Academic journal article ABA Banking Journal

Foreign Debt Becomes Tropical Rainforest

Academic journal article ABA Banking Journal

Foreign Debt Becomes Tropical Rainforest

Article excerpt

The still-large third-world debt overhang is not likely to go away quickly. But through a debt-for-nature swap or a donation to a conservation group banks can get rid of some of this debt, gain favor among ecological groups and green"minded customers, and obtain a tax deduction and possibly more.

In one recent example of a donation, Fleet/Norstar, Providence, R.I., gave The Nature Conservancy $250,000 worth of Costa Rican debt, according to Randy Curtis, director of debt exchange at the Washington, D.C.-based nonprofit group. The bank took a 100% business loss deduction as a result of the arrangement.

Debt-for-nature swaps over the last two years have involved such participants as Morgan Guaranty, Bankers Trust, and Citibank. In these complicated arrangements, a conservation group (such as the World Wildlife Fund, Conservation International, Rainforest Alliance, or The Nature Conservancy), purchases foreign debt from a private bank or the secondary market at market value. The group then gives the debt to the central bank of the debtor country, which gives a percentage of the value of the debt to local conservancy groups in the form of a bond, so that they can use the interest and principal for conservation purposes. …

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