Ecuador Establishes Debt-for-Nature Deal for Galápagos Islands Conservation

Ecuador has just agreed to the largest debt-for-nature exchange ever recorded. The deal involved selling a “blue bond” to provide over $12 million annually toward conservation around the Galápagos Islands.

Last week, Credit Suisse bought three of the country’s bonds, with a value of $1.6 billion, at about $656 million. This highly discounted rate will save Ecuador about $1 billion in principal and interest debt repayments.

Countries can sell bonds to secure immediate capital, but Ecuador’s bonds have lost value in recent years. Possibly to avoid bigger losses in the future, bond investors were able to sell to Credit Suisse for about a 60% discount of the value of the bonds. Credit Suisse turned the purchased bonds into the Galápagos Marine Bond, worth $656 million. This bond will allocate funds toward marine conservation and will mature in 2041.

The deal will reserve at least $12 million per year for conservation, and $5 million annually will be reserved in a fund that could last decades.

As reported by Reuters, Ecuador’s bonds have a 17% to 26% yield. The Galápagos Marine Bond has less risk because of a credit guarantee of $85 million from Inter-American Development Bank and $656 million political risk insurance from U.S. International Development Finance Corp (DFC).

“Overall, I think it is positive,” said Carl Ross, researcher on emerging country debt and partner at asset manager GMO, as reported by Reuters. “The bonds have been traded at very depressed prices, so why not take advantage and do some liability management. It’s a good idea for a country that is trying to regain credibility with the market.”

Other countries, including Belize and Barbados, have also had successful debt-for-nature deals, but the new deal for Ecuador is the largest recorded. It is equivalent to a $1 billion debt reduction after conservation funding.

Despite financial struggles and political turmoil, Ecuador’s foreign minister Gustavo Manrique Miranda said the deal highlights that Ecuador is rich in wildlife. “Our currency is the biodiversity,” he said, as reported by The New York Times.

Still, while the deal can benefit all parties, it does have its criticisms. It only eases up a small portion of Ecuador’s debt and still leaves a burden on lower income countries to deal with the impacts of climate change.

“Interest is still flowing from poorer countries suffering the worst impacts of climate change, to which they made a relatively small contribution, to rich countries and banks that bear the vast majority of responsibility for the ecological crisis,” Patrick Bigger, a research policy analyst at the University of California, Berkeley and research director at Climate and Community Project, told The New York Times.

The Galápagos Islands have some of the highest rates of endemism, meaning many of its species are found nowhere else on the planet. According to the Galápagos Conservancy, more than 20% of Galápagos marine species are only found there. Further, 80% of the land birds, 30% of the plants, and as much as 97% of the reptiles and land mammals are native only to its area, spotlighting the importance of conserving this unique ecosystem.