Order Code RL31286
CRS Report for Congress
Received through the CRS Web
Debt-for-Nature Initiatives and the
Tropical Forest Conservation Act:
Status and Implementation
Updated September 29, 2004
Pervaze A. Sheikh
Natural Resources Policy Analyst
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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Debt-for-Nature Initiatives and the Tropical Forest
Conservation Act: Status and Implementation
Summary
In the late 1980s, extensive foreign debt and degraded natural resources in
developing nations led to the creation of debt-for-nature initiatives that reduced debt
obligations, allowed for debt repayments in local currency as opposed to hard
currency, and generated funds for the environment. These initiatives, called debt-for-
nature swaps, typically involved restructuring, reducing, or buying a portion of a
developing country’s outstanding debt, with a percentage of proceeds (in local
currency) being used to support conservation programs within the debtor country.
Most early transactions involved debt owed to commercial banks and were
administered by nongovernmental conservation organizations and referred to as
three-party swaps. Since 1987, three-party transactions have generated more than an
estimated $117 million in local currency for conservation projects, as a result of the
purchase of approximately $168 million in debt (face value) for $49 million. Other
debt-for-nature initiatives involved official (public) debt and were administered by
creditor governments directly with debtor governments (termed bilateral swaps).
In the early 1990s, the United States restructured, and in one case sold, debt
equivalent to a face value of nearly $1 billion owed by Latin American countries;
these transactions were authorized by Congress as part of the Enterprise for the
Americas Initiative (EAI), which broadened the scope of debt swaps to include a
number of social goals. Nearly $178 million in local currency for environmental,
natural resource, health protection, and child development projects within debtor
countries was generated from these swaps. The model for debt-for-nature initiatives,
outlined in the EAI, was expanded in the Tropical Forest Conservation Act (TFCA)
to include countries around the world with tropical forests. Under this program, debt
can be restructured in eligible countries, and funds generated from the transactions
are used to support programs to conserve tropical forests within the debtor country.
Since 1998, $49.3 million has been used under the TFCA to restructure loan
agreements in seven countries, and nearly $81.4 million in local currency will be
generated in the next 12-26 years for tropical forest conservation projects. The
TFCA was authorized for appropriations until FY2004. Pending legislation passed
by the House on September 7, 2004 (H.R. 4654), and the Senate on September 28,
2004, would reauthorize funding for the TFCA from FY2005 to FY2007. This
legislation would also authorize funding to conduct audits and evaluations of
agreements in place and allow for the principal on debt agreements to be treated by
the debt-for-nature transaction. (Currently interest on debts are treated in most
agreements.)
Debt-for-nature transactions are generally viewed as a success by conservation
organizations and debtor governments because of the funds generated for
conservation efforts. The appeal of debt-for-nature transactions has been tempered
in recent years, however, by higher debt prices on secondary markets and lower
appropriations. As a result, fewer transactions have taken place. This report
provides a description of debt-for-nature transactions and a summary of the Tropical
Forest Conservation Act and will be updated as developments warrant.

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Contents
Background Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Debt-for-Nature Initiatives and Their Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . 1
Three-Party Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bilateral and Multilateral Debt-for-Nature Initiatives . . . . . . . . . . . . . . . . . . 5
U.S. Bilateral Debt-for-Nature Initiatives . . . . . . . . . . . . . . . . . . . . . . . 6
Tropical Forest Conservation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Congressional Role in Debt-for-Nature Initiatives . . . . . . . . . . . . . . . . . . . . . . . 10
Authority for Debt-for-Nature Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Rationale for and Criticism of Debt-for-Nature Initiatives . . . . . . . . . . . . . 11
Decline of Debt-for-Nature Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Emergence of Subsidized Debt-for-Nature Transactions
. . . . . . . . . . . . . 14
Appropriations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Future Directions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Appendix: List of Related Laws and Appropriations That Support
Debt-for-Nature Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
List of Tables
Table 1. Countries Participating in Three-Party Debt-for-Nature Swaps, 1987-
Present (excluding TFCA transactions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Countries Other than the U.S. Participating in Bilateral and Multilateral
Debt-for-Nature Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 3. U.S. Bilateral Debt-for-Nature Transactions Under EAI . . . . . . . . . . . . 8
Table 4. U.S. Bilateral Debt-for-Nature Transactions Under TFCA . . . . . . . . . . 9
Table 5. Appropriations Provided Under the Tropical Forest Conservation Act of
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Figures
Figure 1. An Illustrative Example of a Three-Party Debt-for-Nature
Swap Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 2. An Example of a Bilateral Debt-for-Nature Transaction
Modeled After the TFCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 3. Three-Party and U.S. Bilateral Debt-for-Nature Transactions,
1987-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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Debt-for-Nature Initiatives and the
Tropical Forest Conservation Act:
Status and Implementation
Background Information
Debt-for-nature initiatives were conceived to address the rapid loss of resources
and biodiversity in developing countries that were heavily indebted to foreign
creditors. Conservationists had noted that the pressure to pay off foreign debts in
hard currency was leading to increased levels of natural resource exports (i.e., timber,
cattle, minerals, and agricultural products) at the expense of the environment. In
many cases, indebted developing countries had difficulty meeting their hard currency
debt obligations and defaulted. Reducing foreign debt and allowing for portions of
it to be paid with local currency while increasing funds for the environment was
thought to improve environmental conditions in developing countries and had the
advantage of relieving the debtor country’s difficulties in procuring sufficient hard
currency to pay off its debts.1 Money generated from debt-for-nature transactions has
been used to fund a variety of projects, ranging from national park protection in
Costa Rica to supporting ecotourism in Ghana and conserving tropical forests in
Bangladesh.
Since 1993, there has been a decline in the number of debt-for-nature
transactions involving official (public) and private funds. Accounting changes
requiring new appropriations to support official (public) debt transactions in creditor
countries such as the United States, and a higher price of commercial debt on
secondary markets, are two reasons suggested for the decline of debt-for-nature
transactions. While Congress has periodically authorized U.S. participation in three-
party debt-for-nature swaps and has supported two bilateral debt-for-nature
initiatives, appropriations to support these types of efforts have not been consistently
provided from year to year.
Debt-for-Nature Initiatives and Their Mechanisms
Three-Party Swaps
Three-party debt-for-nature swaps, involving nongovernmental organizations
such as The Nature Conservancy and Conservation International, were the first debt-
for-nature agreements to be formed. In a three-party swap, a conservation group
1 Thomas E. Lovejoy III, “Aid Debtor Nations’ Ecology,” New York Times, Oct. 4, 1984,
sec. A, p. 31.

