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Debt for Nature Swaps
Introduction
One of the biggest hurdles less developed countries (LDCs) face is the debt that they have incurred over the years. This debt makes it almost impossible for the country to further its growth. ... The purpose of this paper is to show how a program known as “debt for nature swaps” is able to alleviate the burden of these two problems. ... To prove this point, this paper will explain the link between debt and the environment as well as explain the process of implementing a debt for nature swap. ...
Although the debt and the environment of a country seem very separated from each other, they both are linked in one way. ... To compensate for the increasing debt and interest payments, the LDCs begin to export crops, wood, minerals, and oil. ... Keenan (1995) concludes by stating “third world debt and environmental sustainability are undeniably and directly linked”. ... The solution to these problems became known as debt for nature swaps.
Explanation
Debt for nature swaps are defined by the Hutchinson Encyclopedia Online (2003) as “agreements under which a proportion of a country’s debt is written off in exchange for a commitment by the debtor country to undertake projects for environmental protections”. By taking this approach, the debt of poor countries is lessened while simultaneously protecting the environment. A more detailed explanation of a debt for nature swap is given by Todaro and Smith (2003, p. ... First, a private organization from a developed country, or the developed country itself, will buy up some of the debt of the LDC at a discount rate. This debt is then traded for government bonds denominated in the currency of the debtor nations. Because the LDC no longer responsible for that part of their debt, they make a verbal guarantee with the foreign organization or government to protect their natural resources. ... This is one of the few debt relief programs that benefit both sides. The developed country is able to buy up the debt at a deeply discounted rate and exchange it for government bonds, thus gaining money from the interest. The LDC is able to lessen its debt while also being able to afford preserving its natural resources.
There are two common types of debt for nature swaps, bilateral and commercial. ... In a bilateral debt for nature swap, two governments work together for the goal. For example, if Honduras owes the United States $20 million, the US will cancel that debt in exchange for Honduras setting aside a certain amount of their currency to promote natural preservation. ... A commercial debt for nature swap involves a nongovernmental agency, the creditor country and the LDC. Using the previous example, instead of the US government offering to cancel the debt of the LDC, the private organization will buy the debt from the US at a discounted rate. They will then offer to cancel the LDC’s debt if they agree to provide funding for a preservation project. As stated before, the goals of each one of these debt for nature swaps are identical. ... Some of the most active participating organizations, according to the WWF (2003), include Conservation International, The Nature Conservancy, World Wildlife Fund, and USAID.
Approximate Word count = 2617
Approximate Pages = 10.5
(250 words per page double spaced)
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