The Metamorphosis: Expected Changes in the Brazilian Debt-for-Nature Swap Process and Policy Implications

Fordham International Law Journal, Dec 1993

This Note argues that the new Brazilian debt-for-nature swap legislation, if passed in its current form, will make debt-for-nature swaps in Brazil more financially attractive to international and Brazilian non-governmental organizations (“NGOs”). Part I provides a description of a typical debt-for-nature swap, the purposes of a debt-for-nature swap, and the interests of the U.S. government and U.S. NGOs in debt-for-nature swaps. Part I also discusses the grounds for the initially adamant Brazilian opposition to debt-for-nature swaps and the recent moderation of this opposition. Part II reviews the changes in the policies of the Brazilian government toward debt-for-nature swaps, from the pragmatic but modest measures taken by the Collor administration (1990 to 1992) to the outright approval of debt-for-nature swaps by the Franco administration (1992 to present). Part III analyzes the differences between the current Brazilian debt-for-nature swap regulations and the proposed legislation, highlighting the benefits of the latter. Part III also sets forth several policy recommendations directed at the U.S. government and U.S. NGOs. Finally, this Note concludes that, if complemented by the policy recommendations presented in Part III, the proposed Brazilian legislation will weaken the lingering Brazilian opposition to debt-for-nature swaps and ensure that the interests of the U.S. government and U.S. NGOs in these transactions are preserved.

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The Metamorphosis: Expected Changes in the Brazilian Debt-for-Nature Swap Process and Policy Implications

FORDHAMINTERNATIONALLAWJOURNAL Fordham International Law Journal - 1993 Article 5 Copyright c 1993 by the authors. Fordham International Law Journal is produced by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/ilj The Metamorphosis: Expected Changes in the Brazilian Debt-for-Nature Swap Process and Policy Implications Antonio N. Piccirillo This Note argues that the new Brazilian debt-for-nature swap legislation, if passed in its current form, will make debt-for-nature swaps in Brazil more financially attractive to international and Brazilian non-governmental organizations (“NGOs”). Part I provides a description of a typical debt-for-nature swap, the purposes of a debt-for-nature swap, and the interests of the U.S. government and U.S. NGOs in debt-for-nature swaps. Part I also discusses the grounds for the initially adamant Brazilian opposition to debt-for-nature swaps and the recent moderation of this opposition. Part II reviews the changes in the policies of the Brazilian government toward debt-fornature swaps, from the pragmatic but modest measures taken by the Collor administration (1990 to 1992) to the outright approval of debt-for-nature swaps by the Franco administration (1992 to present). Part III analyzes the differences between the current Brazilian debt-for-nature swap regulations and the proposed legislation, highlighting the benefits of the latter. Part III also sets forth several policy recommendations directed at the U.S. government and U.S. NGOs. Finally, this Note concludes that, if complemented by the policy recommendations presented in Part III, the proposed Brazilian legislation will weaken the lingering Brazilian opposition to debt-for-nature swaps and ensure that the interests of the U.S. government and U.S. NGOs in these transactions are preserved. INTRODUCTION The debt-for-nature swap process in Brazil is undergoing a striking metamorphosis. As little as four years ago, the Brazilian government forcefully rejected the idea of debt-for-nature swaps' as an affront to Brazilian national sovereignty.2 The government based its opposition on the theory that debt-for-nature swaps were a form of external control over the country's natural resources and domestic policy.' In addition, many Brazilians believed that debt-for-nature swaps would legitimize the country's large and controversial external debt.4 Today, in contrast, the * The 1993 MCI-Fordham International Law Fellowship generously funded the research for this Note. The Author would like to thank all those who graciously consented to interviews in Brasilia, Rio de Janeiro, Washington, D.C., and New York City. The Author also wishes to thank Dean John Feerick and Professor Henry W. McGee, Jr. of Fordham University School of Law for their efforts on his behalf. 1. SeeJ. Eugene Gibson & Randall K. Curtis, A Debt-for-NatureBlueprint, 28 COLUM. J. TRANSNAT'L L. 331, 335-36 (1990). In essence, a debt-for-nature swap allows a developing country with a large external debt to obtain some debt relief by having an international conservation organization buy shares of the developing country's external debt. Id. at 333. The international conservation group then donates its shares to a conservation group in the developing country, which converts the shares into local currency or interest-bearing bonds that ultimately finance an environmental project in the developing country. Marianne Lachman, Debt-for-NatureSwaps: A Case Study in Transactional Negotiation, 2 J. CONTEMP. LEGAL IssuEs 139, 143 (1989). 2. James Brooke, Brazil Announces Plan to Protect the Amazon, N.Y. TIMES, Apr. 7, 1989, at A5; Eugene Robinson, Brazil Angrily Unveils Planfor the Amazon, WASH. POST, Apr. 7, 1989, at Al. The rejection came in a speech by former President Sarney announcing a domestic plan, entitled "Our Nature," to protect the Amazon. Brooke, supra, at AS; Robinson, supra,at Al. The President explicitly ruled out debt-for-nature swaps due to sovereignty concerns. Brooke, supra, at A5; Robinson, supra, at Al. 3. See Priya Alagiri, Comment, Give Us Sovereignty or Give Us Debt: Debtor Countries' Perspective on Debt-for-Nature Swaps, 41 Am. U. L. REv. 485, 496-503 (1992) (discussing debt-for-nature swaps and sovereignty infringement on developing countries' governments and indigenous groups). 4. CONS6RCIO DE ONGs BRASILEIRAs, ASPECTOS POLtTICO-ECON6MICOS E ExPERItNCIAS INTERNACIONAIS RELACIONADAS A CONVERSkO DA DIVIDA ExTERNA PARA PROJETOS DE MEIo AMBIENTE [CONSORTIUM OF BRAZILIAN NGOs, POLITICAL-ECONOMIC ASPECTS AND INTERNATIONAL EXPERIENCES RELATED TO DEBT-FOR-NATuRE SwAPS] 2-3 (on file with Fundaoho Brasileira para a Conservaoio da Natureza, Rio deJaneiro, Brazil) [hereinafter CONS6RCIO]. Brazilian government is poised to enact advanced debt-for-nature swap legislation that could significantly improve conditions for the implementation of ecologically and financially successful debt-for-nature swaps in Brazil.' This Note argues that the new Brazilian debt-for-nature swap legislation, if passed in its current form, will make debt-fornature swaps in Brazil more financially attractive to international and Brazilian non-governmental organizations ("NGOs").6 Part I provides a description of a typical debt-for-nature swap, the purposes of a debt-for-nature swap, and the interests of the U.S. government and U.S. NGOs in debt-for-nature swaps. Part I also discusses the grounds for the initially adamant Brazilian opposition to debt-for-nature swaps7 and the recent moderation of this opposition. Part II reviews the changes in the policies of the Brazilian government toward debt-for-nature swaps, from the pragmatic but modest measures taken by the Collor administration (1990 to 1992) to the outright approval of debt-for-nature swaps by the Franco administration (1992 to present). Part III analyzes the differences between the current Brazilian debt-for-nature swap regulations and the proposed legislation, highlighting the benefits of the latter. Part III also sets forth several policy recommendations directed at the U.S. government and U.S. NGOs. Finally, this Note concludes that, if complemented by the policy recommendations presented in Part III, the proposed Brazilian legislation will weaken the lingering Brazilian opposition to debt-for-nature swaps and ensure that the interests of the U.S. government and U.S. NGOs in these transactions are preserved. I. DEBT-FOR-NATURE SWAPS AND BRAZILIAN DISAPPROVAL: AN OVERVIEW Debt-for-nature swaps can be classified as either private sector debt-for-nature swaps8 or public sector debt-for-nature swaps.9 The purposes of a debt-for-nature swap reflect the interests of the different parties involved in the transaction, including the local and international NGOs, the creditor bank or government, and the debtor government. In Brazil, questions of external interference with natural resources and domestic policy1 ° and the legitimacy of the Brazilian external debt"' caused the Brazilian government to oppose initially debt-for-nature swaps. 12 Today, opposition based on external interference is weaken8. See Gibson & Curtis, supranote 1, at 335-54. In a private sector debt-for-nature swap, an international NGO purchases a debtor country's commercial bank debt and donates the debt to a local NGO. Id. at 335-36. The local NGO then converts the debt into local currency and uses the funds to implement an environmental program. Id. 9. See J. Eugene Gibson & William J. Schrenk, The Enterprisefor the Americas Initiative: A Second Generation of Debt-for-Nature Exchanges-With an Overview of Other Recent Exchange Initiatives, 25 GEo. WASH. J. INT'L L. & ECON. 1, 16-18 (1991). In a public sector debt-for-nature swap, a creditor government, such as the United States, forgives portions of its bilateral aid to a debtor country in exchange for the debtor country's commitment to fund certain environmental projects. Id. 10. See supra note 3 and accompanying text (discussing suspicions of foreign control over Brazilian natural resources and domestic policy). 11. See supra note 4 and accompanying text (discussing widespread belief that Brazilian external debt is illegitimate). 12. Brooke, supra note 2, at AS. FORDHAM INTERNATIONAL LAWJOURNAL ing,' s but questions concerning the legitimacy of the external 4 debt remain.1 A. Description of a Debt-for-Nature Swap Although all debt-for-nature swaps vary to some extent, most private sector debt-for-nature swaps follow a common scheme. Normally, an international NGO acquires title to a portion of a debtor country's external debt either by a donation from a commercial bank or, more likely, by purchasing the debt at a discount on the secondary market. t5 The international NGO then donates the debt titles to an NGO in the debtor country (the "local NGO"),16 which then converts the debt titles into local currency or interest-bearing bonds.1 7 The local NGO uses the proceeds to administer an environmental program in that country."' In other private sector debt-for-nature swaps, the internaStional NGO agrees to cancel the debt it purchased in return for the debtor country's commitment to create a conservation fund 13. FUNDACAO. BRASILEIRA PARA A CONSERVACAO DA NATUREZA, SEMINARIO SOBRE RECURSOS EXTERNOS EM PROJETOS DE MEIo AMBIENTE [BRAZILIAN FOUNDATION FOR THE CONSERVATION OF NATURE, SEMINAR CONCERNING EXTERNAL FUNDS FOR ENVIRONMENTAL PROJECTS] 7 (1989) (on file with Funda iio Brasileira para a Conserva to da Natureza, Rio de Janeiro, Brazil) [hereinafter FBCN SEMINARIO]. 14. CONSORCIO, supra note 4, at 2-3. An indication of the current feelings against the external debt is the party platform of the leading candidate in the polls for Brazil's October 1994 presidential election, which platform calls for the suspension of external debt payments. James Brooke, Lula's Progress: From PeasantBoy to President?,N.Y. TIMES, Dec. 27, 1993, at A4. However, the candidate himself, Luis Indcio Lula da Silva, of the Partido Trabalhista [Workers' Party] ("PT"), may prove to be more flexible than his party platform. Id. 15. Gibson & Schrenk, supra note 9, at 3. The secondary market is the market in which public and private external debt is traded. UNITED NATIONS CENTRE ON TRANSNATIONAL CORPORATIONS, DEBT EQUITY CONVERSIONS 17 (1990). The debt on the secondary market sells at a discount reflecting the market's perception of the creditworthiness of the debtor country and the ultimate probability that the debt will be paid according to the loan agreements. Id. Commercial banks are willing to sell the debts of many developing countries on the secondary market because full payment of these debts is considered unlikely. Gibson & Schrenk, supra note 9, at 3. For example, in 1987 Citibank, determining that full payment of Brazilian loans was improbable, reserved U.S.$3 billion dollars for anticipated losses on Brazilian loans. Lachman, supra note 1, at 141. 16. See Gibson & Curtis, supra note 1, at 341. The international and local NGO may or may not have had prior cooperative relationships. Id. 17. Lachman, supra note 1, at 143, 146. 18. Id. at 143. to protect certain areas.19 At least one debt-for-nature swap has also provided for the cancellation of trade credits.20 Whether the debt-for-nature swap affects external debt or trade credits, the debtor country's government negotiates each phase of the transaction with the local and international NGOs, from the financial terms of the debt conversion to the details of the environmental program.2" Ultimate approval of any debt-for-nature swap, therefore, rests with the local government. 22 A recent development has been the emergence of public sector debt-for-nature swaps.23 Unlike a private sector debt-fornature swap, in which an international NGO acquires and converts a country's commercial bank debt,24 in a public sector debtfor-nature swap a creditor government 25 directly reduces its bilateral debt26 to a debtor country in return for a commitment by 19. Gibson & Schrenk, supra note 9, at 7-9, 14-15. Such swaps took place in Bolivia and Mexico, for example. Id. In the Bolivian swap, Conservation International, a U.S. NGO, purchased U.S.$650,000 worth of Bolivia's commercial bank debt for U.S.$100,000. Id. at 7. Conservation International agreed to cancel this debt in return for the Bolivian government's commitment to create a U.S.$250,000 fund to finance the management of the Beni Biosphere Reserve. Id. In the Mexican swap, Conservation International agreed to purchase up to U.S.