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President Guillermo Lasso of Ecuador joins Gustavo Manrique, Minister of Environment, Water, and Ecological Transition, in the Galapagos Islands to sign an environmental protection decree. (Photo: Ecuador's Ministry for Environment)
Wednesday, June 8, 2022

Ecuador Blue Bonds; Innovative Conservation Approach

Galapagos marine protection garners praise from environmentalists world over.

Global Americans

On June 6, 2022, leaders from across the hemisphere descended on Los Angeles, California for the Ninth Summit of the Americas. Country representatives arrived to the Summit hoping to secure commitments from their peers across an array of issues, some more testy than others. Central to many of these discussions will be questions of a green, equitable recovery from the COVID-19 pandemic, a generational challenge that has raised doubts about the ability of world powers to summon the collective will to fight climate change in this decisive decade of climate action.

More than 3,000 miles away from Los Angeles is a country–one of the most biodiverse in the world–experimenting with an innovative approach to protecting its environment. Ecuador, which under longtime President Rafael Correa received much scorn for a policy of intense oil extraction to fund social programs, is now governed by a right-of-center banker whose early steps to expand marine protection around the Galapagos Islands has garnered praise from environmentalists the world over. The new reserve, called “Hermandad” (Brotherhood), expands the protected waters around the Galapagos Marine Reserve to 200,000 square kilometers (77,000 square miles), over two-thirds the size of the Ecuadorean mainland. The reserve is the first step in establishing a multilateral marine protected area, announced at the UN Climate Summit last year, with plans to link the Galapagos with Costa Rica’s Cocos Island, Panama’s Coiba Island, and the Colombian islands of Malpelo and Gorgona.

Yet, to make this marine protected area a reality in the coming months and years, the Ecuadorean government requires financing that it currently lacks. To fund the new marine reserve and protect other biodiverse regions in Ecuador, the United States and international institutions should assist with this historic conservation effort.


The Galapagos initiative highlights a common dilemma in international conservation efforts. Developing countries are home to much of the world’s biodiversity. The United States and other developed countries stand to benefit if these resources are protected, but until recently, they have offered little financing for conservation in the developing world.

One key gain for the United States and its allies is geopolitical. The East Pacific marine reserve is in part a response to illegal fishing by Chinese vessels, who have overfished seas from the South China Sea to the West African coast. In August 2020, the Ecuadorean navy located 340 Chinese ships near the Galapagos; many of them were camouflaged and unregistered, with their transponders disabled in an effort to escape detection. By backing Ecuador’s marine protection efforts, the United States and its partners can draw a clear distinction from China’s extractives-heavy presence in the Western Hemisphere.

A second gain is economic. The new protected area will allow marine species to reproduce, generating a sustainable food source over the long term. With Ecuador among the largest exporters of fish and crustaceans to the United States, protecting the supply of seafood from the Eastern Pacific is a key measure to keep prices low.

Finally, the new marine protection area offers environmental benefits, preventing both overfishing and pollution. These goals align with the Biden administration’s emphasis on sustainability, especially as the Summit of the Americas approaches.

By imposing limitations on fishing today, Ecuadorean leaders know that they will see political, economic, and environmental benefits tomorrow—benefits that the United States and its partners will share. But should Ecuadorean officials show this sort of foresight, they might also face short-term costs.

Costs of Marine Protection

For one, Ecuadorean fishermen will lose a key stream of revenue. Given that crustaceans and fish comprise over 25 percent of Ecuador’s exports, their loss will entail costs for the economy as a whole, at least in the short term.

Beyond the loss of fishing revenue, protecting the enlarged marine reserve will require greater budget outlays from the central government. Declaring a zone of protection is one thing; monitoring the area, coordinating with neighboring governments, and enforcing maritime law violations with the navy, coast guard, and judicial system is another. Each of these activities will cost money—money that the Ecuadorean government currently does not have.

Over the last seven years, Ecuador racked up over $60 billion in debt to compensate for decreasing oil revenues and to pay for pandemic-related social spending. President Guillermo Lasso has pledged to cut the deficit in 2022 to help pay down the debt; additional conservation spending will be a difficult sell as the government pursues that ambitious end.

To enable Ecuador to invest in environmental protection without causing short-term economic disruption, the United States and international institutions should offer tools to help.

Two tools should become immediate priorities: a debt-for-nature swap, and a new trade relationship based in sustainability.


In a debt-for-nature swap, holders of sovereign debt agree to forgive loans in exchange for a country’s commitment to environmental protection. Debt holders benefit by achieving their environmental objectives. The country benefits because the debt forgiven opens up fiscal space for social priorities.

