NatureVest’s debt swaps have been covered in an enormous number of reports and news articles, and they have received substantial attention in international events on ocean conservation, the climate crisis and debt restructuring. Almost all of this has been positive. These complex financial deals are celebrated as ingenious financing mechanisms that could be replicated and scaled up even further. During COP-27, Kristalina Kostial the deputy director of the IMF, described these debt swaps as a critical solution to the international community’s failure to provide adequate climate finance, adding that ‘carbon credits could feature as part of the swaps’.24
Few organisations seem to scrutinise these deals, especially in light of all the criticisms raised against the past debt for nature swaps. Yet many of the same critical issues appear relevant. To simplify, there are three broad themes that more critical debates over these deals should explore.
Transparency and democratic participation
We should expect international finance that helps developing countries tackle their debt crisis and fund nature conservation to be transparent. So far, however, these deals remain astonishingly opaque.
News of these deals is deliberately kept secret, probably to avoid inflating the market value of bond notes before debt buybacks. However, even after they have been concluded, public access to information is limited. The investment and conservation contracts signed between NatureVest and governments in the Seychelles, Belize and Barbados are not in the public domain. This means it is impossible for citizens to understand what their governments have signed up for.
So far, information on conservation commitments have filtered through via statements by TNC. But these statements lack detail. It is currently unclear why the full conservation contract itself cannot be published. Several of the financial terms of this agreement are also kept from public scrutiny, again with summary information only found in statements and press releases, sometimes with inconsistencies. One aspect that is left unreported is the profits being made by NatureVest and Credit Suisse, including through the SPV in Amsterdam. There will be various commission and legal fees occurring as debt is transferred throughout this web of company structures. There is also a possibility that interest charged by the BBIC to the government of Belize is less than the interest provided to companies buying the bond notes supplied by Platinum Services, meaning the intermediaries in this deal would be making further profits. The fact that NatureVest establishes new companies, registered in a tax haven, to handle payments and revenues, is concerning. It is important for TNC to clarify the financial structures of these deals and be transparent about the income from these arrangements.
Due to this secretive approach to debt swaps, they fail to achieve the free, prior and informed consent of people relying on marine resources for their livelihoods. This is critical. Debt swaps establish binding commitments for the management of marine resources, including expanding marine protected areas that might curtail economic activities, such as fisheries. They also introduce other contentious policies such as carbon trading and the development of commercial aquaculture. However, NatureVest and the host governments of these deals have failed to consult with citizens or parliament before signing the contracts. None of these deals have produced environmental and social impact assessments either. It is hard to imagine such undemocratic instruments being employed in Europe or the US, and difficult to reconcile this with international human rights instruments such as the Tenure Guidelines and SSFGs which recognise the rights of small-scale fishers.
Resolving this lack of consultation is not straightforward. Debt swaps targeting commercial loans also rely on stealth. In negotiating the buyout of bondholders, it is unlikely that NatureVest could succeed if it had to subject its plans to lengthy public debate. Anyone familiar with the process of developing national plans for the oceans will know that this can take a long time, particularly if it involves genuine participation form marginalised people. As such, debt swaps, following the model used by NatureVest, would seem fundamentally inappropriate for financing ambitious programmes for reforming policies on nature conservation or climate mitigation and adaptation.
The illusion of generosity
One of the claims surrounding debt swaps negotiated by TNC is that they represent an act of generosity by creditors. Often creditors are described as forgoing debt repayments, equating these deals with debt forgiveness. The Guardian’s write up of the debt swap in the Seychelles described that creditors had agreed to forgo millions in debt. This makes these deals seem relevant for global debates on compensation for loss and damage. But this is clearly misleading now, as it was for debt for nature swaps in the 1980s.
In the debt swap for the Seychelles, for example, Paris Club donors agreed to a mere 6.5% discount for their debts. This is an attractive deal to them because they receive an early payment in cash for debts that were not due to be paid in full for several years. However, what has been overlooked in this deal is that the donors all reported this discount as a grant. This means the money ‘gifted’ to the Seychelles reduces the donor’s commitments for other aid spending. It was not a transfer that increased aid flows from donor countries to developing countries. Bi-lateral debt swaps can be designed to reduce this problem; combining a greater element of debt forgiveness with rules that prevent donors from using an accounting trick to avoid additionality. But that did not happen in the case of the Seychelles.
When it comes to commercial deals involving Eurobond swaps, investors are not acting charitably either. They are being offered lump sum cash payments based on the market value of their bond notes. It is possible that bondholders would reject this offer of a buyout, preferring to hold out for the full value of their assets. However, it was clear in 2021 that Belize’s economic situation was worsening, and bondholders were holding assets that were depreciating in value. The value of bond notes of Belize’s superbond have been volatile, trading as low as 30% of their face value in 2020. That bond holders were offered 55% of the face value in 2021 suggests it was in the interests of investors to sell then, irrespective of their concerns for the oceans and the climate disaster. Still, the bondholders, represented by a committee, issued the dubious statement that they agreed to sell out because savings in the deal were going to a good cause.25
Positive assessments of nature swaps point to the fact they reduce the debt burdens of developing countries. In the past this claim was unconvincing because debt swaps were so small they achieved only tiny changes to the overall debt burdens of countries. That was also the case in the Seychelles, as the debt for ocean swap there reduced the country’s future debt obligations by less than $2 million. It was a drop in the ocean. But the situation is now changing in the mega deals targeting Eurobonds, and the credentials of nature swaps creating fiscal breathing space for countries seems to be strengthening.