$4 million of Mexico's commercial bank debt. Id. at 14-15. In return for the cancellation of this amount, the Mexican government agreed to establish a conservation fund equivalent to 35% of the face value of the cancelled debt. Id. For an overview of past debt-for-nature swaps in several countries, see id. at 7-15, and Derek Asiedu-Akrofi, Debt-for-NatureSwaps: Extending the Frontiersof Innovative Financingin Support of the GlobalEnvironment, 25 Irr'L LAw. 557, 565-71 (1991). 20. Gibson & Schrenk, supra note 9, at 14. Such a swap took place in Madagascar. Id. The government of Madagascar and Conservation International agreed to convert a total of U.S.$1 million worth of Madagascar's commercial bank debt and trade credits per year for five years. Id. 21. Id. at 4-5. 22. Gibson & Curtis, supra note 1, at 344. 24. See supra note 15 and accompanying text (discussing acquisition of commercial bank debt for private sector debt-for-nature swaps). 25. See Cole, supra note 23, at 80. In 1990, the Paris Club, a group of Western creditors including the United States, Great Britain, France, Germany, and Japan, agreed to sell or donate their government-to-government loans to developing countries. Id. 26. See MALCOLM GILuS ET AL., ECONOMICS OF DEVELOPMENT 364 (2d ed. 1987). Bilateral aid is aid given directly by one government to another. Id. Bilateral aid donors normally disburse such aid through official aid agencies, such as the United States Agency for International Development and Britain's Overseas Development Ministry. Id. at 370. that country to fund environmental The United States has taken a step in the advancement of public sector debtfor-nature swaps with the Enterprise for the Americas Initiative (the "Initiative") .28 The Initiative aims to strengthen growth in Latin America through increased trade, investment, and reduction of official debt owed to the United States. 2' The Initiative allows a reduction of concessional debt3 ° owed by Latin American or Caribbean countries to the U.S. government under U.S. international economic assistance programs.3 1 Such a reduction would allow the eligible debtor country3 2 to pay a reduced prinprojects.2 7 (a) REQUIREMENTs.-To be eligible for benefits... a country must be a Latin American or Caribbean country(1) whose government is democratically elected; (2) whose government has not repeatedly provided support for acts of international terrorism; (3) whose government is not failing to cooperate on international narcotics control matters; (4) whose government (including its military or other security forces) does not engage in a consistent pattern of gross violations of internationally recognized human rights; (5) that has in effect, has received approval for, or, as appropriate in exceptional circumstances, is making significant progress toward(A) an International Monetary Fund standby arrangement, extended Fund arrangement, or an arrangement under the... [Enterprise for the Americas] facility, or in exceptional circumstances, [an IMF] monitored program or its equivalent, unless the President determines . . . that such an arrangement or program (or its cipal in dollars while paying the interest in local currency into an Enterprise for the Americas Fund" created by an Environmental Framework Agreement 4 between that country and the United States.3" The Initiative also allows for the sale of nonconcessional debt owed under programs administered by the Commodity Credit Corporation 6 and the Export-Import Bank.37 The purchaser of this nonconcessional debt must use it to finance equivalent) could reasonably be expected to have significant adverse social or environmental effects; and (B) as appropriate, structural or sectoral adjustment loans from the International Bank for Reconstruction and Development or the International Development Association, unless the President determines.., that the resulting adjustment requirements could reasonably be expected to have significant adverse social or environmental effects; (6) has put in place major investment reforms in conjunction with an Inter-American Development Bank loan or otherwise is implementing, or making significant progress toward, an open investment regime; and (7) if appropriate, has agreed with its commercial bank lenders on a satisfactory financing program, including, as appropriate, debt or debt service reduction. Id. 33. 22 U.S.C. § 2430f. The fund must be used to finance, inter alia, "activities that link the conservation and sustainable use of natural resources with local community development." 22 U.S.C. § 2430g(d)(1). The fund shall be governed by an administering body composed of members of the U.S. government, individuals appointed by the host country, and other individuals with broad ranges of experience. 22 U.S.C. § 2430g(c) (2) (A)-(C). 34. 22 U.S.C. § 243 0g. A framework agreement governs the operation and use of an Enterprise for the Americas Fund. 22 U.S.C. § 2430g(a); see supra note 33 (discussing Enterprise for Americas Fund). 35. 22 U.S.C. § 24 30g. 36. 7 U.S.C. § 1738o-r (1988 & Supp. IV 1992). The Commodity Credit Corporation ("CCC") is a federally-owned corporation through which the federal governent implements its policies to protect farm income and commodity prices. Ralph A. Linden, An Overview of the Commodity Credit Corporation and the Procedures and Risks of LitigatingAgainst It, I IJ. AGRIC. TAx'N & L. 305, 305-09 (1990). Its policies and actions affect domestic and foreign aspects of U.S. agriculture. Id. The CCC has traditionally provided support to "middle-tier" developing countries, guaranteeing repayment terms of up to three years on commodities consumed within a year. John A. Bohn, Jr., Governmental Response to Third World Debt: The Role of the Export-Import Bank, 21 STAN. J. INT'L L. 461, 468 (1985). 37. 12 U.S.C. § 635i-6 (1988 & Supp. IV 1992). The Export-Import Bank ("Eximbank") is a federally-owned bank whose purpose is to promote U.S. exports by making direct loans to foreign buyers of U.S. exports. Bohn, supra note 36, at 468-69. Eximbank can also issue credit insurance and guarantee loans to developing countries by other lenders. Id. dmeebnt-tfoswr-anpast,u4r°eosrwdaepbs,t" budye-bbt-afcokrs-.e4"quity swaps, s" debt-for-develop B. Purposes of a Debt-for-Nature Swap International and local NGOs enter into debt-for-nature swaps because the leveraging effect of the debt-for-nature transaction allows these groups to increase the effectiveness of their conservation dollars.42 This leveraging or magnification effect occurs when the debt titles, purchased from a creditor bank at a steep discount, are converted into local currency near or at face value. 43 This increase in funds improves the ability of environmental NGOs to achieve their goals of preserving biological diversity44 and promoting sustainable development.4 5 These two principles were the cornerstones, respectively, of the Biodiversity 38. 12 U.SC. § 635i-6(c)(1)(A); see supranotes 15-22 and accompanying text (discussing traditional private sector debt-for-nature swaps). 39. 12 U.S.C. § 635i-6(c)(1)(A). A debt-for-equity swap functions much like a debt-for-nature swap, with the exception that in a debt-for-equity swap the purchaser of discounted shares of a developing country's debt does not donate the debt for environmental purposes, but rather converts the debt into foreign equity in a domestic firm in the developing country, thereby actually acquiring ownership of assets in the developing country. DEBT EQurrv CoNVERSIONS, supra note 15, at 5-6. 40. 12 U.S.C. § 635i-6(c) (1) (A). Debt-for-development swaps function in the same manner as debt-for-nature swaps, with the exception that the international organization purchasing or receiving as a donation a developing country's debt uses the funds to operate a development program, instead of an exclusively environmental one, in the developing country. Eve Burton, Debtfor Development: A Ne Opportunityfor Nonprofits, Commercial Banks, and Developing States, 31 HARv. INT'L L. J. 233, 245-46 (1990). 41. 12 U.S.C. § 635i-6(c)(1)(B). In a debt buy-back, a debtor government purchases its debt at a discount from its creditor banks. Anthony Flint, When Nations Try to Swap Their Way Out of Debt; Practicesare Innovative, but Skeptics Say They're No Answerfor Empty Pockets, BOSTON GLOBE, Aug. 19, 1990, at A14. 42. Gibson & Curtis, supra note 1, at 335-36. 43. Id. For example, if an international NGO purchases for U.S.$25 a debt note with a face value of U.S.$100 and redeems it with the local government for U.S.$75, the NGO will have multiplied its original U.S.$25 by a factor of three. Id. Without the debt swap transaction, the NGO could have purchased only U.S.$25 in local currency at the market rate of exchange. Id. at 336. 44. See Robert Fischman, BiologicalDiversity and EnvironmentalProtection:Authority to Reduce Risk. 22 ENVrL. L. 435 (1992), reprintedin partin WILLIAM WEINER ET AL., INTERNATIONAL ENVIRONMENTAL LAw 10-1 (1993). Biological diversity is defined as "'the variety and variability among living organisms and the ecological complexes in which they occur' . . . in essence, a framework for sorting out what we know about nature." Id. 45. See WORLD COMMISSION ON ENVIRONMENT AND DEVELOPMENT, OUR COMMON FuTURE 24 (1987). Sustainable development is a model of economic development that meets present needs without compromising the ability of future generations to meet their own needs. Id. Treaty46 and Agenda 21, both signed at the United Nations Conference on Environment and Development (the "Earth Summit") 48 in Rio deJaneiro in 1992. Environmental NGOs are eager to promote biological diversity and sustainable development practices in Brazil because Brazil contains roughly thirty percent of the world's tropical forests49 and is the most biologi46. 1992 United Nations Framework Convention on Biological Diversity, openedfor signatureJune 5, 1992, U.N. Doc. DPI/1307 (1992), reprintedin 31 I.L.M. 818 (1992) (not yet in force) [hereinafter Biodiversity Treaty]. The Biodiversity treaty will set "common requirements, definitions and procedures for ecosystem conservation and economic utilization of the worlds' [sic] genetic resources." John Fitzgerald & David Favre, A Summary of the Biological Diversity Treaty and Its Development, 9 ENDANGERED SPECIES UPDATE 9 & 10 (July/Aug. 1992), reprintedin part in WEINER ET AL.., supra note 44, at 1010. The treaty has the potential to become the foundation for national policies and international cooperation in protecting biodiversity. Id. 47. Report of the United Nations Conference on Environment andDevelopment, U.N. Doc. A/CONF.151/26/Rev. 1 (1993) [hereinafter Agenda 21]. Agenda 21 was designed to be the blueprint for the worldwide adoption of sustainable development practices. WEINER ET AL., supra note 44, at 10-5 to 10-6. An 800-page document, Agenda 21 makes recommendations dealing with: the socio-economic dimension of global environmental problems; conservation and resource management; strengthening the role of non-governmental organizations and other social groups; and the means of implementing sustainable development practices (i.e., financing, institutions, etc.). Id. at 10-6. Furthermore, sustainable development is recognized by the 1992 United Nations Framework Convention on Climate Change as an important component in combatting global warming. United Nations Framework Convention on Climate Change, openedfor signatureJune4, 1992, U.N. Doc. A/AC.237/18 (Part 11)/Add. 1 and Corr.1, reprintedin 31 I.L.M. 849 (1992) (not yet in force) [hereinafter Convention on Climate Change]. 48. See Edith Brown Weiss, Introductoiy Note, 31 I.L.M. 814 (1992) (giving overview of Earth Summit). Officially entitled the United Nations Conference on Environment and Development, the Earth Summit was attended by representatives of over 170 countries. Id. The Earth Summit attempted to deal with the global challenge of achieving decent living conditions for all people without destroying the natural foundations of life on Earth. Benjamin A. Goldman, Equity and the 1992 Rio Earth Summit, 4 FoRuHAM ENvT'L L. REP. 1, 1 (1992). The Summit's underlying theme was the link between the environment and development. Id. Documents negotiated and signed at the conference were Agenda 21, supra note 47, and the Non-Legally Binding Authoritative Statement of Principles for a Global Concensus on the Management, Conservation, and Sustainable Development of All -Types of Forests, U.N. Doc. A/CONF.151/26/Rev. 1 (1993), reprinted in 31 I.L.M. 881 (1992). Documents negotiated prior to the conference but opened for signature at the conference were the Rio Declaration on Environment and Development, U.N. Doc. A/CONF.151/26/Rev. 1 (1993), .reprinted in 31 I.L.M. 874 (1992), the Biodiversity Treaty, supra note 46, 31 I.L.M. at 818, and the Convention on Climate Change, supra note 47, 31 I.L.M. at 849; see Goldman, supra (concluding that although Earth Summit represented advancement of ideals set forth in United Nations Conference on Human Environment twenty years earlier in Stockholm, agreements in Earth Summit provide few guarantees that future global decisionmaking will be more equitable). 49. Asiedu-Akrofi, supra note 19, at 577; see Michael S. Giamo, Comment, Deforestation in Brazil: Domestic PoliticalImperative-GlobalEcologicalDisaster,18 ENvTL L. 537, 538 cally diverse country on Earth. 50 Debtor countries' governments enter into debt-for-nature swaps because through such swaps they are able to repay an external loan with local currency instead of scarce external currency.5 1 These external debts and the requirement that they be repaid in external currency have produced serious consequences to the environment in debtor countries.5 2 To repay these debts, debtor countries have intensified activities aimed at producing exports, which in turn produce external currency.5 3 Export-producing activities include the leveling of forests for timber and pasture lands and the destruction of woodlands, which in turn lead to soil erosion, reduced water supplies, loss of fisheries, and the extinction of species of flora and fauna. 4 Commentators have criticized Brazil and other Latin American countries for engaging in these activities in order to service their large external debts.5 5 Others have noted that it may be more (1988) (noting that area in Brazil known as "classic Amazon" covers 3.5 million square kilometers and, by itself, would constitute ninth largest country in world). 