Debt-for-nature swaps

Debt for nature swaps involve the exchange of a debtor country's external obligation for that country's agreement to use local currency instruments to support a specific environmental project, such as development of conservation management plans, training of park personnel, or environmental education activities. These agreements are often described as deals where everyone benefits : the debtor country reduces its external debt, the environmental group can leverage its original donation amount, and banks profit from selling their debt on the secondary market or from the publicity value of donating the debt to the environmental group. However, this is a too simplistic analysis of debt for nature agreements. This paper examines whether the debtor country and environmental group benefits from the swap compared to the alternative of a straight donation of funds from the environmental group to the developing country, as well as the incentives that commercial banks have to donate, rather than sell, debt to international environmental groups.