Over USD 1 billion in Ecuadorian debt converted to benefit Galápagos marine life

Ecuador President Guillermo Lasso has announced a world-record debt-for-nature swap that will benefit the marine area surrounding the Galapagos Islands.

With international technical support, Ecuador converted USD 1.6 billion (EUR 1.5 billion) in commercial debt into a USD 656 million (EUR 603 million) loan financed through a new bond issued by Credit Suisse.

“Today we made history: Ecuador reduced USD 1.1 billion [EUR 1 billion] of debt, and the most important thing is that it guarantees the protection of the sea surrounding our Galapagos Islands," Lasso posted on Twitter on 9 May.

The Galapagos Islands are home to about 3,000 species, including whales, dolphins, sharks, sea lions, rays, sea turtles, tuna, and tropical fish, as well as some of the world’s highest levels of endemism – species found nowhere else on Earth – such as giant tortoises and marine iguanas. The waters in the area have been vulnerable to threats, particularly illegal, unreported, and unregulated (IUU) fishing, and climate change.

“Generating economic resources by keeping nature alive is possible!” Ecuadorian Minister of Foreign Affairs Gustavo Manrique said on Twitter in a post that featured the hashtag #ConservationIsTheNewCurrency. “Ecuador has shown the world that to obtain economic resources, it is not necessary to exploit nature. The real treasure is in the protection of biodiversity.”

The photo accompanying the tweet quoted him saying, “Ecuador is as rich as any wealthy country in the world, with the difference being our currency is called biodiversity.” 

The debt conversion is likely to generate more than USD 450 million (EUR 414 million) for conservation over the next 20 years to help preserve the sea around the Galapagos Islands. Besides paying off the USD 656 million loan, under the agreement, Ecuador also committed to investing USD 17 million (EUR 16 million) a year – including USD 12 million (EUR 11 million) for marine conservation and another USD 5.4 million (EUR 5 million) that will go toward an environmental endowment – through 2040.

At the end of that term, endowment assets will have reached an estimated USD 227 million (EUR 209 million) between accumulated payments and investments, and this will likely be sufficient enough to cover continued conservation financing in perpetuity, Lasso said.

The record-breaking agreement dwarfed all other instances of debt-for-nature swaps. According to a U.S. Congressional Research Service report, since 1987, at least 16 developing countries – including Bolivia, Brazil, Costa Rica, Ecuador, and Peru – have benefitted from nearly 50 debt conversions for nature, totaling some USD 200 million (EUR 184 million) in reduced, restructured, or converted debt and generating about USD 167 million (EUR 153 million) for conservation.

“Ecuador’s debt conversion total and expected benefits are greater than all those previous transactions combined,” the Pew Bertarelli Ocean Legacy Project said in a release.

The so-called “Galapagos Bond” carries a 5.645 percent coupon for investors, Reuters reported. In comparison, Ecuador sovereign bonds currently yield anywhere from 17 to 26 percent.

The debt swap and restructuring involved a plethora of global players. While Credit Suisse arranged and structured the bond, the U.S. International Development Finance Corporation provided USD 656 million (EUR 603 million) in political risk insurance for the loan, and the Inter-American Development Bank signed an USD 85 million (EUR 78 million) guarantee. 

The Oceans Finance Company and Aqua Blue Investments collaborated with Ecuador on the deal, and the Pew Bertarelli Ocean Legacy Project and other partners supported the development of the nonprofit Galapagos Life Fund (GLF), established in May 2023, and the conservation commitments.

GLF will handle the conservation and endowment funding to manage, monitor, and enforce waters around the Galapagos Islands, including the 133,000-square-kilometer Galápagos Marine Reserve and the newly created 30,000-square-kilometer Hermandad Marine Reserve. GLF’s 11-member board will comprise five Ecuadorian government ministers and six representatives from nongovernmental organizations.

The funds may also help support research-based efforts to promote sustainable fisheries, climate resilience, and a sustainable blue economy. In cooperation with the fishing industry, the government will monitor catch and bycatch by equipping industrial purse-seine and longline fishing vessels with electronic monitoring devices, having onboard observers on at least 70 percent of purse-seine vessels by the end of 2024, and on at least 20 percent of longline vessels by the end of 2025.

Further, Ecuador will start to limit the use of fish-aggregating devices (FADs), by purse-seiners. Some fishing companies have been found to use bycatch as bait in the FADs and abandonment of FADs has become a high-profile issue in international discussions on their future use. 

The Center for Biological Diversity, the Animal Welfare Institute, and the Natural Resources Defense Council (NRDC) have questioned Ecuador’s allowance of FADs and said their continued use may result in a ban on the country’s seafood exports to the United States.

The Pew Charitable Trusts Senior Vice President for Environment and Crosscutting Initiatives Tom Dillon said the debt swap was an innovation that could be employed elsewhere around the ... 

Photo courtesy of Paolo Cattaneo/Shutterstock