50. See Henry W. McGee, Jr. & Kurt Zimmerman, The Deforestation of the Brazilian Amazon: Law, Politics, and InternationalCooperation, 21 U. MIAMI INTER-AM. L. REV. 513, 516 (1990) (noting that Amazon contains perhaps half of world's species); Paul A. Colinvaux, The Pastand FutureAmazon, ScI. Am., May 1989, at 102 (estimating that Amazon rain forest contains up to 80,000 plant and 30 million animal species). 51. See Cole, supra note 23, at 64 (explaining that once debtor country is relieved of having to pay external loan in hard currency, debtor country can then dedicate hard currency reserves to capital investment and economic growth). 52. See NATIONAL WILDLIFE FEDERATION, THIRD WORLD DEBT AND NATURAL RESOURCES CONSERVATION 1-2 (Mar. 1986) (noting that environmental damage in debtor nations has been caused not only by promotion of exports but also by lending conditions that force debtor nations to enact domestic Spending limits, ultimately resulting in elimination of environmental protection programs). 53. Asiedu-Akrofi, supra note 19, at 577. 54. Nancy Knupfer, Debt-for-NatureSwaps: Innovation or Intrusion?, 4 N.Y. Irrr'L L. REV. 86, 86 (1991). Tropical forests are also important to rural populations in developing countries, as these populations rely on forests for food, fodder, and fuel. AsieduAkrofi, supra note 19, at 577. Industrialized countries, meanwhile, can use tropical forests for medicinal and industrial products. Id. Furthermore, the clearing of forests has been thought to increase the effects of global warming by not only reducing the Earth's capacity to consume carbon dioxide, the most prominent greenhouse gas, but also by releasing carbon dioxide into the atmosphere as the trees are burned. McGee & Zimmerman, supra note 50, at 519. 55. See, e.g., Nina M. Dillon, Comment, The Feasibility of Debt-for-Nature Swaps, 16 N.C.J. INT'L L. & COM. REG. 127, 127 (1991) ("Tragically, the rate of tropical deforestation in Latin America has paralleled the region's astronomical borrowing patterns."); Brazilian Environmentalist Urges U.S. to Halt Threats on Amazonian Deforestation, 12 Int'l Env. Rep. (BNA) 180 (Apr. 12, 1989) (explaining that U.S. Congress was threatening sanctions against Brazil to force Brazil to stop cutting and burning of Amazon forest); profitable .for these countries to leave their forests intact and adopt sustainable development practices than to clear the forests for timber or cattle grazing. 56 The advent of public sector debt-for-nature swaps 7 indicates that creditor governments also have an interest in debt-fornature swaps. In the case of the United States, the Initiative5" makes clear that debt-for-nature swaps are an important component of a strategy of debt relief for Latin American countries.5 9 Debt relief, along with increased trade and investment between the United States and Latin America, comprises the U.S. economic policy of promoting economic growth in Latin American countries. 60 Stronger Latin American economies, in turn, serve U.S. interests by expanding the market for U.S. goods, services, and investment capital.6" Finally, commercial banks enter into debt-for-nature swaps because the swaps are a vehicle for the banks to remove unproductive sovereign debt 62 from their balance sheets while receiving a modest return on the loans."3 This improvement in shortterm liquidity allows the bank to enter into new, and presumably safer, lending arrangements. 6 4 Thus, one commentator described debt-for-nature swaps as a link between the two problems of non-performing debt and environmental destruction over the bridge of sustainable development. 65 C. Brazilian Opposition to Debt-for-NatureSwaps: Questions of Sovereignty and the Legitimacy of the BrazilianExternal Debt The Brazilian government intially opposed debt-for-nature swaps.6 6 In a speech delivered in April 1989, former Brazilian PresidentJos6 Sarney announced a domestic environmental protection program, entitled "Nossa Natureza"6 ' ("Our Nature"), while rejecting debt-for-nature swaps on Brazilian soil.6" This opto external enforcement. Id. Sovereign debt is backed only by the good faith and credit of the debtor government. Id. 63. Gibson & Curtis, supranote 1, at 335-36. In addition, the removal of insecure debts relieves banks of the burden of carrying and restructuring these debts, which burden hinders the ability of banks to attract new capital. Cole, supra note 23, at 67. So far, however, commercial banks, especially larger ones, have not been induced to donate developing countries' debts due to uncertain tax consequences. See Ronny Jay Halperin, Comment, Revenue Ruling 87-124: Treasury'sFlawedInterpretationofDebt-forNature Swaps, 43 U. MIAMI L. REv. 721 (1989). The Treasury Department has tried to encourage banks to donate external debt by allowing banks to claim a deductible charitable donation equal to the fair market value of the loan donation and a deductible loss for the difference between the face value and the market value of the loan. Id. at 72728. A lender bank which donates debt to an international NGO would therefore receive the same net tax savings as if it had sold the debt on secondary market. Id. at 732. This liberal treatment, however, may compromise future IRS positions in lieu of taxpayers seeking similar treatment of "losses, bad debts, and charitable contributions outside the context of debt-for-nature swaps." Id. at 737. 64. John K. Shubin & Daniel J. Gibby, The Promotion of Debt-Equity Swaps in Latin America: A Survey of the Regulatory Regimes and the InternationalPolicy Framework, 20 U. MIAMI INTER-AM. L. Rv. 31, 41 (1988). 65. Lachman, supra note 1, at 142. "[D]ebt-for-nature swaps link the twin problems of non-performing debt and' environmental destruction over the bridge of sustainable development, by attaching economic health to ecological health." Id. .66. Brooke, supra note 2, at A5; Robinson, supra note 2, at Al. 67. Julia Michaels, Brazil Amazon Plan Faces Stiff Odds, CHRISTIAN SCI. MONITOR, Apr. 11, 1989, at 3. "Our Nature" was designed to improve the government's environmental policing measures, create ecological and economic zones and national parks, regulate the use of mercury in gold mining, fund ecology training and research, and establish a National Environmental Fund. Id. The program was criticized as an unambitious and underfunded response to international criticism of Brazil's controversial environmental record, including the large-scale burning of the Amazon and the murder of environmentalist Francisco Mendes. Id. 68. Brooke, supra note 2, at A5; Robinson, supra note 2, at Al. President Sarney position stemmed from several arguments that together precluded the prospect of debt-for-nature swaps in Brazil. Many Brazilians contended that debt-for-nature swaps infringed Brazilian national sovereignty by limiting Brazil's use of its natural resources and controlling Brazil's internal affairs. This contention was strengthened by the debt-for-nature swap's association with the related debt-for-equity swap," which allowed non-Brazilians to gain control of assets in the Brazilian economy. Furthermore, many Brazilians believed that debt-for-nature swaps would legitimize the controversial Brazilian external commercial debt. 1. The Sovereignty Issue: Control Over Natural Resources and Internal Affairs Critics of debt-for-nature swaps in developing countries7" have long asserted that debt-for-nature swaps violate the permanent sovereignty71 of developing countries because they interfere with developing countries' internal affairs and constitute a declared a willingness to accept international aid to protect Brazil's environment, but rejected any aid accompanied by conditions such as debt-for-nature swaps. Brooke, supra note 2, at A5; Robinson, supranote 2, at Al. The President's language mirrored that of the Amazon Declaration, issued less than two months earlier, in which the Amazon countries expressed a willingness to accept international aid only if such aid was unencumbered by "external impositions." The Amazon Declaration, May 6, 1989, art. 4, U.N. Doc. A/44/275, E/1989/79, Annex (1989), reprinted in 28 I.L.M. 1303, 1304 (1989). 69. See supra note 39 (describing debt-for-equity swaps). 70. See L.K.JHA, NORTH SouT- DEBATE 22 (1982). Developing countries are those that are in the early stages of development and that provide low standards of living for their people. Id. Also known as countries of the "South," developing countries are characterized by high levels of illiteracy, malnutrition, and child mortality, as well as low life expectancies. THE INDEPENDENT COMMISSION ON INTERNATIONAL DEVELOPMENT IsSUES, NORTH-SoUTH: A PROGRAM FOR SURVIVAL 31-32 (1980) [hereinafter PROGRAM FOR SURVIVAL]. Developing countries account for three-quarters of the world's population but only one-fifth of the world's income. Id. at 32. There are at least four groups of developing countries: OPEC nations with large financial surpluses; newly industrializing countries that are expanding rapidly; middle income countries whose economies are expanding but still depend on exports of primary products; and low income countries with per capita income of less than U.S.$350 per year, Robert Cassen et al., Overview, in RICH COUNmRY INTERESTS AND TmIRD WORLD DEVELOPMENT 1, 5 (Robert Cassen et al. eds., 1982). For a discussion of developing countries' concerns over the growing international environmental movement, see Patrick Low, Afterword: Trade and the Environment: What Worries the Developing Countries?, 23 ENvrL. L. 705 (1992). 71. J.G. STARKE, INTRODUCTION TO INTERNATIONAL LAw 95 (9th ed. 1984). "Normally a state is deemed to possess independence and 'sovereignty' over its subjects and affairs, and within its territorial limits." Id. A state possessing sovereignty has the authority to control exclusively its own domestic affairs. Id. at 96. form of external control over developing countries' natural resources. 71 Specifically, the interference and control allegedly occur when an international organization is allowed to supervise the environmental program and use of funds generated by the debt-for-nature swap. 73 Consequently, debt-for-nature swaps violate developing countries' sovereign rights to exploit their natural resources as expressed in United Nations Resolution 523 ("Resolution 523")7' and United Nations Resolution 626 ("Resolution 626") .7 Resolution 523 recognized that developing countries have the right to determine by their own accord the use of their natural resources in order to further their national policies of economic development. 76 Resolution 626 recommended that all member states respect the sovereignty that each state possesses over its natural resources. 77 These resolutions were followed by others that strengthened the concept of permanent sovereignty over natural resources.78 co BRASILEIRA PARA A CONSERVACAO DA NATUREZA, DMDA EXTERNA, CONVERSAO E MEIO AMBIENTE [BRAZILIAN FOUNDATION FOR THE CONSERVATION OF NATURE, EXTERNAL DEBT, CONVERSION, AND THE ENVIRONMENT] 3 (on file with the Fundao~o Brasileira para a Conservao~o da Natureza, Rio de Janeiro, Brazil) [hereinafter DIDA EXTERNA] (arguing that Brazil's sovereignty allows it to use Amazon as it wishes, according to Brazilian national prerogatives); Jodo Amazonas, Nuvens Negras na Amaz6nia, in DMDA EXTERNA, supra, at 9 (denouncing debt-for-nature swaps as indiscreet intervention in Brazil's internal affairs); Marcelo Miranda Soares, Ecologia corn Soberania, in DMDA EXTERNA, supra, at 5 (equating debt-for-nature swaps with indentured servitude). 73. Alagiri, supra note 3, at 497. 74. G.A. Res. 523, U.N. GAOR, 6th Sess., Supp. No. 20, at 20, U.N. Doc. A/2119 (1952). General Assembly resolutions are not a form of international legislation. MARK W. JANIS, AN INTRODUCrION TO INTERNATIONAL LAw 50 (2d ed. 1993). Such resolutions, however, are "not infrequently invoked" as evidence of customary international law. Id. 75. G.A. Res. 626, U.N. GAOR, 7th Sess., Supp. No. 20, at 18, U.N. Doc. A/2361 (1952). 76. G.A. Res. 523, supranote 74, at 20. The resolution states that developing countries have "the right to determine freely the use of their natural resources and that they must utilize such resources in order to be in a better position to further the realization of their plans of economic development in accordance with their national interests." Id. 77. G.A. Res. 626, supra note 75, at 18. The resolution recommends that all member states "refrain from acts, direct or indirect, designed to impede the exercise of the sovereignty of any State over its natural resources." Id. 78. Alagiri, supra note 3, at 498 n.74. Resolution 1803 declared that the right of each state to permanent sovereignty over its natural wealth and resources must be exercised in the interests of that state's development and welfare. G.A. Res. 1803, U.N. GAOR, 17th Sess., Supp. No. 17, at 15, U.N. Doc. A/5217 (1962). Each state therefore has the right to establish rules and conditions for the exploitation of such resources and the import of foreign capital for that purpose. Id. Resolution 3202 asserted that the 1994] These arguments form part of a larger perception by developing countries of an environmental double standard on the part of developed countries.7" This "hypocrisy" allegedly occurs when developed nations, having exploited their natural resources to develop economically, call on developing nations to preserve their natural resources and thereby forego their own development. Developing countries contend, therefore, that it is unfair that they should have to pay for the world's environmental ills when the principle causes of the degradation of the world's environment are, arguably, the patterns of industrialization, consumption, and waste in developed countries.8" Accordingly, Mohammad Nawaz Sharif, Prime Minister of Pakistan and Chairman of the Group of 77,82 made clear at the Earth Sumnew international economic social order should be based upon each state's permanent sovereignty over its natural resources. G.A, Res. 3202, U.N. GAOR, 6th Spec. Sess., Supp. No. 1, at 9, U.N. Doc A/9559 (1974). Furthermore, the Charter of Economic Rights and Duties of States (Resolution 3281) declared that "[e]very State has and shall freely exercise full permanent sovereignty, including possession, use and disposal, over all its wealth, natural resources, and economic activities." G.A. Res. 3281, U.N. GAOR, 29th Sess., Supp. No. 31, at 50, 52, U.N. Doc. A/9631 (1974). 