Debt-for-Nature Swaps in Action : Two Case Studies in Peru

Debt-for-nature swaps are a major source of global funding for nature conservation and have been touted as a win-win solution to the problem of how to finance conservation. This paper examines how the United States' debt-for-nature-swap program, the Tropical Forest Conservation Act, works in the field. We provide an introduction to the technical aspects of the debt-for-nature swap mechanism, then describe how the program operates on the ground, using the United States–Peru swap as an example. We focus on two case studies that are largely representative of the Tropical Forest Conservation Act's work in Peru: 1) ProNaturaleza’s project in the Pacaya Samiria National Reserve, and 2) five distinct projects centered around reducing illegal logging in and around Alto Purús National Park. We explore the range of programs financed through swaps, as well as whether debt-for-nature swap projects meet their goals of strengthening civil society and increasing local capacity. We also discuss the efficacy of debt-for-nature swap monitoring, which tends to privilege fiscal evaluations of area protected over direct conservation outcomes. Although Tropical Forest Conservation Act projects may well have conservation effects, the current methods of measuring success do not reflect the types of conservation impacts of Tropical Forest Conservation Act projects.


INTRODUCTION
Debt-for-nature swaps are a major source of international nature conservation funding (Pearce 2007).Debt-for-nature swaps have been touted as a win-win solution to the problem of how to finance conservation in the developing world (Fuller 1989, Hamlin 1989).They emerged in the 1980s as the brainchild of Thomas Lovejoy (1984) and were considered an innovative tool to simultaneously address the problems of debt and forest degradation in debt-burdened countries.Debt-for-nature swaps have provided a mechanism for nature conservation by forgiving or canceling a portion of a developing country's debt to a creditor country.In exchange for debt cancellation, the developing country's government endows a trust fund in local currency for conservation activities in that country.Debt-fornature swap projects can help mitigate the "paper park" problem by providing resources for managing existing protected areas, largely through local partnerships aimed at improving capacity for conservation management (Brandon et al. 1998, Schwartzman et al. 2000).According to Reilly (2006), the ultimate success of debt-for-nature swaps hinges on designing effective conservation programs and strengthening the institutions of civil society in order to implement long-term conservation programs.
The first generation of debt-for-nature swaps involved commercial debt and were initiated by large international NGOs: the World Wildlife Fund, The Nature Conservancy, and Conservation International.These NGOs purchased debt at a discounted rate on the secondary market and returned it to the indebted country in exchange for specific conservation commitments.Commercial debt-for-nature swaps have largely disappeared with the restructuring of commercial debt and have been replaced by government-to-government initiatives, although NGOs still play a role.International NGOs often have in-depth technical expertise and a history of working with in-country conservation partners.Because of the NGOs' financial contributions, the debt-for-nature swap http://www.ecologyandsociety.org/vol16/iss3/art13/mechanism allowed them to exercise considerable leverage in deciding where and how the debt-fornature swap funds were spent (Reilly 2006).
A large body of literature about debt-for-nature swaps developed in the 1990s.It focused on the theory and structure of debt swaps as a conservation tool as well as potential for international debt relief (Hrynik 1990, Korfhage 1990, Mahony 1992, Jakobeit 1996, Deacon and Murphy 1997, Lugar and Biden 1998, Moye 2001).Some early critics of debt-for-nature swaps were concerned about sovereignty issues related to transferring ownership of land to foreign (creditor) governments or organizations (Alagiri 1991, Deacon and Murphy 1997, Reilly 2006).In the case of the first debt-fornature swap in Bolivia in 1987, there was a public outcry and political crisis when the Bolivian people believed a conservation organization obtained title to the country's forestlands (Walsh 1987, Resor 2005).Despite these concerns, debt-for-nature swaps have not resulted in land transfers to foreign entities (Reilly 2006).To the contrary, debt-fornature swaps provide local currency to local NGOs to carry out local conservation projects.
Recent works have looked back at the history and evolution of the debt-for-nature swap mechanism (e.g., Resor 2005, Reilly 2006, Buckley 2009), while others have expounded upon other ways the tool might be used.For instance, Greiner and Lankester (2007) have discussed using the debt-fornature swap tool to alleviate farm debt in return for biodiversity conservation.Buckley (2009) proposed variants such as debt-for-education and debt2health exchanges.Debt-for-development is another twist on the model (Freeland and Buckley 2010), as exemplified by the Italian-Egyptian debt-fordevelopment experience in Radwan et al. (2008).Some are beginning to point to debt-for-nature swaps as a way to offset carbon emissions (e.g., van Noordwijk et al. 2008).This paper describes how our examination of the United States' debt-for-nature swap program has worked in Peru.Peru is a diverse country with a long history of participation in debt-for-nature swaps.We provide an introduction to the technical aspects of the debt-for-nature swap mechanism, then describe how the program operates on the ground, using the U.S.-Peru swap as an example.Peru is an appropriate site for a case study of the U.S. debtfor-nature swap program, in part because it involved all the main players in debt-for-nature swaps: creditor and debtor governments, and the international NGOs (the World Wildlife Fund, The Nature Conservancy, and Conservation International).We explore several broader issues including the range of projects financed through swaps and how to improve debt-for-nature swap monitoring and evaluation.These issues include the range of programs financed through swaps, whether debtfor-nature swap projects meet their goals to strengthen civil society and increase local capacity, and the efficacy of debt-for-nature swap monitoring, which tends to privilege fiscal evaluations of area protected over direct conservation outcomes.

