HIPCs are So 2000; Meet the Debt-for-Nature Swap

♠ Posted by Emmanuel in ,, at 6/30/2009 05:27:00 PM
Given the bedraggled state of US finances, it is still worth remembering that it is a large lender to LDCs. At the turn of the decade, forgiving the debts of highly indebted poor countries (HIPCs) was all the rage. With the environmental consciousness of development agencies increasing--loans and projects now have to have environmental impact assessments--it was only a matter of time before something like occurred on a larger scale.

You see, USAID has begun giving loan forgiveness under the Tropical Forest Conservation Act of 1998. This kind of debt relief is granted upon recipient countries agreeing to better protect tropical forests from deforestation in a so-called debt-for-nature swap. The US is about to embark on the largest such deal with Indonesia. From the Wall Street Journal:
The United States will sign an agreement Tuesday to forgive nearly $30 million in Indonesian debt in return for the large Southeast Asian country agreeing to protect forests on Sumatra Island, which is home to endangered tigers, elephants, rhinos and orangutan.

The deal is the largest so-called debt-for-nature swap the U.S. government has organized so far under the U.S. Tropical Forest Conservation Act and its first such pact with Indonesia, which has one of the fastest deforestation rates in the world, losing an area of forest the size of Switzerland annually.

Conservation International, the U.S.-based conservancy group, helped organize the deal, and has contributed $1 million to help reduce the debt. "This is a huge boost for people and wildlife of Sumatra, and demonstrates a forward-looking policy on the part of the U.S. government," said Jatna Supriatna, vice president of Conservation International Indonesia.

Under the deal, Indonesia will pay the nearly $30 million into a trust over eight years instead of repaying it to the U.S. government. The trust will issue grants for critical forest conservation work in 13 forest areas in Sumatra.

The U.S. in the past has organized smaller debt-for-nature swaps with countries like Guatemala, Botswana, the Philippines and Peru. Under the Tropical Forest Conservation Act of 1998, developing nations with a significant tropical forest, a democratically-elected government, and an economic reform agenda, are eligible for debt forgiveness in return for conservation efforts.

Indonesia's massive deforestation rates makes it the world's third-largest emitter of carbon dioxide behind the United States and China due to the forest fires set each year on peat lands to clear forests...