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Robert Weary Sr. Conservation Finance & Policy Advisor Caribbean, The Nature Conservancy

Financing Action on Adaptation in Small Island Developing States (SIDS) via Debt-for-Climate Swaps, a Global Approach. Robert Weary Sr. Conservation Finance & Policy Advisor Caribbean, The Nature Conservancy. Alternate Title. How to turn $500 million into: $250+ million in debt relief

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Robert Weary Sr. Conservation Finance & Policy Advisor Caribbean, The Nature Conservancy

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  1. Financing Action on Adaptation in Small Island Developing States (SIDS) via Debt-for-Climate Swaps, a Global Approach Robert Weary Sr. Conservation Finance & Policy Advisor Caribbean, The Nature Conservancy

  2. Alternate Title • How to turn $500 million into: • $250+ million in debt relief • $650 million for climate adaptation work (over 20 years), and • capitalize $650 million in climate adaptation endowments to continue to fund climate adaptation work into perpetuity

  3. Presentation Overview • Caribbean Challenge • What is a Debt for Nature Swap? • European Climate Change Fast Track Funds • UNDP SIDS Debt Sustainability Report (2010) • Climate Adaptation Debt for Nature Swap Model • Conclusions

  4. Caribbean Challenge • Launched during the CBD COP7 in Bonn, Germany in May 2008 by gov’ts of Bahamas, DR, Jamaica, Grenada & SVG • Commitment to: • Protect 20% of near-shore marine area by 2020 • Develop conservation finance mechanisms to support national PA systems • Develop/implement ecosystem based adaptation to climate change projects • Implemented as 4 GEF projects (JA, BA, DR & E. Caribbean) totaling over $50 million

  5. What is a debt for nature swap? • Emerged during Latin American debt crisis of the 1980s • US cancelled $875 million of debt to 7 LA countries • Two types: • Commercial or Private: involving debt owed to banks • Bi-lateral: involving debt owed to governments

  6. TNC’s Experience • From 1988 to 1992 participated in commercial debt for nature swaps totaling $50M in face value which generated $30M in funds for conservation. • Since 2001, participated in 10 of 16 TFCA deals, including Belize, Jamaica, Costa Rica, and Guatemala • Invested $12.1 million to purchase $173.6 million (face value) of debt • Other investors: NGOs: $6M; USG: $103.8M • Resulting in approx. $225 million (P+I) in new funding for forest conservation • Leverage of over 18:1 on TNC’s investment

  7. Copenhagen Fast Start Funding • European commitment €2.4 billion (US$3.4 billion) annually (2010-2012) • 37% for adaptation (remaining for mitigation) • 61% through bi-lateral channels (remaining through multi-laterals), w/ 63% for Africa • 73% via grants, remainder through soft loans (France) • Germany, UK, France approx. €400 million/yr (US$560 million/yr) each • Comparisons: • approx. US$2 billion/yr globally in ODA for biodiversity • GEF5 replenishment of US$4.3 billion over 4 years

  8. In 2010, 8 Caribbean SIDS w/ debt ratio in excess of 100%

  9. SIDS avg. debt grew 9% between 2007-10

  10. - SIDS GDP growth est. at 1.7% for 2010, compared to 6.3% for developing countries-SIDS will have a hard time “growing out” of debt

  11. Large Portion of Caribbean Public Debt is Privately Held

  12. Report Findings & Conclusions • Official ODA to SIDS has declined over the last decade from 3.7% to 2.8% (as % of budget) • Forcing gov’ts to borrow more to meet shortfalls • In 2010, 4 SIDS restructured debt, including Antigua & Barbuda and Jamaica • Report calls for: • Debt conversions for climate change adaptation: such innovative financing mechanisms could support the neediest countries to generate additional resources for climate change adaptation

  13. Debt Swap Comparisons • Stakeholders: • Donors (Bi, Multi-lateral, Private) • National Government (Ministry of Finance especially) • Debt holder (e.g. bank or other commercial entity, bi-lateral entity) • Local Conservation Trust Fund (recipient of funding flows) • Similarities to TFCA Debt Swap: • Debt purchased at a discount • Repayment could be in local currency • Government agrees to redirect new loan payment to support conservation activities in country • Potential subsidy from bi-lateral donor(s) to fund swap • Differences from TFCA Debt Swap: • No “guarantee” of repayment (by USG) – risk issue needs to be addressed • Non-formal mechanism, addressed country by country and donor by donor

  14. Discount Value of Gov’tDebt: $20 M Sample Debt Swap Face Value of Gov’t Debt: $30M 33% discount Payable to local CTF 33% discount or “haircut” Donor Input or Swap: $20M New Face Value of Gov’tDebt: $20M $1.3M/yr for Climate Adaptation Work New Note: 20 yrs @ 7% - $1.9M/yr $0.6M/yr for Climate Adaption Endowment $1.9M/yr Total • Outcomes (immediate and project life): • Reduces Gov’tDebt by$10M • $26M over 20 yrs for Climate Adaptation Funding • Capitalization of Climate Adaptation Endowment w/ approx. value of $26M by 2030 • Will provide $1.3M/yr for Climate Adaptation work starting in 2031

  15. Potential Activities funded by a Climate Adaptation Debt Swap • Expand and secure marine protected areas and replenishment no-take zones • Improve marine policy and regulatory protection regime • Coral and mangrove restoration projects • Provide alternative livelihoods for affected users • Reduce impacts from residential and tourism activity in the marine area • Raise awareness and disseminate information

  16. Process • Identify/speak with countries willing to participate in climate change debt for nature swap, including identification of CTF to manage proceeds of swap • Identify/speak with donors w/ climate adaptation funding and/or bi-lateral debt willing to fund swap with said country • Negotiate legal agreements between parties, including amount of debt purchased, debt reduction, payment currency, interest rate on new note, activities to be funded, CTF to manage funds, etc. • Purchase of debt and/or cancellation of debt by third party (CTF) or bi-lateral entity • Country creates new debt note payable to CTF per terms of agreement

  17. Scaling Up the Concept • Global commitment to reduce SIDS debts by $750 million to $1 billion via swaps • SIDS write new notes for $500 million (33% - 50% discount) to support climate adaptation of marine ecosystems (and commit to place at least 20% of marine area under protection by 2020) • Results: • $250-$500 million of immediate debt relief • $650 million to fund climate adaptation of marine ecosystems (over 20 years) • $650 million endowments w/in local CTF capitalized to fund climate adaptation of marine ecosystems work into perpetuity

  18. Conclusions • Opportunity to merge MDG, biodiversity, and climate goals in one project – the so called “Holy Grail” • Opportunity to create large, sustainable funding streams for local conservation, combined w/ real debt reduction • Complex, time consuming mechanism, requiring multiple willing actors to negotiate and agree on terms

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