Ecuador eyes Amazon, ocean-linked debt-for-nature swaps, source say
LONDON—Ecuador is scoping out new debt-for-nature swaps, one to funnel funds into the Amazon rainforest and another for a giant ocean protection zone backed by Hollywood star Leonardo DiCaprio, people familiar with the matter have told Reuters.
The South American country is looking to build on the record-breaking $1.6-billion debt swap it arranged for its Galapagos Islands last year. Reuters is reporting details for the first time of the options being considered.
While the government is now focused on tackling drug-fueled organized crime and securing a new International Monetary Fund deal, sources said officials have been working with multilateral development banks and conservation groups for months on at least two possible debt swaps in the hope of doing something this year.
The first would be tied to protecting parts of the Amazon rainforest, widely regarded as the world’s most important natural ecosystem. The second option concerns funding a groundbreaking Marine Protected Area Ecuador has created along its entire 2,230-kilometer (1390-mile) mainland Pacific coast.
Ecuador will probably need to focus on one for now, one person familiar with the plans said, given the time and effort such debt swaps take to structure.
A marine iguana sits on a rock in front of the Pacific Ocean on Santa Cruz Island, part of the Galapagos Islands, Ecuador. Picture taken January 16, 2022. REUTERS/Santiago Arcos
In a debt-for-nature swap, a country’s government bonds or loans are bought up and replaced with new ones paying a lower rate of interest provided the government commits to spend some of the money saved on conservation.
Typically a development bank backs the deal with a “credit guarantee” or “risk insurance,” which protects buyers of the new bonds if the country is unable to pay the money back.
Ecuador, considered one of the world’s 17 “megadiverse” countries, has also one of the worst deforestation rates in Latin America, according to the United Nations environment arm.
That, combined with its high debt, makes it an obvious candidate for debt-for-nature swaps.
Two out of the four people who spoke to Reuters on condition of anonymity said the swaps being explored were likely to share a number of features with last year’s record Galapagos deal.
They would aim to provide tens of millions of dollars a year for the respective conservation targets and could each refinance around $1 billion worth of Ecuador’s debt, though the numbers could change depending on the timing, the sources said.
According to two of the sources, the Inter-American Development Bank (IDB) and the US International Development Finance Corp. (DFC) are again being lined up to provide “credit guarantee” and “political risk insurance” needed to drive down the cost of borrowing and create the savings.
Ecuador’s finance minister said as recently as last month that the country was looking to follow up the Galapagos deal. Both the ministry and the IDB declined to comment on the details of plans reported in this story.
A DFC spokesperson said it was “exploring opportunities for debt conversion for nature transactions across the globe,” although it could not disclose with which countries.
A tender, or request for proposal, for the planned debt swap is yet to be sent out to banks, two of the sources said.
Union Bank of Switzerland, which took over Credit Suisse, the bank that managed the Galapagos deal, declined to comment on whether it could be in the running again, as did Bank of America, which facilitated a swap in Gabon last year.
Contrarians
While some debt experts argue that complex debt-for-nature swaps do not always save governments as much money as is suggested, countries such as Ecuador or Barbados are looking to do more of them.
Three sources said some scoping and design work on the possible Amazon-linked swap was being done by The Nature Conservancy.
The nonprofit organization has been instrumental in landmark deals in the Seychelles, Belize, Barbados and July’s Gabon one.
In the ocean protection zone-linked option, meanwhile, that role would be played by Re:wild, two of the people said. The conservation group co-founded by actor DiCaprio in 2021 already funds work in the Galapagos.
Re:wild has not replied to a Reuters request for comment.
Ecuador’s waters are home and breeding grounds to thousands of species including humpback whales and leatherback turtles. The first-of-a-kind ocean protection zone it set up last year means its coast is now covered 8 nautical miles (14.8 km) out to sea.
