Galapagos record debt-for-nature swap scrutinized for transparency irregularities by Reuters

By Marc Jones

LONDON (Reuters) – The Inter-American Development Bank’s watchdog is looking into whether a record “debt-for-nature” swap by Ecuador for its Galapagos Islands (NASDAQ: ) last year violated the lender’s policies following complaints from local groups.

The Washington-based lender’s Independent Consultation and Investigation Mechanism (MICI) is examining the groups’ concerns about a “lack of accessible and relevant information” and a “lack of a strategy to engage with potentially affected communities,” the filings show.

Last year’s Galapagos-focused debt swap drew global attention for being the first to break the $1 billion barrier, but the 24 groups involved in the complaint are frustrated by their lack of involvement in decisions and that the money for conservation is yet to arrive.

Debt swaps generate this money by buying a country’s existing bonds or loans. These are then replaced with cheaper debt, usually with the help of a development bank such as the IDB, with the savings then used for environmental projects.

MICI’s investigations are limited to potential violations of the BID Group’s “social and environmental policies and standards,” but concerns about how projects, including payments, are handled and public disclosure fall under that umbrella.

The Galapagos deal swapped $1.6 billion worth of Ecuador’s bonds, but its focus on island conservation, which inspired Charles Darwin’s Theory of Evolution, was seen as a benchmark of these types of deals.

Dozens of other countries are now following suit, and Ecuador is looking to do more, potentially with the help of Hollywood star Leonardo DiCaprio’s conservation charity.

One of the organizations involved in the complaint, Ecuador’s Centro de Derechos Eonómicos y Sociales (CDES), said on its website that MICI’s decision to review “represents an important step towards the protection of Ecuador’s sovereign rights and environmental conservation in the Galapagos Islands. “CDES added that this would also benefit future debt exchanges as it would “seek to implement international best practice”.

Ecuador’s Finance Ministry, the IDB’s “client” for the debt swap, did not respond to a request for comment.

The Galápagos Life Fund (GLF), which was set up to help oversee the exchange and is co-chaired by Ecuador’s Environment Ministry, says it has held a series of recent meetings with locals and is now preparing to allocate funds.

“We are committed to ensuring that these funds are distributed fairly and efficiently, benefiting both the ecosystems and the people who rely on them,” it said in a statement on its website.

PROCESS

MICI now has until the end of October to assess the complaint and decide how to proceed. If resolution through dialogue does not seem possible, then it may present a case to the IDB Executive Board in Washington for further investigation, a MICI spokesman said.

If the Board approves one, the MICI team has up to a year to “impartially and objectively investigate allegations of harm and potential non-compliance with the BID Group’s environmental and social policies and standards.”

Once completed, it produces a report for the IDB Board which then decides on any “corrective action”.

This usually comes in the form of an ‘action plan’ which MICI can then monitor for up to five years in consultation with claimants and other stakeholders. The plans do not include fines, but past cases have led to changes in IDB policies.

An investigative process would not prevent the payment of funds from the debt swap.