79. SeeJohn Vidal, Good IntentionsDoomed &yGulf Between Rich and Poor,THE GUARDAN, June 15, 1992, at 6 (discussing "winners" and "losers" of Earth Summit and noting that "rich nations' calls for sustainable development and ecological restraint were matched by developing countries' accusations of hypocrisy and attempts to control their development"); PROGRAM FOR SURVIVAL, supra note 70, at 31-32. Developed countries, also known as countries of the "North," are those countries that have industrialized market economies. Id. at 31. This definition includes Australia and New Zealand, two industrialized countries south of the equator. Id. Developed countries have a quarter of the world's population but control four-fifths of the world's income. Id. at 32. 80. See Vidal, supranote 79, at 6 (noting that developing countries accused developed countries of hypocrisy at Earth Summit); North/South Conflict Will HamperEnvironmental Cooperation,Lawyer Says, 16 Int'l Envtl. Rep. (BNA) No. 4 at 131 (Feb. 24, 1993) (discussing North-South conflict's hampering of agreements reached at Earth Summit). 81. The Amazon Declaration, supra note 68, art. 8, 28 I.L.M. at 1305; see Soares, supranote 72, at 5 ("[Os] paises de origem [da idtia de conversdo da divida externa em projetos ambientais] puderam se desenvolver a base dos pr6prios recursos naturais e dos oriundos de paises [menos desenvolvidos] como o nosso. No 6 justo, portanto, pretender que deixemos de utilizar nossas potencialidades naturais: nfo 6justo querer impedir o nosso progresso.") ["(Those countries proposing debt-for-nature swaps) were able to develop themselves through the use of their own natural resources and those of (less developed) countries like ours. It is not fair, therefore, to suppose that we now decline to utilize our natural potentialities: it is not fair to impede our progress."] (translation by Note Author). 82. See BAtv E. CARTER & PILLIP R. TiMBLE, INTERNATIONAL LAw 501-02 (1991). The Group of 77 is a coalition of more than 120 developing countries in Africa, Asia, and Latin America. Id. at 501. The Group of 77 was created in order to coordinate the international policies of developing countries, thereby giving developing countries a greater equality in affairs with developed countries. Id. Although an expression of mit 3 that developing countries recognize the importance of the principle of sustainable development,8 4 but do not want developed nations to use sustainable development as a justification with which to deprive developing countries of their right to choose their own growth strategies.8 5 Brazilians in particular have been sensitive to any international attention on their natural resources, especially the Amazon rain forest.8 6 As early as the late 1940's, the Brazilian military" challenged a United Nations Educational, Scientific, and unity among developing countries, the Group of 77 does not espouse a common ideology. Id. Rather, it functions as a caucus for the economic and political concerns of developing countries before various U.N. bodies. Id. 83. See supra note 48 (discussing Earth Summit). 84. See supra note 45 and accompanying text (describing the concept of sustainable development). 85. WEINER ET AL., supra note 44, at 10-8. 86. See Brooke, supra note 2, at A5 (noting that in speech announcing domestic environmental protection program, President Sarney invoked Brazil's "centuries-old battle cry 'A Amaz6nia Nossal'" or "The Amazon is Ours!"); supra notes 49-50 (describing geographic features of Amazon); McGee & Zimmerman, supra note 50, at 515 (noting that Amazon contains deposits of manganese, aluminum, copper, tin, nickel, iron, gold, and natural gas). 87. See E. BRADFORD BURNS, A HISTORY OF BRAZIL 505-38 (2d ed. 1980). In the twentieth century prior to 1964, Brazilian military officers frequently intervened in politics by changing the civilian chief executive. Id. at 506. The military viewed itself as the "poder moderador," or fourth branch of government, whose function it was to oversee the three other branches. Id. at 549. In 1964, however, the military removed the civilian president but did not return to its barracks, keeping power to itself instead. Id. at 508. Successive military governments strengthened the powers of the general-presidents at the expense of the judiciary, legislature, and state and local governments. Id. at 516. The first military government's objectives were achieving economic stability and combatting communism. Id. at 509. Later governments stressed economic growth above all other concerns, including environmental ones. See Giamo, supra note 49, at 541-51 (discussing military governments' Amazonian development plans). In attempting to achieve rapid economic growth through import-substitution industrialization and the encouragement of settlement in the Amazon, the military government offered numerous financial incentives, such as tax breaks and easy credit, designed to attract capital and settlers from Brazil and abroad. Id. at 541. Initial military governments oversaw a period of impressive economic growth, which the military lauded as an "economic miracle." BURNS, supra, at 533. Later, when it became clear that the economic growth had been short-lived and had benefited relatively few, id. at 534, military rule came under increasing criticism and the military finally ceded the government to civilian rule in 1985. See, e.g., Alan Riding, PragmaticBrazil Changes Course, N.Y. TIMES,Jan. 20, 1985, § 4, at 1 (describing undramatic transition of power). Even today, however, as the civilian government fails to control inflation of 2,500% per year and is embroiled in continuous corruption scandals, the spectre of military rule looms over the civilian government. James Brooke, A Vast New Scandal is Shaking Brazilians'Faith in Democracy, N.Y. TIMS, Jan. 4, 1994, at Al. Civilian and military leaders reportedly planned a militaryCultural Organization ("UNESCO")"8 plan to create an international institution for the Amazon region, entitled "Hilkia Amaz6nica," as an international conspiracy to deprive Brazil of nearly half its national territory.8 9 Other regional governments supported the proposed institution, but due to the Brazilian military's opposition, the Brazilian Congress never approved it.90 Thereafter, the government embarked on a series of development projects in the Amazon for the purposes, among others, of increasing population in the region and securing Brazil's claims to its Amazon territory.9" The Brazilian development plans emphasized highway construction, colonization, large-scale ranching and agribusiness, lumbering, mining, and hydroelectric 92 projects. In response to international criticism of the Amazonian development plans,93 in 1978 Brazil joined Bolivia, Colombia, Ecuador, Guyana, Peru, Suriname, and Venezuela in signing the Brasilia Treaty for Amazonian Cooperation (the "Amazon Treaty") . The Amazon Treaty sought to promote harmonious style coup in the fall of 1993, but backed down when the plan was rejected by President Franco. Brazilian Official Tells of '93 Plot, N.Y. TIMES, Jan. 7, 1994, at A8. 88. See ROGER A. COATE, UNILATERALISM, IDEOLOGY, & U.S. FOREIGN POLICY 35-36 (1988). Founded in 1945, UNESCO is a functional agency of the United Nations mandated to promote worldwide collaboration in education, science, culture, and communications. Id. at 36. Critics have recently accused UNESCO of becoming increasingly politicized and departing from its original mandate. See generally CLARE WELLS, THE UN, UNESCO AND THE POLITICS OF KNOWLEDGE (1987) (discussing politicization of UNESCO). 89. Otto Lara Resende, 0 Controvertido Verde de Nossas Matas, in DIVIDA EXTERNA, supra note 72, at 13. 90. Id. 91. Giamo, supra note 49, at 542. The Brazilian government felt compelled to secure this territory in part because the other Amazon countries, in particular Peru and Venezuela, were also strengthening their shares of the Amazon by occupying their own territories. Id. 92. Id. at 541-53; see McGee & Zimmerman, supra note 50, at 524-28. The Amazonian development plans "probably helped to integrate the historically remote Amazon into the Brazilian nation state and led to economic development in the region." Id. at 527. However, the development of the Amazon may have also led to "extensive and potentially catastrophic deforestation," Id. 93. See supra notes 91-92 and accompanying text (discussing Amazonian development plans). 94. Brasilia Treaty for Amazonian Cooperation, July 3, 1978, reprintedin 17 I.L.M. 1045 (1978) [hereinafter Amazon Treaty]; see Military, Other Groups Press Their Claimsfor Amazon's Future, Lagniappe Letter, Oct. 18, 1991, available in LEXIS, Nexis Library, NSAMER File (stating that Brazil signed Amazon Treaty in response to international criticism of Amazonian development plans). development in the Amazon region in a manner that would raise the standard of living of the region's peoples and incorporate the Amazon into the respective national economies of the parties to the treaty.95 In Article I of the Amazon Treaty the parties agreed to undertake joint actions to achieve such harmonious development while preserving the environment and conserving natural resources.9" This commitment to the environment was conditioned, however, upon equitable and profitable results for all parties.97 Furthermore, Article IV echoed the 1952 United Nations resolutions98 in affirming that the sovereignty of each country allows it the inherent right to determine the exclusive use of the natural resources within its territory. 99 The Amazon Treaty had little effect on the environmental and developmental practices in the Amazon region because the treaty focused predominantly on national sovereignty and lacked substantive provisions to implement its objectives.' A decade later, however, the parties to the Amazon Treaty signed the Amazon Declaration,' a non-binding statement in which the parties to the Amazon Treaty called for the promotion of sustainable development practices in the region.10 2 The parties recognized the importance of the rational use of the resources in the Amazon region °3 while reaffirming the sovereign right of each country to manage freely its natural resources.10 4 In declaring this freedom to manage natural resources, however, the parties observed the need for the economic and social development of the region's people and the adequate conservation of the environment.0'° In addition, the parties expressed a willingness to accept cooperation from other countries and international organizations as long as such cooperation did not include external impositions and was in accordance with the priorities of the parties' 95. Amazon Treaty, supra note 94, pmbl., 17 I.L.M. at 1045. 96. Id. art. 1, 17 i.L.M. at 1046. 97. Id. 98. See supra notes 74-77 and accompanying text (discussing U.N. resolutions declaring right of permanent sovereignty over natural resources). 99. Amazon Treaty, supra note 94, art. 4, 17 I.L.M. at 1046-47. 100. Giamo, supra note 49, at 560. Indeed, destruction of the Amazon continued unabated in the years following the signing of the Amazon Treaty. Id. 101. The Amazon Declaration, supra note 68, 28 I.L.M. at 1303. 102. Id. art. 1, 28 I.L.M. at 1304. 103. Id. art. 2, 28 I.L.M. at 1304. 104. Id. art, 4, 28 I.L.M. at 1304. 105. Id. 1994] BRAZIIJAN DEBT-FOR-NATURE SWAPS Central Bank has the authority to enter into agreements with private or public Brazilian organizations, such as the Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renoviveis (Brazilian Institute for the Environment and Renewable Natural Resources or "IBAMA"),1s6 to audit the project to ensure that its funds are properly applied."8 7 The Central Bank also has the authority to declare guidelines and measures for the execution of Resolution 1840.1"" One such measure was Circular 1988,189 which established the limit of convertible external debt at U.S.$100 million."' This limit, along with the above-mentioned financial elements of Resolution 1840, was designed to mitigate any inflationary impact that debt-for-nature swaps might have on projects approved and referred by the Technical Commision, or will revert to the National Treasury."] (translation by Note Author). 186. See Foundationfor Nature's PresidentAppointed to Head EnvironmentalAgency, 15 Int'l Envtl. Rep. (BNA) No. 7 at 194 (Apr. 8, 1992). IBAMA is Brazil's national environmental agency. Id. It was created in 1989 and functions as an independent agency with ties to the executive branch's Secretariat for the Environment. THE NATURE CONSERVANCY, BRASIL VERDE CONSERVATION CAMPAIGN 7 [hereinafter BRASIL VERDE]. 187. Resolution 1840, supra note 147, art. 7, D.O.,July 17, 1991, at 14,153. Article 7 states as follows: Poderfi o Banco Central do Brasil, em articulagio com a Comissio Thcnica de Avalia~do de Projetos Ambientais, firmar conv~nios corn instituiC6es pfiblicas e privadas, em especial corn o Instituto Brasileiro de Meio Ambiente e dos Recursos Renovfiveis (IBAMA) . . . [c]om a finalidade de fiscalizar e atestar a aplica~gto dos recursos nos projetos pertinentes. [The Central Bank may, in consultation with the Technical Commission, enter into agreements with public or private institutions, in particular with the Brazilian Institute for the Environment and Renewal Natural Resources (IBAMA), to audit and verify the application of funds of pertinent projects] (translation by Note Author). Id. 188. Id. art. 9, D.O.,July 17, 1991, at 14,153 ("0 Banco Central do Brasil baixar-A as normas complemetares e adotara as medidas necessfirias 'a execup5o do disposto nest[a] Resolugio."). Id. ["The Central Bank will declare the proper guidelines and enact the necessary measures for the execution of this Resolution."] (translation by Note Author). 189. Banco Central do Brasil, Circular No. 1988 [Central Bank of Brazil, Circular No. 1988], Difrio Oficial [D.O.],July 18, 1991, at 14,258 [hereinafter Circular 1988]. A circular is an administrative act by which a government authority transmits internal orders to subordinate authorities. DI PIETRO, supra note 179, at 177. Circulars are utilized by superior authorities to guide subordinate authorities in the development of administrative activities. JosE CRETELLA JONIOR, CURSO DE DIRErrO ADMINISTRATIVO [CoURSE IN ADMINISTRATIVE LAw] 272 (6th ed. 1981); see supra note 179 (discussing legality of administrative acts). 