Background information about the United States' debt swaps
The United States has been active in debt-for-nature swaps.The United States Congress has twice passed legislation allowing some incarnation of swapping debt for nature: the Enterprise for the Americas Initiative in 1991 and the Tropical Forest Conservation Act in 1998.The Tropical Forest Conservation Act covers tropically forested areas throughout the world, and it authorizes other types of transactions in addition to swaps (debt reduction and debt buybacks).International NGOs became involved in U.S. bilateral swaps in 2001 through subsidized debt-for-nature swap transactions, where an NGO matches up to 30% of the U.S. government's contribution (Sheikh 2004).As of December 2008, the U.S. government had spent US$109.5 million on 14 Tropical Forest Conservation Act agreements in 12 countries, thus generating US$188.5 million in local currency for tropical forest conservation projects (Tropical Forest Conservation Act Secretariat 2009).Aside from tropical forest conservation, an important secondary goal of the Act has been to strengthen civil society in beneficiary countries (Bernau 2006, Tropical Forest Conservation Act Secretariat 2009).2006).Each country's board, and the Tropical Forest Conservation Act oversight committee, is now required to report annually on steps taken to meet the performance criteria, which are mainly concerned with the efficiency asset management and grant-making processes.
The Tropical Forest Conservation Act measures success by the number of grants awarded and the land area ostensibly affected by the program (Tropical Forest Conservation Act Secretariat 2009).However, funding levels and hectares protected are imperfect measures of the Act's conservation impact.Most of the Act's funding goes to targeted projects that cannot be accurately measured in terms of hectares affected.Also, the number of hectares protected gives no indication as to the degree to which an area has been protected.
The lack of appropriate indicators of conservation success is a problem that extends far beyond the Tropical Forest Conservation Act and debt-fornature swaps, to the international conservation community.Conservation organizations spend billions of dollars and countless staff hours each year to protect biodiversity, often with unproven results.Conservation practitioners are beginning to understand the need to demonstrate results and to identify the most effective approaches for making use of limited conservation resources (Salafsky et al. 2002, Christensen 2003).In fact, many of the largest international conservation organizations have come together to form the Conservation Measures Partnership with the goals of developing better ways to design, manage, and measure conservation actions (Conservation Measures Partnership 2007).Thus far, most of the international conservation community's evaluation work has focused on countable project implementation and outputs.But biological monitoring is often prohibitively expensive, and most conservation impacts do not become measurable until well beyond the time frame of the project (Kapos et al. 2008).With this paper, we hope to shed some light on the quest for better tools for evaluations and indicators for assessing the success of debt-for-nature swaps.

