| Debt-for-Nature Swaps: The Case for Property Rights | | | |
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__________________________________________________________________
Bradley
K
.
Hobbs
Debt-for-Nature
Swaps
:
The
Case
for
Property
Rights
Introduction
Debt-for-nature
swaps
provide
a
mechanism
for
the
purchase
of
debt
in
secondary
markets
in
exchange
for
a
promise
to
preserve
environmentally
sensitive
lands
.
These
swaps
have
been
used
throughout
Latin
America
,
Africa
,
Asia
and
other
regions
as
a
means
of
aligning
the
interests
of
debtor
nations
with
the
environmental
goals
of
non-governmental
organizations
(
NGOs
.)
Inherent
to
these
arrangements
is
a
commitment
to
protect
the
lands
for
some
specified
period
.
Ideally
,
conservation
organizations
would
establish
defensible
and
enforceable
private
property
rights
in
order
to
ensure
the
protection
of
the
lands
in
perpetuity
.
Where
private
property
rights
are
protected
,
this
can
be
easily
accomplished
through
purchase
of
the
entire
bundle
of
rights
that
accrue
to
outright
ownership
.
However
,
outright
purchase
of
the
entire
bundle
is
often
viewed
as
cost
prohibitive
,
and
the
goals
of
the
environmental
groups
may
be
met
by
purchasing
specific
rights
within
the
full
bundle
.
A
distinct
advantage
of
private
property
is
that
private
ownership
greatly
reduces
the
number
of
parties
in
the
negotiation
and
hence
,
the
transaction
costs
(
Demsetz
,
1976
).
This
implies
that
individual
property
rights
facilitate
the
depth
and
breadth
of
market
exchange
and
the
concomitant
creation
of
value
.
However
,
clear
property
title
is
often
not
available
in
debt-for-nature
swaps
(
DNSs
)
for
a
number
of
reasons
,
including
:
an
institutionalized
property
rights
framework
that
has
never
clearly
delineated
property
rights
;
restrictions
on
foreign
ownership
linked
to
issues
of
national
sovereignty
;
and
/
or
domestic
,
political
considerations
.
As
a
result
of
these
issues
and
the
costs
associated
with
outright
purchase
,
NGOs
have
turned
to
alternative
arrangements
that
allow
for
control
over
the
use
of
the
lands
for
at
least
some
period
of
time
.
What
debt-for-nature
swaps
(
DNSs
)
have
in
common
is
the
goal
of
protecting
environmentally-sensitive
areas
with
requisite
ex
post
monitoring
.
This
practice
exists
in
other
forms
.
For
instance
,
environmental
and
wildlife
conservation
groups
might
purchase
in-stream
flow
rights
for
the
maintenance
of
fisheries
or
Bradley
K
.
Hobbs
,
Ph
.
D
.,
is
Associate
Professor
of
Economics
and
Finance
,
Florida
wildlife
habitat
.
Conservation
groups
Gulf
Coast
University
(
Fort
Myers
,
Florida
).
might
also
purchase
timber
rights
,
and
then
set
them
idle
.
These
property
rights
__________________________________________________________________
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__________________________________________________________________
arrangements
represent
an
attempt
to
control
certain
aspects
of
development
through
the
purchase
of
a
partial
set
of
the
bundle
of
rights
that
can
be
linked
to
the
lands
.
An
example
of
this
occurred
in
December
of
2001
when
Conservation
International
bought
the
last
logging
concession
in
the
Pilón
Lajas
Biosphere
Reserve
in
Bolivia
(
www
.
conservation
.
org
,
2003
)
and
retired
those
rights
unused
.
The
development
of
the
first
DNSs
created
palpable
levels
of
interest
among
the
global
environmental
community
and
lesser-developed
country
(
LDC
)
governments
.
Both
groups
viewed
DNSs
as
a
new
global
institutional
arrangement
that
could
internalize
the
positive
externalities
that
wide
expanses
of
forest
area
provide
to
global
environmentalists
.
While
great
hope
was
held
out
for
these
swaps
initially
,
progress
has
been
slow
.
Between
1987
and
1994
about
$
us
500
million
of
downgraded
debt
was
retired
worldwide
but
only
about
40
%,
or
$
us
200
million
,
was
related
to
debt-for-nature
swaps
(
United
Nations
Development
Program
,
1998
).
The
purpose
of
this
article
is
to
explore
the
effect
that
property
rights
have
played
in
the
unmet
expectations
for
DNSs
.
Well-defined
,
enforceable
property
rights
play
the
foundational
role
in
any
efficient
allocation
of
resources
through
market
mechanisms
(
Coase
,
1960
;
Demsetz
,
1967
).
However
,
in
many
DNSs
property
rights
are
poorly
defined
.
In
particular
,
we
maintain
that
property
right
definitions
a
priori
and
enforcement
and
monitoring
ex
post
have
had
major
impacts
on
the
poor
sustainability
of
DNS
agreements
.
