Debt-for-nature swaps have been put forward as a way of equitably helping low-income nations protect their environment whilst at the same time reducing their foreign debt. Following the debt crisis in 1982 when Mexico threatened not to repay its loan, many banks, realising that countries would not be able to fully repay their debts, began swapping some of their debts with those of other banks so that they held debts from only a few low-income countries. At first, they swapped debts with other countries; each debt was valued according to how likely it was that the debtor country would pay it back. So a debt which had a face value of $1 million (that is, the country owed $1 million) might be valued at $500 000 because the country was only likely to pay half of it back. Soon a market in these debts was formed (the secondary market), and large private companies bought up debts as a cheap way of investing in a low-income country. These were called 'debt-for-equity' swaps. The way it worked was as follows:
For example, in 1986 the US car company Chrysler bought about $US108 million of Mexican debt for about $US65 million. In return, the Mexican Government provided the equivalent of $US100 million in Mexican currency (pesos) for the construction of a Chrysler car manufacturing plant in Mexico which would export cars. The banks benefited by being able to get a tax benefit for their supposed loss&emdash;the difference between the face value of the debt, $108 million, and the $65 million paid, a loss that they would have made anyway by their own calculations. Chrysler got a car factory for 65 per cent of what it would have normally cost them. The Mexican Government thought it was better off spending the money owed on a car plant that would provide some employment, rather than in trying to earn foreign currency to repay its original loan&emdash;even though the debt-holding bank had obviously not expected it to repay that loan in full. This is just one example of many deals that have been carried out over the past few years. By 1991, sales of debt on the secondary market had grown to $US200 billion per year. Debt-for-nature swaps use the same system to preserve areas of the environment, particularly forests, that have international importance. For example, the US group Nature Conservancy has bought $US2.2 million of Brazil's foreign debt for $850 000. The US group has set up a fund to be managed by a Brazilian environmental group, financed by the repayments of this debt in local currency&emdash;expected to be about $60 000 per year. The fund will be for the conservation of about eighty thousand hectares of forest in a national park. More than nineteen debt-for nature swaps had taken place in ten countries by 1991, worth a face value of more than $US100 million. However, this compares with about $1.3 trillion of debt faced by low-income countries. Karl Ziegler, a former director of First Chicago Bank, says these swaps are of 'less global importance than a speck on the eye of a flea' (quoted in Lewis 1992, p. 14). These swaps have also been suggested for newly democratised nations in Europe, such as Bulgaria and Poland (Pearce, F. 1992, p. 45). However, debt-for-nature swaps have come under considerable criticism. Writing in the Ecologist, Rhona Mahony characterises such swaps as follows: "A First World environmental group has given money to First World commercial banks whilst a Third World country has promised to give money to its environmental groups. No transfer has taken place from North to South." (1992, p. 100) However, it does prevent the money from leaving the South&emdash;which may have happened if the country had repaid the bank. Mahony also points out that it takes more than the creation of a national park to protect an area. Official boundaries on a map and a few rangers, she argues, will not be able to repel the loggers, miners and landless people who are driven into these areas by powerful economic forces. She goes on to say that 'the only beneficiaries of debt-for-nature swaps at present are the Northern banks' (p. 103). Opponents of these agreements also argue that such swaps often result in the removal of land from the control of local inhabitants. In Bolivia in 1990, hundreds of Indians marched on the capital city, La Paz, to protest against the government allowing cattle ranchers and loggers onto land taken from them as part of a debt-for-nature swap (Pearce, F. 1992, p. 45). Local environmentalists have condemned debt-for-nature swaps in Brazil, because they argue that they will not solve the Brazilian debt crisis and because they are being used to set up private botanical gardens for scientists from high-income countries, who can then come and go freely in such parks. They fear that these scientists will have access to genetic materials not found elsewhere, which will then be patented by multinational corporations and sold for large profits. There is also the danger that such swaps will merely convert commonly owned land into private hands. Debt-for-development swaps have also taken place; they use the same principle to increase the money available for development aid. An example is a UNICEF project in the Sudan funded by debt donated by the British Midlands Bank. In return for the bank cancelling this debt, the Sudanese Government paid local currency for water, health and education projects. A number of other debt-for-development swaps have also taken place, although the government agencies or non-government organisations involved usually have to buy the debt from the banks. These swaps are becoming an accepted part of aid programs around the world. A major argument against debt swaps of any kind is that they legitimise the repayment of foreign debts which many believe were illegal or immoral in the first place. This is a particularly compelling argument where the debt was incurred by a dictator&emdash;in which case, it is argued, the people of the country did not agree to it and should not be bound by it. In other cases, the lending banks did not investigate the soundness of the projects they were lending money for. An example of what might be construed as illegitimate debts are the huge debts incurred by the Philippines while Ferdinand Marcos was president, which were improperly used. Some go further, and argue that all debts owed by low-income countries are immoral&emdash;because they are condemning millions of people to ever-increasing poverty and because the original sum was paid back long ago. Neil McCulloch, the campaign director of the World Development Movement, claims: "Debt-for-nature shouldn't be used to detract from the real issues&emdash;that these debts are unjust, contracted by corrupt world leaders, lent by imprudent Western bankers and squandered by Third World elites." (quoted in Lewis 1992, p. 14) Another major argument against such swaps is that they enable people from affluent countries to dictate how governments in low-income countries should spend their money. For example, activists from all over the world, meeting at a seminar on debt swaps in 1991, said that debt-for-nature swaps: "stipulate that the debtor countries allocate resources in local currency&emdash;which is extremely scarce because of internal budgetary crises&emdash;to be applied in isolated conservation projects which are defined with little or no popular participation. Without taking into account the sovereignty of the local population or the social conditions of these countries, the projects are designed more for research and exploitation of natural resources than for conservation." (quoted in Mahony 1992, p. 102)
Source: Sharon Beder, The Nature of Sustainable Development, 2nd ed. Scribe, Newham Vic., 1996, pp. 194-197.  |
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