Ecuador completes world’s largest debt for nature swap.

25 May 2023 by The Water Diplomat

The government of Ecuador has completed the world’s largest debt for nature swap with the support of the InterAmerican Development Bank (IDB) and the U.S. Development Finance Corporation (DFC). The IDB provided a $ 85 million guarantee, while the DFC provided a $ 656 million political risk insurance to purchase the country’s existing debt at better financial terms. The agreement serves the double purpose of reducing the country’s debt burden while releasing hundreds of millions of dollars for marine conservation around the Galapagos islands. According to Bloomberg, Ecuador’s Finance Minister Pablo Arosemana announced that the country will be considering other options to monetise Ecuador’s biodiversity in the coming two years, including the protection of Amazon corridors   

Through the deal, Ecuador exchanged 1,63 billion U.S. dollars in bonds for a 656-million-dollar loan at much lower repayment rates.  As a result, the country will achieve more than U.S. $ 1.13 billion in savings through reduced debt servicing costs. The bonds were undergoing devaluation due to political instability, but through partnership with the IDB and the DFC, the bond was converted to a cheaper to service ‘Galapagos Bond’ partly underwritten by the two financial institutions. Credit Suisse announced its intention to buy the bonds at U.S. $ 656 million, whereby the bond will be restructured to mature in 2041 while releasing U.S. $ 18 million to be spent every year by the government of Ecuador on the conservation of the Galapagos Islands.

According to research conducted by the African Development Bank, the concept of debt for nature swaps was developed by Thomas Lovejoy at the World Wildlife Fund, and the first debt for nature swap was carried out in Bolivia in 1987 thanks to facilitation by Conservation International. The model usually involves the trading of debt forgiveness for positive environmental outcomes, mobilising funds for conservation that are carried out by a local conservation group. Since 187, some 140 such deals have been concluded worldwide. After a peak in debt for nature swaps in the early 1990’s that collectively amounted to more than 500 million dollars annually, the trend has reduced significantly to an average joint value of 50 million dollars a year.