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CRS-2
purchases a hard currency debt owed to commercial banks on the secondary market
or in some cases a public (official) debt owed to a creditor government at a
discounted rate compared to the face value of the debt, and then renegotiates the debt
obligation with the debtor country. The proceeds generated from the renegotiated
debt, to be repaid in local currency, are typically put into a fund that often allocates
grants to local environmental organizations for conservation projects (see Figure 1).
In these cases, the fund is administered by the conservation organization,
representatives from local environmental groups, and the debtor government. Money
to buy the debt may come from the nongovernmental organization, governments,
banks, or other private organizations.
Figure 1. An Illustrative Example of a Three-Party
Debt-for-Nature Swap Agreement
Step 1
$200,000 to purchase debt
Bank or Creditor Government
Non-governmental Organization
$1 million of debt
Step 2
$1 million of debt is restructured
Local Conservation Groups
Debtor Government
$300,000 in local currency
Step 3
! Step 1 = An outstanding debt is sold to a NGO at a
discounted rate (e.g., 20% of a face value of $1 million,
which is $200,000).
! Step 2 = The debt is cancelled by the NGO as part of an
agreement that requires the debtor country to provide funds
in local currency equivalents for local conservation groups
(e.g., 30% of the original face value, which is $300,000).
! Step 3 = The debtor country provides the agreed to funds to
local conservation groups.
In 1989, Congress authorized the United States Agency for International
Development (USAID) to provide assistance to nongovernmental organizations to
purchase the commercial debt of foreign countries as part of a debt-for-nature
agreement (P.L. 101-240; 22 U.S.C. 2282-2286). Several nongovernmental
organizations participated in debt-for-nature swaps with financial assistance from
USAID; however, specific information on funds given by USAID to support three-
party debt-for-nature swaps is not available.

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CRS-3
While debt initiatives conducted with three-party swaps are numerous, they have
resulted in less reduction in total debt than the debts swapped under bilateral
agreements (government-to-government), and slightly less in conservation funds
generated. In total, $168 million in debt (face value) has been reduced, restructured,
or swapped using this mechanism, generating approximately $117 million in local
currency for conservation purposes (see Table 1).
Table 1. Countries Participating in Three-Party
Debt-for-Nature Swaps, 1987-Present
(excluding TFCA transactions)
(U.S.$, in thousands)2
Country
Year
Purchaser
Cost Face value of
Conservation
Debt funds generated
BOLIVIA
1993
TNC/WWF
$0
$11,500
$2,860
1987
CI
100
650
250
Total Bolivia
100
12,150
3,110
BRAZIL
1992
TNC
748
2,200
2,200
COSTA RICA
1991
RA/MCL/
360
600
540
TNC
1990
SW/WWF/
1,953
10,574
9,603
TNC
1989
TNC
784
5,600
1,680
1989
Sweden
3,500
24,500
17,100
1988
Holland
5,000
33,000
9,900
1988
NPF
918
5,400
4,050
Total Costa Rica
12,515
79,674
42,873
DOMINICAN
1990
PRCT/TNC
116
582
582
REP.
ECUADOR
1992
Japan
NA
NA
1,000
1989
WWF/FN
640
5,400
5,400
1987
WWF
354
1,000
1,000
Total Ecuador
994
6,400
7,400
GHANA
2000
CI
80
100
90
1991
CI/SI
250
1,000
1,000
Total Ghana
330
1,100
1,090
GUATEMALA
1992
CI/USAID
1,200
1,334
1,334
1991
TNC
75
100
90
Total Guatemala
1,275
1,434
1,424
JAMAICA
1991 TNC/USAID/
300
437
437
PRCT
MADAGASCAR
1994
WWF/JPM
0
1,341
1,072
1994
CI
50
200
160
1993
WWF
909
1,868
1,868
1993
CI
1,500
3,200
3,200
1991
CI/UNDP
59
118
119
1990
WWF
446
919
919
1989
WWF/
950
2,111
2,111
USAID
Total Madagascar
3,914
9,758
9,449
2 A cost of $0 indicates that funds were written off by the bank to restructure the debt.

