects on global warming, tropical deforestation, and biological diversity‘
… whoops, those SDGs suddenly disappeared…
‘reduction or elimination of funding for those projects that exacerbate those problems‘
… all funding culled unless you abide…
‘coordinated research and development of projects that emphasize sustainable use or protection of tropical forests‘
… which only the following year through IPCC documents outline their use as monetisable ‘carbon sinks’ in an ‘offsetting’ mechanism…
‘increased use of foreign assistance funds and technical assistance in support of local conservation, restoration, or sustainable development efforts and debt-for-nature exchanges‘
And they need money. Lots and lots of public funds.
‘increased use of environmental experts in the field to assess development projects for their impact on global warming, tropical deforestation, and biological diversity‘
Ah yes, we need lots of ‘experts’ educated by those who have arrived at the ‘correct’ ‘scientific consensus’ aka vote. And finally - just because it’s worth iterating -
‘Approved December 19, 1989.‘
In historical context, this passed in the same year as Al Gore delivering his insane prediction of a 5 degree temperature increase within the lifetime of his children4, and the establishment of the Global Legislators Organisation for a Balanced Environment5 organisation, of which both John Kerry and Al Gore were both early members. And GLOBE immediately set out to lobby for… a balanced environment.
And Al Gore’s efforts behind the scenes, pushing through the Convention on Biological Diversity are well documented.
And finally - of course - we have the matter of the World Conservation Bank, proposed in 1986 by Michael Sweatman, and heavily pushed at the 1987 World Wilderness Conference. Yeah, that’s also of importance…
… because it just so happens that the World Conservation Bank also got started in 1989. Of course, they ultimately decided to name said differently.
But more on that later.