Billions of dollars’ worth of debt deals to protect vital ecosystems from Africa to Latin America threaten to come undone or need rewriting as anxieties grow that critical U.S. support will come to an end with President Donald Trump.
The ‘debt-for-nature’ swaps, which trade debt forgiveness for conservation commitments, have gained popularity in recent years with deals involving the Galapagos Islands, coral reefs and the Amazonian rainforest some of the most high-profile.
The U.S. International Development Finance Corporation has been actively involved as a primary source, offering political risk insurance for more than half of the transactions completed in the past five years, representing close to 90% of $6 billion of debt swapped.
A source who has been privy to the plans said that the DFC had about five swaps lined up that are currently in jeopardy with CEO-to-be Ben Black and U.S. government efficiency head Elon Musk both harshly criticizing its climate initiatives.
The source wouldn’t say how much debt was covered by the swaps but said recent DFC-backed deals were more than $1 billion apiece.
White House and DFC representatives refused to comment on future DFC involvement in such deals.
A representative for the DFC, asked not to be named, confirmed for Reuters that this year it stepped back as co-chair of an international task force formed in 2023 that aims to maximize the use of debt swaps.
U.S. Treasury Secretary Scott Bessent also rebuked multilateral lenders for their approach to climate change amid a broader U.S. retreat that included withdrawing from the Paris Agreement to curb global warming.
Angola and Zambia and at least one Latin American country are some whose ‘debt-for-nature’ swap programs will have to be reworked or even scrapped due to uncertainty surrounding DFC, four sources directly involved with the projects indicated.
Angola Finance Minister Vera Daves de Sousa described how her cash-strapped country, one of Africa’s most indebted and whose rivers feed the Okavango basin vital to vulnerable elephants and lions, has been in discussions with the DFC for two potential swaps.
One is a debt-for-nature swap, the other a broader ‘debt-for-development’ swap tied to education and youth.
“We feel they are open to us,” de Sousa told Reuters recently.
“We appreciate their vision,” she said. “There is no distinction for us – we have opportunities on the development side, and we have opportunities on the nature side.”
In Zambia, where last year it was seriously weighing a swap against its vast national parks that hold over 40% of Africa’s elephants, something has also changed.
We are not closing completely but we are not actively doing it currently,” its Finance Minister Situmbeko Musokotwane stated in an interview with Reuters, declining to explain why the decision was taken.
NEW REALITY
Raising money for conservation by exchanging costly government bonds for cheaper ones is seen as a no-brainer for poorer nations with high levels of debt and stress from climate change.
UK-based non-profit International Institute for Environment and Development estimates that the 49 poorest countries in the world most exposed to debt crises could exchange a quarter of over $430 billion they owe.
Given the signals from Washington, they should drop hopes of DFC support and look for alternatives, said White Advisory managing director Sebastian Espinosa, who has advised Barbados, Belize and Seychelles on such swaps.
They would comprise credit guarantees from major multilateral development banks, perhaps linked to private sector guarantors and insurers, as proposed by the Bahamas in a pilot last year.
Historically, though, DFC backing has been instrumental in underwriting larger transactions, with up to $1 billion in political risk insurance. That covers those who buy the new lower-cost bonds in the event that the governments on the other side of the transactions can’t meet payments.
“Who is going to cover the gap? I have no idea,” said European Investment Bank’s Eva Mayerhofer, which financed a 2024 swap of Barbados debt. “We will not be able to do debt conversions on a regular basis.”
The Inter-American Development Bank, which took part in five of the last nine debt-for-nature swaps, sometimes in partnership with the DFC —declined to comment on whether any of its projects were being affected.
Stephen Liberatore of investment house Nuveen, a regular investor in some of the debt swaps, said while substitutes for the DFC would exist, the spillover effects had yet to be witnessed.
“How much does it cost a private organization versus a public entity like the DFC?” Liberatore inquired. “Does it have an impact on the level of savings?” they subsequently invest in conservation. “That’s the billion-dollar question.”