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CRS-4
Country
Year
Purchaser
Cost Face value of
Conservation
Debt funds generated
MEXICO
1998
CI
256
550
318
1996
CI
192
391
254
1996
CI
327
496
443
1996
CI
440
671
561
1995
CI/USAID
246
488
337
1994
CI
399
480
480
1994
CI
236
280
280
1994
CI
248
290
290
1993
CI
208
252
252
1992
CI/USAID
355
441
441
1991
CI
0
250
250
1991
CI
183
250
250
Total Mexico
3,092
4,838
4,155
NIGERIA
1991
NCF
65
150
93
PERU
1993
WWF
NA
2,860
1,573
2002
WWF, CI,
5,500
14,000
10,600
TNC, U.S.
Total Peru
5,500
16,860
12,173
PHILIPPINES
1993
WWF
13,000
19,000
17,100
1992 WWF/USAID
5,000
10,000
9,000
1990 WWF/USAID
439
900
900
1989
WWF
200
390
390
Total Philippines
18,639
30,290
29,090
POLAND
1990
WWF
11
50
50
ZAMBIA
1989
WWF
454
2,270
2,500
Grand Total
49,001
168,193
117,627
Sources:
M. Moye, Commercial Debt-for-Nature Swaps: Summary Table (Washington, DC: World Wildlife
Fund, 2003).
M. Guerin-McManaus, Ten Years of Debt for Nature Swaps 1987-1997 (Washington, DC:
Conservation International, 2000).
The World Bank, World Debt Tables, 1996 (Washington, DC: The World Bank, 1996).
Notes: Funds generated may be cash or bonds. Figures given do not include interest earned over the
life of the bonds. Full titles of abbreviations are given below. Grand total given is an estimate since
some figures were not available.
USAID = Agency for International Development NPF = National Parks Fdn. of Costa Rica
CABEI = Central American Bank for EconomicPRCT = Puerto Rican Conservation Trust
Integration
RA = Rainforest Alliance
CI = Conservation International
SI = Smithsonian Institution
FN = Fundacion Natura
TNC = The Nature Conservancy
JPM = J. P. Morgan Chase and Co.
UNDP = United Nations Development Prog.
MBG = Missouri Botanical Garden
U.S. = U.S. federal government
MCL = Monteverde Conservation League
WWF = World Wildlife Fund
NCF = Nigerian Conservation Foundation

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CRS-5
Bilateral and Multilateral Debt-for-Nature Initiatives
Bilateral debt transactions are conducted with official (public) funds directly
between the creditor and debtor governments. The creditor government determines
the criteria for eligibility, which usually involve the existence of certain financial and
political conditions in the debtor country. Debt agreements are usually cancelled and
then restructured to extend payback periods, or in some cases, debt is bought back
by the debtor country for a discounted price. Money for the environment can be
generated through interest payments from the debtor country if the debt is
restructured, or from a percentage of the buyback price (see Figure 2). Multilateral
debt-for-nature agreements have also been conducted between more than one creditor
country and a debtor country (see Table 2). Poland, for example, benefitted from a
multilateral debt-for-nature agreement from 1991 to 1997. During this time, five
countries restructured debt obligations with Poland, generating over $473 million in
local currency for environmental projects. The United States was the primary
participant in this deal, swapping 10% of Poland’s debt to generate $367 million for
environmental programs.3
Table 2. Countries Other than the U.S. Participating in
Bilateral and Multilateral Debt-for-Nature Initiatives
(U.S.$, in thousands)
Creditor
Debtor
Year Face
value
Face value of
Conservation
Country
reduction
debt funds generated
Canada
Columbia
1993
67% reduction
18,000
12,000
El Salvador
1993
100% forgiven
7,500
6,000
Honduras
1993
n/a
22,000
15,000
Nicaragua
1993
n/a
12,000
9,000
Peru
1994
75% reduction
15,000
3,800
Belgium
Bolivia
1992
n/a
13,000
n/a
Finland
Poland
1990
n/a
n/a
14,000
Peru
1995
70% reduction
27,000
8,100
France
Egypt
1992
n/a
n/a
11,600
Philippines
1992
n/a
n/a
4,000
Poland
1993
10% reduction
520,000
52,000
Germany
Peru
1994
70% reduction
22,970
6,100
Indonesia
2003
15,000,000
n/a
n/a
Holland
Peru
1996
n/a
n/a
n/a
Costa Rica
1996
100% reduction
17,000
17,000
Costa Rica
1988
5,000,000
33,000
9,900
Norway
Egypt
1993
n/a
17,300
n/a
Egypt
1993
n/a
6,200
n/a
Nigeria
1993
n/a
10,200
n/a
Sweden
Costa Rica
1989
3,500,000
24,500
17,100
Tunisia
1992
100% reduction
1,100
1,100
Tunisia
1993
100% reduction
520
520
Bolivia
1993
n/a
35,400
3,900
3 Organization for Economic Cooperation and Development, “Swapping debt for the
environment: The Polish EcoFund,” Paris: EU Phare program (1996).

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CRS-6
Creditor
Debtor
Year Face
value
Face value of
Conservation
Country
reduction
debt funds generated
Switzerland Peru
1992
n/a
130,800
32,600
Tanzania
1993
n/a
22,200
3,300
Poland
1993
10% reduction
480,000
48,000
Bulgaria
1995
20% reduction
83,500
16,700
Egypt
1995
20% reduction
115,000
69,000
Guinea Bissau 1995
100%
8,400
400
Philippines
1995
50% reduction
32,300
16,100
U.K.
Nigeria
1993
7,300,000 7,300
n/a
Tanzania
1993
n/a
15,400
15,400
Source: R. Curtis. “Bilateral Debt Conversions for the Environment, Peru: An Evolving Case Study,”
IUCN World Conservation Congress, Montreal (1996). n/a = information not available.
U.S. Bilateral Debt-for-Nature Initiatives. The model for bilateral debt-
for-nature agreements conducted by the United States was first defined in 1990 by
the Enterprise for the Americas Initiative (Title 15, Section 1512 of the Food,
Agriculture Conservation and Trade Act of 1990, “1990 Farm Bill,” P.L. 101-624;
7 U.S.C. 1738) and has since been expanded numerous times (see Appendix). It was
last amended by the Tropical Forest Conservation Act (TFCA) in 1998 (P.L. 105-
214; 22 U.S.C. 2431).
Figure 2. An Example of a Bilateral Debt-for-Nature Transaction
Modeled After the TFCA
Step 1
New debt agreement is created
United States
Debtor Government
Principal payments to the United States
Step 2
Interest from the principal of the loan
Tropical Forest Fund
Local Conservation Groups
Interest earned from the Tropical Forest Fund
Step 3
! Step 1 = The current debt agreement is cancelled and a
new one is created.
! Step 2 = A Tropical Forest Agreement is created and
interest payments for the principal of the loan are deposited
in local currency equivalents into a Tropical Forest Fund.
! Step 3 = Interest earned and the principal of the Tropical
Forest Fund is generally given in the form of local currency
as grants to local conservation groups.

