Monopoly Ecuador is considering a new nature debt swap linked to the Amazon and oceans, sources tell Reuters

mark jones

LONDON (Reuters) – Ecuador is exploring a new debt swap for nature. One is to funnel money into the Amazon (NASDAQ:) rainforest and the other is for a huge marine reserve backed by Hollywood star Leonardo DiCaprio. told Reuters.

The South American country is seeking to build on a record $1.6 billion debt swap it arranged last year for the Galapagos (NASDAQ:) Islands. Reuters first reported details of the options being considered.

The government is now focused on stamping out drug-fueled organized crime and striking a new IMF deal, while sources said officials have been talking for months with multilateral development banks and conservation groups about at least two possible debt swaps to get something done this year. He said they have been cooperating. .

The first involves protecting parts of the Amazon rainforest, widely considered the most important natural ecosystem in the world. The second option involves funding a landmark marine protected area that Ecuador has created along its entire 2,237 km (1,390 miles) Pacific mainland coast.

Ecuador should probably focus on one for now, given the time and effort it would take to structure such a debt swap, a person familiar with the plans said.

In a debt-for-nature swap, a country’s government bonds or loans are purchased and replaced with new bonds or loans that pay a lower interest rate if the government commits to spend some of the money it saves on conservation.

Typically, development banks back deals with “credit guarantees” or “risk insurance” that protect buyers of the new bonds if the country is unable to repay the money.

Ecuador, considered one of the world’s 17 “diverse” countries, has one of the worst deforestation rates in Latin America, according to the United Nations environment agency.

This, combined with high debt, makes it an obvious candidate for a debt-to-nature swap.

Two of the four people who spoke to Reuters on condition of anonymity said the swap was likely to share several features with last year’s record Galapagos deal.

They aim to provide tens of millions of dollars a year to each conservation goal and could each refinance $1 billion worth of Ecuadorian debt, but that number could vary depending on the timing, the sources said.

The Inter-American Development Bank (IDB) and the US International Development Finance Corporation (DFC) have again lined up to provide the “credit guarantees” and “political risk insurance” needed to keep costs down, according to two sources. Get a loan and save.

Ecuador’s finance minister said last month that the country was seeking a follow-up to the Galapagos deal. Both the ministry and the IDB declined to comment on details of the plans reported in this story.

A DFC spokesperson said it was “exploring debt conversion opportunities on organic transactions globally” although it could not disclose which countries.

star power

Two of the sources said a request for bids or proposal (RFP) for the planned debt swap has not yet been sent to the banks.

UBS, which acquired Credit Suisse, the bank that managed the Galapogas deal, declined to comment on whether it could operate again, as did Bank of America, which facilitated the swap in Gabon last year.

Some debt experts argue that complex debt-for-nature swaps don’t always save governments as much money as proposed, but countries like Ecuador and Barbados are willing to do more of them.

Some scoping and design work for the swap linked to Amazon is being done at The Nature Conservancy, three sources said.

The non-profit organization has played a key role in groundbreaking deals in Seychelles, Belize, Barbados and, in July, Gabon.

Meanwhile, the two people said that Rewild will take on that role in the marine protected area linkage option. The conservation group, co-founded by actor DiCaprio in 2021, is already funding work in the Galapagos.

Re:wild did not respond to Reuters’ request for comment.

Ecuador’s waters are home to and breeding grounds for thousands of species, including humpback whales and leatherback turtles. The first marine protected area, established last year, means the coast is now covered up to 8 nautical miles (14.8km) out to sea.