190. Circular 1988, art. 1, D.O.,July 18, 1991, at 14,258. The figure is set in dollars and not local currency because the external commercial loans being converted were to be repaid in external currency, most likely dollars; see THIRD WORLD DEBT AND NATURAL RESOURCES CONSERVATION, supra note 52, at 1-2 (discussing environmental impact in debtor countries of paying loans in external currency). FORDHAM INTERNATIONAL IAWJOURNAL 9 the national economy.' ' Central to the procedures established by Resolution 1840 and Circular 1988 is the role of the Comissdto Tcnica de AvaliaCdo de Projetos Ambientais ("Technical Commission for the Evaluation of Environmental Projects" or "Technical Commission"),1 9 2 created by presidential decree shortly prior to the Central Bank regulations. 193 Resolution 1840 confers upon the Technical Commission broad powers to evaluate and approve appropriate debt-for-nature swap projects.19 4 In doing so, the Technical Commission has the authority to determine which projects should be given higher priority in light of the maximum amount of convertible debt established by Circular 1988.195 The Technical Commission also consults with the Central Bank on any audits of approved debt-for-nature swap projects.19 6 Circular 1988 reiterates that any party interested in a debtfor-nature swap must first obtain its project's approval by the Technical Commission before the Central Bank will take any action.'9 7 The Technical Commission evaluates debt-for-nature swaps according to a prescribed set of official eligibility requirements. First, the project must fall within one of the following subject areas ("Areas temiticas"): conservation of biological diversity; urban environment; energy; conservation and sustainable use of natural resources; environmental education; and institutional development of environmentally-driven NGOs and research organizations"'8 Second, the project must be implemented by a local nonprofit organization.1 99 Third, the project must have a pre-identified international donor.2 00 Next, the project must fall within the U.S.$100 million maximum. 0 1 Finally, the proposal must comply with the Technical Commission's procedural regulations.0 2 In addition to these five requirements, the Technical Commission's decisions account for the likelihood of the project's environmental and financial success, 20 and place significant weight on the qualifications of the international and Brazilian NGOs.2 °4 To date the Technical Commission has approved only one debt-for-nature swap project.205 This project is being implemented by the Brazilian NGO Funda do Pr6-Natureza ("FUNATURA"),2206 in accordance with its agreements with IBAMA 207 and the American NGO (and donor) The Nature Conservancy. 20 8 The project funds conservation and management activities in the Grande Sertdo Veredas National Park in zilian NGO dedicated to strengthening the role of the private sector in protecting Brazil's biological diversity and quality of human life. Id. 207. INSTITUTO BRASILEIRO DO MEIO AMBIENTE E DOS RECURSOS NATURAms RENOVAVEIS, CONVtNIO QUE CELEBRAM 0 INSTITUTO BRASILEIRO DO MEIO AMBIENTE E DOS REcURsos NATURALS RENOVAVEIS E A FUNDACAO PR6-NATUREZA [BRAZILIAN INSTITUTE FOR THE ENVIRONMENT AND RENEWABLE NATURAL RESOURCES, ACCORD BETWEEN THE BRAzILIAN INSTITUTE FOR THE ENVIRONMENT AND RENEWABLE NATURAL RESOURCES AND FUNDACAO PRO-NATUREZA] (Sept. 5, 1990) [hereinafter CONVtNIO]; see supra note 186 (describing IBAMA); supra note 206 (describing FUNATURA). 208. THE NATURE CONSERVANCY, AGREEMENT OF COOPERATION BETWEEN THE NATURE CONSERVANCY AND FUNDACAO PRO-NATUREZA (Nov. 5, 1990). The Nature Conservancy is an American NGO dedicated to the worldwide protection of biological diversity. BRASIL VERDE, supra note 186, at 19. the interior state of Minas Gerais.2"9 The project's activities include efforts to strengthen the park's infrastructure and surrounding community through educational programs and new income sources. 21 ° Other debt-for-nature swap proposals were either rejected by the Technical Commission or voluntarily withdrawn because the proposed project either did not meet the established criteria or lacked the appropriate funds to be financially successful.2 11 B. Expected Changes: A Statutory Framework A proposal to the Brazilian National Congress by the administration of President Itamar Franco 2 12 will modify the current debt-for-nature swap regulations. 21' Entitled "Programa de Conversdo da Divida Externa Doada para Fins Ambientais, Sociais e Culturais" ("Program for the Conversion of External Debt Donated for Environmental, Social, and Cultural Purposes" or "the Proposal"), the Proposal envisions the modification of the financial, dimensional, and procedural aspects of the current debt-for-nature swap regulations. 1 4 Unlike Resolution 1840, the Proposal was developed subsequent to discussions between governmental and nongovernmental organizations.2 15 Under the Proposal, the maximum amount of convertible 209. THE NATURE CONSERVANCY, GRANDE SERTAO VEREDAS NATIONAL PARK DEBT CONVERSION PROPOSAL (Oct. 25, 1991). The approved plan calls for a two-phase swap of U.S.$2,192,000 of Brazilian debt, which will generate U.S.$131,520 annually under the financial scheme established by Resolution 1840. Id. at 12; see Brazil: GovernmentAllows PioneerDebt-for-NatureSwap, supra note 147, at 7 (discussing details of the swap). 210. Id. 211. Interview with Paulo Roberto Frana, supra note 203. 212. See LochinvarGoes West, THE ECONOMIST, Oct. 3, 1992, at 41. Mr. Franco is the former vice-president who assumed the presidency when the Chamber of Deputies, the lower house of Brazil's Congress, voted on September 29, 1992 to impeach President Collor. Id. The impeachment vote was a result of the President Collor's participation in a high-level bribery ring which extracted millions of dollars from businessmen soliciting government contracts. Id. 1994] debt would increase to U.S.$200 million.2 16 Furthermore, a local NGO that deposits donated debt into the Central Bank would receive federal treasury notes that pay a high percentage of face value instead of paying solely the interest on the face value.2 1 7 Payments would be made to the NGO according to four different plans, each based on the expected duration of the proposed project.2 18 Under a twenty-year project plan, the NGO would receive 15% of full face value up front and the balance in eighty trimestral payments. 219 The NGO would also receive annual interest of 4% on the remaining principal until the principal is exhausted.2 2 0 A fifteen-year project plan would entitle the NGO to receive 15% of full face value up front and the balance in sixty trimestral payments. 22 ' The NGO would also receive annual interest of 2% on the remaining principal until the principal is exhausted.222 Under a ten-year project plan, the NGO would receive 15% of 95% of face value up front and the balance in forty trimestral payments. 223 Finally, a five-year project plan would allow the NGO to receive 15% of 80% of face value up front and the balance in twenty trimestral payments. 224 The proposal presents a shift of authority from the Technical Commission225 to a more broadly worded Executive Branch.226 The Technical Commission will continue to exist under the Proposal, although its wide discretionary powers will be curtailed. 227 Article Six, the only article in the Proposal to of several Brazilian NGOs, such as FUNATURA and the National Congress of Bishops. Id. mention the Technical Commission, states concisely that the Executive Branch will create a Commission to oversee the utilization of the funds allocated to the debt-for-nature swap program.22 8 Article Four states that it is the responsibilty of the Executive Branch to allocate these funds.2 29 Article Seven, moreover, grants the Executive Branch, and not the Commission itself, the authority to establish the rules necessary to implement the program.23 ° In establishing such rules, the Executive will observe such factors as the monetary impact of the debt conversions2 31 and the program's compatibility with the country's environmental, social, and cultural policies.2 3 2 In addition, the Executive will have the authority to define which local institutions may be the beneficiaries of donated debt.23 3 Under the Proposal, these institutions should be national organizations with proven experience in the field of the proposed debt-for-nature swap project.234 The Proposal also widens the scope of debt-for-nature swap projects. 2 35 In addition to the environmental projects that fall under the categories currently defined by the Technical Commission, local NGOs will also be able to submit proposals for social and cultural projects. 236 Debt-for-nature swaps, therefore, would constitute only one type of debt swap under an umbrella program providing funds to projects in areas such as health, education, urban infrastructure, and the preservation of historical monuments. 2 3 7 14,153 (granting Technical Commission authority to evaluate and approve debt-for-nature swap projects as well as to decide which projects should have higher priority); Circular 1988, supra note 189, art. 3, D.O., July 18, 1991, at 14,258 (stating that any debt-for-nature swap project must first receive approval of Technical Commission before Central Bank will take any action). 228. Franco Proposal, supra note 177,. art. 6. The Commission will be chaired by a representative of the Secretariat of Planning, Budgeting, and Coordination. Id. 229. Id. art. 4. 230. Id. art. 7. "Fica o Poder Executivo autorizado a baixar os atos necessirios [A] implementa¢fo do Programa... ." Id. ["The Executive Branch is authorized to declare the acts necessary for the implementation of the Program ... ."] (translation by Note Author). 231. Id. 232. Id. 233. Id. 234. Id. 235. PROPOSAL OUTLINE, supra note 215, art. 3. 236. Id. 237. Interview with Dr. Dagoberto Koehntopp, supra note 5. 1994] III. COMPARATIVE ANALYSIS OF THE CURRENT AND PROPOSEDPROCEDURES AND POLICY RECOMMENDATIONS The new legislative proposal by the administration of Itamar Franco will improve the current debt-for-nature swap regulations by creating a more streamlined debt-for-nature swap process and offering more attractive financial terms to participating NGOs. These improvements will increase the prospect of successful debt-for-nature swap projects in Brazil. This watershed in Brazilian policies toward debt-for-nature swaps presents an oppportune time to reexamine U.S. policies relative to debt-for-nature swaps. There are several steps that the U.S. government and U.S. NGOs can take to ensure the success of the new Brazilian legislation and the protection of the interests of the U.S. government 23 8 and U.S. NGOs 239 in these transactions. These steps include a revised description and presentation of debt-for-nature swaps, 240 the encouragement of the donation of multilateral development bank ("MDB") debt241 and bilateral credit agency ("BCA") debt, 24 2 and the strenthening of relationships between Brazilian and U.S. NGOs.24 3 A. ComparativeAnalysis of the Current Regulations and the Proposed Regulations The financial and procedural provisions of Resolution 1840 and Circular 1988,244 combined with the regulations of the Technical Commission,245 have caused debt-for-nature swaps in Brazil to be financially unattractive and time-consuming for in238. See supra notes 58-61 and accompanying text (discussing interests of U.S. government in debt-for-nature swaps). 239. See supra notes 42-50 and accompanying text (discussing interests of U.S. NGOs in debt-for-nature swaps). 240. See supra notes 15-22 and accompanying text (describing in general debt-fornature swaps). 241. See supranote 169 and accompanying text (discussing MDB debt in context of debt-for-nature swaps). 242. See supra notes 26, 170 and accompanying text (discussing BCAs in context of debt-for-nature swaps). 243. See supra notes 15-18 and accompanying text (discussing role of international and local NGOs in debt-for-nature swaps). 244. See supra notes 180-97 and accompanying text (discussing financial and procedural elements of Resolution 1840 and Circular 1988) . 245. See supra notes 192-211 and accompanying text (discussing current functions of Technical Commission for the Evaluation of Environmental Projects). ternational and Brazilian NGOs 4 6 The new legislative proposal, by contrast, will provide for a streamlined debt-for-nature swap process that will allow NGOs to receive a higher return on their investments. 24 7 As a result, there is an increased likelihood of successful debt-for-nature swap projects in Brazil. Furthermore, as a federal statute passed by the Brazilian National Congress, the new regulations will bring relative stability to the Brazilian debt-for-nature swap process,248 which is currently governed solely by administrative acts of the Central Bank and other Executive branch organs of Brazil. 49 1. Resolution 1840: A Hindrance to the Brazilian Debt-for Nature Swap Process The financial limitations and bureaucratic procedures established by Resolution 1840 have caused it to be characterized as "not user friendly"25 0 and a hindrance to the debt-for-nature swap process in Brazil. 25 1 Conceived at a time when the Brazilian government was negotiating the restructuring of the Brazilian external debt with a view towards non-payment of that debt,2512 Resolution 1840 provides for a return of only 6% annually on any debt conversions. 255 This minimal amount has meant that a project of even small dimensions would require large sums of converted debt, thereby severely limiting the number of international NGOs that can raise such amounts, and placing a great strain on the resources of those that can.2 54 Even if interna1994] tional NGOs can raise such amounts, international NGOs would be constrained by the U.S.$100 million convertible debt limit imposed by Circular 1988.25 This limit, which assures that at any given time all debt-for-nature swap projects in Brazil together cannot receive more than U.S.