INTRODUCTION

The idea of debt-for-nature exchanges was first proposed in 1984, following the groundwork laid by debt–equity schemes. In the words of one market participant, ‘The ideas for debt-for-nature didn't really get off the ground until debt–equity programs had been launched.… Really these programs can be viewed as son-of-debt-equity’.

In October 1984 Dr Thomas Lovejoy, then Executive Vice President of the World Wildlife Fund (WWF), wrote an opinion piece for the New York Times that is generally credited with having provided the first public formulation of the debt-for-nature idea.

Lovejoy proposed that a developing country's external debt be reduced in return for its taking steps to address issues of environmental concern and that governments provide tax relief to commercial creditor banks for participating in these transactions. Lovejoy emphasised the correlation between developing country indebtedness and environmental degradation and encouraged environmental nongovernmental organisations (NGOs) to investigate using the developing country secondary debt market to finance conservation projects. He noted that discounted developing country debt could potentially leverage ‘conservation dollars to preserve some of the world's most biologically valuable natural areas while helping countries reduce their external debt’.

This type of debt-exchange transaction is based on the simple notion of a reduction in external debt in return for domestic conservation activities. In the 1980s most developing country foreign debt was denominated in US dollars (or other hard currencies). Many developing nations employed short-term, often indiscriminate strategies to produce exports to generate foreign exchange for debt repayment.