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CRS-7
The Enterprise for the Americas Initiative legislation authorizes the sale,
reduction, cancellation and country buyback of eligible P.L. 4804 (P.L. 101-624; 7
U.S.C. 1738m, p-r, etc.), AID5 (P.L. 102-549; 22 U.S.C. 2430 and 2421), CCC6 (P.L.
102-549; 22 U.S.C. 2430 and 2421), and Exim7 (P.L. 102-429; 12 U.S.C. 635i-6)
debt of eligible Latin American and Caribbean countries.8 Debtor countries must
meet certain political and macroeconomic criteria in order to be eligible. Eligible
countries are required to (1) have a democratically elected government, (2) not
support terrorism, (3) not fail to cooperate with the United States on drug control, and
(4) not engage in gross violations of human rights. From an economic perspective,
eligible countries are required to have (1) an IBRD (International Bank for
Reconstruction and Development) or IDA (International Development Association)
structural or sectoral adjustment loan or its equivalent, (2) a macroeconomic
agreement with the International Monetary Fund or equivalent, and (3) instituted
investment reforms, as evidenced by a bilateral investment treaty with the United
States, an investment sector loan, or progress towards implementing an open
investment regime. Each country that participates in the EAI must enter into an
America’s Framework Agreement with the United States to establish an America’s
Trust Fund and create enforcement mechanisms to insure payments into the fund and
prompt disbursements out of the fund.9 Funds can be used to support environmental,
natural resource, health protection, and child development programs within the
debtor country.
Debt swaps, buybacks, and restructuring are three mechanisms used to conduct
debt-for-nature transactions under the EAI. Seven of the eight countries that have
participated in debt-for-nature transactions under the EAI used the debt-restructuring
mechanism to generate environmental funds (see Table 3); only Peru took advantage
4 P.L. 480 “Food for Peace” loans were low-interest loans given to developing countries to
purchase U.S. agricultural products. For more information, see CRS Report RS20520,
Foreign Food Aid Programs: Background and Selected Issues, by Geoffrey S. Becker and
Charles E. Hanrahan.
5 USAID Foreign assistance loans.
6 Commodity Credit Corporation loans are given to developing countries to enable them to
import U.S. agricultural products. For more information, see CRS Report IB98006,
Agricultural Export and Food Aid Programs, by Charles E. Hanrahan.
7 Export-Import Bank loans are made to foreign importers of U.S. goods and services. For
more information, see CRS Report 98-568 E, Export-Import Bank: Background and
Legislative Issues, by James K. Jackson.
8 Although debt under the P.L. 480 program was the first to be authorized for debt-for-nature
transactions, authorization quickly followed for reduction of debt owed to the United States
under three other programs: (1) Commodity Credit Corporation programs, (2) Export-Import
Bank loans, and (3) foreign aid loans administered by USAID.
9 The America’s Trust Fund can be either an endowed fund or a sinking fund depending on
the agreement reached by the United States and the debtor country. Interest payments made
by debtor countries on their new restructured loans are deposited into the fund. These
payments form the principal of the fund, and interest earned on this principal and the
principal itself can be used to fund environmental, community development, and child
survival and development programs.

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CRS-8
of the debt buyback option. In a debt-restructuring agreement, the original debt
agreement is cancelled (i.e., a percentage of the face value of the debt is reduced) and
a new agreement is created with a provision for an annual amount of money (in local
currency) to be deposited into an environmental fund. In 1992, for example, the
United States reduced 10% of a $310 million (face value) debt owed by Colombia
in return for the deposit of $41.6 million in local currency into an environmental fund
by the Colombian government over 10 years.10 In a debt buyback, the debtor country
purchases its debt at a reduced price. The lesser of either 40% of the repurchase price
or the difference between the face value of the debt and the repurchase price is
deposited in local currency into an environmental trust to support environmental and
child support programs in the debtor country (P.L. 104-107, Title V, Sec. 574). For
example, in 1998 Peru took advantage of this program and bought back $177 million
in debt for $57 million, generating nearly $23 million (40% of the repurchase price)
in local currency funds for conservation and child development programs. For all
eight debtor countries, nearly $1 billion (face value) of debt was reduced from a total
debt of $1.8 billion, and almost $180 million of conservation funds were generated
under the guidelines of the EAI (see Table 3).
Table 3. U.S. Bilateral Debt-for-Nature Transactions Under EAI
(U.S.$, in thousands)
Country
Year Face
value
Face value of
Conservation Duration
reduction
Debt funds generated
(years)
Bolivia
1991
30,700
38,400
21,800
15
El Salvador
1992
463,300
613,000
41,200
20
Uruguay
1992
3,700
34,400
7,030
12
Columbia
1992
31,000
310,000
41,600
10
Chile
1991 & 1992
31,000
186,000
18,700
10
Jamaica
1991 & 1993
311,000
406,000
21,500
19
Argentina
1993
3,800
38,100
3,100
14
Peru
1998
120,000
177,000
22,840
n/a
TOTAL
993,998
1,803,300
177,770
Source: The United States Department of Treasury. “The Operation of the Enterprise for the
Americas Facility and the Tropical Forest Conservation Act, Report to Congress,” March, 2001.
Tropical Forest Conservation Act. Acknowledging that tropical
rainforests were valuable for preserving biodiversity, reducing atmospheric carbon
dioxide, and regulating hydrological cycles, Congress sought to expand the EAI
authorization to countries throughout the world with tropical forests. The result was
the 1998 Tropical Forest Conservation Act (TFCA), which was established to
generate funds to conserve tropical forests by reducing external debt in countries with
such forests. TFCA is an extension of the Enterprise for the Americas Act, in that
it allows debt swaps, debt restructuring and debt buybacks to generate conservation
funds. These funds, however, are specifically designated for the conservation of
10 R. Curtis, “Bilateral Debt Conversions for the Environment, Peru: An Evolving Case
Study,” IUCN World Conservation Congress, Montreal (1996).

