Financing Forest Conservation: An Overview of the Tropical Forest Conservation Act

Best known for enabling "debt-for-nature" swaps, the Tropical Forest Conservation Act (TFCA) of 1998 offers eligible developing countries options to relieve certain official debt owed the U.S. Government while at the same time generating funds in local currency to support tropical forest conservation activities. In addition to conserving forests and relieving debt, TFCA is intended to strengthen civil society by creating local foundations to support small grants to NGOs and local communities. The program also offers a unique opportunity for public-private partnerships, and the majority of TFCA agreements to date have included funds raised by U.S.-based non-governmental organizations.

TFCA is implemented through bilateral agreements with eligible countries. As of July 2013 (the date of the last appropriation), approximately $223 million in congressionally appropriated funds have been used to conclude 20 TFCA debt treatment agreements with 14 countries. These deals will generate over $339 million for tropical forest conservation in these countries over the life of the agreements from their rescheduled debt payments alone.

TFCA agreements offer many benefits to participating countries, including:

  • Forest Conservation and Redirection of Debt: Resources that once went to the U.S. Government for debt payments remain in the host-country economy and are re-directed to local organizations that undertake forest conservation activities.
  • Leverage Opportunities: Participation of third parties under the debt-swap option increases the amount of funds available to treat debt and/or support the trust fund.
  • Stronger Civil Society: Grants to community and other non-governmental groups build grass-roots capacity to complement government sponsored activities.

TFCA is modeled after the successful Enterprise for the Americas Initiative (EIA) established by former President Bush in 1991 to enable Latin American and Caribbean countries that moved to open investment regimes to redirect a portion of their debt payments from the U.S. Government into a local fund to support the environment and child survival and development.

Both the TFCA and EAI programs are now inactive in terms of negotiation of new agreements.

The last EAI agreement was signed with the government of Peru in 1997. Of the original eight EAI agreements, five have expired: Chile (2005), Uruguay (2007), Bolivia (2013), Argentina (2015), and Peru (2016).  The three remaining EAI Funds are functioning well and have additional accounts capitalized through the TFCA program: Colombia, El Salvador, and Jamaica.

The last TFCA agreement was signed with the government of Indonesia in 2014 and it targeted threatened and endangered species on the island of Sumatra. Of the original 20 TFCA agreements, none has officially terminated, however, three are near termination with possible closure in 2017: Peru I, Philippines I, and Brazil. Five others had their host country payment schedules expire by 2016, but these five country funds maintain a sufficient balance to continue operations for a few additional years. In fact, three of the five have small endowments (Colombia and Panama I & II).

USAID works with the Departments of Treasury and State to advance the objectives of EAI and TFCA, and USAID hosts a Secretariat to support the implementation and oversight of agreements and management of local funds established under them.

Because the TFCA is based upon the EAI, the laws creating them read very much alike. In fact, the TFCA requires countries to meet the same political and economic eligibility criteria as the EAI. Because of the similarities in their overall objectives, the benefits of the two programs are similar in terms of cash flow relief, financial leverage, debt reduction, strengthening civil society and the creation of grant making foundations

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