While these new swaps entail substantially higher debt reduction, their transaction costs have also ballooned with the addition of special purpose vehicles, multiple intermediary brokers, and insurance and re-insurance payments. The transaction costs of the 2021 Belize swap were estimated as high as $85 million. Critics argue that such outsized transaction costs are inefficient and lock up capital that could be deployed elsewhere.
Another significant feature of private sector-led swaps is their ability to attract new private financing using public sector credit enhancements, while bilateral swaps between creditor and debtor governments relied almost completely on direct public funding. In Belize’s 2001 swap, for example, the United States’s $5.5 million contribution from the Tropical Forest Conservation Act was supplemented by just over $1 million from TNC. By comparison, in the 2021 swap, the United States issued $610 million in political risk insurance via the Development Finance Corporation, which enhanced the creditworthiness of the newly issued private bonds, attracting $364 million in new investments to Belize. The U.S. would only make payments if Belize were to default, and that risk is partly offset by the annual insurance premiums Belize pays the U.S. government. Overall, this blended-finance structure appears to use public funds more efficiently.
Conservation Effectiveness
The 2021 Belize swap illustrates the growth in conservation scope of the new blended swaps compared with previous models. The more than $4 million per year in perpetuity that will be generated under the 2021 swap if the endowment fund performs as anticipated is roughly 10 times larger than the amount generated by Belize’s 2001 swap.
Geographical coverage has similarly expanded. While the 2001 Belize swap focused on one patch of rainforest within the Maya Mountain Marine Corridor, the 2021 deal evaluated the country’s entire ocean territory, identifying more than 14 percent for newly protected status. The national scale means that Belize’s marine conservation efforts are less likely to simply displace threats such as illegal fishing to a different location, thereby limiting persistent concerns about “leakage” that plagued prior swaps.
In another improvement, the 2021 swap identified conservation milestones and established penalties for noncompliance. An appendix to the agreement sets out a series of high-level benchmarks to measure progress toward the agreement’s goal of a healthy marine ecosystem and sustainable blue economy. Crucially, it requires the Belize National Assembly to authorize pre-determined increases in the country’s Marine Protected Areas by specific dates. If the legislature fails to meet those targets, Belize incurs a financial penalty.
While the inclusion of legally enforceable performance indicators is laudable, the choice of process metrics, such as legislative establishment of protected areas, over outcome metrics, such as evidence of a healthy marine ecosystem and commercially sustainable fish stock, can contribute to misleading results. There is a long history of “paper parks” that are authorized but not executed. More credible outcome indicators may be developed as part of Belize’s Marine Spatial Plan, which is required to implement the swap, but outcome metrics and monitoring are not required nor are there penalties for non-compliance.
Sovereignty and Transparency
While sovereignty infringement remains a key issue in the new generation of swaps, the national scope of the private sector-led deals has helped counter accusations that national sovereignty is being infringed. Earlier swaps typically focused on one or a few specific areas or projects, making them vulnerable to criticism that they prioritized the agendas of international conservation NGOs or foreign governments over those of debtor nations. In contrast, the 2021 Belize swap aligned with the government’s existing commitments to international biodiversity and climate agreements, which may have helped ease sovereignty concerns.
Belize’s established relationship with its NGO partner, TNC, may also have helped. TNC had a long-term presence in Belize, including a country office, and took part in negotiating Belize’s 2001 swap, which supported four local NGOs. That relationship set the stage for the decade-long negotiations that culminated in the 2021 deal.
Yet the complexity of private sector-led swaps can also strain relations with local communities. The special purpose vehicle and the many brokers introduce additional layers of bureaucracy and opacity that can expand the distance between decision-makers and the public. Some degree of secrecy is built into private sector-led swaps because, to take advantage of the discrepancy between the face value and secondary market value of distressed debt, negotiations must remain out of the public eye. Consequently, affected local communities are afforded minimal opportunities for input before financial deals close.
The 2021 Belize swap sought to address this lack of local consultation by mandating participatory meetings during the development of the Marine Spatial Plan. While 60 sessions were held with various stakeholders, it is unclear whether they materially affected the ultimate plan. Some community members charged that meeting notices were not broadly communicated and that the process was rushed, with pre-determined outcomes. Others complained that the distribution of grant funding has disfavored local NGOs with fewer connections and resources. Greater attention to local rights and representation before such deals close could improve transparency and address power imbalances.
