Last year, Ecuador was the recipient of the largest debt-for-nature swap in history when it received a $656 million loan to help finance the preservation of the Galápagos Islands in perpetuity in exchange for the forgiveness of $1.7 billion in debt. The forgiven debt and the benefit are greater than the total of all other such deals in the past 40 years.
But some economists and climate activists in South America are criticizing the Ecuadorian deal and these financial instruments, which are backed by the United Nations and other international institutions. This critique will prevail in discussions at several crucial upcoming international conferences — the UN’s Summit of the Future in September, the COP29 in November and next year’s Financing for Development — where representatives from the global South and North will debate solutions to the climate and debt crises.
Carola Mejía is a Bolivian economist for Latindadd, a regional network based in Peru that receives financing from the Ford Foundation and the Rockefeller Brothers Fund, among others. The network is pushing the UN to promote solutions to these twin crises. At last September’s High-level Dialogue on Financing for Development, held during the annual General Assembly opening debate, Mejía spoke about the “vicious cycle of debt.” The cycle is worsened by assistance that is made through loans that eventually lead to more debt.
Latindadd has been working for more than 20 years on economic, social and tax justice and other relevant issues, adding climate justice to its roster in the last several years. For Mejía, the intersection is important because “justice is what connects all of it.” She describes herself as “passionate about sustainable development and climate change” and values having an economist’s perspective to understand “how broad this crisis is and how everything is connected.”
So, what is a debt-for-nature swap? The World Wildlife Fund, which established the practice in 1984, says the “mechanisms were formed to relieve the debt burden of developing countries, while generating funds in local currency to support tropical forest conservation activities.” The capital raised is channeled to local biodiversity conservation through trust funds or foundations. Debt-for-nature swaps are also referred to as debt-for-climate swaps.
In Ecuador, the government’s debt conversion was supported by the Inter-American Development Bank and the US International Development Finance Corporation. The beneficiary is the newly created Galápagos Life Fund, which, according to its website, was “established with the purpose of empowering and providing assistance to local environmental initiatives.”
But a year in, Mejía says it’s unclear what the assistance will look like or if local groups have been sufficiently consulted. Latindadd released an Initial Assessment report this spring, saying that “there is no evidence that an impact investment policy or eligibility requirements have been designed in a participatory manner and that will be aligned with Sustainable Development Goals achievement.”
Mejía and many of her colleagues at Latindadd believe that the world needs urgent solutions to the climate crisis, a view that also reflects the global South’s perspective, where many countries are dealing with droughts and floods caused by fast-rising temperatures. Mejía thinks the global South’s view should drive the solutions to both the climate and debt crises and that the international community needs to recognize the connections between finance and the global climate emergency.
Talking about the case of Ecuador as well as the upcoming global meetings on climate and development, Mejía described what financing tools make most sense for the global South, what’s wrong about growth and why we’re listening to the wrong voices on climate and finance.
The interview is condensed and edited for clarity after two videoconference interviews and several emails. The article is part of PassBlue’s small state series, as many global South countries fall into that category. — MARIA LUISA GAMBALE
PassBlue: Let’s get right into debt-for-nature swaps with the project in Ecuador, which has gotten substantial, enthusiastic press. Please talk first about debt swaps and your views on them.
Mejía: Debt swaps are not a new instrument. These have been used since the 1980s for different purposes. But the structure of these swaps — debt for nature or debt for climate — is becoming more complex, with more financial and private sector involved and more complicated instruments. There are different types of debt-for-climate swaps. There are bilateral debt swaps, where the creditor country provides some debt relief for the debtor country, who then uses that money to invest in climate action or in conservation. That’s a simpler version.
But there are also third-party involvement debt swaps and private-sector involvement debt swaps. For example, most of the conservation or debt for nature swaps involve conservation NGOs from the global North who manage all the funds and the resources being invested in conservation or climate action. In light of the large debt problem in global South countries, and the climate emergency and huge gap in climate finance, the World Bank, the Inter-American Development Bank (IDB) and the UN itself have been promoting these instruments. But the evidence so far shows that they’re not a silver bullet to solving these crises since the amount of debt reduced is small and the amount of money going to environmental issues or climate action is also small.
PassBlue: Most reporting on the Ecuadorian deal leans jubilantly into the enormity of the numbers, but you’re saying they’re smaller than they look.
