Reducing Debt, Protecting Nature

SO-CALLED debt-for-nature swaps were strengthened by a recent agreement between Conservation International, a group based in Washington, and the government of Mexico. Mexico will receive a $4 million reduction in its debt to private banks in exchange for investing $2.6 million worth of its pesos in protecting the Lacandona rain forest near the border with Guatemala. Private groups like Conservation International have pioneered these deals, by which countries like Mexico, sagging under foreign debt, can ease that burden a bit by agreeing to upgrade environmental programs. The organizations brokering such arrangements can buy a fairly substantial amount of Latin American debt for a relatively small sum, since that debt is sharply discounted on the secondary markets that handle it. Conservation International was able to buy $4 million of Mexico's debt for about 45 cen ts on the dollar.

Something less than a dozen debt-for-nature exchanges have been concluded along these lines, with private ecological organizations using their funds to acquire debt owed private banks in the United States and elsewhere. The concept generally has been praised, but its limits are obvious: The groups brokering the deals have tiny resources compared to the size of Latin America's debt burden. Mexico's debt alone is $80 billion; Brazil's is much larger.

This limitation could be significantly reduced, however, by President Bush's Enterprise for the Americas plan, introduced in Congress last summer. The plan contains a proposal to include Latin debt owed the US government in debt-for-nature arrangements. The US Treasury would itself write down chunks of the debt it holds in exchange for investments, made in local currencies, in environmental protection. The dollar amounts of reduced debt could then reach into the billions, instead of millions.

Some worry that environmental obligations taken on by Latin American governments could entail expanded printing of local currency and thus stimulate inflation. The Bush plan, however, requires that governments entering into debt-for-nature deals put a portion of their environmental funds into trust accounts, with the interest being used for conservation projects, like increasing the number of forest rangers. This would avoid a sudden, heavy infusion of new currency.

Another worry has been that the concerns of indigenous peoples - such as Indians who rely on rain forests to make a living - are overlooked when environmental programs are designed. But careful planning should be able to weigh those interests and avoid hardship.

Debt-for-nature swaps have a double-barrelled benefit for Latin Americans, easing the debt load while underwriting urgently needed environmental protection. Passage of the Enterprise for the Americas bill could give such arrangements their biggest boost yet. And other governments with big stocks of Latin debt - those of Western Europe and Japan - just might be persuaded to follow the US lead.