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Spain and the World Bank push for wider use 'debt Swaps'

The Spanish Ministry of Economy announced on Tuesday that the two countries have teamed up to "swap" debts to free money for conservation and development in poorer nations. The Ministry of Economy in Spain announced on Tuesday that the country has partnered with the World Bank to help poorer countries free up money to spend on development and conservation via debt "swaps".

The Spanish government announced that the Global Hub for Debt swaps for Development will provide financial and technical assistance to countries looking at debt swaps for climate change and food security. In recent years, nations from Barbados to Belize and Ecuador to Ivory Coast used debt swaps. They bought back expensive bonds or loans and secured refinancing agreements with lower rates.

In recent years, debt-for nature swaps have accounted for $6 billion in transactions where a country reduces its debt in exchange of a promise to invest in conservation. In recent years, development banks have played a key role in reducing the cost of swapped loans and generating savings. They do this by providing insurance or guaranteeing the risk.

Critics claim that such deals are time-consuming and complicated, and this has hindered a wider adoption of an important tool for helping countries reduce their debt burdens and tackle development issues. Carlos Cuerpo, Spain's Minister of Economy, Trade, and Business, stated that many countries have made it clear they need tools to make debt swaps easier, faster, and more accessible.

The Hub will receive 3 million euros (3,54 million dollars) from Spain. World Bank President Ajay Banaga said that the Hub would be a host for a "multiple-partner trust fund" to finance technical assistance.

TIMELY This push is timely for the debt-swap market, amid fears that U.S. support for these deals - especially those with a focus on climate or nature - may largely dry up under Donald Trump.

Ilan Goldfajn, President of the Inter-American Development Bank, said that demand for broad development swaps is still strong. He made this statement at a press conference held in Seville, on Tuesday.

IDB backed five out of nine of the largest debt-for nature swaps in the past, most of which were carried out with the United States International Development Finance Corporation.

Goldfajn stated, "We're getting requests for debts for education and debts for health." These are things which have been in construction. "Let's see what they become."

A group of conservation groups and investors, as well as development bankers, lawyers, and other professionals who have been at the forefront of the market's growth, published a guide on best practices for nature swaps in an attempt to encourage wider adoption.

The guide included information on how and who to use debt swaps.

Melissa Garvey said that debt swaps are now "a proven model for financing conservation at scale."

(source: Reuters)