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Debt-for-Nature Conversion in Debate

Written 4:41 pm Dec 17, 1991 by ax:ngonet in peg:en.unced.general

From 23rd-25th September, 1991, a seminar entitled "Debt Conversion, Development and Environmental Degradation" was held in Itatiaia, Rio de Janeiro State. Organised by IBASE (the Brazilian Institute for Economic and Social Analysis) as part of the programme of the Forum on Debt and Development (FONDAD), it was attended by NGOs from Latin America, Europe and the United States, as well as the leaders of social movements in Brazil. The main objective of the meeting was to broaden the debate on the proposal to convert external debt into support for ecological programmes, and to analyse the experiences of those countries which have already been involved in so-called "debt for nature swaps", in order to supplement our work on this issue with new elements for consideration.

This paper is a summary of the debate and the main conclusions reached by the meeting after a rich and intensive exchange of views, experiences and queries. Our aim in publishing it is to enable all those directly or indirectly involved with the issue to join in the debate, at this particularly opportune moment.

1. Environmental Degradation, Social Inequality and the Development Model

Debt/environment conversion should be discussed in the light of overall socio-environmental problems, where environmental degradation and the activities which generate social inequality are the outcome of the same predatory and exclusive model of development.

The current socio-environmental crisis we are facing is intrinsically linked with the capitalist pattern of wealth accumulation which constantly re-creates means for the domination and exploitation of humanity and nature, commercializing life in all its aspects. In this sense it is a global crisis which goes beyond the Third World, even though the existing political and economic imbalances cause the responsibility and adverse effects of the crisis to fall on the system's weakest links.

Identifying the connection between the socio-environmental crisis and a capitalist development model negates any hypothesis of political neutrality in reference to environmental protection. Different countries and social groups are not equally responsible, and still less equally affected by environmental degradation. They share, therefore, neither the same interests nor the same strategies for protecting the environment.

It is essential to deny the neutrality of the ecological debate and to identify the different political and economic interests at stake in order to clarify the ideological disputes which are attached to the different projects for the 'preservation' of nature.

The recent 'enrollment' in the environmental cause by the generators of the world economy, such as the G7, major banks, transnational companies and multi-lateral agencies for example, shows the strategic role of ecology in the re-definition of the world order. At the same time, it brings to the surface the attempt to impose a particular project for the management of natural resources, which serves the specific interests of those groups which have been, and continue to be, largely responsible for socio-environmental degradation at a global level. The ecological concern of these groups arose because of the limits the environmental crisis began to place on the continuation of the existing pattern of wealth accumulation, which was so predatory that it began to threaten the very basis of that accumulation: nature itself.

The elites' new proposal for environmental management is based on the same characteristic logic of exploitation and domination, despite a modernization in their rhetoric and policies. The most damaging reflection of this logic is the strategy for commercialization and private appropriation of natural resources, previously regarded as a common heritage. Increasingly, nature is being controlled by the rules of the market, regulated, quantified. The patenting of life forms is a sign of these new times, in which there are ever-increasing attempts to make control over life private and restricted.

Disguising this aim, there arises an appeal to common sense in favour of the preservation of nature. But what concept of nature are we discussing? We need to know not only what to preserve, but how to preserve it, and for whom. We must bring back into our discussion the issue of democratic control and management of resources.

Blaming Third World countries for the accelerated environmental degradation we are seeing - whether because of their external debt, or because of the impoverished populations living there - once again covers up the real protagonists. These, disguised, re-write a story which has already been repeated many times. Suddenly they are transformed from being the culprits into being saviours from the destruction which reigns. They re-appear with their generous aid and cooperation programmes as the main arbiters of the planet's ecological balance.

2. Who Gains from Debt Conversion?

The idea of exchanging debt for environmental benefits forms part of a broader plan for its conversion (conversion for investment, for privatization etc.) and administration, which arises from the creditors' recognition that under the current contractual terms it is unpayable. Both the development of a secondary market for the debt, and, more recently, the US Government's announcement of the Brady Plan, are signs that the creditors are seeking alternative solutions to minimize their "losses" and control the debt problem.

Conversion allows creditors to dispose of their "sickly" bonds, receiving part of an uncertain debt at the same time as creating possibilities for profit, whether by good business deals, or by tax benefits and improved public image. United States law has recently been modified, reflecting these interests, so that the banks could gain additional advantages by selling bonds on the secondary market, and receiving tax relief on the difference between the face value of the bonds and their selling price.

The main aim of these initiatives is, without doubt, to diversify and protect the banks and businesses in their investments and other interests in the Third World. Foreign debt has become unequivocally a leading instrument of political domination, increasing the inequalities in the international order (the fact that debtor countries are prohibited from buying back their debt on the secondary market is illustrative of this).

Given this context, how should we consider the idea of transforming the debt from an instrument par excellence for political domination, into a mechanism for environmental protection, as put forward in the debt-nature swap proposal? And not only the debt/environment exchange - how should we perceive the increasing profusion of other proposals whose central point is the conversion or reduction of the debt, such as conversion for development, for charity etc.?

The power structure between debtors and creditors is maintained. The people of the Third World are once more transformed not into subjects of their own destiny, but into the object of political domination disguised under the label of 'aid' programmes. The illegality of this debt, already paid many times over, is never discussed. Nor is the elimination of structural adjustment programmes which cause far more social and environmental damage than any conversion projects can even slightly counterbalance. The foundations of the current socially damaging and ecologically irresponsible pattern of wealth accumulation are never called into question.

3. Who Pays the Bill for Conversion?

If the issue of debt conversion is strategic for the powers behind the international order, for other social groups, particularly for the people of the Third World, as well as going against the flow of the advances made in campaigns against the debt by sectors of civil society and the social movements, it does not represent an effective contribution to resolving the serious crisis in which they are submerged.

