Conservation International swapped Bolivia's debt for rainforest protection

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.

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.

Bought Bolivia's discounted debt, forgave it for rainforest protection, turning near-worthless paper into leverage for land conservation.

Bolivia's debt traded at a steep discount because repayment was unlikely, so $650,000 bought much more face value.

Forgiving the debt gave Bolivia real relief it valued, while granting land cost it little since it already controlled the territory.

The market's discount created leverage, turning a small cash outlay into a large conservation outcome.

When a counterparty is distressed, buy its discounted liabilities and trade them for what it can grant cheaply but you value highly.

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.