Environment wins when debt swapped for nature
Environment wins when debt swapped for nature
Djunaydi Suswanto, The Jakarta Post, Jakarta
In the 1980s environmentalists were delighted to find a new
mechanism to finance conservation.
In 1984, Thomas Lovejoy, deputy chairperson of the World
Wildlife Fund (WWF) in the U.S., proposed that environmental
organizations should enter the capital market by "buying"
developing countries' debts from American and European banks at
discounted prices.
Once the debt is bought out, the government of a debtor
country would no longer be required to repay the debt. Instead,
the government should do something useful for the environment,
such as financing conservation undertakings in its own currency
through NGOs.
Lovejoy's idea led to the establishment of an international
financial mechanism known as a "Debt for Nature and Development
Swap", or DNDS.
DNDS is intended to reduce a country's offshore debt by
commitment to supporting social development and natural resources
conservation.
In other words, DNDS is another way of writing off the
offshore loans by swapping them for the commitment to mobilizing
its domestic financial resources for conservation activities.
The DNDS was first put to use in 1987, when Conservation
International (CI) purchased the Bolivian government's debts
amounting to US$650,000 at an agreed price of US$100,000. In
return, the Bolivian government designated three conservation
areas and injected local funds worth US$250,000 for the
management of these areas.
Since then, over 30 conservation projects in 20 countries
have been implemented, resulting in the writing off of debts
worth some $177 million. In the Third World, the debts purchased
by international environmental organizations have reached US$46.3
million. In return, debtor countries have been required to make
available US$128.7 million to prove their commitment to financing
conservation.
In Costarica, the Philippines, Madagascar, Guatemala and
Panama, funds generated by this swap mechanism have reached 95
percent of the total DNDS.
In Indonesia, top budgetary priorities have been the repayment
of offshore and onshore loans over the past three years.
In the 2002 state budget, the servicing of offshore and
onshore loans -- both the interest and the principal -- will eat
up close to Rp 130 trillion, or some 44 percent of total
revenues.
Meanwhile, development spending gets only Rp 47,1 trillion --
only about 2.8 percent of gross domestic product as estimated in
the 2002 state budget.
Indonesia's offshore loan burden is becoming heavier with the
obligation to pay ever increasing domestic debts. By the end of
December 2001 alone, Indonesia's domestic debts will reach Rp
656.7 trillion, an amount of outstanding debt that the Indonesian
government will have to pay until 2018.
Besides, as a logical consequence of the intervention of the
International Monetary Fund (IMF) in Indonesia through its
economic recovery programs, the government will also have to pay
the IMF US$1.3 billion this year.
This liability will continue to swell and next year Indonesia
is expected to allocate US$2.7 billion for the payment of both
interest and principal to IMF.
As a tight debt repayment schedule has been drawn up for
Indonesia, the budget allocated for debt repayments will be
larger than that for development.
The heavy debt burden has made Indonesia turn to the DNDS
scheme. The government has formed a team to make the necessary
preparations.
"The government is opting for the DNDS mechanism mainly
because the monetary crisis has made the burden of interest and
principal payments exceed the threshold," said State Minister for
the Environment Nabiel Makarim.
DNDS, Nabiel believes, will reduce the state's financial
burden, particularly in the environmental sector.
"I am of the view that DNDS will bring the environment to the
mainstream of development in Indonesia," he said, adding that
Indonesia should concentrate on reforestation.
It has been predicted that DNDS in Indonesia will have a small
impact on the country's foreign debt repayments but it will be
significant for the government's efforts to increase development
funds.
According to Nabiel, the wealthy countries which have given
loans to Indonesia have no objections to the planned scheme.
For example, the U.S. government has offered to support DNDS
through its Tropical Forest Conservation Act to reduce
Indonesia's debts to the American government.
The German government has also promised to cut Indonesia's
bilateral debts to ensure sustainable development in Indonesia
through DNDS.
The DNDS is a positive scheme. It is expected that more
countries will be interested in helping Indonesia and other poor
states.
Now, it remains up to the government to demonstrate its skills
in negotiating with creditors on DNDS.