Take for example the Brazilian Government's recent decision to accept the conversion of 100 million dollars of its debt into ecological projects. In principle this represents less than 0.1% of the country's foreign debt. Since for some years Brazil has not been paying its debt according to the terms and amounts envisaged - as is the case with the great majority of the debtor countries - the cancellation of its debt in dollars will be merely an accountancy exercise, with no effect on its external accounts. In terms of its internal accounts, the conversion creates an obligation to pay the debt, but in local currency. Even though the amount to be paid out is reduced, given the fact that it can only be deducted from the interest payment, fixed at 6% a year (debt bonds, once issued, are perpetual with no redeeming of the principal) this means the payment must be made out of public funds. Bearing in mind the budgetary and financial crisis faced by the Brazilian State (again in common with most of the other debtor countries) these resources will either be based on the contracting of internal debt (which generates inflation) or will form part of the pressure on its budgetary capacity, leading to cuts in essential expenditure, on health and education, salary freezes etc. So, even though it constitutes only a small part of the debt, it is the Brazilian people who will pay for its conversion.

Although they will pay the bill, there is no prospect of the population participating in approval of the projects or management of the resources, this being limited to the sphere of government and foreign representatives. Meanwhile they have to struggle with the devastating social and environmental effects of structural adjustment policies, whose objective is to ensure the payment of the rest of the debt not included in the "generous" environmental preservation projects.

4. Summary of Conclusions

The conversion mechanism which exchanges foreign debt for environmental benefits, contrary to what it suggests, does not contribute to the development of environmental policies consistent with the democratic management of natural resources, which might in reality lead to environmental conservation and a better quality of life for the local population. It forms part of a more general strategy for converting and administrating the debt, re-affirming the creditors' political and economic domination over the debtors, within a development model which commercializes life in all its aspects.

Debt-nature swaps stipulate that the debtor countries allocate resources in local currency - which is extremely scarce because of their internal budgetary crisis - to be applied in isolated conservation projects which are defined with little or no popular participation. Without taking into account the sovereignty of the local population, or the social conditions of these countries, the projects are designed more for research and exploitation of natural resources than for actual conservation. .pa In addition, the exchange of debt for environmental projects was considered an inappropriate mechanism for the following reasons.

  1. It does not represent the entrance of new money, but provides an illusory relief of external debts, releasing a sum which is insignificant both in terms of reducing the debt and of dealing with the environmental crisis.
  2. It allows devalued foreign debt bonds to be transformed into internal debt bonds, reducing the creditors' losses and penalizing the local population, because of the budgetary pressure on the State.
  3. It creates an arbitrary form for the allocation resources. While the mobilization of resources for the environment is essential, it should be based on local priorities in a scenario in which the social needs are so dramatic.
  4. It does not ensure the sovereignty of the country in deciding which projects should be financed, and also raises the question of their democratic management, since the range of groups and interests involved (creditors, governments, environmental agencies) makes local participation difficult.
  5. It contributes to legitimizing the debt at a time when the central countries are already seriously considering concrete possibilities for reducing its overall value, weakening the case of those sectors of civil society which maintain that the debt is illegal. As such, the issue of conversion constitutes a retrograde step in the campaign against the debt.

The unconstitutionality of the debt has been raised by legal authorities in Brazil, the Philippines and internationally. Their standpoint is that it has already been paid, and that the financial mechanisms which are used to increase it artificially are part of an illegal strategy by the creditors which constitutes a crime punishable by law.

vi. It is in keeping with the strategy for merchandising and private appropriation of natural resources, previously regarded as a common heritage. Bio-diversity itself is at risk as it increasingly becomes an object of interest to science and industry. The mapping of gene banks may be one of the objectives hidden behind the good intentions of the conservation and research projects allotted to debt conversion. This has already been demonstrated in Costa Rica for example, where research centres financed by debt conversion are administered by foreign researchers with no participation by the local scientific community.

vii. It diverts attention from the main arena of conflict, where the existing model of wealth accumulation and international relations favours the extraction and transference of a significant part of the labour, natural resources and wealth of Third World countries to the dominant points of the capitalist economy. In exchange, it introduces a new element into the dispute for public funds, armed with a supposedly consensual rationale, which contains, under the banners of ecology, cooperation and development, dangerous traps.

5. NGOs and the Environmental Crisis

Denying the appropriateness of debt conversion as a mechanism for preserving nature does not mean ignoring the importance of facing up to the problem of environmental degradation. On the contrary, it is a recognition of the mechanism's ineffectiveness in addressing the gravity of the socio-ecological crisis we are facing. More than anything, it highlights the need to seek alternatives which will permit the implementation of a democratic development model whose sustainability can be assessed according to ethical and political criteria.

The growing involvement of NGOs in debt conversion processes, under the arguments of pragmatism in obtaining resources, or increasing power to influence governments in the definition of environmental policies, seems more a reflection of an increasing process of co-option and political power struggles amongst NGOs, than of ignorance of the weakness of this mechanism as an alternative worth pursuing.

However, given the gravity of the crisis we are facing, it is important that we do not ally ourselves to proposals which reinforce conservative positions and dilute the political content of our campaign. The NGOs alternative of acting directly, without becoming entangled in the straitjacket of debt conversion, and with a clearer and further-reaching political focus, is one of the ways of bringing back into the centre of the debate the need to move forward in the construction of a development model which unites ecology, social justice and democracy.

Consequently, the NGOs have an important role to play in international campaigns on the issue of debt and other mechanisms of economic subordination which result in the deterioration of social and environmental conditions.

IBASE Rio de Janeiro, October, 1991. text from peg:en.unced.general