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CRS-9
tropical forests and are not confined to Latin America. To date, seven countries have
participated in this program, establishing agreements that will reduce a total of at
least $20.0 million from the face value of their debts to the United States and
generate a total of $81.4 million in local currency in the next 12-26 years for tropical
forest conservation projects (see Table 4).
Table 4. U.S. Bilateral Debt-for-Nature
Transactions Under TFCA
(U.S.$, in thousands)11
Country a
Year
Budget
Private
Face value
Conservation Duration
Cost
Funds reduction of
funds generated
(years)
Leveragedb
debt
Bangladesh 2000
$6,000
$0.0
$600
$8,500
18
Belize
2001
5,500
1,300
1,400
9,000
26
El Salvador 2001
7,700
0.0
3,000
14,000
18
Peru
2002
5,500
1,100
3,700
10,600
12
Philippines
2002
5,500
0.0
100
8,300
14
Panama
2003
5,600
1,200
10,000
10,000
14
Columbia
2004
7,000
1,400
n/a
10,000
12
Panama
2004
6,500
1,300
n/a
11,000
12
TOTAL
$49,300
$6.3
n/a
$81,400
Source: Email communications with Scott Lampman and Carrie McKellog, received November 24
and November 25, 2002, respectively. U.S. Agency for International Development, Operation of the
Enterprise of the Americas Facility and Tropical Forest Conservation Act, Report to Congress
(Washington, DC, March 2004).
a The Republic of Thailand signed a debt reduction agreement in September 2001. The signing of the
second required agreement, the Tropical Forest Agreement (TFA), never took place. The government
annulled the agreement on January 30, 2003, amidst false media reports that warned that the U.S.
government would retain control over forests involved in the agreement. The $5.6 million funds
appropriated to the TFCA was recovered and are available for another TFCA agreement. Email
communication from Scott Lampman, Program Analyst, U.S. Agency for International Development,
March 17, 2003.
b In some debt-for-nature transactions, a third party is involved (generally a non-governmental
organization or NGO) in the process and subsidizes a portion of the debt-reduction done by the United
States. Non-governmental organizations such as the World Wildlife Fund, The Nature Conservancy,
and Conservation International have subsidized these transactions.
To be eligible for this program, a developing country must contain at least one
tropical forest with unique biodiversity, or a tropical forest tract that is representative
of a larger tropical forest on a global, continental or regional scale.12 Political and
11 In the transaction with Peru in 2002, $1.1 million was given by The Nature Conservancy,
World Wildlife Fund, and Conservation International, and $5.5 million was given by the
U.S. government.
12 Developing country is defined as a “low” or “middle” income country as determined by
the International Bank for Reconstruction and Development in its World Development
(continued...)

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CRS-10
macroeconomic criteria for eligibility are almost identical to those used for
participation under the EAI.13 Conservation funds (in local currency) from these
transactions are deposited in a tropical forest fund for each country. The fund is
overseen by an administrating body composed of one or more appointees chosen by
the U.S. government and the government of the beneficiary country, and individuals
who represent a broad range of environmental, academic, and scientific organizations
in the beneficiary country (the majority of the board is represented by these
individuals). This fund operates in the same manner as the America’s Fund: Local
currency payments of interest accrued on restructured loans are deposited into a
tropical forest fund and serve as the principal. Interest earned from this principal
balance and the principal itself is usually given in the form of grants to fund tropical
forest conservation projects. Eligible conservation projects include (1) the
establishment, maintenance, and restoration of parks, protected reserves, and natural
areas, and the plant and animal life within them; (2) training programs to increase the
capacity of personnel to manage parks; (3) development and support for communities
residing near or within tropical forests; (4) development of sustainable ecosystem and
land management systems; and (5) research to identify the medicinal uses of tropical
forest plants and their products.
The TFCA is currently being considered for reauthorization in pending
legislation (H.R. 4654 and S. 2787). H.R. 4654 has passed both the House and
Senate and is awaiting the President’s signature. This bill would authorize $20
million for FY2005, $25 million for FY2006, and $30 million for FY2007 for the
TFCA. It would also authorize funding to conduct audits and evaluations of debt-for-
nature programs. Many of the programs under the TFCA are in beginning stages and
have not disbursed grants to local nongovernmental organizations. However, in Peru,
El Salvador, and Belize, some grants have been disbursed for projects and project
monitoring has begun. This bill would also allow the principal of restructured loans
to be used in debt-for-nature transactions. Currently, interest accrued on restructured
loans are deposited into a tropical forest fund for disbursement.
Congressional Role in
Debt-for-Nature Initiatives
Authority for Debt-for-Nature Initiatives
Early debt-for-nature legislation concentrated on understanding and promoting
third-party debt-for-nature swaps (see Appendix for legislation summaries and
12 (...continued)
Report. In 2001, the cutoff for low-income countries was a per capita annual income of $745
or less. For middle-income countries, the range is $746-$9,205, and the cutoff is $9,205.
13 Instead of having in place major investment reforms in conjunction with an IADB loan
or making progress toward implementing an open investment regime, the country must have
in place a bilateral investment treaty with the United States, investment sector loans with
the IADB, World Bank supported reforms, or other measures as appropriate (22 U.S.C.
2431c).

