The Genesis Of The Debt For Nature Swap:
Implications For Rural Development In Emerging
Nations
Embassy of the Republic of Indonesia
April 28, 2010
By
Demelash Wondimu*
2010 World Food Law Research Associate
The “Debt for Nature Swap initiative and its implications for rural development in
emerging Nations” was the topic of the World Food Law Roundtable held on April 28,
2010 at the Embassy of the Republic of Indonesia in Washington, DC. Fourteen experts
and academics gathered for the Round Table co-sponsored by The World Food Law
Institute at Howard University School of Law, the U.N. Food and Agriculture
Organization (FAO), and the Embassy of the Republic of Indonesia..
Mr. Salman Al Farisi, Miniser, Charge d’Affairs of the Indonesian Embassy, welcomed
the discussants and emphasized Indonesia’s keen interest in promoting food security and
rural development. He requested the Round Table participants to consider how the debt
for nature swap (DNS) concept could be used to ensure food security and sustainable
rural development efforts.
Dr. Jacqueline Balk-Tusa, Chair of The Friends of World Food Law, Inc., introduced the
keynote speaker, Dr. Thomas Lovejoy, who originated the concept of DNS in the l980’s.
Currently Dr. Lovejoy is the Heinz Center Biodiversity Chair and is a Professor at
George Mason University, where he will oversee the Smithsonian-Mason Global
Conservation Educational Studies Program.
Dr. Lovejoy discussed the genesis, as well as the evolutionary development of debt-fornature swaps. He shared his insights and expertise with the Round Table attendees –
importantly recounting the impetus that led to the creation of the initiative. From the
outset, a primary goal of DNS was mitigating the unintended environmental
consequences of actions of certain trans-national corporations relative to preserving and
protecting fragile forest lands.
Under a DNS, a portion of the national debt of a participating country is forgiven or
assumed by a non-governmental organization (NGO). In return, the government
establishes a local currency fund to finance environmental projects, including forest
conservation or national park protection and management. Dr. Lovejoy emphasized that,
in order for a DNS to be successful, the debtor country should not be under any pressure
to accept the arrangement or any conditionality that might not be viewed as in the best
interest of the local population. The crucial role of local involvement and viewpoints
were re-emphasized by several Round Table discussants throughout the program.
Indeed, successful DNS programs have been initiated, with local input, in many Latin
American, European, and African countries.
The role of Civil Society Organizations in implementing DNS programs was frequently
emphasized during the Round Table. DNS agreements are made among, at least, three
parties: the creditor, the debtor nation’s government, and one or more NGOs. The
control and management of the local currency funds generated by the swap might rest
with a domestic NGO, usually in collaboration with an international NGO. Since a DNS
usually involves a policy of complete protection of a land area, local residents whose
livelihoods are dependent on the exploitation of natural resources contained within
protected areas may be severely affected by such programs. Accordingly, NGOs provide
matchless service by enhancing the participation of the indigenous peoples in the course
of preparing and implementing conservation projects financed by DNS funds. Thus,
favorable legal and operational environments for local citizens, as well as for the
international NGOs, is imperative. Similarly, there should be a positive relationship
between civil society groups and the indebted government.
Jeffery M. Burnam, Professor in the Department of Political Science at Georgetown
University and former key Congressional staff person, next emphasized the mechanics of
the debt for nature swap functions. He provided a comprehensive background and
chronology of the legislative history that resulted in codifying the DNS concept into US
law through the passage of the Enterprise for the Americas Initiative (EAI) and the
Tropical Forest Conservation Act (TFCA).
The EAI authorizes the sale, reduction, cancellation, and country buyback of qualifying
debt of eligible Latin American and Caribbean countries. Debtor nations must meet
certain political and macroeconomic criteria in order to be eligible. Each participating
country must enter into a Framework Agreement with the US to establish a trust fund and
create enforcement mechanisms to insure payments to the fund and prompt
disbursements from the fund. Congress expanded the EAI authorization to countries with
tropical forests through the passage of the Tropical Forest Conservation Act in l998.
TFCA is an extension of the EAI, in that it allows debt swaps, debt restructuring and debt
buybacks to generate conservation funds to protect tropical forests.
