Committee for the Abolition of Illegitimate Debt

The principle seems easy enough: part of a country’s debt is converted into investments aiming to protect ecosystems. In practice, an NGO buys a fraction of a country’s debt at a reduced price from its creditors, whether private or bilateral. In exchange, the country undertakes to repay the stock of the debt as well as the accompanying interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. into a trust fund specially created for this purpose by the NGO. The money in the fund is used to finance a conservation project such as creating a marine or forest natural reserve. According to their promoters such agreements would allow countries to lighten their debt while financing environmental actions, thus meeting a double urgency: the ecological crisis and the explosion of public debt in countries of the South.

 A disputed mechanism

Though debt swaps occur in different forms – bilateral, multilateral, involving a third party, etc. – and target different sectors – education, health, food, infrastructure, etc. – recently it has been debt-swaps aimed at funding environmental conservation projects, known as debt-nature swaps, that have been in the limelight, involving big international NGOs.
Among the major NGOs with a taste for debt-nature swaps, three are particularly active: World Wildlife Fund (WWF), Conservation International (CI) and The Nature Conservancy (TNC). The latter, based in the United States and hailed as a forerunner of the expansion of these projects, has proved quite innovative in the field of debt redemption, firstly through the considerable increase in the amounts of debt rescheduled and thus in the size of the projects, and secondly through the involvement of a large number of private intermediaries (law firms, financiers, insurance companies, etc.), of various other structures (such as trust funds) as well as by issuing securities on the financial markets. TNC recently adopted this particularly complex type of process to sign debt-redemption agreements with the Seychelles, Ecuador, Belize, Barbados and Gabon. And negotiations are said to be under way with about twenty more countries.

And here’s the rub. Debt-nature swaps have already come in for criticism from numerous organizations of small-holders or indigenous peoples, especially at the 1992 Earth Summit. Now more and more actors are openly challenging their supposedly positive impact both on environmental conservation and on the debt situation. Furthermore, they are worried about their repercussions on States’ territorial sovereignty.

While these mechanisms proliferate with the active support of the international financial institutions and the United Nations, there is an urgent need to examine their limitations and shed light on any perverse effects they may engender.

  A questionable environmental record

Logically, any NGO that issues securities to redeem a debt must pay it off. A large share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of the funds “freed up ” in the debt-nature swap would thus go towards those repayments, and also to remunerate the private intermediaries taking advantage of the swap to make a profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders.  [1]. So in the end, the amounts of money allocated to conservation projects are often much smaller than originally announced, raising the obvious question of the beneficial impact for the conservation projects. Barclays Bank itself warns of the deceptive publicity surrounding debt-nature swaps and of the risk of greenwashing [2].

In the case of Gabon, about USD 67.5 million over 15 years, out of an operation to buy back 500 million dollars, were effectively allocated to the nature-protection fund while the rest was used to repay the new debt and pay off all the parties involved in the agreement, including the Bank of America. In the case of Belize, it was USD 84 million out of USD 553 millions’ worth of redeemed debt. It was USD 450 million out of USD 1.6 billion in Ecuador.

Apart from the amounts actually invested in the conservation projects, the weakness of the thinking behind these projects and how they are followed up is often pointed out. The reports by the organizations undertaking the debt-nature swaps concentrate on the financial advantages and provide no contextual information, for example describing the political and practical obstacles countries are faced with when handling conservation matters. As André Standing, a research associate working with CAPE-CFFA, points out, “It is taken for granted that the simple fact of designating a wide zone of the ocean as protected is a real safeguard for nature” [3]. The organization Latindadd, which carried out the first assessment of the Galapagos project in Ecuador a year after it was implemented, came to the disastrous conclusion that in the absence of any monitoring tool, and in view of the total lack of information, there are no grounds for claiming that any investment in favour of conservation has been made at all. [4].

Finally, the influence of companies, law firms, finance firms, all the way through to the boards of directors of the conservation funds created by the NGOs coordinating the swap, is worrying. When Ecuador concluded its debt-swap the Galapagos Life Fund was mainly run by private actors, including representatives of the fishing and tourist industries. [5]. It should then come as no surprise when the latter encourage ecotourism projects and commercial aquaculture in the very heart of the conservation zones, as was the case in the Seychelles [6]. The direct links between the NGOs and the sectors responsible for pollution also poses a problem, such as TNC which maintains links with the fossil fuel industry and holds over € 26 million of investments in Shell, BP America and Chevron [7].

  An inefficient approach to debt

While these projects in no way guarantee effective protection measures, neither do they address the problem of excessive public debt. As the German NGO Erlassjahr has clearly shown, the swaps, which are often presented as debt reduction or even cancellation, are not. The government uses the funds received to buy back part of its debt from creditors at market prices. Although these prices may be lower than the nominal value of the debt, there is no reduction [8]. It is therefore a purchase of debt by the State, with remuneration of banks and other intermediaries in the process, not an exchange or cancellation. It is also interesting to note that the discounts granted by bilateral creditors, as in the case of the Seychelles, are almost always inscribed as Official Development Assistance ODA
Official Development Assistance Official Development Assistance is the name given to loans granted in financially favourable conditions by the public bodies of the industrialized countries. A loan has only to be agreed at a lower rate of interest than going market rates (a concessionary loan) to be considered as aid, even if it is then repaid to the last cent by the borrowing country. Tied bilateral loans (which oblige the borrowing country to buy products or services from the lending country) and debt cancellation are also counted as part of ODA. Apart from food aid, there are three main ways of using these funds: rural development, infrastructures and non-project aid (financing budget deficits or the balance of payments). The latter increases continually. This aid is made “conditional” upon reduction of the public deficit, privatization, environmental “good behaviour”, care of the very poor, democratization, etc. These conditions are laid down by the main governments of the North, the World Bank and the IMF. The aid goes through three channels: multilateral aid, bilateral aid and the NGOs. and so reduces investments in other sectors.

The IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org , although it promotes debt-for-nature swaps, stresses the ineffectiveness of these mechanisms on the debt issue. The fact that Belize’s record debt-for-nature swap had no impact on its debt overhang in the eyes of the financial institution is in itself revealing [9].

It would be far better for a state to suspend payment of its debt, audit it and preferably repudiate part of it or, at the very least, buy back part of it and invest the interest saved in ecological and social projects, as did Ecuador in 2008, rather than letting a multitude of intermediaries do it for them and dictate how it should manage its territory and resources. Instead, debt-for-nature swaps give the illusion of providing a lasting solution to the debt crisis, when in fact they do nothing of the sort, diverting attention from the need for deeper, more concrete action.

It should also be emphasized that the legitimacy and legality of the debts contracted in many countries in the South is very questionable. They should be subjected to audits involving the participation of citizens. However, debt buybacks, transfers and restructuring without audits make this analysis and monitoring work all the more complicated, if not impossible, as they legitimize debts that should be cancelled outright.

  A danger for sovereignty and governance

Another major issue raised by debt-for-nature swaps is the question of the sovereignty of the states concerned and of the populations living in the territories that are the site of conservation projects.

These concerns are fuelled by the total lack of transparency and absence of participation of local and indigenous communities in the decision-making, implementation and monitoring processes of conservation projects. Neither the investment and conservation contracts nor the profits made by the various players are made public, and the subsidiaries set up are almost always located in tax havens [10].

In the case of the Galapagos Marine Reserve in Ecuador, local and indigenous communities, some of whom depend on small-scale fishing, were hardly consulted at all during the process and are subject to arbitrary restrictions on access to the resources on which they depend.

In May 2024, a group of communities and organizations lodged a complaint against the Galapagos Life Fund for its opacity and “lack of access to information, lack of transparency and inadequate governance in the management of the funds”. [11]. The same happened in Bolivia, where protection measures forced the Tsimané Indians to abandon their traditional practices. In other cases, the agreements run completely counter to the most essential interests and rights of the local populations.

Also, while a major problem faced by over-indebted countries is the lack of resources available to finance essential outlays, such as in the health or education sectors, it is important to note that the funds “freed up” by the operation cannot be invested freely by the State and therefore cannot be used to address the problems caused by the crisis situation.

Last and by far the most important aspect of these agreements is that they give considerable power to NGOs and foreign interests. TNC negotiates agreements for the protection of 4 million km² of marine areas, the equivalent of the surface area of the European Union, thereby gaining unprecedented power over the territories of the countries concerned, but also more generally over vast areas of the planet. As well as taking control in terms of space, the budgets allocated to the fund-management structures - several tens or even hundreds of millions of dollars - “exceed those of government ministries and eclipse those of existing civil society organizations” [12]. This capacity to influence creates direct competition, if not a real imbalance, between government and civil society agencies and foreign players, often American and linked to financial circles, thus blatantly eroding the sovereignty of the States in question.

  Conclusion

While other debt swap models could be explored, it is imperative that they avoid the involvement of profit-driven private intermediaries, respect the rights of local populations by guaranteeing their free and informed consent, preserve the State’s sovereignty and promote policies that are genuinely effective in social and ecological terms.

The debt-for-nature swap model, as promoted by organisations such as The Nature Conservancy, does not meet these criteria. On the contrary, it is more akin to a new tool of neo-colonial domination than a mechanism for tackling environmental and debt crises. These schemes strip local populations and governments of their sovereignty by allowing Northern operators - mainly private - to continue to control the natural resources and territories of Southern countries, while taking advantage of the latter’s financial vulnerabilities.

Presented as an innovative solution, debt-for-nature swaps give the illusion that something is being done and actually encourage inaction on two fronts that require urgent and radical action. They do nothing to remedy the abysmal lack of political will and investment to curb climate change and the ongoing ecological crisis.

Far from tackling the problem of excessive debt, debt-for-nature swaps preserve a disguised status quo. The repayment of debts and the often usurious interest payments that go with them drain almost all the economic capacity of the countries of the South into the financial markets and the countries of the North. Only the abolition of illegitimate debt, accompanied by transparent citizens’ audits, will make it possible to restore the sovereignty of States and give them back the means to adopt appropriate policies to combat the ecological crisis and ensure climate and social justice.

Translation : Christine Pagnoulle, Vicky Briault et Mike Krolikowski

The present analysis was written by Maxime Perriot and Pablo Laixhay, of the Committee for the abolition of illegitimate debt, at the request of Entraide et Fraternité (EF). It is part of EF’s work on the debt of countries of the South, partly in partnership with the CADTM.

The authors thank Éric Toussaint for his comments.