Analysis-American climate retreat threatened planned debt-to-nature transactions

By Marc Jones and Virginia Furness London (Reuters) -Mbillions dollars’ debt offers aimed at protecting important Africa to Latin America, the risk of unraveling or possibly re -cultivating amid concerns that important US support is under President Donald Trump. The ‘debt-for-nature’ exchange, which reduces a country’s debt in exchange for conservation obligations, has gained traction over the past few years with transactions that were the most prominent for the Galapagos Islands, coral reefs and the Amazon rainforest. The US International Development Finance Corporation (DFC) was a key player who offers political risk insurance for more than half of the transactions done over the past five years, which accounts for almost 90% of $ 6 billion in exchange. According to a source with direct knowledge of the plans, the DFC had about five exchange in the pipeline, which is now involved with the CEO of Ben Black and US government efficiency head Elon Musk, both criticism of climate work. The source did not determine how much debt was covered by the swaps, but pointed out that the last few DFC-backed transactions were over $ 1 billion each. Speakers from the White House and the DFC did not respond to requests for comment on future DFC involvement in such transactions. A DFC official who spoke on condition of anonymity confirmed to Reuters that it retired earlier this year as co-chair of a global task force erected in 2023 to expand the use of debt. US Treasury Secretary Scott Besent also worked at multilateral climate change borrowers amid a broader US haven that has seen it have been withdrawn from the Paris agreement to combat global warming. Angola and Zambia and at least one Latin American country are among those whose ‘debt-to-nature’ exchange plans have abandoned the risk of reworked or even due to DFC uncertainty, said four sources directly involved in the projects. Finance Minister Vera Daves de Sousa said her country, which is one of the most debt in Africa and whose rivers the Okavango washing basin is essential for endangered elephants and lions, talking to the DFC about two potential swaps. One is a debt-for-nature agreement, the other a broader ‘guilt-for-development’ exchange linked to education and young people. “We feel openness of them (DFC), but especially on the exchange of debt-for-development,” De Sousa told Reuters recently. “We respect their vision,” she added. “For us there is no difference – we have opportunities on the development side, and we have opportunities on the natural side.” In Zambia, which looked closely to an exchange linked to its large national parks that are more than 40% of the elephants of Africa late last year, things have also changed. “We do not conclude completely (the exchange), but we are not active now,” his finance minister, Situmbeko Musokotwane, told Reuters and refused to specify the reason for the shift. New reality that raises money for conservation by exchanging expensive government bonds is seen as a clear choice for smaller countries struggling with heavy debt tax and climate change pressure. The UK-based, non-profit International Institute of Environmental and Development estimates that the world’s 49 poorest countries that have the most sailed for debt crises can swap a quarter of the more than $ 430 billion they now owe. Given the signals coming from Washington, those who do have to abandon the hope of DFC support and look at alternatives, said Sebastian Espinosa, managing director of White Advisory, who advised Barbados, Belize and Seychelles on such swaps. This may include credit guarantees of major multilateral development banks, possibly along with insurers and sponsors in the private sector, as last year by the Bahamas pioneers. Historically, however, DFC Backing was crucial to scaling up transactions, which offered up to $ 1 billion to political risk insurance. It protects those who buy the new lower cost effects if the governments involved do not make payments. “Who’s going to pop in (to replace DFC) I don’t know,” Eva Mayerhofer said at the European Investment Bank, who supported a 2023 Barbados exchange. “We won’t be able to do debt conversions regularly.” The Inter-American Development Bank, involved in five of the last nine debt-for-nature exchanges, sometimes along the DFC-decided to comment on whether any of its plans are affected. Investment firm Nuveen’s Stephen Liberators, who were a cornerstone investor in some debt exchanges, said although substitutes could be found for the DFC, the effects still seen were still visible. “What is the price for a private entity (to provide risk insurance) versus a public entity like the DFC?” Liberators said. “Does that change the amount of savings?” which is then spent on conservation. “That’s the ultimate question.” (Additional reporting by Karin Strohecker in London, Chris Mfula in Zambia, Alexandra Valencia in Quito, Duncan Miriri in Nairobi, Libby George in London and Kate Abnett in Brussels; Editing by Simon Jessop and Emelia Sithole matarise)