The latest in financial engineering.
1. Big global banks are eying some of the world’s most fragile countries for a new experiment in financial engineering: debt relief in exchange for environmental protections. Called “debt-for-nature swaps,” they present a tempting solution for the rising number of nations in distress, particularly those with ecosystems to protect. A country gets to avoid default and lower its debt burden, as long as it’s willing to earmark some of the savings to salvage a coral reef, preserve a forest or build a wind farm, for example. Global investors get better returns and enhanced green credentials. Wall Street takes a cut. As much as $2 trillion of developing country debt may be eligible for this kind of restructuring, according to a rough estimate by the Nature Conservancy, a US nonprofit that’s taking a lead role in these deals. Belize inked a $364 million nature swap in 2021; Gabon signaled plans for a $700 million restructuring in October; Ecuador is said to be working on a $800 million transaction, and Sri Lanka is considering a $1 billion deal. Buoyed by the finance industry’s newfound enthusiasm for biodiversity, backers of this latest flavor of swap are finding eager partners in investment banks and institutional investors. These are “turbocharged swaps,” said Daniel Munevar, economic affairs officer at the United Nations Conference on Trade and Development and former adviser to finance ministries in Greece and Colombia. “The limit in these operations isn’t the money to fund the swaps, it’s how much debt can be swapped.” (Source: bloomberg.com)