In Belize, for example, it is described in news reports that the debt swap saved the country $189 million and NatureVest has swapped a high interest rate loan for a more favourable blue bond. While part of that is true, the IMF confirm the interest rate schedule for the new blue bond starts with a lower interest rate, of 3%, but after 4 years this rises to over 6%; the same rate that Belize was paying for its previous Eurobond.26 But most importantly, while Belize has reduced the total amount it has to pay to foreign creditors by $189 million, almost all of this money is reserved for spending by the new Conservation Fund for marine projects. There is limited fiscal space created by this swap for other pressing areas of government spending, such as health or education.
As debt swaps become larger transactions dealing with a sizeable share of a country’s foreign debt, they also become more relevant to other efforts for debt restructuring. In this view, they appear more problematic rather than less. For example, a substantial barrier to co-ordinated and effective debt relief has been the difficulty of bringing different creditors to the table, including bilateral lenders, multilaterals, and foreign private creditors. This leads to heightened concerns that debt relief will not be shared fairly. Furthermore, the scale of the debt crisis in many countries now is such that the only chance for lasting solutions is a co-ordinated response based on a transparent and participatory dialogue. However, debt swaps undermine this ideal: without consultation, they capitalise on a period of debt distress to benefit commercial lenders.27
A recent IMF publication analysed debt swaps alongside other forms of assistance for developing countries for both debt relief and financing for climate related spending.28 This report made it clear that debt swaps are sub-optimal solutions. For highly indebted countries requiring urgent assistance to deal with climate change, the case for scaling them up should be rejected:
‘Debt-climate swaps subsidize the creditors that do not participate in the operation. In contrast, deep debt restructurings generally come with frameworks that seek to ensure wide participation… For this reason, it is generally efficient to de-link the restoration of debt sustainability from fiscal support of climate action, which should be additional to the debt relief required to restore sustainability, and ideally come in the form of conditional grants (or a combination of grants and loans) rather than debt-climate swaps.’
It is therefore surprising that senior officials at the IMF have been advocating so stridently for scaling up debt swaps at COP-27, including praising TNC’s deals. Tellingly, the IMF in their latest country assessment for Belize did not consider the debt swap sufficient to change its view that the country was still stuck with unsustainable debt: highly likely to struggle to maintain payments to its creditors, with a strong probability of needing more comprehensive debt restructuring in the future.
Finally, international recommendations on debt justice also stress the need for public audits of debt, and the urgent need for regulating the way in which sovereign commercial loans are raised for developing countries. Moving out of the debt trap is therefore not simply achieved through financial restructuring, but also regulatory and political reforms. None of this appears to be advanced by debt swaps so far. Instead, the public relations surrounding nature swaps legitimise the institutions that have created and benefited from the reckless Eurobond market. In the 1980s debt for nature swaps were rejected as unwelcome distractions from campaigns on odious debt. The same could be said of the reincarnation of nature swaps today.
Finally, although the stated purpose of these swaps is to save nature, it is doubtful they will succeed. Many of the statements made about these swaps assume that the debt buyout and the commitments of governments to set up endowment funds for new conservation organisations will protect the oceans. The mere act of designating an enlarged area of the ocean as protected is taken at face value, conflated with nature being actually saved.
TNC’s limited public reports on its debt swaps are devoted to explaining the financial benefits of these deals. Almost nothing is provided on the considerable political and practical barriers countries face in following through on the ambitious conservation pledges. Meanwhile their conservation contracts reveal potential policy incoherence: they promote eco-tourism and commercial aquaculture, for example. These sectors may help boost economic growth or food production, but they have high risks of costly environmental externalities and exacerbating inequality.
The plans for spending the money from debt swaps are also questionable. Channelling all the money through a new Conservation Fund creates another organisation running parallel to, and possibly in conflict with, existing government agencies. The resulting Conservation Funds will have annual budgets that surpass government departments and will dwarf those of existing civil society organisations working with groups such as small-scale fisheries. The intention is that the Funds will disperse money to others through grants, but this arrangement is fraught with risks relating to democratic accountability and conflicts of interest. TNC’s guaranteed seat on the governing board of these Funds is also questionable, given their lack of democratic legitimacy or direct links to local communities.
In short, the mere act of increasing financial flows to conservation efforts does not solve deep-rooted conflicts over the use of resources, while it may work to aggravate them. Herein lies the fundamental dilemma in the debt for nature swap concept. This is the simplistic assumption that ecological destruction is due to an absence of funding and that this problem can be solved by more money. Once the absurdity of that belief is exposed, the entire proposition for conservation finance falls apart. Ecological justice is first and foremost a political struggle, not a financial one.