In this short publication, prepared by Andre Standing, we contest the facts gathered in the preparatory note to the UN Ocean Conference panel focusing on unlocking finance for conservation of the oceans. We look at the false narrative of the funding gap and underscore the key criticisms facing these innovative finance tools, including debt-for-ocean swaps. This is the long version from CFFA’s written statement to the UNOC secretariat.
Reading time: 8 minutes
The Secretariat for the UN Ocean Conference has circulated a concept note for mobilising finance for Sustainable Development Goal (SDG) 14 “life below water”. This document presents policies and actions that have been opposed by many organisations working to promote the values embedded in the concept of small-scale fisheries (SSF).
In the UNOC concept note, the overarching vision is one in which the ecological crisis facing the oceans, as well as the gross inequalities found in marine-based sectors, are essentially problems resulting from a lack of finance. These problems are therefore presented as a ‘funding gap’. This is a flawed understanding of the drivers of ecological crisis and of systems that produce marginalisation and inequality. Focusing on an imaginary funding gap is a distraction from addressing the root causes.
The problems facing millions of vulnerable communities who depend on fisheries for their livelihoods and food security are not caused by a lack of funding. Instead, the governance of the oceans and related sectors has, in many places, been driven by the imperative for economic growth and short-term profit maximisation. This has typically been achieved through processes that lack democratic accountability and are too often characterised by corruption.
With its false narrative of a funding gap, the UNOC Secretariat joins many others in saying that the oceans will not be sustainably and equitably managed unless billions of dollars can be found from private investors. To achieve this, it believes that public funding and development aid must be used as a catalyst to attract private finance. As such, the oceans are envisaged as an investment opportunity. To critics, this will inevitably lead to further privatisation and financialisaton of our economies. This is not what many organisations working to promote the values of small-scale fisheries want. What is alarming from the UN’s secretariat is that it adopts such a one-sided view, without recognising alternatives.
In advancing “blended finance” as a way to increase private financial flows for environmental and development goals, there is no recognition of the abundant evidence that blended finance has often failed and has caused many problems for poorer people and countries in the Global South, while benefiting Northern companies and asset management companies.
Those promoting private finance to close the imaginary funding gap choose to ignore that private finance is predominantly achieved through debt. It functions as a transfer of wealth from the South to the North.
Finally, as we denounced in a previous article which looked at the 0-draft UNOC declaration, this focus on the funding gap also fails to recognize the tremendous efforts and actions already carried out by indigenous peoples and local communities living near the ocean, including small-scale fishers, in conserving, protecting and sustainably managing the ocean. In their view, these top-down market-based tools, applied without secure tenure rights or access rights to areas where fishers obtain their livelihoods from, promote a type of conservation that excludes and impoverishes them. They only make conservation work for the rich.
Furthermore, the very nature of these public-private deals prevents genuine consultation with the communities most affected by the decisions taken. A clear example is debt-for-nature swaps, which we will look at in detail below. It is essential that the free, prior and informed consent of coastal communities is respected.
On the special case of debt swaps
One solution the UNOC Secretariat promotes to close the funding gap is the use of debt swaps. In presenting these debt swaps, the Secretariat not only gives misleading information about them, but it also fails to acknowledge the serious criticisms[JP1] of these transactions that many organisations have voiced. These criticisms have been well publicised. The Secretariat cannot claim to be unaware of them but instead has chosen to ignore them.
There are multiple reasons why small-scale fisher (SSF) organisations are wary of debt-swaps and their claims to simultaneously address the debt and ecological crisis in Southern countries:
A small number of Conservation NGOs in the USA utilise debt swaps, which are based on partnerships with private banks and asset management firms. Innovative financial transactions are a defining characteristic of their international funding strategies. It is important to understand that their move towards these types of transactions means they are now operating as international creditors in the largely unregulated shadow banking sector.
These deals involve US NGOS borrowing money on capital markets and then lending this money to governments in Southern countries, thereby creating new forms of debt. Part of this money is ring-fenced to finance the restructuring of Eurobond debts owed by Southern countries. Since the 2008 financial crisis, Eurobond debts have grown at an alarming rate. Most of these bonds were issued without transparency and due diligence, and they came with very high interest rates and commission fees for intermediary banks. They are a significant cause of the current debt crisis facing Southern countries. There remain urgent questions about the use of these funds in many countries, which, if answered, may show that many of these debts qualify as illegitimate or odious.
The new loans provided to Southern countries through debt swaps are also opaque. The contracts of these loans are treated as confidential, despite repeated calls for public access to them. Companies established to manage these funds are registered in offshore tax havens. There is a lack of public information on the interest rates being charged by US conservation groups to Southern governments, which highlights the problems inherent in shadow banking.
