Ecuador initiates plan to swap debt to fund Amazon conservation projects

By Virginia Furness, Julia Symmes Cobb and Alexandra Valencia

Ecuador has started work on a deal to swap more of its existing debt and free up money for conservation efforts in the Amazon rainforest, a stock exchange filing on Tuesday showed.

A view of the Amazon rainforest at Yasuni National Park, during a tour led by Indigenous Waorani people in Pastaza Province.

In it, Amazon Conservation DAC, a special purpose vehicle, offered to buy back four Republic of Ecuador bonds from debt holders, an early step in a so-called debt-for-nature swap that allows countries to buy back more expensive debt and use the savings generated to fund conservation projects.

BofA Securities is arranging the buy back, which will be financed by up to $1 billion of new bonds issued by Amazon Conservation DAC.

Given that Ecuador eurobonds are trading at a discount, the exact face value of debt that will be bought back will not be known until the tender period expires.

The tender offer expires on Dec. 10, according to the filing at the Luxembourg stock exchange.

Ecuador has been scoping out a new deal to protect part of the Amazon rainforest — widely regarded as the world’s most important natural ecosystem — after completing a record-breaking $1.6 billion debt swap for the Galapagos Islands last year, sources told Reuters in April.

U.S. International Development Finance Corporation (DFC) will provide political-risk insurance for the deal while the Inter-American Development Bank (IDB) will provide a $155 million credit guarantee to cover two years of interest payments on the bonds.

Countries from the Bahamas to Barbados to Gabon have increasingly turned to debt-for-nature swaps as a way to manage their outstanding debt while freeing up capital to invest in climate or nature-conservation projects.

Ecuador’s economy was hit hard by the COVID pandemic and suffered further amid increased violence in the country, which the government blames on local criminal organizations and their allies including Mexican drug cartels and the Albanian mafia.

In May, the International Monetary Fund approved a new four-year arrangement under the Extended Fund Facility for Ecuador, with access equivalent to $4 billion.
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Credit: Reuters