Lovejoy Proposes the Debt-for-Nature Swap

Thomas E. Lovejoy III developed the idea of the debt-for-nature swap, whereby developing countries could alleviate their national debt in exchange for implementing policies that protect the unique environments within their countries.

Summary of Event

Thomas E. Lovejoy III once described the human population of the earth as resembling a giant hermit crab that had outgrown its shell and had no larger shell to which to move. Lovejoy and many other environmentalists and conservationists insisted that humans must look for ways to readjust their lives so as not to despoil the planet Earth. In 1965, Lovejoy went to the Brazilian Amazon as a tropical and conservation biologist; two-thirds of the Southeast Asian rain forests and one-half of the African rain forests had disappeared by that time, but approximately two-thirds of the original Amazonian jungle was then still intact. Rain forests
Amazon rain forests
Brazil;rain forests Many scientists believed the Amazon to be the biologically richest area in the world, and they were particularly concerned that it remain that way. Debt-for-nature swaps[Debt for nature swaps]
Environmental policy, international
[kw]Lovejoy Proposes the Debt-for-Nature Swap (1984)
[kw]Debt-for-Nature Swap, Lovejoy Proposes the (1984)
Debt-for-nature swaps[Debt for nature swaps]
Environmental policy, international
[g]North America;1984: Lovejoy Proposes the Debt-for-Nature Swap[05360]
[g]United States;1984: Lovejoy Proposes the Debt-for-Nature Swap[05360]
[c]Environmental issues;1984: Lovejoy Proposes the Debt-for-Nature Swap[05360]
[c]Economics;1984: Lovejoy Proposes the Debt-for-Nature Swap[05360]
Lovejoy, Thomas E., III

Many believed that the Amazon (and areas like it) had the potential to generate untold cures for human disease and survival. It was described as an immense pharmaceutical storehouse, with many yet-undiscovered products. In addition to potential medicinal agents, the Amazonian rain forest was thought to be able to furnish the genetic tools to help feed the world. In 1978, for example, a corn plant was found in a Mexican forest that, it was thought, might lead to a perennial variety of corn that did not need to be replanted every year. The solution to the problems of the world’s growing populations might well have been found in the very areas already destroyed. Many ecologists believed that maintenance of the remaining tropical rain forest was critical for the survival of genetically diverse forms of life and for long-term human welfare.

In 1980, 140 million people lived in the world’s rain forests. Tropical rain forests can be described as deserts covered with trees. There is no sustainable use for the land once the forests are gone. In slash-and-burn subsistence farming, farmers cut down the trees on small portions of land, burn the plant residues, and use the temporary fertility gained from the ashes to farm the land for one or two years. Deforestation After that, the meager resources of the land are depleted, forcing the farmers to move, clear new plots of land, and begin again. This agricultural practice destroys more than forty thousand square miles of rain forest every year. In the late years of the twentieth century, the destruction of the rain forests became increasingly methodical and intensive, with large agribusinesses and cattle and timber concerns carving out ever-larger acreages. Many of these businesses attempted to employ temperate-zone industrial technologies that were of little value in the tropical rain forest.

Tropical forests induce half of their own moisture. Studies documented that after trees were cut in an area of Panama, rainfall decreased by one-third of one inch every year for the next fifty years. In 1980, studies by the National Academy of Sciences revealed that the amount of rain forest cut had been grossly underestimated. At the actual rate of destruction, it was estimated, the Amazon forests would disappear by the year 2010.

In 1984, Lovejoy was executive vice president of the World Wildlife Fund-U.S. The idea of debt-for-nature swaps occurred to him while he was attending a congressional hearing on the environmental effects of the loans from multilateral development agencies such as the World Bank and the Inter-American Development Bank. Many of the developing countries that were struggling under huge national debts contained unique and fragile natural environments. Often, the revenues these countries were able to generate were spent merely to satisfy the interest payments on their loans. Generally, any programs these countries had to protect natural resources were the first to be sacrificed. Costa Rica’s excellent national park system, for example, eventually became wholly dependent on private donations from outside the country. Brazil maintained an agency equivalent to the U.S. Environmental Protection Agency, but the level of funding was sufficient only to pay employees’ salaries, with little left over for any programs. In times of environmental crisis, few of the employees were qualified to take action.

The developing countries with high debt sought to alleviate that pressure by producing commodities that could be readily exported. For example, Brazil instituted changes in its land use to concentrate on large-scale soybean production and, because of the high cost of imported oil, large plantings of sugar cane to provide the raw materials to produce fuel alcohol. Small farmers took advantage of government incentives and moved to areas in the rain forest that were ecologically unsuited to agriculture.

Latin America contained more than half of the world’s remaining tropical moist forest; three-fifths lay within Brazil, where the jungle made up 42 percent of the land area although it housed only about 5 percent of the population. In 1964, the military seized power in Brazil, and the Amazon basin became part of a massive settlement program. The government proclaimed that conservation was a luxury that a developing nation could not afford. However, moving into the Amazon jungle proved difficult, and the number of colonists there stabilized at about fifty thousand. By that time, however, twelve thousand square miles of rain forest had been sacrificed to the building of roads. Inroads into the forest further contributed to the extinction of the native Indian populations, whose members by that time numbered fewer than one hundred thousand; in 1900, they had represented 10 percent of Brazil’s population. Brazil’s foreign debt was recorded at $53 billion in 1980, while the hardwood stocks of the Amazon were valued at $1 trillion and its minerals at $50 billion.

