The Salvadoran government pledged to allocate $350 million in savings for converting debt into a program to rescue the Lempa River.
The US International Development Finance Corporation U.S. (DFC) on Wednesday closed a $1 billion financial agreement with the Salvadoran government for the repurchase of existing bonds, whose savings from the advance payment of the debt will be allocated for the rescue of watersheds of the Lempa River.
The U.S. Embassy in El Salvador detailed that the largest debt conversion in history was attended by the Latin American and Caribbean Development Bank (CAF), Catholic Relief Services (CRS), the El Salvador Environmental Investment Fund (FIAES), and ArtCap, while Strategies JPMorgan Chase Bank, N.A. acted as sole arranger of the loan and J.P. Morgan Securities LLC was dealer manager (a bid agent).
DFC will provide $1 billion in political risk insurance (PRI) for the $1,031 million repurchase of bonds that the government agreed last week in an invitation for holders with securities matured between 2027 and 2052.
In addition, the CAF will deliver a $200 million letter of credit (SBLC).
This debt conversion project promotes sustainable development for our communities, strengthens our water security and protects our ecosystems to ensure the well-being of this generation and future ones. With this debt conversion, we hope to transform the environmental and economic future of El Salvador. Nayib Bukele, President of El Salvador
Scott Nathan, CEO of DFC, said it is the world’s first debt conversion for watershed conservation and water safety.
“This transaction will protect critical resources while supporting the Salvadoran economy and promotes the growth of a dynamic private sector that will create more opportunities for Salvadorans to find jobs in their communities.” Scott Nathan, CEO of DFC
Rescue of the Lempa River
The advance payment of this debt will result in savings for the Salvadoran government of $352 million, of which $350 million will go to the Lempa River Conservation and Restoration Program for 20 years.
According to the agreement signed by the Salvadoran government, an average of $9.75 million per year will be allocated for 20 years to finance the project, which by 2044 will add $200 million.
In addition, $150 million, about $7 million per year, will be allocated to fund a trust that will serve as a source of funding for the program from 2044.
This $350 million allocation represents the largest funding commitment a country has made for conservation in a debt conversion transaction, the U.S. said. U.S.
In this context, CRS and FIAES will work with environmental and water authorities to improve water safety and water in the basin, promote biodiversity conservation and stimulate economic development through regenerative agriculture.
The program will have a seven-member board of directors, including a representative of the Salvadoran government, one from the United States Agency for International Development (USAID) and five non-governmental representatives.
In addition, the programme includes grants for non-governmental organizations operating in El Salvador, which will be disbursed from 2025.
In the agreement, the government pledged to establish an entity to oversee the conservation and rescue of the Lempa River basin and approve a national integrated water resource plan.
It also agreed to establish a water data monitoring system, develop protocols for the issuance of water permits, establish a public feedback mechanism and complaints about violations of environmental laws, and the creation of standards for calculating costs related to the water and sanitation service.
Similarly, the government will have to declare 75,000 hectares of aquifer recharge as a protected area by 2044.
This article has been translated after first appearing in Diario El Mundo