Mejía: Yes, it was well advertised as the biggest debt swap ever. So, it seems like a great operation. The government of Ecuador even received prizes and awards because of it. Yet, if you analyze the numbers, you can see that the reduction of debt isn’t so significant. There was a debt buyback of 2.4 percent of the government stock of sovereign debt with a discount at that moment, but it was done via a complicated blue bond and we don’t have details on the conditions of the loan that the government received.
If you consider the needs of the global South countries regarding climate finance, you can clearly see — and this is an official estimate of the UN Framework Convention on Climate Change (UNFCCC) — that through 2030, we need about $6 trillion to fulfill our nationally determined climate commitments in the global South. So, when you read about these numbers, they are actually very small compared to what we need for climate finance and environmental finance for conservation. These funds and how they’re spent are not managed by the Ecuadorian government. It’s decided by private sector institutions.
PassBlue: So, what are the numbers on the Ecuador swap?
Mejía: It has been advertised as a total debt savings of $1.1 billion, ultimately releasing $450 million for protection of Galápagos, focusing on conservation. Behind those numbers, however, there’s no transparency about the bureaucracy costs to set up the Galápagos Life Fund or the costs to the government, so, it’s hard for us to get a real analysis. Besides, these amounts may be big, but when you see them and you see the gap between the climate finance needs and environmental needs, they are just a drop in the ocean.
PassBlue: Your organization, Latindadd, has produced a report, the “Initial Assessment of Galápagos Debt-for-Nature Swap,” which was written with organizations in Ecuador and international experts. What are its major conclusions?
Mejía: It’s been one year, and we didn’t find any evidence or information about positive results. Here again, there is a lack of information regarding the mechanisms that the IDB [guarantor of the debt exchange] has established to monitor the program. That’s why we are also having discussions with the IDB to help them improve their mechanisms for monitoring these operations, because they granted the guarantee for this debt swap. They need to be aware of the impacts and the good or bad results. I think they are also going to push the Galápagos Life Fund to report on what has happened this year. But the point is, this is not an instrument that is going to solve any crises immediately. Not the climate emergency crisis and not the debt crisis.
Using a simple metaphor, it’s like putting a Band-Aid on a patient that is ill with cancer and that needs a deep treatment. But some governments that don’t understand the exact implications may be interested in swaps as a tool without being aware of the negatives.
PassBlue: So, what’s wrong with how debt swaps are set up and what could make them work well?
Mejía: There are no agreed principles to establish debt swaps so far, so we need to build them. Transparency, accountability, justice in the negotiation and respect to the sovereignty of a country are all important. The first problem is how debt swaps are negotiated. The creditor is the one creating the conditions and not the debtor country. The country receives an offer and that’s it. The negotiations should be more fair. There’s very little public information regarding the details of these operations. And we are talking about public debt, so there should be more transparency and more information. In the case of Galápagos, for example, civil society had to make a request through courts that information be published to analyze the instrument and its implications.
Additionally, the amount of money that is freed up for climate action or conservation is not the sovereign decision of the country, but instead is most often managed by a third party. For many of these debt for nature swaps, the Nature Conservancy, an American organization, has been the intermediary. In the case of Venezuela, the Galapagos Life Fund was established in Delaware, a tax haven — which we are also not happy about — and its board is mostly from the private sector, not the public sector. Lastly, these debt swaps are costly. There is a high cost with the intermediaries and how the mechanism is developed and designed. And these transaction costs are high for the debtor country, compared to what they receive in benefit.
PassBlue: How do all these issues play out beyond Ecuador, in terms of what solutions the UN and other international institutions are turning to?
Mejía: The climate crisis is not something that will happen in the future. It’s something that is affecting us now and is going to increasingly affect us if we don’t tackle it immediately with real solutions. And it has been linked to the financial system. From the work we have been doing, we can clearly see that rich countries haven’t fulfilled their commitments. They say they don’t have enough public money, but rich countries are investing more in wars, in fossil fuel subsidies and in extractive industries that kill people in our countries and create social and environmental impacts in communities.
They are promoting carbon markets, market-based mechanisms and more loans as the solution for every problem. For example, 81 percent of climate finance received by Latin America is loans that we must repay at high interest rates, so at the end we are the ones paying for the climate crisis, to which we have contributed very little in comparison with other countries. Rich countries are also promoting what they call “innovative instruments,” like blended finance and more participation of the private sector. But we don’t see the private sector as the solution, because they are always going to push for the generation of profit. And they are not investing in adaptation. However, adaptation is a priority in the global South because we are not prepared.
