Overview of Debt for Nature
Swaps and Description ofthe Structure of Debt forNature Swaps Executed
Pursuant to the US Tropical
Forest Conservation Act
Photo 1
4.19” x 10.31”
Positionx: 8.74”, y: .18”

Presented by:Romas Garbaliauskas
Senior Legal Advisor
Conservation International

Photo credit: © CI/Haroldo Castro

Part 1- Debt for Nature Swap (DNS) Overview
DNS Definition:•A financial transaction in which debt owed by a debtor(most often a developing country government) is forgiven
by a creditor in exchange for local investments inenvironmental conservation measures being financed bythe debtor
Two types of DNS:•Commercial•BilateralDescription of Commercial DNS• NGO purchases discounted sovereign debt
from commercial banks on the secondarymarket• NGO then cancels the debt and in exchange
the debtor country invests a percentage of theface value, normally converted to local
currency, into domestic conservation programs

Bolivia: The First-Ever Commercial DNS Swap
• Conservation International (CI) acquired Bolivian
debt with a face value of US$650,000• CI paid US$100,000 for this debt on the secondarymarket• In return for CI cancelling the debt, the Governmentof Bolivia undertook to provide the Beni Biosphere
Reserve with maximum legal protection and tocreate three adjacent protected areas• The Government of Bolivia also agreed to invest
US$250,000 in local currency for management
activities in the Beni Biosphere Reserve

Description of Bilateral DNS• Creditor government cancels the bilateral debt
owed by debtor country• In exchange the debtor country invests all or apercentage of the face value, normallyconverted to local currency, into domestic
conservation programs• Several creditor countries have engaged inbilateral DNS, including the US through the US
Tropical Forest Conservation Act (TFCA)

Part 2 - Description of the Structure of DNS
Executed Pursuant to the TFCA
TFCA Overview:•Enacted in July 1998
•Offers developing countries options for United States
Government (USG) debt relief in exchange for financing oftropical forest conservation activities•Transacted as either a “bilateral” swap or a “subsidized”
swap, which includes NGO participation•20 TFCA agreements have been signed with 14 countries todate and are projected to generate more than US$340 million

TFCA Process• Interested debtor country submits letter of interest/request toUSG• USG determines eligibility based on the debtor country having
tropical forests, having eligible debt and satisfying certain
political and economic criteria• Structure and legal agreements negotiated among parties(including with participating NGOs in a subsidized swap)• At closing, eligible country debt is cancelled and new obligations
to make payments into a conservation fund become effective• Program for use of fund amounts is implemented by an oversightcommittee consisting of representatives of USG, debtor country ,participating NGOs and other local NGOs

Overview of Indonesia TFCA DNS Transactions• Negotiated among USG, the Government of Indonesia(“GOI”) and participating NGOs
• 3 transactions cancelling more than $56 million of GOI
debt to USG at closing• Equivalent amount (+ interest) to be paid by GOI into afund over multiple years• Fund amounts to support conservation activities inSumatra and Kalimantan•Kalimantan activities are focused on 3 existing REDD+
initiativesPayment Flows at Closing
USG
Treasury

USAID

ParticipatingNGOsbilateral debt equal
to USG/NGO
contributions iscancelled at closing

GOI

Payment Flows
Post-Closing

GOI$ payments (= tocancelled debt+interest) paid
periodically over
# of years

Conservation
funds held in
trust by HSBC,
as Trustee

Periodictransfers toadministrator,
as needed formaking grants

Local administrator

Instructs

Instructs

Oversight
Committee(representatives ofswap parties and 3other ngos)

ProvidesGrantsGrant recipients(local NGOs)
implement
conservation
projects

Benefits to ParticipatingNGOs• NGOs help establish conservation investment priorities• NGO monetary contribution leveraged• New financing sustains past NGO conservation
investments• Strengthens NGO relationship with local government• Strengthens local NGO partners• High communications value