Ecuador Strikes a Landmark Deal to Protect the Galápagos, and Save Cash

Ecuador announced a record-setting deal on Tuesday designed to reduce its debt burden and free up hundreds of millions of dollars to fund marine conservation around the Galápagos Islands, an archipelago of unique biodiversity that’s famous for inspiring Darwin’s theory of evolution.

The arrangement, known as a debt-for-nature deal, is a bit like refinancing a mortgage, only for government bonds.

Gustavo Manrique Miranda, the Ecuadorean foreign minister, called it a historic agreement that takes into account the value of nature. He said Ecuador was as wealthy as any of the richest countries in the world, “but our currency is the biodiversity.”

How It Works: It’s a creative arrangement.

When countries need cash, they often sell bonds, which they repay over time with interest. But Ecuador is struggling with debt and political turmoil. Its bonds have lost so much value on the market that some investors, presumably fearing deeper losses, were willing to sell $1.6 billion worth to the bank Credit Suisse at an average of 40 cents on the dollar.

The bank then converted them into a $656 million Galápagos Marine Bond, which it used to finance a loan that will help Ecuador fund conservation. That makes the deal the biggest debt-for-nature swap in history.

The bank’s investors get “really enthusiastic” for opportunities that come with a positive impact on nature and society, said Ramzi Issa, who managed the transaction at Credit Suisse.

The restructuring means Ecuador will save more than $1 billion in future interest and principal payments. The old bondholders, for their part, avoid the risk of bigger losses.

The U.S. government’s development bank provided political risk insurance.

Learn more: The New York Times