How can debt swaps be used for development?

The idea of debt conversion is that instead of continuing to make payments on outstanding loans in hard currency in the face of debt servicing difficulties, the debtors find some other way to settle debts that is satisfactory to themselves and the creditor. The author discusses the importance of debt conversion as a development tool, contrasts conversion of debt owed to public and private creditors,touches on the issue of its impact on inflation, and examines criteria for determining which kinds of debt are suitable for conversion. Debt conversion projects may be a useful, noncontroversial vehicle for bringing in domestic managerial talent from local nongovernment organizations on contract as responsible parties for implementation of a specific project. The author concludes by discussing two ways to strengthen institutions for carrying out debt conversions. One way is through establishment of a trust fund. National environmental trust funds have been established in several countries in connection with debt-for-nature swaps. Another way is for sector policymakers to approach international counterpart nongovernment organizations directly to find out if interest exists in funding specific development activities through debt conversions to support a well-defined sectoral program.