$6 million per year, restricts the number and scope of otherwise viable debt-for-nature swap 256 Furthermore, the procedural requirements established by Resolution 1840, Circular 1988, and the Technical Commission's own regulations 25 7 have created a bureaucratic maze that frustrates the attempts of Brazilian and international NGOs to obtain approval of debt-for-nature swap projects.2 5 8 Brazilian NGOs are particularly critical of the broad powers conferred upon the Technical Commission.25 9 These powers, they claim, create a scenario conducive to arbitrariness and corruption.2 6 Finally, the fact that Resolution 1840 and Circular 1988 are administrative acts by the Brazilian Central Bank,26 1 as opposed to federal statutes, is reason for consternation among advocates of debt-for-nature swaps.2 62 As administrative acts, Resolution 1840 and Circular 1988 can be withdrawn if the present adminispurchase the U.S.$2.2 million it intended to donate to FUNATURA, it has since encountered problems raising the necessary funds. Id. 255. Circular 1988, supra note 189, art. 1, D.O., July 18, 1991, at 14,258; see supra notes 189-90 and accompanying text (discussing Circular 1988 in relation to Resolution 1840) . 256. Interview with Dr. Anthenor Navarro, supra note 246. 257. See supranotes 180-204 and accompanying text (discussing procedures of current debt-for-nature swap regulations). 258. BrazilSeeks to FacilitateDebt-for-NatureSwaps, supranote 5. The article quotes a project coordinator at FUNATURA as complaining that a "bureaucratic maze" allowed the Central Bank to take two years to approve FUNATURA's debt-for-nature swap with The Nature Conservancy. Id. 259. See supra notes 192-211 and accompanying text (discussing current functions of Technical Commission for the Evaluation of Environmental Projects). 260. Interview with Ana Maria Fonseca, Funda~io Brasileira Para a Conserva~do da Natureza ("FBCN") [Brazilian Foundation for the Conservation of Nature], Rio de Janeiro, Brazil (July 12, 1993); see Brooke, supra note 87, at Al. The Brazilian government is currently enmeshed in a fascinating web of corruption scandals. Id. The scandals range from the bribery ring run by ex-President Collor to a kickback scheme involving dozens of national congressmen. Id. When investigators questioned one congressman about his bank deposits of U.S.$51 million relative to his U.S.$84,000 annual salary, the congressman casually explained that he had won 24,000 lotteries. Id. 261. See supra note 179 (defining resolution and discussing legal effect of administrative acts); supra note 189 (defining circular). 262. Interview with Debra James, supra note 250. tration sees fit, or if a new administration opposed to debt-fornature swaps assumes power. 6 3 The latter scenario is especially plausible, as the leading candidate for Brazil's 1994 presidential elections is Luis Inicio Lula da Silva ("Lula").264 Mr. da Silva is the leader of the Workers' Party, whose official platform is opposed to the payment of the Brazilian external debt.265 The prospect that a "Lula" administration will suddenly revoke the current regulations, leaving the international and Brazilian NGOs with an unenforceable agreement,2 66 has created a spectre of instability that causes international NGOs to be wary of investing their efforts and resources in the Brazilian debt-for-nature swap process.2 6 7 2. The Proposed Legislation: A Watershed in the Brazilian Debt-for-Nature Swap Process The proposed legislation recognizes that Resolution 1840 has not succeeded in attracting international institutions interested in financing debt-for-nature swaps.2 68 The proposed legislation will provide international and Brazilian NGOs with significantly more financially attractive, debt-for-nature swap transactions. 6 9 Instead of receiving a meager six percent annual return, in most cases the Brazilian NGO will receive installment payments eventually equaling the full face value of the converted debt amount.2 7° The increased leveraging effect 27 1 means that 263. See supranote 179 (defining resolution and discussing legal effect of administrative acts); supra note 189 (defining circular). 264. Brooke, supra note 14, at A4. 265. See supra notes 14, 162 and accompanying text (discussing Workers' Party's opposition to debt payments); supra notes 125-32 and accompanying text (discussing Brazilian opposition to debt-for-nature swaps based on alleged illegitimacy of external debt). 266. See supranote 152 and accompanying text (discussing unenforceability of host country's obligations in debt-for-nature swaps). 267. Interview with DebraJames, supranote 250. Some feel, however, that once a "Lula" administration assumes power, it will moderate its nationalist views to reflect the new realities of international cooperation, and therefore allow debt-for-nature swaps to proceed. Interview with Paulo Roberto Franca, supra note 203. 268. PROPOSAL OUTLINE, supra note 215, art. 1. 269. See supra notes 216-24 and accompanying text (discussing financial elements of proposed legislation). 270. See supra notes 219-24 and accompanying text (discussing payment plans of proposed legislation). 271. See supra notes 42-45 and accompanying text (discussing debt-for-nature swaps' leveraging effect on international NGO's investment). international NGOs will not need to raise as much money as is currently needed to sustain viable debt-for-nature swap projects.272 As a result, the Brazilian NGOs that receive donations for debt-for-nature swaps will experience a substantial increase in their spending power. The prospect of this increased spending power, in turn, may cause some of the Brazilian NGOs that remain opposed to debt-for-nature swaps 273 to moderate their views once they perceive the swaps as a significant new source of funding.274 The more attractive financial provisions of the proposed legislation2 75 will also make debt-for-nature swap transactions less vulnerable to a secondary market price increase resulting from the restructuring of the Brazilian commercial external debt.2 76 Under the new provisions, the secondary market discount on the external debt does not have to be as steep as is currently required for the conversion to be financially viable.277 272. See supra notes 15-18 and accompanying text (discussing mechanics of debtfor-nature swap transaction). 273. See FBCN SEMINARIO, supra note 13, at 12-13. Some Brazilian NGOs remain opposed to debt-for-nature swaps due to the traditional arguments concerning national sovereignty. Id. Other Brazilian NGOs, notably those of smaller scale, oppose debt-fornature swaps because of the inherent disadvantages of small-scale NGOs relative to large-scale NGOs to attract international donors for debt-for-nature swap projects. Id. at 14. 274. Interview with Paulo Roberto Franca, supra note 203. 275. See supra notes 216-24 and accompanying text (discussing financial provisions of proposed legislation). 276. See supra note 168 and accompanying text (discussing impact of restructuring on secondary market price of external debt); see also supra note 165 and accompanying text (discussing completion of Brazil's commercial debt restructuring agreements). 277. See supra notes 216-24 and accompanying text (discussing financial provisions of proposed legislation, which give international NGOs high percentage of face value of donated debt). Furthermore, a restructuring in practice does not guarantee that the debtor country will abide by its debt obligations. Brazil: Debt - Brazil Gets Serious, Reuter Textline Euromoney Trade Finance and Banker Int'l, Aug. 26, 1991, available in LEXIS, Nexis Library, NSAMER File. Brazil, for example, has a reputation of not honoring its debt agreements, such as the 1988 restructuring agreement, on which Brazil defaulted within months. Id.; see ENCYCLOPAEDIA BRITANNICA, 1989 BRITANNICA BOOK OF THE YEAR 496 (1989) (stating that 1988 agreement rescheduled U.S.$62.1 billion of commercial debt over 20 years, and provided for U.S.$5.2 billion in new money from World Bank, a trade deposit facility, and bonds). This perpetual uncertainty concerning repayment will guarantee that a certain discount, no matter how small, will always be applied to shares of the Brazilian external debt on the secondary market. See supra note 15 (explaining that secondary market discount reflects impaired creditworthiness of debtor country in response to perception that country will not make full payments on its external debt). Therefore, under the terms of the proposed legislation, the essential leveraging effect of the debt conversion should not be lost on account of the Brazilian external commercial debt restructuring agreement. Furthermore, the fact that the proposed legislation will create a federal statute should reduce, if not eliminate, the air of instability surrounding the current Brazilian debt-for-nature swap process. 278 No longer will an administration be able to unilaterally revoke existing debt-for-nature swap regulations.2 79 Any changes in the debt-for-nature swap regulations will also have to be approved by the National Congress. 28 ° An administration unfavorable to debt-for-nature swaps, however, may still be able to affect the debt-for-nature swap program under the Proposal, given the broad authority granted to the Executive Branch to allocate the funds for the program 28 1 and to implement guidelines for the evaluation of proposed projects.2 8 2 Furthermore, the proposed legislation attempts to streamline the bureaucratic procedures developed by Resolution 1840.283 The proposed legislation provides stricter guidelines that the Commission must observe when it evaluates debt-for-nature swap project proposals. 8 4 By limiting the broad discretionary powers of the Commission, these guidelines should reduce the risks of arbitrariness and corruption in the evaluation process. 285 Finally, the proposed legislation, drafted after consultations 278. Interview with Dr. Dagoberto Koehntopp, supranote 5; see supranotes 261-67 and accompanying text (discussing instability of current regulations). 279. See supra note 179 (discussing legal effect and revocation of administrative 280. See supra note 179 (discussing power of law over administrative acts). 281. See supranote 229 and accompanying text (discussing Executive's authority to allocate funds for debt-for-nature swaps). 282. See supranotes 230-34 and accompanying text (discussing Executive's authority to declare guidelines for evaluation of debt-for-nature swap projects). 283. Resolution 1840, supra note 147, arts. 3-9, D.O.,July 17, 1991, at 14,153; Brazil Seeks to FacilitateDebt-for-Nature Swaps, supra note 5 (noting that one objective of new legislation is to streamline prior regulations). 284. See supra notes 230-34 and accompanying text (discussing rules to be established by Executive for evaluating debt-for-nature swap projects). 285. Interview with Dr. Dagoberto Koehntopp, supranote 5; see supranote 260 and accompanying text (discussing corruption scandals in Brazilian government and NGOs' fears of corruption in debt-for-nature swap process). 1994] with various sectors of Brazilian society,28 6 provides for the useful expansion of debt swaps to social and cultural projects2. 7 This expansion not only removes debt-for-nature swaps from the public limelight, but also includes in a larger debt swap process other Brazilian NGOs. These Brazilian NGOs may perceive themselves as having been unfairly deprived of the institutional benefits which come from debt swaps and relations with international NGOs. 288 The inclusion of these groups should help reduce further the opposition to debt-for-nature swaps as the debt swap umbrella grows and more people benefit from other debt swap transactions. B. Policy Recommendationsfor the United States Government and NGOs The shift in Brazilian policies towards debt-for-nature swaps presents some important implications for the policies of the U.S. government and U.S. NGOs. Even though the trend in Brazil is clearly towards supporting debt-for-nature swaps, 2 9 there are still several steps that the United States can take to mitigate the lingering Brazilian opposition to debt-for-nature swaps and to assure that future swaps are carried out efficiently and effectively. In this manner the interests of the U.S. government 29 and U.S. NGOs 2 11 in these swaps will be adequately protected. 1. Presentation of Debt-for-Nature Swaps: the Shift in Focus Commentators currently depict debt-for-nature swaps as a transaction originating with an international NGO that acquires a developing country's debt titles in order to preserve an area of land in that country.2 9 2 The point of reference for a debt-for286. See supra note 215 and accompanying text (discussing consultation process of proposed legislation). 287. See supra notes 235-37 and accompanying text (discussing proposed legislation's increased scope of debt-for-nature swap projects). 288. Interview with Paulo Roberto Frana, supra note 203. The benefits of a debtfor-nature swap to a local NGO include increased funding and expertise in conservation activities. Dietz, supra note 149, at 7. 289. See supra notes 133-73 and accompanying text (discussing changes in Brazilian views of debt-for-nature swaps). 290. See supra notes 58-61 and accompanying text (discussing interests of U.S. government in debt-for-nature swaps). 291. See supra notes 42-50 and accompanying text (discussing interests of U.S. NGOs in debt-for-nature swaps). 292. See supra notes 15-22 and accompanying text (describing debt-for-nature nature swap should switch, however, to the perspective of the local NGO. A debt-for-nature swap, therefore, is a transaction through which a local NGO interested in preserving an area of land seeks an international NGO to help plan a conservation strategy for the area financed through a debt conversion. In other words, one should depict a debt-for-nature swap solely as a financing mechanism for a pre-approved conservation plan originating in the developing country. In this manner no one can accuse the international NGO of attempting to control either the developing country's resources or the conservation plan's priorities. Control of the debt-for-nature swap project's priorities is important to the Consortium of Brazilian NGOs 939 The Consortium has made clear that only debt-for-nature swaps whose priorities are established by the Brazilian government or Brazilian NGOs are acceptable.2 94 A U.S. NGO, however, may face undesirable tax consequences if it appears to grant complete control of a debt-for-nature swap project to a local NGO.2 95 U.S. tax law allows deductions for the U.S. NGO's contribution to a local NGO only if the U.S. NGO exercises sufficient discretion and control over its contribution to ensure that the local NGO spends it in a manner consistent with the U.S. NGO's functions and purposes.296 This apparent conflict between U.S. tax law and NGO policy can be overcome by a carefully negotiated agreement between the Brazilian and U.S. NGOs. Such an agreement can convince the Technical Commission that the Brazilan NGO established the priorities of the project while simultaneously satisfying the U.S. tax law requirement that the U.S. NGO exert sufficient control over the use of its contributions to the project. A closer look swaps). For examples of the traditional description, see Lachman, supranote 1, at 143, and Alagiri, supra note 3, at 494. 