• Belize finalizes biggest debt deal for marine conservation
  • $ 200 million debt relief likely to attract other countries
  • Debt challenges remain for tourism-dependent Belize

LONDON, Nov. 5 (Reuters) – Belize on Friday provided a “blue” model for conserving some of the world’s most vulnerable marine ecosystems, exchanging a pledge to protect the northern hemisphere’s largest barrier reef for relief from much needed debt.

While urgent efforts to limit global warming are expected to generate at least half a trillion dollars in “green” bonds this year, “blue” bonds are still in their infancy, despite estimates that the oceans contribute to around $ 3 trillion a year to global GDP.

Financial incentives have been one of the main pillars of efforts at the UN climate change summit COP26 to tackle rising temperatures, with demands from poorer countries for more aid from richer states. .

Belize’s decision, in default, allows it to buy back its $ 533 million “super bond” with help from the nonprofit The Nature Conservancy (TNC), the International Development Finance Corporation (DFC) American bank and the European bank Credit Suisse.

The pioneering step involves the Central American country pledging to spend $ 4 million per year and fund a $ 23 million marine conservation trust to protect the world’s second largest coral reef, damaged in the past through oil drilling and overdevelopment.

It must also increase biodiversity protection areas from the current 15.9% of the ocean surface to 30% by 2026, as well as meet a list of other promises that, if not met, will result in penalties. .

“This deal is huge for Belize, especially during an extremely difficult time for our economy,” Belize Prime Minister John Briceño said on Friday.

“But its impact extends far beyond us,” he added.

So-called unnatural debt swaps are rare, with a smaller Seychelles in 2015 being the only other ‘blue’ example to date.

Belize’s exchange is large enough, but it can pave the way for many sovereign restructurings, which have often pushed countries to exploit environmentally harmful resources such as petroleum, to include eco-friendly elements as well. environment.

“This can be fully replicated for other countries whose external debt is trading at a discount,” said Kevin Bender, senior director of sustainable debt at TNC.

The group aims to use such transactions to ensure the new protection of up to 1.5 million square miles (4 million km²) of the world’s most biodiversity-critical ocean habitats, from Latin America to Africa. Asia, which would represent an increase of 15% compared to the current protected ocean area.

BLUE HOLE

There are voices of caution

Seasoned emerging market GMO fund manager Carl Ross, who was involved in restructuring Belize, says there aren’t many countries that brag about the kind of natural assets Belize has investors so might not be so eager to reproduce it.

The European Network on Debt and Development campaign group warns that the swap is unlikely to solve Belize’s problems in the longer term, as it will be very difficult to achieve a 3% primary budget surplus over three years, or 9.6% of GDP.

TNC’s Bender and Julie Robinson, head of its Belize program, said such deals require a country concerned with protecting its ocean, which is also in sufficient financial distress that its debt can be bought at a very low price.

In the case of Belize, this discount was 45%, while protecting the reef was an economical and ecological clearcut.

The country’s 125-meter (410-foot) deep Blue Hole is rated one of the best dive sites in the world. Combined with rainforests and other natural attractions, this means that tourism accounts for around 40% of Belize’s economy, almost 40% of employment by some measures, and 60% of foreign exchange earnings.

“The government of the day jumped at the chance,” said Robinson, explaining how the idea began 18 months ago under the former government when COVID crippled tourism and pushed Belize’s debt-to-GDP ratio more than 125%.

“We worked with both governments, which was very fortuitous,” Robinson said. “Both sides (current and former government) take the credit now. And so they should.”

BLUE FINANCE

The financial mechanics involved TNC setting up a special fundraising vehicle that used funds from Credit Suisse. He then loaned this to Belize to redeem and remove the superbond.

This provides around $ 200 million in debt relief to the Central American country as this loan is partially guaranteed by the US DFC, which has a high credit rating, which means it can borrow from banks. or markets at ultra-low rates.

Belize’s debt faces battle to make its debt sustainable

Yerlan Syzdykov, global head of emerging markets at Amundi, Europe’s largest fund manager, believes Zambia and Lebanon could include such green measures in their restructurings, and a country like Argentina could do so too. in the future.

ABRDN, a former Belize bondholder involved in the negotiations, is also optimistic about the possibility of replicating it.

“We believe the example of Belize can serve as a model for future pro-green sovereign debt restructurings,” he said.

And TNC’s Bender is optimistic that another “blue” swap will take place within a year.

“We just need all the forces to be aligned,” he said.

Reporting by Marc Jones; Editing by Alexander Smith

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