#62 1987 · Conservation International / Government of Bolivia · Conservation / international financebuy-the-mispriced
A year-old nonprofit bought $650,000 of Bolivia's bad debt for pennies on the dollar, and forgave it for 4 million acres of rainforest instead of cash
the problem
Conservation groups can't outbid industry for land, and indebted governments can't afford to protect it
background
By the mid-1980s, Latin American governments including Bolivia's were sitting on foreign debt that had become effectively unpayable and, as a result, traded on secondary markets at a steep discount to face value — a bank or investor could buy a dollar of Bolivian government debt for a few cents, because almost nobody expected full repayment anyway. Environmental groups watching Amazonian rainforest disappear had the opposite problem: they had far too little cash to buy or lease land at market rates to protect it, and outright land purchase in a foreign country raised its own political complications.
Thomas Lovejoy, then at the World Wildlife Fund, proposed in 1984 that these two mismatches could cancel out: use hard currency to buy a developing country's discounted debt, then cancel that debt in exchange for a conservation commitment paid in land the government already controlled, not cash it didn't have. Conservation International, founded only months earlier and with no track record, decided to be the first to actually do it.
the move
In 1987 Conservation International purchased US$650,000 of Bolivia's foreign debt on the secondary market at a steep discount, then forgave that debt back to the Bolivian government in exchange for its commitment to establish and protect roughly 1.6 million hectares (about 4 million acres) of Amazonian buffer zones around the existing Beni Biosphere Reserve — converting a debt instrument that was nearly worthless to a lender into land protection that would have cost far more to buy directly.
the payoff
The Bolivia swap became the first debt-for-nature agreement in the world; in the years since, more than 140 similar swaps have been struck between conservation organizations or creditor nations and debtor governments across the developing world, freeing up billions of dollars' worth of conservation commitments that direct cash purchases or grants alone could not have funded.
what came after
Conservation International credits the deal with opening what one of its Bolivia country directors calls 'permission to think about financing conservation in a bigger way' — debt-for-nature swaps are now a recognized instrument used by the World Bank, national governments and NGOs, including contemporary multi-hundred-million-dollar swaps that dwarf the original $650,000 transaction in size while using the same underlying mechanism.
references
- [1]How one South American country became a lab for conservationConservation International, 2023conservation.org
- [2]Debt-for-nature swapWikipedia, 2024en.wikipedia.org