Lovejoy originated the idea of the debt-for-nature swap to help countries balance their economic and social needs with the pressing needs of the environment. In a debt-for-nature swap, a debtor nation would agree to protect its natural resources in return for eligibility for discounts or credits against its foreign debts. To make this profitable for the creditor banks, the lending nations would offer appropriate tax credits that did not require the generation of new loans but instead contributed to local economies and thus to the nation’s ability to pay off the loans. In addition, this plan would give the creditor countries the satisfaction of being able to contribute to the long-term welfare of the global ecology without suffering financially.

The nations of the developed world understood that debtor nations could not be expected to address conservation problems while they were overwhelmed with social needs. Debt-for-nature swaps were intended to provide for worldwide conservation in sensitive areas while also ensuring the survival of nations heavily in debt.

Significance

Lovejoy never claimed that debt-for-nature swaps were going to solve either the debt problem or all environmental ills. The swaps did, however, pay for immediate environmental needs and generate economic productivity in national parks and through tourism. Moreover, the effects of inflation were reduced when countries’ debts were not converted to cash. It was suggested that without action of this kind, developing countries would have been led to generate foreign exchange and initiate land-use changes that would cause colonization pressure in ecologically sensitive areas.

Debt-for-nature swaps were sometimes perceived as invasions of sovereignty. Developing countries sometimes interpreted the swaps as orders from the United States; some even accused the United States of arm-twisting. Indigenous peoples saw debt-for-nature swaps as plots to steal their lands, although they often recognized after a swap had been initiated that it could actually be used to secure their lands. Some observers also believed that safeguarding the environment prevented development and was not a secure base for sustainable economic activities.

A major deterrent to debt-for-nature swaps proved to be instances when debts were simply forgiven. When this occurred, the chance to do something significant for the environment was lost. Only by restructuring their debts and by using a portion of the debts for environmental needs could debtor countries benefit both economically and environmentally.

One of the first debt-for-nature swaps involved the purchase, at thirty-five cents on the dollar, of the debt of Ecuador by two U.S. conservation organizations, the World Wildlife Fund World Wildlife Fund and the Nature Conservancy. Nature Conservancy The debt was donated to an Ecuadoran foundation known as the Fundación Natura, Fundación Natura which took the debt to the central bank for conversion to bonds at face value in local currency. This income was used for such activities as the protection of national parks and reserves and environmental education. In 1987, a debt-for-nature swap occurred for Costa Rica when the organization Conservation International, Conservation International based in Washington, D.C., purchased debts that Bolivia owed to some U.S. commercial banks at a discount on the secondary market. The debt was redeemed at face value by the Central Bank of Bolivia, and land was set aside to create the Reni Biosphere Reserve, Reni Biosphere Reserve which included both rain forest and savanna. The banks retired a modest amount of the Bolivian debt at a loss; the sum of money involved was not large, but the results were significant for the environment of the area. After that, similar debt-for-nature swaps occurred in Guatemala, Mexico, the Philippines, Madagascar, the Dominican Republic, Argentina, Peru, Zambia, the Sudan, and Poland.

Brazil long remained resistant to swaps that would allow foreign intrusion. In July, 1991, however, Brazil agreed to a debt-for-nature package of $100 million a year. The debt, selling at thirty-four cents on the dollar, was redeemed at its full value with bonds and indexed to avoid inflation; it was to pay 6 percent interest in perpetuity. The arrangement provided Brazil with long-term stability and allowed the nation to endow activities such as park protection, environmental research, training, and recovery of degraded lands.

The financing of debt-for-nature swaps fell to private organizations with limited working capital. Ideally, the swaps would have been only the beginning of a series of creative ways to finance protection of the environment. In the United States, it was believed that major tax incentives were needed to induce commercial banks to participate fully.

Lovejoy recognized that debt-for-nature swaps would not solve all debt and environmental problems simultaneously and in their entirety, but he contended that the swaps would make significant progress with both. He emphasized that indigenous support for the projects was critical for their success, and he believed that problems with the program would be overcome as understanding of the concept grew in the worlds of finance and government and as the world became more aware of the importance of the environment.

Debt-for-nature swaps had limited success, but the need for new programs to control deforestation, make serious efforts at reforestation, and improve energy efficiency continued. Lovejoy insisted that worldwide environmental problems including the greenhouse effect, tropical deforestation, and loss of biological diversity within the tropical rain forests are all interrelated. He faulted conservation and environmental movements for being satisfied with achievements that he considered minuscule in comparison to the magnitude of the problems. Like many conservationists and environmentalists, Lovejoy asserted that there are no technological escapes from the biological restraints of the planet Earth. The pressing need to curb human energy use and population growth continued. Debt-for-nature swaps[Debt for nature swaps]
Environmental policy, international

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