San Salvador, El Salvador — One of Central America’s longest rivers will be the main beneficiary of El Salvador’s deal to refinance $1 billion in debt backed by the US government amid a resurgence of so-called debt-for-nature swaps.
In the agreement announced by the two governments this week, El Salvador It allocated the $350 million it will provide for environmental conservation projects that benefit the Lemba River, which provides two-thirds of the country’s water supply.
Jorge Oviedo, of El Salvador’s NGO Environmental Investment Fund, said the agreement “will improve people’s lives and support the climate resilience we need as Salvadorans.” His organization will partner with Catholic Relief Services to administer the program.
The Lempa River has its sources in Guatemala and flows through Honduras on its way to El Salvador where it empties into the Pacific Ocean.
“I describe it as the heart and lungs of the country,” said Paul Hicks of Catholic Relief Services, interim director of the Rio Lemba Conservation and Restoration Program. The Lemba River provides not only drinking water but also hydroelectric power, as well as water for agriculture and industry.
Hicks said the river’s watershed is threatened by deforestation and unsustainable agricultural practices. Some tributaries have dried up because too much water has been diverted, and very little of the water used for industry or sewage is treated.
Debt-for-nature swaps have been around for 40 years, but have gained more attention recently as their size has grown.
They began in the 1980s during the Latin American debt crisis as an attempt to direct resources from cash-strapped governments toward protecting rainforests primarily. But it was relatively small and not closely monitored.
Last year, Ecuador struck a US-backed deal to raise $323 million to fund conservation projects around the Galapagos Marine Reserve.
Previous generations of swaps focused on lending to countries like the United States or European countries to forgive loans they made in the developing world. More recently, the focus has shifted to private debt in those developing countries, which has ballooned since the global financial crisis Covid-19 pandemic And the rise in interest rates that followed as countries tried to beat global inflation.
El Salvador’s deal is essentially a refinancing of part of its debt. The savings made through this maneuver are what the state has committed to spending on conserving the Lemba River.
“From a financial perspective, (trade-offs) haven’t been that great in the past, and that’s a big part of why they’ve fallen out of favour,” said Elizabeth Losos of the Nicholas Institute for Energy and Environment. & Sustainability at Duke University has been difficult to negotiate and the impact on a country’s finances has not always been significant enough to justify the effort.
“But these new rounds have already reached a much more significant level,” she said. “It’s not all of El Salvador’s debt, but now it’s actually part of it.”
“I figured out a way to help them by reducing the amount of money they have to pay and turning it into something that everyone agrees is a good thing,” Losos said.
To succeed, Losos recommends setting real outcomes and goals and making payments contingent on reaching those goals. Previous generations of these trade-offs suffered from a lack of oversight.
While CRS is not known as a major conservation organization, Hicks said it has a long history of working on projects related to water security in El Salvador. These institutions include the US International Development Finance Corporation, whose support for this deal made the refinancing possible.
The aim is to develop a comprehensive watershed plan for the Lemba River within two years. The program will officially launch next year when they begin awarding project grants, Hicks said.
This commitment builds on El Salvador’s pioneering ban on mineral mining in 2017, which was largely done to protect its water resources.
President of El Salvador Nayib Bukele She praised the agreement earlier this week, calling it the most ambitious environmental measure in the country’s history.