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CRS-11
United States Code citations). Congress in 1989 directed the Secretary of the
Treasury to ask the U.S. Executive Director of the World Bank to develop a pilot
debt-for-nature program and other ways of reducing debt owed by foreign countries
while generating funds for the environment. A subsequent law, the International
Development and Finance Act of 1989, authorizes USAID to make grants to
nongovernmental organizations (NGOs) to purchase debt in three-party swaps.
Official (public) P.L. 480 debt owed to the United States by eligible Latin American
countries was authorized to be reduced by the 1990 farm bill (P.L. 101-624; 7 U.S.C.
1738b). The 102nd Congress authorized debt reduction for foreign assistance loans
made by USAID (P.L. 102-549; 22 U.S.C. 2430 and 2421), the Export-Import Bank
(P.L. 102-429; 12 U.S.C. 635i-6), and the Commodity Credit Corporation (P.L. 102-
549; 22 U.S.C. 2430 and 2421). Together, the P.L. 480, USAID, CCC, and Ex-Im
debt reduction authorizations were undertaken as part of President George H. W.
Bush’s Enterprise for the Americas Initiative. In 1996, USAID was further authorized
by Congress to conduct swaps, buybacks, and cancellations of debt owed to the
United States by eligible Latin American and Caribbean countries (P.L.104-107). In
1998, the Tropical Forest Conservation Act (TFCA) was passed, allowing debt
swaps, buybacks, and restructuring to generate funds for tropical forest conservation
worldwide. Funding for the TFCA was reauthorized by Congress in 2001 (P.L. 107-
26) and is currently being considered for reauthorization until FY2007 in the 108th
Congress.
Rationale for and Criticism of Debt-for-Nature Initiatives
Advocates of debt-for-nature initiatives argue that reducing debt in developing
countries will help create free-market systems (as part of the reforms required for
eligibility), stimulate economic growth and trade liberalization, provide incentives
for foreign investment, and help protect the environment. Converting hard currency
debts to local currency debts, advocates argue, will lower debt burdens on developing
countries and in the long run may reduce resource extraction at the expense of the
environment. Critics of debt-for-nature initiatives argue that only a small percentage
of debt is reduced, thereby minimizing the positive benefits of debt reduction in
developing countries. Supporters point out that while the percentage of debt reduced
by debt-for-nature transactions is small, conservation funds generated for debtor
countries are generally significant relative to what the country would have originally
spent on conservation.14 The relationship between debt reduction and lower resource
extraction rates is controversial. Some analysts suggest that debt reduction has no
direct relationship to lower extraction rates of minerals or timber in developing
countries with foreign debt.15
14 For example, Ecuador reduced its external debt of $8.3 billion by only $1 million from a
debt-for-nature swap, yet doubled its budget for parks and reserves with money received
from the resulting conservation fund.
15 Dal Didia, “Debt-for-Nature Swaps, Market Imperfections, and Policy Failures as
Determinants of Sustainable Development and Environmental Quality,” Journal of
Economic Issues (2001), pp. 477-486; and Esben Brandi-Hanson and Kaspar Svarrer, “Debt-
for-Nature Swaps: One or the Other, or Both?” Royal Veterinarian and Agricultural
University of Denmark, Department of Economics, 1998, 17 pp.

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CRS-12
Advocates of debt-for-nature initiatives note that the United States has a history
of supporting debt reduction initiatives in developing countries and appropriating
funds for environmental causes. Recent appropriations by the United States to
support the Heavily Indebted Poor Countries (HIPC) initiative (22 U.S.C. 262p-6)
support the claim for reducing debt in developing countries.16 HIPC was created by
international creditors, the World Bank, and IMF to reduce debt of poor countries
that have demonstrated social and economic policy reforms that enable fluid export
revenues and capital inflows.17 Funds generated for the environment in developing
countries are argued to improve local environmental conditions, promote sustainable
resource use, and help to preserve global biodiversity and ecosystem services.
Advocates also suggest that debt-for-nature transactions that generate funds to
support tropical forest conservation are especially appropriate. Most tropical
countries with high levels of total debt owed to the United States also have some of
the largest areas of tropical forest cover. For example, Brazil and Peru have debts to
the United States totaling over $1 billion each, and have two of the largest areas of
tropical forest cover in the world.18 Other countries, such as the Democratic Republic
of Congo and Sudan, also fit this pattern; however, these countries may be ineligible
for debt-for-nature transactions under the TFCA due to political and economic
eligibility requirements.19
Those who oppose debt-for-nature transactions often argue that they are not
adequately enforced by debtor countries, generate insufficient funds to improve
environmental problems, and may infringe on national sovereignty.20 Three-party
debt swaps have historically had weak enforcement mechanisms; however, bilateral
debt swaps such as those conducted under the EAI generally include safeguards and
default provisions to protect the U.S. government from losing funds. National
sovereignty became an issue in Bolivia when a conservation organization was
reported to have obtained title to forested lands. There was a public outcry and
ensuing political crisis when the Bolivian people thought a large part of their country
16 Eligibility requirements for participating in the HIPC program include that a country must
receive only concessional financing from the World Bank and IMF (i.e., borrowing only
from the World Bank’s International Development Association (IDA) and from the IMF’s
Enhanced Structural Adjustment Facility (ESAF)), establish a track record of economic
reforms under IMF and World Bank-sponsored programs, and hold a debt burden that is
unsustainable under existing (Naples terms) relief arrangements.
17 See CRS Report RL30214, Debt Reduction: Initiatives for the Most Heavily Indebted
Poor Countries, by Larry Nowels.
18 U.S. Department of Treasury and Office of Management and Budget, “United States
Government Foreign Credit Exposure As of December 31st 1999” (2001). Food and
Agriculture Organization of the United Nations, “State of the World’s Forests 2001,” Rome
(2001).
19 Participation in three-party debt-for-nature swaps through USAID is not subject to the
same economic and political criteria required for participation in TFCA and EAI debt-for-
nature transactions. An eligible country must be committed to, plan for, and have a
government or local nongovernmental organization responsible for the long-term viability
of the programs under the swap agreement.
20 R. T. Deacon and P. Murphy, “The Structure of an Environmental Transaction: The Debt-
for-Nature Swap,” Land Economics (1997), pp. 1-24.

