Ecuador has closed the largest debt conversion by nature ever made. This financial operation consists of an advantageous exchange that frees up resources to be used for the conservation of the environment, in this case the Galapagos. The savings generated, 323 million dollars for conservation, and the capitalization of part of them will allow to allocate 450 million dollars (about 410 million euros) to the archipelago and its surroundings.
The Galapagos Life Fund (GLF) will be endowed, a fund that will finance conservation activities for the next 18 and a half years, both in the Galapagos Marine Reserve and in the Hermandad Marine Reserve, a conservation area created in the Galapagos area in 2022.
The Galapagos Marine Reserve comprises 13 large islands in an area of 40 nautical miles. It has more than 3,500 species, 25% of which are endemic marine organisms, and 24 species of mammals, two of which are endemic. The Hermandad Marine Reserve comprises 60,000 square kilometers of ocean between the Galapagos Marine Reserve and the Costa Rican maritime border northwest of the Galapagos Islands. The idea is to create a corridor of transnational protected areas in a vitally important habitat for threatened shark species.
In addition to their intrinsic value, the natural capital of these two reserves is crucial for Ecuador's important economic sectors, such as tourism and artisanal fishing.
Ecuador has carried out the operation with the support of the Inter-American Development Bank (IDB) and the United States Development Finance Corporation (DFC). The operation consists of the granting of an IDB guarantee of $85 million and a DFC political risk insurance for $656 million to Ecuador for the purchase of existing public debt on better terms.
A pioneering operation
This purchase of debt with lower cost financing generates total savings of more than 1,126 million dollars plus 323 million generated for conservation in the Galapagos Islands over the next few and a half years. That includes about 12 million new funds annually and about 5.41 million annually on average, to capitalize an endowment for the Galapagos Life Fund (GLF). Combined, the debt conversion and endowment will generate more than $450 million for marine conservation in the Galapagos Islands.
Joan Prats, financial specialist in the IDB's Connectivity, Markets and Finance Division, said in a telematic press conference that this is the second operation of this type supported by the organization, after a smaller one in Barbados, and that it is quite pioneering for being carried out with a "volume never known" and for combining different credit improvement instruments. Gregory Watson, principal specialist in Biodiversity, Climate Change and Sustainability at the IDB, has indicated that with the operation, the Ecuadorian Government assumes commitments to improve fisheries management and sustainability.
Watson explained that the Galapagos Life Fund will finance activities to promote the maintenance and growth of the natural capital of the two marine reserves mentioned, which means the conservation of their ecosystems, species, land, minerals, air, oceans, and natural processes and functions. Ecuador is one of the six most biodiverse countries located in Latin America and the Caribbean, after Brazil, Colombia, Ecuador, Mexico, Peru and Venezuela.
"Ecuador and the IDB are leading the way with this debt-for-nature conversion. Not only is this the largest operation of its kind, but it is the first time that a multilateral institution combines guarantees with political risk insurance to mobilize resources from different actors towards conservation," IDB President Ilan Goldfajn said in a statement. "It is an example of how the region is not only addressing global challenges, but is also being part of the solution, pioneering innovative approaches and instruments that can be replicated and scaled globally," he added.
This type of operation allows countries to improve their debt management, while boosting investment in environmental sustainability and biodiversity. It also marks an important milestone in the IDB's strategy to deploy innovative financing instruments to mobilize resources for sustainable development, according to the agency.
"The actions undertaken by Ecuador in this conversion of debt by nature mark a milestone and show its commitment to the construction of a sustainable present and future based on the participation of communities, articulated work with the productive sectors and care for the environment," said Juan Carlos De la Hoz Viñas, IDB Representative in Ecuador.
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