METHODS
This paper is the result of field research evaluating all of the Tropical Forest Conservation Act projects in Peru as of June 2007.Data were triangulated using interviewing, observation, and document analysis to test for consistency and to collect as much relevant information about each project as possible.Data for each case/project were analyzed using content analysis to identify core consistencies and to verify and illuminate emerging trends (Patton 2002).
In the United States, interviews were conducted with conservation officials at the headquarters of The Nature Conservancy, the World Wildlife Fund, and Conservation International, as well as with representatives of the U.S.

The Tropical Forest Conservation Act's swap with Peru
The 2002 Peru swap was subsidized by the World Wildlife Fund, The Nature Conservancy, and Conservation International, who each contributed US$370,000.The U.S. government provided US$5.5 million.Beginning in 2002, over the course of 16 years, US$14.3 million in debt is set to be cancelled, and US$10.6 million will be set aside over the next 12 years for conservation funding in Peru.The swap's goal is to build long-term forest conservation and sustainable forestry initiatives in Peru (Agreement between the United States of America and Peru 2002).
The Tropical Forest Conservation Act agreements selected ten areas within the already wellestablished Peruvian National System of Protected Areas to receive funding for conservation projects. [1]Table 1 describes all of the Tropical Forest Conservation Act funded projects in Peru, listing the implementing organizations, budgets allocated, and length of each project.Together, these protected areas total more than 11 million hectares, and are some of the richest and most biodiverse lands on Earth.Jaguars (Panthera onca), scarlet macaws (Ara macao), and pink freshwater dolphins (Inia geogrensis) are only few of the many threatened species that depend on these areas for habitat (Tropical Forest Conservation Act Secretariat 2006).
How were Tropical Forest Conservation Act resources allocated in the Peru swap?We grouped Tropical Forest Conservation Act projects into nine major categories based on primary project goals, as stated in project proposals and confirmed via key informant interviews.(See Figure 1  United States of America and Peru 2002). [2]The swap's oversight committee was responsible for ensuring the terms of the swap were observed and for reviewing grant applications from local NGOs.There were five voting members on the oversight committee: one representative from the Peruvian government, one from the U.S. government, and one from each contributing NGO's in-country program office.PROFONANPE sat in on meetings as the secretary, without voting rights.