293. See supra note 163 and accompanying text (describing Consortium of Brazilian NGOs). 294. CONS6RCIO, supranote 4, at 5. 295. See supra note 151 and accompanying text (discussing tax consequences of ceding control of debt-for-nature swap project to local NGO). 296. Rev. Rul. 66-79, 1966-1 C.B. 48; see supra note 151 and accompanying text (discussing tax consequences of cedingcontrol of debt-for-nature swap project to local NGO). at Brazil's first debt-for-nature swap 2 9 7 demonstrates how this can be achieved. The Agreement of Cooperation Between The Nature Conservancy 298 and Fundaviio Pr6-Natureza ("FUNATURA") 2 9 9 explicitly states that U.S. tax law ° ° requires The Nature Conservancy to exercise sufficient control over its contributions to ensure that the contributions are used to fulfill The Nature Conservancy's objective of protecting biological diversity. 30 1 This contribution provision agreement appears in the context of other language in the agreement granting FUNATURA apparent control over the priorities of the debt-for-nature swap project, including the responsibility for preparing the implementation plan for the debt-for-nature swap project.3 0 2 The agreement gives The Nature Conservancy the task of assisting and approving FUNATURA's implementation plan. 0 3 The fact that this agreement, in conjunction with FUNATURA's agreement with 297. See supra notes 205-10 and accompanying text (discussing first Brazilian debtfor-nature swap). 298. See supra note 208 and accompanying text (describing The Nature Conservancy). 299. AGREEMENT OF COOPERATION BETWEEN THE NATURE CONSERVANCY AND FUNDA,Ao PR6-NATUREZA, supra note 208; see supranote 206 and accompanying text (describing FUNATURA). 300. Rev. Rul. 66-79, 1966-1 C.B. 48; see supra note 151 and accompanying text (discussing control requirements of U.S. tax law). 301. AGREEMENT OF COOPERATION BETWEEN THE NATURE CONSERVANCY AND FUNDACAO PRO-NATUREZA, supra note 208, art. 4(e). 302. Id. art. 3. FUNATURA was given the responsibility of: (a) hiring the project manager; (b) preparing the Park Project Plan (to be approved by The Nature Conservancy), including a preserve design, a land acquisition plan, a management plan, and a fundraising.plan; (c) all fundraising activities for the support of the Park Project Plan; and (d) the actual implementation of the Park Project Plan. Id. 303. Id. art. 4. The Nature Conservancy's duties are limited to: (a) assisting FUNATURA in the selection of the project manager; (b) providing a short-term conservation fellowship for the project manager; (c) providing technical assistance in the preparation of the Park Project Plan, consisting of hiring an advisor to the project manager; (d) helping to make travel arrangements in the United States for the project manager and his staff to seek funding for the project; and (e) acceptingcontributions for the Park Project Plan subject to the requirements of U.S. tax law. Id. (emphasis added). Interestingly, The Nature Conservancy exercises control over the contributions it accepts on behalf of the Park Project Plan, id. (emphasis added), while FUNATURA is charged with actually procuring the contributions for the project. Id. art. 3. This description of the project's fundraising duties may seem curious given that the Nature Conservancy committed itself to raising the U.S.$850,000 it estimated was necessary to purchase the U.S.$2.2 million in Brazilian external debt needed to finance the project. THE NATURE CONSERVANCY, GRANDE SERTAO VEREDAS NATIONAL PARK DEBT CONVERSION PROPOSAL, supra note 209, at 12. the Brazilian Institute for the Environment and Renewable Natural Resources ("IBAMA"),30 a makes up the only debt-for-nature swap project approved by the Technical Commission to date is instructive. One can conclude that a provision allowing an international NGO to ensure that its contributions are being used for the fulfillment of its objectives, if included in a carefully-worded agreement, does not significantly offend the local control of the priorities of the debt-for-nature swap project. 2. Multilateral Development Bank Debt: A Potential New Source for Debt-for-Nature Swaps The United States should encourage Multilateral Development Banks (MDBs) ,305 such as the International Bank for Reconstruction and Development (the "World Bank"),3°6 to donate or sell at a discount their shares of Brazilian external debt for debt-for-nature swaps. Brazilians view their MDB debt as more legitimate than commercial bank debt,3 °7 and would therefore raise less opposition to a debt-for-nature swap which converted MDB debt.30 8 The MDB reluctance to donate or sell at a discount developing countries' debts3 0 9 appears to neglect the fact that several developing countries owe so much to MDBs that it is unlikely that they will be able to repay their debts. 310 Rather than writing off such loans, as is often done,3 1 these banks could either sell the loans on the secondary market or donate them with the caveat that the debtor country must repay a percentage of the loans in local currency towards a conservation or other 304. CONVtNIO, supranote 207; see supra note 186 and accompanying text (describing IBAMA). 305. See supra note 169 and accompanying text (defining MDBs and discussing their lack of participation in debt-for-nature swaps). 306. SeeJANis, supra note 74, at 291. The World Bank, owned and operated by more than one hundred countries, promotes economic and social progress in developing countries by helping these countries raise their productivity and standards of living. Id. 307. See supra notes 169-73 and accompanying text (explaning why Brazilians see MDB debt as more legimate than commercial debt). 308. CONsORCIO, supra note 4, at 3. 309. See supra note 169 (discussing MDB reluctance to sell or donate developing country debt due to possible violations of MDB charters and risk of impairing MDB credit rating on international capital markets). 310. Asiedu-Akrofi, supra note 19, at 583. 311. Id. socially useful program.112 The United States has advocated a slightly different approach for the MDBs in the International Development and Finance Act of 1989. i ' The International Development and Finance Act requires the Secretary of the Treasury to direct the U.S. Executive Directors of the MDBs to negotiate for the creation of a department in each respective bank that will actively promote, coordinate, and facilitate debt-for-nature swaps. 14 The role of the MDB would be to assist debtor countries to reduce and restructure their debts by using a portion of a MDB loan to buy back their private commercial debt at a discount on the secondary market.3 15 The U.S. directors would also encourage the MDBs to promote collaboration between debtor governments and local and international NGOs in the implementation of debt-for-nature swaps3.1 6 While the U.S. position concerning MDB participation in debt-for-nature swaps seems to be a useful compromise between the sale or donation of MDB debt and the MDB reluctance to do so, it is not a substitute for direct MDB participation through donations or sales. The U.S. policy risks failure because it does not address the Brazilian viewpoint that the Brazilian external commercial debt is illegitimate. 1 7 Furthermore, the policy may prove impracticable due to restrictions in commercial loan agreements that prevent debtor countries from repurchasing their own debt without the consent of the lending bank.3 18 3. Bilateral Credit Agency Debt: Encouraging Brazilian Participation in the Enterprise for the Americas Initiative In addition to MDB debt, Brazilians consider bilateral credit agency debt,31 9 such as loans incurred under Commodity Credit Corporation 320 or Export-Import Bank 32 1 programs, more legitimate than commercial bank debt. 2 2 The United States should therefore construe liberally the eligibility requirements for the debt-for-nature swap aspects of the Enterprise for the Americas Initiative (the "Initiative") 23 so as to allow Brazilian participation in that part of the Initiative. Current eligibility requirements for debt reduction under the Initiative require a Latin American or Caribbean country to meet certain conditions concerning macroeconomic policies, investment policies, and debt restructuring agreements, among other requirements. 3 24 Due to concerns that these strict requirements would effectively preclude the participation of a number of Latin American countries, including Brazil,32 5 the U.S. Congress allowed the President considerable flexibility in applying them if a country is mak317. See supra note 315 and accompanying text (discussing MDB assistance in debtor countries' commercial debt buy-backs); supra notes 125-32 and accompanying text (discussing Brazilian view that Brazilian external commercial debt is illegitimate). 318. See Gibson & Schrenk, supranote 9, at 4 n.9. These provisions are intended to guard against the possibility of a debtor country causing the secondary market price of its own debt to decrease by defaulting or threatening to default, and then repurchasing its debt at discounted prices. Id. 319. See supra note 26 and accompanying text (describing bilateral credit agency debt in debt-for-nature swap context). 320. See supra note 36 and accompanying text (discussing Commodity Credit Corporation and its role in Enterprise for Americas Initiative). 321. See supranote 37 and accompanying text (discussing Export-Import Bank and its role in Enterprise for Americas Initiative). 322. See supra notes 170-73 and accompanying text (explaining reasons for perceived greater legitimacy of BCA debt). 323. See supra notes 28-41 and accompanying text (discussing Initiative). 324. Enterprise for the Americas Act of 1992, Pub. L. No. 102-549, tit. VI, § 703, 106 Stat. 3664-65 (1992) (to be codified at 22 U.S.C. § 2430b) ; see supra note 32 (discussing eligibility requirements for debt-for-nature swap provisions of Initiative). 325. Gibson & Schrenk, supra note 9, at 20; see Greener, supra note 150, at 146 (noting that Initiative's conditions may make it impossible for environmentally crucial developing countries such as Brazil and Peru to participate). ing significant progress toward meeting the requirements. Brazil's participation in the Initiative's debt-for-nature provisions is still unclear. As mentioned above, Brazil has just completed commercial debt restructuring negotiations, 27 and has recently carried out some structural reforms designed to liberalize foreign investment.3 28 The Franco administration is provisionally receptive to the Initiative,3 2 9 but awaits a clarification of how strictly the demands for macroeconomic reform and an open investment regime will be interpreted by the U.S. administration. 33 0 Furthermore, the Franco administration will have to convince the Brazilian NGOs that the requirements do not amount to what other Latin American NGOs have denounced as "eco-imperialism."3 3 1 A liberal interpretation of the eligibility requirements by the United States would therefore be the best manner of encouraging Brazilian participation in the debt-fornature swap provisions of the Enterprise for the Americas Initiative. 4. Strengthening Relationships with Brazilian NGOs U.S. NGOs should continue to build relationships with Bra326. 22 U.S.C. § 2430b(b). Section 2430b(b) gives the President the authority to determine, consistent with the Initiative's eligibility requirements, when a country is eligible for benefits under the Initiative. Id.; see supra note 32 (discussing eligibility requirements for participation in debt-for-nature swap provisions of Initiative). 327. See supra note 165 and accompanying text (discussing Brazilian commercial debt restructuring). 328. Carrie B. Clark, The Enterprisefor the Americas Initiative: Supporting a "Silent Revolution" in Latin America, Bus. Am., Sept. 23, 1991, at 6. Brazil is currently reducing tariffs and other import barriers, beginning a privatization program, and developing a New Industrial Property Code designed to strengthen the protection of intellectual property rights and pharmaceutical patents. Id. Furthermore, Brazil is dismantling import barriers by abolishing its list of banned imports and lowering average import tariffs. James Brooke, Brazil Opens Its Borders to Goods from Abroad, N.Y. TIMES, Aug. 16, 1993, at DI. 329. Interview with Paulo Roberto Frana, supra note 203; see supra note 216 and accompanying text (noting that proposed Brazilian debt-for-nature swap legislation includes specific provision for donation of bilateral debt). 330. Interview with Paulo Roberto Fran a, supra note 203. 331. Gibson & Schrenk, supra note 9, at 30 (citing INSTITuTO DE ECOLOGIA POLITICA, CONSECUENCIAS POLITICAS Y AMBIENTALES DE LA "INICIATIVA DE LAS AMERICAS" PARA EL MOVIMIENTO ECOLOcICO LATINOAMERICANO [INSTITUTE FOR POLITICAL ECOLOGY, ENVIRONMENTAL AND POLITICAL CONSEQUENCES OF THE 'INITIATIVE FOR THE AMERICAS' ON THE LATIN AMERICAN ENVIRONMENTAL MOVEMENT] (1990) and Manifesto from the Conference of Latin American NGOs meeting at Las Lefias, Argentina (Apr. 19, 1991) (both on file with The George WashingtonJournalof InternationalLaw and Economics)). zilian NGOs, including those NGOs that currently oppose debtfor-nature swaps. Relationships among NGOs strengthen the debt-for-nature swap process because the relationship between the international NGO and the local NGO is perhaps the most important link in a debt-for-nature swap. 32 Such a relationship can assure a doubtful local NGO that the international NGO is not interested in controlling local territory or imposing its priorities upon the local NGO. This understanding, along with the scientific expertise and potential increase in funds that the local NGO may receive from a debt-for-nature swap,3 3 may convince the local NGO to change its opposition to debt-for-nature swaps.3 3 4 Furthermore, the increased expertise and funding arising out of a relationship with an international NGO allows a local NGO to exert more influence in the environmental and development policies of its country3. 