How Belize cuts debt by fighting global warming

TURNEFE ATOLL, Belize – Belize faces an economic crisis. The pandemic has pushed it into its worst recession ever, leaving the government on the brink of bankruptcy.

A solution comes from unexpected quarters. A local marine biologist has offered Prime Minister Johnny Briceño a novel proposal: Her nonprofit would lend the country money to pay its creditors if his government agrees to pay a portion of it. the savings this agreement will generate to conserve marine resources.

For Belize, that means its oceans, endangered mangroves and vulnerable coral reefs.

The resulting agreement, known as green bonds, is an example of a new approach that is allowing a growing number of developing countries to cut their debt by investing in conservation, giving them a greater role in the fight against climate change.

“It gives us breathing space,” Mr. Briceño said. “Instead of bondholders, we will now pay to protect our environment.”

In the simplest terms, a blue bond is the equivalent of refinancing a mortgage.

Like the rest of the world, Belize has partially financed its public spending through the sale of international bonds, a type of debt that allows governments to raise capital, but often has to pay high interest rates. for many decades.

Under the blue bond agreement, Nature Conservancy, a Virginia-based nonprofit, loaned Belize over $350 million to enable the Central American nation to buy back more than half a billion worth of international bonds USD.

Nature Conservancy funded the loan through Zurich-based Credit Suisse, which raised money by selling new bonds to customers looking for eco-friendly financial products.

The deal frees up more than $200 million, or nearly a tenth of Belize’s total annual economic output, to be spent on other sectors. In return, Belize agreed to designate 30% of its waters as protected, limiting the scope of activities such as fishing and construction. It also committed to spend $4.2 million per year on conserving the biodiversity of these areas.

Supporters of the agreement hope the climate and financial incentives will lift small or poor countries out of the challenges associated with excessive debt and environmental degradation, paving the way for sustainable growth. .

Belize and the Nature Conservancy are trying to preserve an environment threatened by rising water temperatures, beach erosion, construction and overfishing.

However, conservation efforts often clash with the growing economic needs of Belize’s important tourism and fishing industries, highlighting environmental finance challenges.

Ian Palacio, a Belizean fisherman, said: “You cannot preserve everything and leave us with nowhere to work.

Mr. Palacio, 43, makes his living on pristine Turneffe Atoll, a vast marine reserve of small mangrove-covered islands that are part of a conservation agreement. The atoll is located along the largest reef in the Western Hemisphere and is home to lobsters, dozens of species of fish, dolphins, manatees and rare plants.

“Conservation is good, but we have to see the benefits,” he added.

From their rudimentary log camps set among mangroves, Mr. Palacio and his companions set sail daily during the fishing season in search of lobster, Belize’s most valuable ocean commodity.

Fishermen use techniques little changed over the centuries: They dive into wooden overhangs built into the seabed and capture crustaceans or use long stakes to pull lobster traps onto boats. their.

About a dozen rangers patrol the atoll’s waters, checking fishing permits and the size of lobsters caught to protect the herd. They said they needed more fuel, personnel, radios and guns to better protect the reserve. Because of fuel shortages, the coast guard stationed at the atoll rarely left their outposts.

“If we have enough resources, we can strike the right balance in the ecosystem,” said Valdemar Andrade, manager of the reserve.

The Nature Conservancy concluded its third green bond deal in September with Barbados, another small Caribbean nation that is saddled with debt and facing climate change threats. Countries with larger economies, including Ecuador and Sri Lanka, have made similar debt swap proposals.

Government officials and environmental groups hope the spread of such agreements will make climate change a factor in how private investors, multilateral institutions like the Fund International currencies and sovereign creditors like China lend and recover trillions of dollars from poorer nations.

“The global financial architecture is not connected to provide countries with meaningful credit for positive investments,” said Slav Gatchev, head of sustainable debt at Nature Conservancy. pole.

Long seen as a global financial market, so-called climate debt swaps have become mainstream during the pandemic as shutdowns have affected economies and forced Developing countries are taking on new debt at a record rate, while reducing the revenue needed to repay debt.

The idea of ​​giving developing countries some debt relief in exchange for climate action dates back to the 1980s as a way to help protect rainforests.

What’s different about the model offered by green bonds is that instead of giving countries a modest one-time debt relief, it centralizes financial market resources, said Mr. globally to open up new sources of conservation funding, says Nature Conservancy’s Gatchev.

The first country to adopt green linkage, the Seychelles, an island nation in the Indian Ocean, has achieved its goal of placing 30% of its waters protected, providing protected areas for vulnerable species, according to Nature Conservancy. Human activity is prohibited or severely restricted in about half of the protected areas.

However, economists and conservationists say these financing arrangements only partially meet the urgent global need.

According to the World Bank, the total debt of $683 million exchanged by Belize and Barbados equals 0.03% of the debt that developing countries owe to private creditors by the end of 2020.

And the $134 million that the two nations have jointly committed to marine conservation over the next 20 years is an even smaller fraction of the $125 trillion that the United Nations estimates it will have to spend globally to reach emissions levels. net by 2050 and avert the worst consequences. of climate change.

Some economists argue that reducing debt will have no lasting impact on small, tourism-dependent countries unless they diversify their economies and increase productivity.

The overall environmental impact from green bonds is also limited as governments have many years to show conservation progress and are not required to place strict limits on human activity in the waters. their.

However, debt forgiveness initiatives can contribute to climate action by aligning the financial interests of international investors and small countries, giving them more resources for public spending and incentives to develop in a more sustainable way, advocates say.

“How do I prioritize coastal erosion when I have to send more kids to school or I have to vaccinate everyone?” Henry Mooney, a Caribbean economist at the Inter-American Development Bank. “This is money for conservation that would not have existed before.”

Green bond negotiators say the deal holds countries accountable by allowing creditors to file lawsuits in international courts if they fail to meet their financial or conservation obligations. , making deals less risky for large wealth managers and pension funds.

As a result, debt swaps are more attractive to Western investors looking to make money tied to positive causes, such as conservation.

“Investing is not an altruistic business, investors,” said Ajata Mediratta, a partner at Greylock Capital Management, a US-based investor involved in the green bond deal. not just give away.

In Belize, the debt swap has allowed the government to cut its debt burden and pass the country’s largest-ever budget this year, according to Christopher Coye, a senior Belizean finance official . Social spending has returned to pre-pandemic levels, and the economy is expected to grow by nearly 6% this year.

To meet the terms of its agreement, the 400,000 nation banned the sale of publicly owned islets within a large portion of its reef. The government also created 800 square miles of new protected marine areas and plans to protect an additional 2,000 square miles by 2026.

But even as conservation is enhanced, many of the islands in the new reserve have been sold and converted into private resorts or villas. The green bond agreement has also left existing fishing areas untouched despite the harm this industry can do to the nation’s marine life.

Beyond financial and conservation goals, the biggest benefit of a debt swap may ultimately be a re-imagining of national identity, said Julie Robinson, a native of Belize and national director of Conservation Foundation. Nature said.

The pandemic shut down the country’s tourism industry overnight, forcing many of its citizens to return to fishing and farming to feed themselves. In doing so, it increases the value and fragility of Belize’s natural assets, she said.

“As a Belizean, I want to make sure that as a country we can thrive and thrive,” Ms. Robinson said. “I hope that with this bond deal we can step back and think critically about our future. What kind of development do we want? “


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