#Bulletin: IDB Investigation Mechanism accepts complaint against Galapagos Debt Swap filed by local communities
Press Release
Quito, September 16, 2024
The Independent Consultation and Investigation Mechanism (MICI) of the Inter-American Development Bank (IDB) decided to accept the Complaint filed against the Galapagos Life Fund, in response to demands from local communities about the lack of access to information, transparency, and inadequate governance in the management of funds in the debt swap process. This decision represents an important step towards the protection of Ecuador’s sovereign rights and environmental conservation in the Galapagos Islands. The complaint was submitted to the MICI on May 16, 2024, and subsequently expanded on September 11, by local organizations in the Galapagos Islands and the Centro de Derechos Eonómicos y Sociales of Ecuador (CDES). In the first letter sent, it was indicated that information had previously been requested from the IDB on the debt swap, but in the absence of a response, they decided to bring the case to the MICI.
In the extension of the claim made on September 11, it is pointed out that a part of the community was informed about the creation of the marine reserve and the logo of the foundation that will manage the conservation funds derived from the debt swap. However, no consultation was carried out with the Galapagos community on the creation of the management model or on the distribution of the resources. The IDB is involved in this swap, having provided a guarantee of 85 million dollars to reduce the risk of Ecuadorian bondholders.
What is the MICI and why is this good news?
The MICI is an independent mechanism within the IDB created to ensure that projects financed by the institution comply with its operational policies, including citizen participation, transparency and environmental responsibility. The acceptance of this request is excellent news for Ecuador, as it will allow a detailed review of the irregularities in the swap and will seek to implement the best international practices in the management of financial and environmental resources.
Implications for future debt swaps
The MICI decision has profound implications for investors who participated in this swap and for those considering investing in similar future debt swaps. The following points should be considered as part of the significant risks associated with this type of transaction:
1.- Unmobilized resources: Despite initial announcements, more than a year later, not a single dollar has been mobilized from the Galapagos Life Fund (GLF), the fund intended for the conservation of the Islands. The delay in mobilizing resources raises serious questions about the viability and real impact of the swap.
2.- Insufficient funds for monitoring and conservation: In the long term, the promised funds will not be sufficient to cover the urgent monitoring needs of the Galapagos Marine Reserve and the new Hermandad Reserve. Conservation experts estimate that the funding required to ensure effective protection far exceeds the resources promised.
3.- It does not solve the debt problem: The debt swap has not made a significant contribution to reducing Ecuador’s high sovereign debt burden. Because the conditions of the financial transaction have not been sufficiently clear, it is not known whether Ecuador will actually see a reduction in its external debt by finishing paying off the blue debt swap bonds. As with similar swaps in other countries, the net impact on debt levels is minimal, with the nominal savings for Ecuador representing 3.5% of debt service for 2023. While the benefits seem to be skewed in favor of international actors, for example, the operational costs paid mainly to financial intermediation were $80 million in Belize, with a debt swap worth half the value of the Galapagos one. However, the operational costs of this swap are unknown. For now, what is known is that the Galapagos Life Fund is domiciled in Delaware, recently recognized as a tax haven by the OECD.
4.- Historically poorly distributed resources: Despite the fact that Galapagos receives millions of dollars a year in the name of conservation, local communities still have unmet basic needs such as lack of access to quality water, health care, and a complete re-engineering of the collapsed sewage system and proper wastewater treatment. The Galapagos Life Fund, through its current governance model, perpetuates the exclusion of communities and keeps these problems latent.
A call to debt swap investors
The ongoing MICI review reinforces the need for investors to reconsider their participation in future debt-for-nature swaps promoted by international NGOs and development banks. The case of Galapagos demonstrates that promises of conservation and sustainability are often compromised by governance issues, lack of transparency, and an inequitable distribution of risks and benefits. With resource mobilization still uncertain and widespread dissatisfaction with the current financing model, there is a clear risk that investors will suffer reputational and financial repercussions as these problems become more widespread and visible. The MICI decision represents a crucial step forward towards transparency and equity in debt-for-nature swaps. In the meantime, the structure and
management of these agreements must be re-evaluated to ensure that they truly benefit local communities, solve pressing environmental problems, and help countries address their financial challenges without compromising their sovereignty.
Subscribers:
Junta Ciudadana de San Cristóbal
Asamblea Comunitaria San Cristóbal
Mujeres en Acción
Fundación El gran Artista Galápagos
Fundación Cenda Galápagos
Galapagos Transfers
Club de Surf San Cristóbal
Consejo Defensorial Defensoras de los DDHH y la Naturaleza de la Provincia de Galápagos
Asociación Uniendo Fuerzas Formamos Futuro
Centro de Derechos Económicos y Sociales – CDES
Red Latinoamericana por Justicia Económica y Social – Latindadd
Press contact:
Quito: Veronica Iturralde Ruiz +593 995189991
communicacion@cdes.org.ec
Centro de Derechos Económicos y Sociales – CDES
Galapagos: Jorge Vazquez +593 993176569
jvazquezfalquez@gmail.com
SCY Community Assembly
At regional level: Claudia Arriola +51 956 278 984
claudiaarriola@latindadd.org
Latindadd