Debt swaps are only affordable for US NGOs because they can raise capital at a preferential rate. This is achieved by political risk assurance provided by the US government or a development bank. Typically, Southern countries are charged for this service, but there is no public information on how much it costs them. Because they are opaque transactions that receive US government support, they are also highly vulnerable to political deal-making that advances US geopolitical interests, including those related to immigration and military expansion. These have become relevant questions in the US government-backed debt swaps in El Salvador, Ecuador and Gabon.
At the heart of these complex transactions is a negotiation with creditors to sell their bond notes for a discount. What really happens, however, is that debt swaps only take place in countries where the market value of a country’s debt has depreciated. Creditors are therefore being offered above-market rates, which is beneficial to them. These are not transactions where Northern creditors are sacrificing anything; they are decisions that follow the principle of profit maximisation for them.
The outcome of debt restructuring is a reduction in the amount of money Southern countries must pay to foreign creditors. Typically, this reduction is small and has no impact on the country’s spiralling debt crisis. Almost every country that has agreed to a debt swap continues to face worsening debt levels and has subsequently borrowed more money.
“The UNOC secretariat advertises that the Gabon debt-swap generated USD180 million. However, the real debt conversion only generated around 60 million, to be spent over 20 years, and which will be subject to a further reduction of 15 to 20% in management fees. ”
The loans issued to Southern countries in these debt swaps are not only used to finance debt restructuring. They include millions of extra expensive debt. There is inadequate transparency regarding the use of these funds, although millions will be spent on management and commission fees. People and companies in the North are making substantial profits from these transactions, but no one knows the exact amount.
A portion of the funds is also allocated as an endowment fund. This is also managed by foreign companies registered in tax havens; it is not money that Southern governments own, although they pay for it. It is generally understood that these funds will be invested on behalf of the Southern countries, so after 15 or 20 years, the resulting money will be made available for spending in their countries. However, these funds can also be used by foreign parties as compensation for breaches of contracts or a failure to service debts. These endowment funds are therefore not simply about saving money for future conservation efforts.
Due to a lack of transparency and deliberately misleading public presentations, the amount of money generated for Southern countries in these deals is exaggerated. The UN Secretariat reports that the debt-for-nature swap in Gabon refinanced USD500 million worth of debt, generating USD180 million for Gabon. Yet the debt conversion scheme generated only USD 60 million. This money is also subject to a further reduction of 15 to 20% in management fees. Misleading projections of growth in the endowment funds contribute to inflated figures surrounding these deals, as well as a failure to account for transaction costs.
There has yet to be a debt-for-nature swap where local communities have been consulted to gain their free, prior, informed consent. Debt swaps are therefore working contrary to the basic principles of aid effectiveness that have been established for over two decades since the Paris agreement in 2005.
When negotiating these deals with Southern countries, foreign NGOs impose many conditionalities, including mandatory changes in national policies that affect the governance of fisheries. Beyond the lack of public consultation, there are no efforts to consider the negative impacts of these new policies on groups such as local small scale fishing communities. So far, not a single debt swap has produced a document that outlines the theory of change behind these deals and the associated social and ecological risks.
Furthermore, if Southern countries fail to deliver on the conditionalities in these deals, they are fined millions of dollars and face the prospect of losing access to the endowment funds. The new funds ring-fenced for conservation are entrusted to a new organisation registered offshore, which the Northern conservation NGO owns. There are no published guidelines on how the funds should be used, nor any guarantee that funds will be spent supporting SSF. In fact, the way these funds are allocated puts SSF at a competitive disadvantage. Most funds go to well-organised conservation groups. This exacerbates inequality and distrust.
Ultimately, debt swaps transfer wealth and power over the governance of natural resources to unaccountable conservation NGOs in the global North. They retain ultimate control over how the funds generated from these deals are used. As the number of debt swaps grows, a small number of US NGOs, who work in partnership with their government, banks, and asset management companies, will not only control an unprecedented amount of money earmarked for conservation—far more than the World Bank or the UN—they will also become a major creditor to Southern countries and determine how these countries manage vast areas of the oceans and in whose interest. Transferring all this wealth and power to unelected and unaccountable NGOs is not a model for the future of international conservation that should be supported.
Banner photo: A fishworker bringing ice to the landing site in Bissau, by Carmen Abd Ali.
In this short publication, prepared by Andre Standing, we contest the facts gathered in the preparatory note to the UN Ocean Conference panel focusing on unlocking finance for conservation of the oceans. We look at the false narrative of the funding gap and underscore the key criticisms facing these innovative finance tools, including debt-for-ocean swaps.