In my country [Bolivia], for example, at the beginning of this year, we faced a serious drought. But when the rains started — with El Nińo happening this year — we had flooding everywhere. So, we passed from one extreme climate event to another. Brazil is in the same situation, as well as Paraguay, Uruguay, Argentina, Peru. It’s happening in all our countries and in other regions of the world. That’s why we are demanding out-of-the-box solutions.
PassBlue: Do you have a statistic on how much is going to adaptation projects?
Mejía: Yes; 24 percent is going to adaptation from the total amount of climate finance mobilized yearly to the developing countries. And the rich countries have committed to doubling that number, but they are not doing that.
PassBlue: What are the alternatives for moving money to the right places in the right ways to mitigate climate crisis damages and fund adaptation practices? And what role can the UN play?
Mejía: Right now, Latindadd is advocating for a new allocation of special drawing rights [SDRs: an international reserve currency the IMF uses to supplement member countries’ official reserves] as an instrument that could be effective and quickly close this financial gap. After the pandemic, $650 billion SDRs, dollar equivalent, were distributed. Unfairly, but distributed. From the total amount of SDRs allocated, two-thirds went to the global North, which they didn’t use because they didn’t need it. Only one-third went to global South countries, and we used that money. Latindadd researched the impact of these SDRs and how countries have used them. And we can see that they didn’t create debt. The use of the SDRs was really a sovereign decision. They could prioritize the sectors that they would like to invest in or spend the money in even paying debt.
Considering there’s such a big gap for Agenda 2030 goals, with about $6 trillion needed for developing countries, that could be a very important tool to improve climate finance faster without creating more debt. The problem is that it is a decision within the IMF board of directors, where the US has a lot of voting power that is stopping a new allocation of SDRs. There are other debt-justice movements demanding debt cancellation, or debt relief, which could also free up resources in developing countries to tackle the climate emergency. And we need to improve the climate finance architecture within the UNFCCC because it’s not effective. To get a project approved by the Green Climate Fund takes five years and a difficult bureaucratic process.
PassBlue: Two major international conferences are coming soon: the UN Summit of the Future in September and COP29, on climate change, in November; plus the Fourth International Conference on Financing for Development (FfD) is in June 2025. What are you hoping to see from these events?
Mejía: A new climate finance goal is going to be set at COP to replace the unfulfilled $100 billion pledge. That gives us an opportunity to negotiate a higher goal to respond to the real needs that I’ve mentioned, which would mean trillions of dollars for developing countries. There will also be work towards solving problems that we have seen with climate finance so far, such as the use of loans for climate finance. But my fear is that rich countries will try to use that process to dilute their historical responsibilities. That is a big risk. The new financial target is something that is complicated to determine. Negotiations are going to be difficult.
We can see clearly that wealthy countries are working together because they’re making the same proposals. And we unfortunately don’t see that kind of good coordination within global South countries. That could lead to bad results. But we have a lot of civil societies involved. And we are trying to advise our governments, promote specific narratives and defend the most important thing — that climate finance should respond to climate justice. Otherwise, the historical responsibilities are going to be diluted. Not many people have a lot of faith in COP29 because it’s going to be in Azerbaijan, a fossil fuel producer. But we still have to push for good outcomes because the core of the discussion is going to be climate finance.
PassBlue: Are there opportunities to build alliances or solidarity among global South countries, and is that happening anywhere?
Mejía: I think there’s an opportunity to build these blocs. African countries work very well together. But within the G77 plus China group of countries, there are a lot of different positions, and I don’t see them as strong as I wish they were. We still have time to do that. In Latin America, for example, we have new governments. We have Brazil and Colombia trying to align the proposals from Latin America. But in Latin America, we have so many intersecting interests and alliances, so countries sometimes end up responding more to the interests of big, rich countries. Overall, it is important that global South countries have strong representation at these meetings because most people participating in these events are white men from the global North, and they don’t represent all the things that are happening in our countries.
PassBlue: You were recently involved in the UN-led climate meetings held in Bonn in June, a step on the road to COP29. What did you witness there, and did it make you feel optimistic or pessimistic for November?
Mejía: I followed the climate finance negotiations on behalf of Latindadd, and we were very disappointed to see that the discussions are still too broad and that consensus on key topics related to quantitative and qualitative elements is not happening, with global North countries trying to dilute their historical responsibility. They are proposing to increase the base of contributors and include other stakeholders [e.g., private sector and multilateral development banks], and they are trying to reduce the base of recipient countries. It’s worrisome that they are not discussing a number to replace the $100 billion pledge, with very few months left before COP.