Historical
Background
Hobbs
(
2001
)
interpreted
DNSs
as
an
example
of
Coasian
bargaining
where
US-based
conservation
organizations
began
paying
foreign
governments
to
provide
stewardship
over
environmentally
sensitive
lands
.
In
most
cases
,
this
involved
ongoing
monitoring
of
the
ecological
environment
combined
with
some
level
of
restrictions
on
extractive
economic
activities
.
The
party
receiving
positive
externalities
—
global
conservation
organizations
such
as
Conservation
International
or
the
World
Wildlife
Fund
—
recognized
that
contributing
to
the
costs
of
maintaining
these
positive
externalities
was
in
their
interest
.
Previously
,
as
cost-neutral
third
parties
these
organizations
had
little
influence
over
the
lands
.
Accordingly
,
they
agreed
to
purchase
some
sticks
in
the
property
rights
bundle
,
paying
LDC
countries
to
pursue
environmental
protection
and
monitoring
.
One
reason
DNSs
created
such
initial
interest
is
that
they
seemed
to
provide
an
institutional
framework
for
internalizing
both
the
benefits
and
the
costs
of
environmental
stewardship
.
The
first
DNS
originated
in
1987
when
Conservation
International
agreed
to
purchase
$
us
650
,
000
in
Bolivian
government
debt
at
deep
discount
($
us
100
,
000
)
in
the
secondary
debt
market
.
Citibank
Investment
Bank
brokered
the
debt
to
Conservation
International
and
the
quid
pro
quo
offered
by
the
Bolivian
government
was
to
protect
a
core
conservation
area
of
over
3
.
7
million
acres
known
as
the
“
Beni
Biosphere
Reserve
.”
The
Beni
province
had
been
on
the
environmental
map
since
1982
when
the
Bolivian
Academy
of
Sciences
created
the
334
,
000-acre
Beni
Biological
Station
(
EBB
.)
The
EBB
was
designated
a
biosphere
in
1986
under
the
UNESCO
“
Man
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__________________________________________________________________
and
the
Biosphere
”
program
.
This
designation
includes
an
explicit
recognition
of
human
activity
and
,
in
doing
so
,
allows
for
multiple
uses
of
the
lands
within
the
biosphere
area
.
In
November
1986
,
the
Corporación
de
Desarrollo
del
Beni
and
Centro
de
Desarrollo
Forestal
reclassified
the
area
from
“
protected
status
”
to
“
production
forest
.”
The
Chimane
Permanent
Production
Forest
was
established
,
and
seven
timber
companies
negotiated
limited
extraction
rights
on
over
590
,
000
hectares
(
Campos-Dudley
,
1992
).
Simultaneously
,
the
EBB
was
significantly
expanded
,
and
an
extensive
program
of
environmental
monitoring
ensued
.
By
1990
,
seven
additional
swaps
had
been
negotiated
in
Ecuador
,
Costa
Rica
,
and
the
Philippines
.
Between
1987
and
1994
thirty-two
DNSs
were
completed
,
accounting
for
$
us
177
,
560
,
000
in
face
value
of
debt
(
United
Nations
Economic
Commission
for
Latin
America
and
the
Caribbean
,
2001
).
As
of
November
1998
,
Conservation
International
had
spent
over
$
us
6
,
503
,
000
leveraging
$
us
15
,
865
,
874
in
seventeen
projects
in
Costa
Rica
,
Ghana
,
Guatemala
,
Madagascar
and
Mexico
(
Lewis
,
1999
).
In
August
of
2002
a
triumvirate
of
conservation
organizations
—
Conservation
International
,
the
World
Wildlife
Fund
and
Global
Conservation
Fund
—
provided
$
us
1
.
4
million
to
negotiate
a
37
%
reduction
in
Peruvian
debt
payments
(
www
.
conservation
.
org
,
2003
.)
These
examples
present
a
much
slower
progression
than
was
originally
anticipated
by
many
in
the
environmental
and
LDC
government
communities
.
In
order
to
address
why
DNSs
have
not
grown
as
expected
,
it
is
insightful
to
provide
an
account
of
specific
developments
in
the
original
1987
Beni
Biosphere
Reserve
swap
.
Problem
Identification
The
1987
Beni
Biosphere
Reserve
swap
was
negotiated
without
input
on
the
part
of
the
indigenous
Chimane
Indians
:
an
elemental
oversight
that
rapidly
and
severely
undermined
the
agreement
.
Once
the
government
of
Bolivia
and
Conservation
International
signed
the
swap
and
its
conditions
were
made
public
,
the
native
population
of
the
area
immediately
protested
the
agreement
and
an
escalating
pattern
of
government
concessions
began
(
Campos-Dudley
,
1992
.)
The
essential
problem
was
one
of
property
rights
definition
.
In
1989
,
the
Chimane
were
granted
timber
concessions
within
the
interior
of
the
Chimane
Permanent
Production
Forest
in
addition
to
significant
adjacent
land
grants
.