Professor Burnam further underscored the advantages of the DNS by noting the
constructive role they play in building a positive relationship between civil society and
government. He cited the advantage of the DNS in providing relief to indebted
governments from budgetary constraints, thus enabling them to carry out long-term
conservation projects which could not have been done otherwise. Debtor nation
governments can also enjoy associated benefits generated by the DNS and its intended
conservation projects through employment opportunities for local citizens.
Following the presentations by Dr. Lovejoy and Professor Burnam, the experts discussed
whether the DNS concept can be applied to promote agricultural development/food
security.
Professor Marsha Echols, Director of the World Food Law Institute, moderated the
discussion which focused on lessons that can be drawn from the DNS program and that
could be used to enhance agricultural productivity/sustainability and rural development
in debtor nations. Round Table participants brainstormed about whether experiences and
successes of the program could be used in developing a new paradigm to support food
security, enhance agricultural productivity, and further rural development agendas.
Discussions initially focused on the viability and practicality of inaugurating a new
development concept within debtor nations, given current global economic and financial
conditions. Other debt reduction mechanisms, such as the HIPC and the Paris Club
Initiatives, were raised with reference to their significance for debt reduction in general
and for the viability of new schemes like the Debt for Nature Swap program, since they
present economic models for debt reduction..
In connection with implementing DNS programs as a model for food security and rural
development, it was suggested that a closer examination of the pending Global Food
Security Act is important. This bill, currently before the US Congress, re-orients US
foreign aid policy to focus on hunger alleviation by providing assistance to boost
agricultural productivity. The bill envisages the enhancement of human and institutional
capacities of needy countries by providing a vigorous program of higher education for
agriculture.
The relationship between rural development and the DNS was thoroughly discussed as
well. Although debt swaps have been mainly limited to natural resources conservation
initiatives, the experience, structure, and conditions of DNS might be employed for other
innovative initiatives like education; a key factor for sustainable rural development.
Similar schemes can also be used to support higher educational institutions like
universities and in building infrastructure for rural communities. However, some
participants were skeptical about using a DNS model to support institutions of higher
learning because, they argued, using a DNS might ultimately end up benefiting only
elites, instead of indigenous people and civil society groups. Some participants also
expressed concerns about the efficacy of a DNS model, suggesting that there is no need
of employing the debt swap transaction model to help poor countries, while creditors can
make the investment directly if they have the political will to do so.
The DNS initiative, however, can be used to protect small farmers by diffusing the
natural tension between their interests and a concern for environmental protection. Just
as farmers may be paid from carbon credit funds if they use environmentally friendly
agricultural practices, a similar fund generated by a debt swap to protect small farmer
interests could be used to incentivize the local population to support rural development
and food security projects.
Questions about the impact of current land purchases, in particular in Africa and Latin
America, by foreign investors on food security and rural development produced spirited
discussion. What, if anything, can be done through initiatives like the DNS to mitigate
the potential damage of “land grabbing” to local populations, agricultural sustainability,
and fragile environments was thoroughly debated. Indeed, a DNS initiative might well
help withstand the rapid commercialization of vast areas of agricultural lands sought by
public and private outside interests.
In concluding remarks, Dr. Daniel Gustafson, Director, FAO Liaison Office for North
America, suggested that, as compared to conservation projects, debt swaps tend to have
the potential to bring about viable structural impact in rural development and food
security areas. While the debt swap concept has so far been related only to natural
resources like land and forests, he pointed out that it has great potential for different , but
complementary, purposes In this regard, he suggested that it is worth exploring how to
use the DNS concept in new, creative ways to protect the small farmer producer and the
development of the rural economy.
Issues Raised During the Discussion
1. The role of civil society organizations in a DNS
2. A DNS and its implication for national sovereignty
3. Participation of local or indigenous populations in projects financed by funds
generated through DNS
4. DNS as a model to promote food security and sustainable development
5. DNS as a model to support higher education in emerging nations
6. DNS as a model to train farmers to improve their farming techniques
*LLM, Howard University School of Law 2009; LLB, Addis Ababa School of Law 1994