PassBlue: What about the Summit of the Future, on Sept. 22-23, at UN headquarters, before COP29?
Mejía: We consider the summit to be more of an open dialogue space between countries to review the 2030 Agenda and goals. But we don’t consider it space for negotiation. No decisions are going to arise from that event. It’s going to be more an event with good intentions, recognizing the progress or lack of progress regarding the SDG goals and the 2030 Agenda. To me, it seems like a strategy to put hope into something new, instead of focusing on the SDGs, which are failing. It’s a new process that seems to be more participatory, but in the end it’s not going to solve anything.
We have put our hopes more in the Fourth FfD Conference next year because we consider it the correct space to debate problems related to the economic justice agenda and the tax justice agenda, while also considering the climate emergency that we’re facing.
PassBlue: What will be the strengths and weaknesses of the UN-led Fourth FfD Conference, held June 30 to July 3 in Spain?
Mejía: I think it’s important first of all to establish that all the crises we’re suffering are interconnected. At the source of these crises is the economic system, which should be changing. We should be respecting the natural boundaries of the planet, changing to low carbon parts of development and resilient parts of development. International taxation is going to be discussed in the FfD process, not at UNFCCC. Debt relief or debt-restructuring mechanisms will be discussed in the FfD, not in UNFCCC. They should be worked on together. Because otherwise we’re not going to find comprehensive solutions to these problems that are so interlinked. We would like to see deep reforms. We would like to see a sovereign debt restructuring mechanism within the UN discussed at the FfD to have a more fair instrument to negotiate the debt problem with creditors, private and public, and debtors. That would be important.
The recommendations are always more economic growth. And that is not a real solution or a good recommendation for a world that is going to the point of no return regarding the climate emergency because the economic growth and capitalistic system has pushed the world to this point of not recognizing the natural boundaries of a planet.
PassBlue: Besides these large convenings, are there other efforts within or promoted by the UN that you find heartening?
Mejía: UNCTAD [UN Trade and Development] is doing a very good job publishing compelling reports that show what civil society is saying: that the debt and climate emergencies are interlinked and we need different solutions. The UN’s ECLAC [Economic Commission for Latin America and the Caribbean] is a good regional space, where we hear some proposals from the UN that are aligned to what the civil society and global South countries are proposing. For example, Brazil has been proposing a tax on wealthy people and ECLAC has been echoing those proposals.
PassBlue: What influence do these UN bodies have in the whole UN system?
Mejía: Unfortunately, I don’t see them wielding the influence I think they should have, especially UNCTAD. I think the UN should listen more to the agency’s reports and recommendations and proposals.
PassBlue: Summing up, where is the UN system on being a right or wrong space to address climate change and climate financing?
Mejía: The UN is the best space to discuss deep reforms and transformation of the financial system to provide real solutions to tackle these multiple crises that we are facing. The UN is very clear that we need to end poverty and stop the climate emergency, and that narrative is very clear. But things are moving slowly. I haven’t lost hope in the UN system. What I don’t like is that it moves closely with the Bretton Woods institutions. What the World Bank or the IMF say directly affects decisions at the UN. And I don’t like how the UN allows greenwashing for big corporations, like Coca-Cola and others that contribute funds to the organization of these big events. These companies are the ones creating the problem, so that is an issue.
The UN needs to play a stronger role, independent from these Bretton Woods institutions — the G20 and the G7 — which represent only the interests of rich countries. The UN, being the more democratic space, should promote negotiations and restructuring of these systems to tackle the emergencies we’re facing. Every time I hear Mr. [António] Guterres, I think he has it clear in his mind. But I think that the UN system has been influenced by too many interests that are trying to keep the status quo.
This article was updated to correct the interview section where Mejía explains what’s wrong with debt-for-nature swaps.
We welcome your comments on this article. What are your thoughts on debt-for-nature swaps?
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Maria Luisa Gambale, a graduate of Harvard University, lives in New York City. In addition to writing, she produces film and media projects and is director of the 2011 film “Sarabah,” about the Senegalese rapper-activist Sister Fa. She has produced and directed video for National Geographic, ABC News, The New York Times and Fusion Network. Gambale’s work in all media can be viewed at www.veradonnafilms.com.