By
November
of
the
same
year
,
the
well-organized
Chimane
had
formed
an
umbrella
group
to
represent
other
native
peoples
in
the
Beni
Biosphere
Reserve
—
the
Central
de
Pueblos
Indigenas
del
Beni
.
This
group
rejected
the
1989
land
grants
outright
and
pushed
to
further
limit
any
non-native
development
of
the
region
.
Political
problems
for
the
Bolivian
government
deepened
when
it
was
revealed
that
Corporación
de
Desarrollo
del
Beni
and
Centro
de
Desarrollo
Forestal
had
direct
financial
ties
to
the
concessionaire
timber
companies
.
These
government
agencies
were
receiving
their
primary
funding
from
the
logging
concessions
:
35
%
of
the
royalties
from
logging
flowed
directly
to
them
—
11
%
for
Corporación
de
Desarrollo
del
Beni
and
24
%
for
Centro
de
Desarrollo
Forestal
(
Theisenhusen
,
1996
).
In
August
1990
,
over
300
Chimane
Indians
marched
approximately
400
miles
across
the
Andes
to
the
central
capital
in
La
Paz
in
the
“
March
for
Dignity
and
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Territory
”
(
Campos-Dudley
,
1992
).
This
brought
the
central
government
to
the
bargaining
table
once
again
.
Subsequent
negotiations
halted
all
logging
in
the
disputed
areas
,
and
the
seven
original
timber
companies
were
required
to
vacate
the
preserve
and
remove
all
felled
logs
by
the
end
of
1990
.
Finally
,
the
Bolivian
government
drafted
and
passed
legislation
that
afforded
legal
status
to
local
native
leaders
and
their
governing
institutions
.
The
Chimane
were
granted
significant
control
of
territory
—
including
extraction
rights
—
in
October
of
1990
.
In
short
,
the
swap
became
an
international
embarrassment
for
both
Conservation
International
and
the
Bolivian
central
government
.
As
DNSs
have
played
out
,
they
have
confronted
conservation
organizations
and
LDCs
(
the
contracting
parties
)
with
two
fundamentally
intertwined
property
rights
issues
.
First
,
DNSs
have
been
criticized
for
impinging
upon
national
sovereignty
.
A
nationalist
“
eco-colonialism
”
argument
has
received
high
levels
of
internal
domestic
political
support
within
many
LDC
nations
because
the
LDC
government
does
cede
some
level
of
control
over
national
lands
.
For
instance
,
Fabio
Feldman
,
a
prominent
Brazilian
environmentalist
and
member
of
the
Brazilian
Congress
,
has
argued
that
governments
should
not
enter
into
DNSs
because
they
impose
the
environmental
agenda
of
the
rich
nations
on
poor
nations
(
Alagiri
,
1992
).
The
second
issue
is
more
fundamental
and
complex
.
This
involves
the
initial
assignment
and
delineation
of
property
rights
over
the
lands
pledged
in
the
DNS
.
In
other
words
,
exactly
what
does
the
bundle
of
property
rights
contain
,
and
who
has
claim
to
the
bundle
?
The
initial
assignment
problem
occurs
because
the
“
rights
”
are
ill-founded
.
Domestic
political
entities
and
NGOs
have
ignored
the
fact
that
the
property
rights
may
be
well
defined
at
“
lower
”
levels
of
political
and
social
organization
.
As
Hayek
(
1945
)
noted
in
addressing
the
management
of
an
economy
,
the
question
is
not
whether
the
economy
is
to
be
managed
or
not
managed
.
All
economies
are
managed
.
The
real
questions
are
at
what
levels
of
organization
and
by
whom
?
A
similar
situation
is
present
in
property
rights
.
The
question
is
not
whether
or
not
property
rights
exist
,
but
rather
at
what
levels
of
organization
and
who
holds
them
?
Alternative
Property
Rights
Arrangements
It
is
firmly
established
that
market
exchange
requires
well-defined
property
rights
(
Coase
1960
;
Demsetz
,
1967
;
Anderson
and
Hill
,
1975
;
North
,
1981
and
1990
;
Barzel
,
1989
).
The
traditional
,
neo-classical
analytical
focus
has
been
on
the
relative
merits
of
individual
property
rights
versus
state
ownership
.
This
binomial
framework
is
misleading
because
property
rights
may
exist
in
a
continuum
along
a
relatively
wide
range
of
sociocultural
groupings
between
the
individual
and
the
state
.
A
number
of
scholars
have
surmised
that
property
rights
thrive
outside
of
this
simple
bifurcation
.
Lueck
(
1993
)
notes
that
general
common
ownership
tends
to
have
the
characteristic
of
excluding
outsiders
yet
providing
shared
access
to
group
members
.
In
addressing
alternative
arrangements
within
common
ownership
of
real
property
,
he
states
:
“
Too
often
the
analytical
choice
is
between
perfect
property
rights
and
no
rights
at
all
.
[
However
]
…
Common
ownership
…
implies
exclusive
rights
and
is
distinct
from
no
rights
or
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