Case studies of projects in Peru
We focused on two case studies that are largely representative of the Tropical Forest Conservation Act's work in Peru in terms of project funding and primary project focus: ProNaturaleza's project in the Pacaya Samiria National Reserve, and an amalgamation of five distinct projects aimed at reducing illegal logging in and around Alto Purús National Park (see Table 1).The project's monitoring of socioeconomic benefits was less impressive.Socioeconomic data were collected informally, with little baseline data.
Without data on actual household earnings, it was difficult to determine the socioeconomic benefits of projects.Despite the lack of rigorous socioeconomic data, villagers widely perceived that their livelihoods had improved.Our interviews indicated that 84% of participants in management groups felt that the group had improved their quality of life.
Participants indicated that the project had increased local capacity to manage resources.They also cited increased household assets, group solidarity, and increased social safety nets as a result of the intervention.Participants said they felt ownership over their resource management plans and that they enjoyed the planning and training associated with the project.
Our interviews also indicated that villagers perceived important secondary effects of management activities.Villagers indicated that wild animals such as monkeys (various unspecified species), black caiman (Melanosuchus niger), giant river otter, "majaz" (Agouti paca), tapirs, dolphins, and white-lipped peccary (Tayassu pecari) were more prevalent near communities than in the past.Because these were not part of the monitoring plan, NGOs were not able to assess the recovery of nontarget species.
Integrated conservation and development projects have frequently been criticized (Oates 1999, Wunder 2001, Wilshusen et al. 2002, Christensen 2004, Terborgh 2004) because of failure to achieve either the goal of conservation or of development (Brown 2003) 2005).The Alto Purús National Park area is also home to indigenous groups living in voluntary isolation, about whom little is known (Pitman et al. 2003).A significant portion of Peru's remaining bigleaf mahogany (Swietenia macrophylla) stands are located within Alto Purús National Park.
Despite conservation measures, [3] illegal logging remains a major problem in Peru.The country's forestry sector is rife with corruption and informality (Smith et al. 2006). [4] Under Peru's forestry regime, forest concessions give the holder the right to exploit and manage forest resources within a given area generally between 5000 and 10,000 hectares (Salo and Toivonen 2009).Logging practices are required to be evaluated every 5 years to determine compliance with an approved Forest Management Plan for the concession area (Smith et al. 2006).However, there is little credibility regarding the documentation that accompanies and ostensibly guarantees the legality of forest products.Tracing the chain of custody can be nearly impossible.This enables a black market in forest transport permits to "launder" wood of illegal origin (Environmental Investigation Agency 2009).Another issue is that many concessionaires have accumulated significant debts and lack access to credit for financing forestry activities.Thus, some concessionaires have either gone bankrupt or turned to illegal logging, which gives them a competitive advantage over concessionaires who pay for forest inventories, forest management plans, permits, etc. (Karsenty et al. 2008).In some areas, the majority of wood comes from native communities instead of forest concessions.This brings up issues not only regarding the legality of the origin of the products, but also about the inhumane treatment of indigenous peoples, including forced labor and undervaluing indigenous wood (Bedoya Garland and Bedoya Silva-Santisteban 2005).(Campbell et al. 1966, Taylor-Powell et al. 1996, Weiss 1998).Given the modest budgets and time frames of most projects, it might not be appropriate to carry out impact evaluations for each project.Conservationists thus need better tools to evaluate and analyze the effectiveness of projects when formal evaluation is not practical (Green 2002).
Another approach might be a monitoring effort that focuses on intermediate or "key" outcomes that herald changes in threat or biological status, such as the Cambridge Conservation Forum's project on harmonizing approaches to measure conservation success (Kapos et al. 2008). [5]For example, a key outcome for livelihood-related projects would be the abandonment of detrimental practices by the target population, while for policy interventions it would be the implementation of the policies or legislation promoted.For education and awarenessraising projects, the key outcome would be a change in behavior by the target audience (Kapos et al. 2008).This type of tool could help address the major constraints to evaluating conservation success: unclear objectives, ineffective information management, the long time frames of conservation outcomes, scarcity of resources for evaluation, and lack of incentives for evaluation (Kapos et al. 2008), many of which are also issues with the Tropical Forest Conservation Act.This sort of tool would serve mainly as a form of self-assessment, assuming that project staff are the best-qualified and have the evidence base to respond to the questionnaire.

Civil society
One of the oft-stated goals of the Tropical Forest Conservation Act has been to strengthen civil society and local capacity for monitoring and managing environmental resources (Bernau 2006, Greiner andLankester 2007, Tropical

Administration
Based on our interviews with oversight committee members and observations of their meetings, it seemed problematic that so many parties were involved in the swap's administration.On the one hand, international NGO representatives on the oversight committee were in-country experts.On the other hand, they did not always have the necessary time to devote to overseeing Tropical Forest Conservation Act projects (they were busy managing operations for their own NGOs).This often precluded them from designating sufficient time and energy to Tropical Forest Conservation Act oversight.Another drawback of having such a large group of decision-makers was the lack of overall accountability, since no one person or organization was responsible for the success or monitoring of projects.For instance, The Nature Conservancy, the World Wildlife Fund, and Conservation International are all members of the Conservation Measures Partnership and are leaders in developing conservation audits and impact evaluations.Yet no single NGO took the lead in the case of Tropical Forest Conservation Act projects in Peru.
Short-term grant cycles of 1 or 2 years were not always sufficient for projects to get established, gain the support of local people, accomplish conservation goals, and demonstrate impact.Furthermore, many Tropical Forest Conservation Act projects were conducted in remote areas of the Amazon, which increased both time and logistical complications.Another issue is that some projects were envisioned as pilot projects, or they were designed to raise local environmental awareness, and thus prepare local communities for future conservation projects.But because the oversight committee was slow to approve follow-up efforts, these projects lost momentum in the field.Our interviews indicate that rural communities did not understand short-term grant cycles, and were sometimes disillusioned when project benefits failed to materialize.Longer grant cycles of 3 to 5 years would provide more continuity in the field.