3 5 A strong local NGO can therefore play a key role in confronting issues of sovereignty33 6 and in educating the local public about sustainable development programs3. 3 7 In addition, the strengthening of the local NGO is imperative to the international NGO's interests because the local NGO plays an essential role in the enforcement of a local government's obligations under a debt-for-nature swap agreement.3 3 Local NGOs are in better positions than international NGOs to act as "watchdogs" to verify that the local government properly converts the donated debt according to the purposes of the debt-for-nature swap.339 The proximity of local NGOs, along with their knowledge of local priorities and their stakes in the ultimate outcome of the debt-for-nature swap, makes local NGOs 332. Greener, supra note 150, at 152; see Edith Brown Weiss, InternationalEnvironmental Law: ContemporaryIssues and the Emergence ofa New World Order,81 GEO. L. J. 675, 693-94 (1993) (discussing increasing importance of NGOs in "negotiation, ratification, implementation, and enforcement of international environmental agreements"). 333. See supra note 274 and accompanying text (discussing financial rewards of debt-for-nature swaps to local NGO). 334. Interview with Paulo Roberto Franca, supra note 203. 335. Dietz, supra note 149, at 7. "NGOs try to influence national governments directly and indirectly by increasing public awareness and public pressures on national legislatures." Weiss, supra note 332, at 694. 336. Gibson & Curtis, supra note 1, at 344. 337. Id. 338. See supra note 152 and accompanying text (discussing unenforceability of debt-for-nature swaps). 339. Greener, supra note 150, at 153. the focal point of political and legal action against the local government.3 40 Indeed, the relationship between the two NGOs involved in Brazil's first debt-for-nature swap 341 demonstrates the local NGO's dominant enforcement role. For example, the agreement between The Nature Conservancy 342 and FUNATURA34 3 does not include any enforcement provisions,344 but the complementary agreement 45 between FUNATURA and IBAMA,146 a government agency, does include a choice-of-forum provision.347 Although legally such a provision may give a local NGO the requisite standing to enforce the agreement in court, in practice the local NGO may lack the financial resources and experience necessary to do so. 3 48 It is therefore in the international NGO's best interests that the local NGO have sufficient political clout to be capable of influencing government decisionmaking and, if influence is not effective, sufficient financial resources to bring a successful action against the government.3 49 A strong relationship between the local and international NGOs is an effective way to ensure that the former will possess such influence and resources. CONCLUSION The evolution of Brazilian perceptions of national sovereignty to include notions of international responsibility for domestic activities has attenuated the domestic opposition to debtfor-nature swaps. These vicissitudes in Brazilian attitudes will be340. Id. 341. See supra notes 205-10 and accompanying text (discussing first Brazilian debtfor-nature swap). 342. See supra note 208 and accompanying text (describing The Nature Conservancy). 343. See supra note 206 and accompanying text (describing Funda~do Pr6-Natureza). 344. AGREEMENT OF COOPERATION BETWEEN THE NATURE CONSERVANCY AND FUNDAcAo PRO-NATuREZA, supra note 208. 345. CONVtNIO, supranote 207. 346. See supra note 186 and accompanying text (describing IBAMA). 347. CONVPNIO, supra note 207, cl.9. The agreement selects the Federal District as the forum for the determination of any doubts or questions which cannot be resolved by the direct understanding of the parties. Id. 348. Gibson & Curtis, supra note 1, at 342. 349. See Greener, supra note 150, at 163 n.292 ("Although international [NGOs] may have no legal recourse if the agreement is not adhered to, they remain legally responsible to their donors and tax authorities for assuring that the agreement is not breached."). come codified should the Brazilian Congress adopt the Franco administration's proposed debt-for-nature swap reforms. These reforms will turn what is now a restrictive debt-for-nature swap process into a promising framework providing for an increased number of financially and environmentally viable debt-for-nature swaps on Brazilian soil. The swaps and the relationships established through them will strengthen the already growing Brazilian environmental movement and promote sustainable development practices in a country where these practices were not observed in past development plans. Furthermore, the changing attitudes in Brazil present a propitious occasion for the U.S. government and NGOs to modify U.S. policies toward debt-for-nature swaps. By changing the focal point in the description of debt-for-nature swaps, encouraging multilateral development banks and bilateral credit agencies to enter the debt-for-nature swap forum, and continuing to build relationships with Brazilian NGOs, the United States will have taken important steps to ensure the success of the proposed reforms and the protection of U.S. interests in Brazilian debt-for-nature swaps. 23. Daniel H. Cole , Debt-Equity Conversions , Debt-for-NatureSwaps, and the Continuing World Debt Crisis, 30 COLUM. J. TRANSNAT'L L . 57 , 80 ( 1992 ). 27. Gibson & Schrenk, supra note 9, at 16-18. 28. Enterprise for the Americas Act of 1992, Pub . L. No. 102 - 549 , tit. VI, § 602 , 106 Stat. 3664 ( 1992 ) (to be codified at 22 U .S.C. §§ 2430 - 2430h and 22 U.S.C. § 2077 ) ; see Enterprisefor the Americas Initiative: HearingBefore the Subcommittees on Human Rights and InternationalOrganizations,Western HemisphereAffairs, and InternationalEconomic Policy and Tradeof the House Foreign Affairs Committee, 101st Cong ., 2d Sess . ( 1990 ) (giving overview of Initiative); Walt Schaffer, Enterprisefor the Americas Initiative Offers New Trade, Investment Opportunities,Bus . Am., Mar . 23 , 1992 , at 2 (discussing economic benefits of Initiative); Gibson & Schrenk, supra note 9 (discussing new generation of debt-for-nature swaps brought about by Initiative) . 29. Schaffer , supra note 28, at 2. 30. Gibson & Schrenk, supra note 9, at 16. Concessional debt is debt that carries interest rates that are lower than market rates and that may also include other terms favorable to the borrower . Id. n.81. 31. 22 U.S.C. § 2430c. The Initiative authorized the reduction of loans under the Foreign Assistance Act of 1961, Pub . L. No. 87 - 195 , 75 Stat. 424 ( 1954 ) (codified as amended in scattered sections of 22 U .S.C., 7 U.S.C., and 42 U.S.C.), and as food assistance credits under the Agricultural Trade Development and Assistance Act of 1954, Pub . L. No. 83 - 480 , 68 Stat. 454 ( 1954 ) (codified as amended in scattered sections of 7 U.S.C.) (commonly known as " P.L. 480 "). 22 U.S.C. § 2430c. 32. 22 U.S.C. § 2430b. Section 2430b states in pertinent part as follows: Brooke, supra note 2, at A5 (noting that Brazil announced domestic environmental protection program in response to worldwide criticism of Amazonian development ). The current external debt owed by Brazil is estimated at U.S.$123 billion . MacLeod, supra note 4, at 8. 56. Rain Forest Worth More if Uncut, Study Says, N.Y. TIMES , July 4 , 1989 , § 1 at 18; Emily T. Smith , Growth vs. Environment, Bus. WEEK, May 11 , 1992 , at 66. 57. See supra notes 23-27 and accompanying text (describing public sector debt-fornature swaps). 58. See supra notes 2841 and accompanying text (describing Initiative) . 59. Gibson & Schrenk, supra note 9, at 16. 60. Shaffer , supra note 28, at 2. Although the Enterprise for the Americas Initiative was a product of the Bush administration, the Clinton administration has announced that it will also promote the Initiative . Peter Hakim, Opportunityfor the Amercas , CHRISTIAN Sci. MONITOR , May 27 , 1993 , at 18. The United States has also promoted increased trade and investment with Latin America through the North American Free Trade Agreement ("NAFTA"), ratfled by Congress in November 1993 . Helen Dewar, NAFFA Wins FinalCongressionalTest, WASH . POsT, Nov. 21 , 1993 , at Al. NAFTA created a free trade zone throughout North America . Id. Although Mexico is the only Latin American country included in NAFTA, both the Bush and Clinton administrations have expressed a willingness to allow Chile and Argentina to join the free trade zone in the near future . Don Podesta , South AmericansBank on NAFTA; TradePact'sPassageViewed as Crucialfor U.S. Ties in Region, WASH . PosT, Nov. 13 , 1993 , at A20. For a more comprehensive overview of the U.S. national interest in NAFTA, see NAFTA and the National Interest , N.Y. TIMES , Nov. 17 , 1993 , at A26, and Henry Kissinger, NAFTA: Clinton'sDefining Task, WASH. PosT, July 20 , 1993 , at A17. 61. Hakim , supra note 60, at 18. 62. See GILLIS ET A.., supra note 26 , at 398. Sovereign debt is debt that is contracted by a sovereign government as an obligation of an entire country . Id . Unlike ordinary debt between private parties, sovereign debt is above the law and is not subject 72 . Alagiri, supra note 3, at 496- 503 . Brazilian critics also assailed debt-for-nature swaps on these grounds . See, e.g., Wilson Matheus, Amaz6nia x DividaExterna , in FUNDA- 191. Brazil : Government Allows PioneerDebt-for- Nature Swap , supra note 147 , at 7. 192. Resolution 1840 , supra note 147, arts. 5-7, D.O. , July 17 , 1991 , at 14 , 153 . An interministerial group, the Technical Commission is chaired by a representative of the Department of International Affairs of the Ministry of Finance and includes representatives of the Ministry of Foreign Relations, the Secretariat of the Environment, and the Central Bank . Decreto de 29 de abril de 1992 [Presidential Decree of April 29 , 1992 ], art. 1, § 1, Diirio Oficial [D.O.], Apr. 30 , 1992 , at 5427. 193. Decreto de 28 dejunho de 1991 [Presidential Decree ofJune 28 , 1991 ], Digrio Oficial [D.O.], July 1 , 1991 , at 12 , 671 . The Technical Commission was reorganized pursuant to Decreto de 29 de abril de 1992 [Presidential Decree of April 29 , 19921, supra note 192, D.O. , Apr . 30 , 1992 , at 5427. Presidential decrees are administrative acts by which the President carries out his or her responsibilities pursuant to law . Di PIETRO, supra note 179 , at 175; see id. (discussing legal effects of administrative acts). 194. Resolution 1840 , supra note 147, art. 6, D.O. , July 17 , 1991 , at 14 , 153 . 195. Circular 1988 , supranote 189, art. 1, D.O. , July 18 , 1991 , at 14 ,258; Resolution 1840, supranote 147, art. 6, D.O. , July 17 , 1991 , at 14 ,153; see supranote 190 and accompanying text (discussing U.S.$100 million limit imposed by Circular 1988 ). 196. Resolution 1840 , supranote 147, art. 7, D.O. , July 17 , 1991 , at 14 ,153; see supra note 187 and accompanying text (discussing Central Bank's authority to audit debt-fornature swap projects). 197. Circular 1988 , supra note 189, arts. 3-5, D.O. , July 18 , 1991 , at 14 , 258 . 198. Comissio T6cnica de Avaliagfo de Projetos Ambientais , Edital No. 01 /91 [ Technical Commission for the Evaluation of Environmental Projects , Edict No. 01 /91], Di5rio Oficial [D.O.], Dec. 18 , 1991 , at 29 , 472 . 199. Id . 200. Id . 201. Id . 202. Id . 203. Interview with Paulo Roberto Frana, Primeiro Secrettrio, Minist6rio de RelaC6es Exteriores [First Secretary, Ministry of Foreign Relations, Environmental Division (Brazilian Government)] , in Brasilia, Brazil (July 29 , 1993 ). 204. Id . 205. Comissao T ~cnica de Avaliagiio de Projetos Ambientais, Resoluqiio No. 01 de 11 de maio de 1992 [ Technical Commission for the Evaluation of Environmental Projects , Resolution No. I of May 11 , 1992 ], Didrio Oficial [D.O.], May 15, 1992 , at 6083. 206. BRASIL VERDE , supranote 186 , at 13. Founded in 1986 , FUNATURA is a Bra- 213. Franco Proposal, supra note 177; see supra notes 179-204 and accompanying text (discussing current debt-for-nature swap regulations). 214. Franco Proposal, supra note 177. 215. SECRETARIA DE PLANEJAMENTO , ORCAMENTO E COORDENACAO , PROGRAMA DE CONvERSAO DA DIVIDA EXTERNA DOADA PARA FINS AMBIENTAIS , SOCIAIS E CULTURAIS [SECRETARIAT OF PLANNING, BUDGETING, AND COORDINATION, PROGRAM FOR THE CONVERSION OF EXTERNAL DEBT DONATED FOR ENVIRONMENTAL, SOCIAL, AND CULTURAL PURPOSES (OUTLINE)] , art. 4 (July 1993 ) [hereinafter PROPOSAL OUTLINE] . Included in the discussions were several congressmen and the executive secretaries of the ministries of the Environment, Social Well-Being, and Culture . Id. Also included were representatives 246. Interview with Dr . Anthenor Navarro , Director Executivo, Fundalfdo Brasileira para a Conserva kio da Natureza ("FBCN") [Executive Director, Brazilian Foundation for the Conservation of Nature] , Rio de Janeiro, Brazil (July 6 , 1993 ). FBCN, founded in 1958, is one of the oldest environmental NGOs in Latin America . BRASIL VERDE, supra note 186 , at 15. FBCN is dedicated to the preservation of natural resources in a manner that promotes sustainable development . Id. 247. See supra notes 216-24 and accompanying text (discussing financial elements of Franco Proposal) . 248. Interview with Dr . Dagoberto Koehntopp, supra note 5. 249. See supra notes 179-204 and accompanying text (discussing current debt-fornature swap regulations). 250. Telephone Interview with DebraJames, Associate , Shearman &Sterling, New York, New York (June 2, 1993 ). 251. Interview with Dr . Anthenor Navarro, supra note 246. 252. Lemos & Pimentel, supra note 4, at 3. 253. See supranote 183 and accompanying text (discussing amount payable to local NGOs per Resolution 1840 ). 254. See FirstDebt ForNatureSwapfor BrazilLacks StartupFunds , supranote 168. For example, while The Nature Conservancy originally planned to raise U .S.$ 850 ,000 to


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Antonio N. Piccirillo. The Metamorphosis: Expected Changes in the Brazilian Debt-for-Nature Swap Process and Policy Implications, Fordham International Law Journal, 1993,