El Salvador closes world's largest debt buyback for river conservation

Construcciones y Auxiliar de Ferrocarriles

17/10/2024 15:34

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      El Salvador's over $1 bln debt buyback funds Lempa River
conservation
    

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      Debt-for-nature deals help poorer nations fund
conservation
    

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      Swap frees up $352 mln for conservation
    

  
    By Virginia Furness
       LONDON, Oct 17 (Reuters) - El Salvador has sealed a
new-style debt buyback deal where savings generated will be used
to fund conservation of the country's main river and its
watershed.
    The deal, worth over $1 billion, will raise money to fund
conservation and water security in the Lempa River watershed.
    It marks the first time a country has embedded watershed
conservation and water security pledges into a debt buyback,
officials say, and is part of efforts by the Central American
country's government to bring down its heavy external debt
burden.
    It is the largest funding commitment a country has made for
conservation as part of a debt-for-nature swap, a press
statement said. 
    
    INCREASINGLY POPULAR
    Debt-for-nature deals are becoming increasingly popular for
poorer nations to pay for conservation. Bonds or loans are
bought and replaced with cheaper debt, with savings used for
environmental protection. In El Salvador's case the bonds have
been replaced by a loan from JPMorgan. 
    Several countries, from Belize to the Seychelles, have
completed debt-for-nature deals to fund conservation of oceans
and marine life but this is the first recent transaction with a
freshwater focus, DFC CEO Scott Nathan said in the statement. 
    JPMorgan arranged a $1 billion loan to El Salvador to enable
the country to buy back $1.031 billion of its outstanding bonds
at a discount to their issuance value. 
    This savings allowed El Salvador to realise more than $352
million, $350 million of which it will put toward the Rio Lempa
Conservation and Restoration Programme.
    The money will be used by water and environmental agencies
to stop river pollution, protect biodiversity, address water
scarcity risks and help promote regenerative agriculture in the
Rio Lempa watershed.
    "This debt conversion represents the most ambitious and
impactful environmental action in El Salvador's history,"
President Nayib Bukele said in the release. "With this debt
conversion, we aim to transform the environmental and economic
future of El Salvador."
    A $1 billion political risk insurance offer from DFC, the
U.S.' development finance institution, and a $200 million
standby letter of credit from CAF, the Development Bank of Latin
America and the Caribbean, likely meant JPMorgan could offer the
loan at a lower cost.   
    Debt-for-nature swaps are still relatively niche instruments
but "can do miracles" for countries with the right debt
dynamics, a good conservation project planned and back-up from
credit guarantee agencies, said Olga Fedosova, a partner at law
firm White & Case that worked on the deal. 

    

 (Reporting by Virginia Furness; Editing by Sharon Singleton and
Mark Porter)
 ((mailto:Virginia.Furness@thomsonreuters.com; +44207 542
5477;))