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CRS-13
had been given to a foreign organization. Consequently, conservation organizations
involved in recent three-party swaps have generally refrained from directly buying
land in debtor countries with conservation funds earned from swaps.
Decline of Debt-for-Nature Transactions
The number of debt-for-nature transactions has declined in recent years, perhaps
due to accounting changes that require greater appropriations to fund debt-for-nature
transactions with official (public) debt, and a higher price of commercial debt on the
secondary market (see Figure 3). Before 1991, no appropriations were required for
debt cancellations, and the United States cancelled between $11 and $12 billion in
debt between 1988 and 1991. This changed with the Federal Credit Reform Act of
1990 (2 U.S.C. 661a et seq.). This law requires that the net present value (NPV) to
the United States of debts of foreign countries be used to report the cost of debt
restructuring, buybacks, swaps, and cancellations to the U.S. government. The NPV
of the cash flow of the loan is calculated often giving consideration to projected
default losses, fees, and interest subsidies. Therefore, appropriated funds for these
programs must be used to cover the interest fee no longer coming to the United States
(in the case of funds set up under EAI and TFCA) and the difference in the NPV of
the loan that may result from restructuring.21
A decline in three-party commercial debt-for-nature swaps may also be due to
the conclusion of Brady Plan operations by Latin American countries. The Brady
Plan allowed for partial debt forgiveness with a restructuring of the remaining debt
into bonds that could be traded on the securities markets. When this program was
concluded, the price of debt on the secondary market increased and financing
leverage decreased, making it difficult and less attractive for environmental
organizations to acquire debt for resale.22 Further, debt relief for developing
countries is available through other programs that allow for relatively greater
amounts of debt to be cancelled (e.g., HIPC). These programs may be more desirable
to developing countries with debt than debt-for-nature initiatives under the EAI or
TFCA. Lastly, the political and economic requirements needed to be eligible for
debt-for-nature transactions make it difficult for several countries to participate in
EAI or TFCA programs.
21 Stacy Warden, “The Tropical Forest Conservation Act,” PowerPoint presentation, U.S.
Department of Treasury, Washington, D.C., 2001.
22 The World Bank, “World Debt Tables, 1996,” Washington, D.C., 1996.

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CRS-14
Figure 3. Three-Party and U.S. Bilateral
Debt-for-Nature Transactions, 1987-2002
12
10
8
6
4
2
0
1987
1989
1991
1993
1995
1997
1999
2001
Year
EAI/TFCA (Bilateral Exchanges)
Three-party swaps
Emergence of Subsidized Debt-for-Nature Transactions
In 2001, a different form of a debt-for-nature transaction emerged under the
TFCA. The Nature Conservancy and the United States joined to buy down a portion
of debt that Belize owed to the United States. This partnership in debt-for-nature
transactions is referred to as a subsidized debt swap. In a subsidized debt swap, an
NGO generally matches 20% of the U.S. government contribution toward a debt-for-
nature transaction. For example, in a recent transaction with Panama in 2003, the
U.S. government provided $5.6 million and the The Nature Conservancy provided
$1.2 million to reduce Panama’s debt by $10 million and generate $10 million in
conservation funds. The transaction is completed when three agreements are signed:
(1) the U.S. government and the beneficiary country sign a debt restructuring
agreement; (2) the U.S. government and the NGO sign an agreement to transfer NGO
funds; and (3) the NGO and the beneficiary country sign a Forest Conservation
Agreement.23 In a subsidized swap, the U.S. government is not a signatory to the
Forest Conservation Agreement, yet generally has representatives on the oversight
committee.24 Subsidized swaps have been implemented in the last three out of four
transactions under the TFCA (see Table 4).25
23 The U.S. government is a signatory on a Tropical Forest Agreement, which is used with
debt-for-nature transactions that are not subsidized.
24 This agreement generally addresses the structure of the conservation fund, its
administrative council, and the use of monies from the fund, among other things.
25 Scott Lampman, “Debt Swaps Create New Conservation Opportunities,”Biodiversity 13
(continued...)

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CRS-15
Appropriations
Appropriations for debt reduction activities authorized by the EAI have totaled
$90 million. Forty million dollars was appropriated for P.L. 480 debt reduction for
FY1993 (P.L. 102-341) and $50 million for other debt restructuring under EAI in
FY1993 (P.L. 102-391). For debt reduction activities under TFCA, funding has
totaled up to $91 million from FY2000 to FY2003 (see Table 5). In 2001, the TFCA
was reauthorized for appropriations of $50 million, $75 million, and $100 million for
FY2002, FY2003, and FY2004 (P.L.107-26).
Table 5. Appropriations Provided Under the
Tropical Forest Conservation Act of 1998
Fiscal
Requested Amount
Appropriated Amount
Actual amount used
Year
($ in millions)
($ in millions)
($ in millions)a
2000
$50.0
$13.0
$6.0
2001
$37.0
$13.0
$14.4
2002
$13.0b
Up to $25.0 ($11.0 was
$11.0
given for the TFCA)c
2003
Up to $40.0d
Up to $40.0 ($20.0 was
$6.0
given for the TFCA)d
2004
$20.0
$19.8
n/a
2005
$20.0
n/a
n/a
a Cells with n/a indicate that funds have not yet been determined.
b The original appropriation bill language for FY2002 stated that $5 million and up to $20 million in
funds from unobligated balances may be used for debt reduction activities under the TFCA.
c This figure consists of $5 million in direct funds and $6 million in funds transferred from unobligated
balances.
d Funds are to be transferred from the development assistance accounts of U.S. Agency for
International Development.
Future Directions
Bilateral debt-for-nature initiatives implemented by the U.S. government have
been supported with appropriations (e.g., under the EAI and now the TFCA
authorization) for 7 of the last 10 years. Transactions under the TFCA are expected
since it is now included in the Administration’s strategy to address global climate
change.26 Tropical forests make up the largest proportion of carbon stored in
terrestrial land masses and are thought to be a carbon sink. Despite uncertainties on
25 (...continued)
(2003), pp. 1-3.
26 See [http://www.whitehouse.gov/news/releases/2002/02/climatechange.html], last updated
February 2002, and last accessed June 25, 2004. (Hereafter referred to as Climate Change
Policy.)