CONCLUSION
Worldwide, debt-for-nature swaps have been and continue to be a major source of funding for nature conservation.The United States has been particularly active in debt-for-nature swaps.In two case studies of debt-for-nature swap projects in Peru, we examined some of the goals of these swaps, including increasing the efficacy of debt-for-nature swap monitoring and accountability, building local capacity, and improving swap administration.
Although Tropical Forest Conservation Act projects probably have effects on nature conservation, debtfor-nature swap projects largely do not measure them in ways that can demonstrate impact or be communicated to the public.The current methods of measuring success-monies awarded and hectares protected-do not reflect the types of conservation impacts of projects.The Tropical Forest Conservation Act might consider using a key outcomes evaluation approach to help identify factors that contribute to conservation success.Furthermore, swaps are increasing local capacity, but that is not being communicated back to funders.Finally, improving swap administration, both in terms of oversight and continuity, would go a long way in improving conservation outcomes.
Consequently, the U.S. Treasury helped develop an evaluation scorecard http://www.ecologyandsociety.org/vol16/iss3/art13/for the Tropical Forest Conservation Act as a first attempt to evaluate the success of the program (Tropical Forest Conservation Act Secretariat

Table 1 .
for a visual representation of fund allocation based on each project's primary goal).Almost one-third of Tropical Forest Conservation Act funds were devoted to community resource management-all of which were concentrated in the Pacaya Samiria National Reserve.Construction of guard posts on Amazonian Rivers represented 20.5% of Tropical Forest Conservation Act expenditures, and was the primary focus of three separate Tropical Forest Conservation Act projects.Two projects were aimed at inspecting forest concessions, and together represented 12% of Tropical Forest Conservation Act expenditures.Two projects established smallscale Municipal Conservation Areas with local communities in the high Andes; together these comprised less than 8% of Tropical Forest Conservation Act expenditures.Projects in the Amazon represented the bulk of Tropical Forest Conservation Act funding.Amazonian projects funded by the Tropical Forest Conservation Act aimed to prevent illegal resource extraction, build guard posts on river systems, fund management groups, and provide protected areas with logistical and staffing support.The Act has also funded high Andean conservation projects focused on conservation and reforestation in and around the Sacred Valley of the Incas.Projects also promoted environmental education and outreach to local communities and politicians.Another area of Tropical Forest Conservation Act funding has been the coastal desert forest, where a small protected area had been invaded by squatters, causing landuse conversion because of illegal logging for firewood and charcoal commercialization.The Tropical Forest Conservation Act funded a project to promote long-term planning and participatory management of the protected area.No Tropical Forest Conservation Act funds were dedicated to establishing new large-scale protected areas.Funds were granted to Peruvian NGOs in local currency by PROFONANPE, a preexisting environmental trust fund (Agreement between the http://www.ecologyandsociety.org/vol16/iss3/art13/Tropical Forest Conservation Act projects in Peru: descriptions.
This study was funded by The Fulbright Program and the Environmental Studies Institute at Santa Clara University, California.Many thanks to the Tropical Forest Conservation Act Secretariat, the World Wildlife Fund, Conservation International, The Nature Conservancy, and the many NGO staff who facilitated field visits.We would also like to thank Ryan Gockel for his insight.Agreement between the United States of America and Peru, Agreement signed at Washington June 26, 2002: Agreement between the Government of the United States of America and the Government of the Republic of Peru regarding a debt-for-natureswap.Washington, D.C. DC: 247005-1 GUSA-GOP Debt Agreement 005b.Treaties and other International Acts Series 02-716.[online] URL: http://www.state.gov/documents/organization/151294.pdf.