debt-for-environment swap

Agreement under which a proportion of a country's debts are written off in exchange for a commitment by the debtor country to undertake projects for environmental protection. Debt-for-environment swaps were set up by environment groups in the 1980s in an attempt to reduce the debt problem of poor countries, while simultaneously promoting conservation. From its introduction until 2001, over fifty countries had taken part in some sort of debt-for-environment scheme.

Most debt-for-environment swaps have concentrated on setting aside areas of land, especially tropical rainforest, for protection and have involved private conservation foundations. The first swap took place in 1987, when a US conservation group bought US$650,000 of Bolivia's national debt from a bank for US$100,000, and persuaded the Bolivian government to set aside a large area of rainforest as a nature reserve in exchange for never having to pay back the money owed. Other countries participating in debt-for-nature swaps are the Philippines, Costa Rica, Ecuador, and Poland.

One drawback of the scheme is that the debtor country is expected to ensure that the area of land remains adequately protected, which in practice does not always happen. The scheme has also produced complaints of neocolonialism.

In 1997, UNSO (the United Nations Office to Combat Desertification and Drought) published a report assessing the potential for targeting financial resources for National Desertification Funds (NDFs) through debt-for-environment swaps. The report highlighted 26 African countries most severely affected by desertification.