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CRS-16
the part of some, it is generally thought that maintaining existing tropical forests will
store carbon, and that preventing deforestation will reduce the entry of carbon into
the atmosphere.27
27 T. K. Rudel, Sequestering Carbon in Tropical Forests: Experiments, Policy Implications,
and Climate Change, Society and Natural Resources, vol. 14 (2001), pp. 525-531.

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CRS-17
Appendix: List of Related Laws and Appropriations
That Support Debt-for-Nature Initiatives
! Continuing Appropriations Act for 1988 (P.L. 100-202; Section
537(C)(1-3)). Directs Secretary of the Treasury to analyze initiatives
that would enable developing countries to repay portions of their
debt obligations through investments in conservation activities.
! International Development and Finance Act of 1989 (P.L. 101-
240; Title VII, Part A, Section 711) (22 U.S.C. 2282 -2286).
Authorizes USAID to provide assistance to nongovernmental
organizations to purchase debt of foreign countries as part of a debt-
for-nature agreement (i.e., three-party swap). Authorizes USAID to
conduct a pilot program for debt-for-nature swaps with eligible sub-
Saharan African countries.
! Support for East European Democracy (SEED) Act of 1989
(P.L. 101-179; Title I, Section 104) (22 U.S.C. 5414). Authorizes
the President to undertake the discounted sale, to private purchasers,
of U.S. government debt obligations from eligible Eastern European
countries.
! FY1990 Foreign Operations Appropriations Act (P.L. 101-167;
Title V, Section 533(e)) (22 U.S.C. 262p-4i- 262p-4j). Directs the
Secretary of the Treasury to (1) support sustainable development and
conservation projects when negotiating reduction of commercial
debt and assisting with reduction of official (public) debt
obligations, (2) encourage the World Bank to assist countries in
reducing or restructuring private debt through environmental project
and policy-based loans, and (3) encourage multilateral development
banks to support lending portfolios that will allow debtor countries
to restructure debt that may offer financial resources for
conservation.
! Enterprise for the Americas Initiative (Title XV, Section 1512 of
the Food, Agriculture Conservation and Trade Act of 1990 (P.L.
101-624; 104 Stat. 3658) (7 U.S.C. 1738b). Amends the Agriculture
Development and Trade Act of 1954 to allow the President to reduce
the amount of P.L. 480 sales credit debt owed to the United States
by Latin American and Caribbean countries.
! Export Enhancement Act of 1992 (P.L. 102-429; Title I, Section
108) (12 U.S.C. 635i-6). Authorizes the sale, reduction, cancellation,
and buyback of outstanding Export-Import Bank (Exim) loans for
EAI purposes.

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CRS-18
! Jobs Through Exports Act of 1992 (debt forgiveness authority
under EAI) (P.L. 102-549; Title VI, Section 704) (22 U.S.C.
2430) and (22 U.S.C. 2421). Authorizes the sale, reduction,
cancellation, and country buyback (through right of first refusal) of
eligible Commodity Credit Corporation (CCC) debt. Also authorizes
the reduction of foreign assistance (USAID) debt.
! Enterprise for the Americas Initiative Act of 1992 (P.L. 102-
532)(7 U.S.C. 1738m, p-r, etc.). Establishes guidelines for debt-
for-nature swaps for Latin American and Caribbean countries.
! Agriculture Appropriations for FY1993 (P.L. 102-341). Provided
$40 million for P.L. 480 debt reduction under EAI.
! Foreign Operations Appropriations for FY1993 (P.L. 102-391).
Provided $50 million for debt restructuring under EAI.
! Foreign Operations Appropriations for FY1995 (P.L. 103-306;
Title II, Section 534). Authorizes nongovernmental organizations
associated with the Agency for International Development to place
funds from economic assistance provided by USAID in interest-
bearing accounts. Earned interest may be used for the purpose of the
grants given.
! Foreign Operations Appropriations for FY1996 (P.L. 104-107;
Title V, Section 571). Provides authority to perform debt
buybacks/swaps with eligible loans made before January 1, 1995.
For buybacks, the lesser of either 40% of the price paid or the
difference between price paid and face value must be used to support
conservation, child development and survival, or community
development programs (Title V, Section 574).
! Tropical Forest Conservation Act of 1998 (P.L. 105-214) (22
U.S.C. 2431). Amends the Foreign Assistance Act of 1961 to
facilitate the protection of tropical forests through debt restructuring,
buybacks, and swaps in eligible developing countries with tropical
forests.
! Reauthorization of the Tropical Forest Conservation Act (P.L.
107-26). Authorizes the appropriation of $50 million, $75 million,
and $100 million for FY2002, FY2003, and FY2004. Reduces the
magnitude of investment reforms that must be in place for eligible
countries.

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