The most recent success story of a debt-for-nature swap comes from Belize. In November of last year, the country completed a deal to exchange $553 million—10 percent of its GDP—in sovereign debt for a commitment to conserve the world’s second-largest coral reef. Under the deal, the U.S.-based nonprofit, The Nature Conservancy (TNC), lent funds to the Belizean government to buy back $553 million in bonds from private investors at a discounted price. Belize then issued

$364 million in “blue bonds” to investors interested in an environmental and social return. European bank Credit Suisse underwrote the bonds, while the U.S. International Development Finance Corporation (DFC) insured them.

“If we didn’t have the insurance,” Kevin Bender, Sustainable Debt Director at TNC, told the IMF, “no one was looking to lend to Belize.” DFC support allowed Belize to achieve an investment-grade rating from credit ratings firms, low interest rates, a delayed payment schedule, and a long bond maturity.

Under the terms of the blue bonds, the government of Belize is obliged to spend $4 million each year on conservation through 2041, as well as expand its marine protected areas. After 2041, an endowment will fund continued marine conservation efforts.

When President Lasso announced Ecuador’s conservation project alongside his regional peers at the Glasgow Climate Summit, he noted that the new marine reserve would be funded by a debt-for-nature swap. Yet, in the months since, few details have emerged about which debt holders would be involved in the swap and how much debt would be forgiven.

The United States should seize this golden opportunity to enter the conversation. Over the last year, President Biden has rightly emphasized climate change and sustainability in domestic and international fora; the United States government should bring these same environmental priorities to bear on the Summit of the Americas, committing to help Ecuador with its debt-for-nature swap.

DFC insurance can help Ecuador and its neighbors secure the confidence of private investors interested in blue bonds. The DFC can also provide technical assistance and identify banks to coordinate the swap. The example of Belize shows that U.S. government support can make or break the type of debt-for-nature swaps that Ecuador is now contemplating.


In addition to assisting Ecuador with a debt-for-nature swap, the United States should place environmental considerations at the center of its bilateral trade agenda with the South American country.

Fishing, mining, and oil production are the largest export industries in Ecuador and the largest recipients of foreign direct investment. Each is rife with environmental and climate risks. Given the United States’ role as Ecuador’s largest trade and investment partner, the U.S. government can be an effective source of pressure on the Ecuadorean government to protect the environment.

In past trade deals, the United States has integrated environmental concerns. The 2018 U.S.-Mexico-Canada Agreement obliges its signatories to prevent overfishing, limit marine pollution, and conduct environmental impact assessments. Similarly, the 2007 U.S.-Peru Trade Promotion Agreement (PTPA) placed strict limits on deforestation in Peru. Under both agreements, countries can retaliate with trade sanctions if another signatory violates its environmental commitments. As U.S.-Ecuador trade expands and as the two countries continue to deepen the bilateral relationship, commitments like these can ensure that environmental considerations are given their due attention and not neglected in pursuit of other objectives.

Over the last year, Global Americans has published five reports on the U.S.-Ecuador relationship, contemplating––in part––how stakeholders in both countries can learn from best practices in trade and investment. The environmental provisions included in the PTPA and USMCA stand out as a key lesson for the U.S.-Ecuador relationship, whether negotiators choose to include the provisions in a potential trade accord or in another agreement short of a comprehensive treaty. To ensure these provisions have an effect, the Office of the U.S. Trade Representative must also be willing to enforce environmental provisions with the same vigor that it currently enforces economic provisions.


The Summit of the Americas is 14 days away. Two weeks can be a lifetime in the world of international diplomacy. The region faces unprecedented challenges, and Los Angeles stands as an opportunity for the United States to show that it is up for the task of uniting countries of the hemisphere to take on the issues of today and the opportunities of tomorrow. Helping Ecuador negotiate a debt-for-nature swap and building an environment-centered trade relationship should be two of the many novel approaches that the Biden administration considers as it sets out to deliver on its promise of sustainable recovery in the Americas.

Guy Mentel is Executive Director of the Western Hemisphere-focused think tank, Global Americans. Mr. Mentel writes and speaks extensively about U.S.-Latin America relations and hemispheric affairs, and frequently briefs congressional staff and other international observers about U.S. policy toward the region.

Robert Carlson is Editor of Global Americans and Lead Researcher for the organization’s High-Level Working Group on U.S.-Ecuador Relations. He has previously worked with the Center for Strategic and International Studies, the Organization of American States, and the Duke University Program in American Grand Strategy.

This article was originally published by Global Americans. Republished with permission.


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