By Marc Jones
LONDON (Reuters) -Ecuador is exploring new debt-for-nature swaps, one to funnel money into the Amazon rainforest (NASDAQ:) 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 (NASDAQ:) last year. Reuters reports for the first time details of the options being considered.
While the government now focuses on tackling drug-fueled organized crime and securing a new IMF deal, sources say officials have been working for months with multilateral development banks and conservation groups on at least two possible debt swaps in the hope of something this year to be able to do. .
The first would be related to the protection of parts of the Amazon rainforest, widely considered the most important natural ecosystem in the world. The second option involves financing a pioneering marine protected area that Ecuador has created along the entire 2,237 km long Pacific coast of the mainland.
Ecuador will likely have to focus on one of those for now, a person familiar with the plans said, given the time and effort involved in structuring such debt swaps.
A ‘debt-for-nature swap’ involves buying up a country’s government bonds or loans and replacing them with new ones that pay a lower interest rate, provided the government commits to spending some of the money saved on nature 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 back the money.
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Considered one of the world’s 17 “megadiverse” countries, Ecuador also has one of the worst deforestation rates in Latin America, according to the United Nations Environment Department.
That, combined with its high debt burden, makes the country an obvious candidate for ‘debt-for-nature swaps’.
Two of the four people who spoke to Reuters on condition of anonymity said the swaps under review were likely to share some features with last year’s record deal with Galapagos.
They would aim to provide tens of millions of dollars a year for respective conservation goals and could each refinance about $1 billion of Ecuador’s debt, although the numbers could change depending on timing, the sources said.
According to two of the sources, the Inter-American Development Bank (IDB) and the US International Development Finance Corporation (DFC) are once again lining up to provide “credit guarantees” and “political risk insurance” needed to cover the costs of borrowing and create savings.
The Ecuadorian Minister of Finance said last month that the country wants to follow up on the Galapagos deal. Both the ministry and the IDB declined to comment on the details of the plans reported in this story.
A spokesperson for the DFC said it was “exploring opportunities for debt conversion for wildlife transactions around the world”, although it could not reveal with which countries.
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A tender or request for proposal (RFP) for the planned debt swap is yet to be sent to banks, two sources said.
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UBS, which acquired Credit Suisse, the bank that managed the Galapogas deal, declined to comment on whether it could be back in the running, as did Bank of America, which facilitated a swap in Gabon last year.
While some debt experts argue that complex debt-for-nature swaps don’t always save governments as much money as suggested, countries like Ecuador and Barbados want to do more of it.
Three sources said some of the exploratory and design work on the potential Amazon-linked swap was done by The Nature Conservancy.
The nonprofit was instrumental in landmark deals in the Seychelles, Belize, Barbados and Gabon in July.
In the ocean protection zone-linked option, meanwhile, that role would be played by Re:wild, two of the people said. The conservation group, which was co-founded in 2021 by actor DiCaprio, is already funding work in the Galapagos.
Re:wild did not respond to a Reuters request for comment.
Ecuador’s waters are home and breeding grounds for thousands of species, including humpback whales and leatherback turtles. The unique ocean protection zone it established last year means its coast is now 8 nautical miles (14.8 km) out to sea.
