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World's First Debt-for-Health Research Swap

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As institutions and organizations search for innovations in financing to meet tremendous health, education and other social sector needs in developing countries, it may well be time to remember the $1.1 million debt-for-health research swap, the first of its kind, successfully completed now almost 18 years ago, to serve as a modern day example in order not to re-invent the wheel. Debt-swaps for social purposes are essentially conversions of foreign debts of developing countries to local currency earmarked for specific social purposes such as health, education or the environment. Debt-servicing, or interest and principal payments, in foreign currency on mountains of external debt make it very difficult for developing countries to invest sufficiently in social development that is one essential basis for economic growth. And aid weariness among industrial nations struggling with budget deficits and their own large debt burdens means that innovations in financing are highly prized.

At the time in 1990, Mexico and Latin America were experiencing a financial crisis, and environmentalists had managed to exchange external debt for public land to be dedicated for conservation. Likewise, despite skepticism from multilateral agencies, it was possible for us to exchange external debt for local currency investments into health research, netting an extra 70% over the value of grants from the Rockefeller and MacArthur Foundations.

The link documents those efforts to arrange the swaps that I led as Project Director at the Harvard University Center for Population and Development Studies, the international conference on debt swaps for social purposes that I organized at Harvard co-chaired by former Japanese Foreign Minister Saburo Okita and ex-USAID chief David Bell. Good partners in the swaps included the Archdiocese of Mexico's Fondo Para la Asistencia Promocion y Desarrollo (FAPRODE), the Fundacion Mexicana para la Salud (FUNSALUD) then-led by Former Mexican Health Minister Soberon and the Rockefeller and McArthur Foundations. Considerable documentation and analysis was built even then to refute alarmist fears that debt-swaps might be inflationary in still fragile Latin American economies, which nowadays are far more robust.

Interestingly, the swaps benefited the public health research work of Dr. Julio Frenk, then-Director of Mexico's Instituto Nacional de Salud Publica and Dr. Jaime Sepulveda, then-Director of the Mexican Advisory Board on Epidemiology, who are current advisors to Bill Gates and Carlos Slim. A pretty good return on the $100,000 investment -- by the Edna McConnell Clark Foundation and Canada's International Development Research Centre -- that funded, through Harvard University, my project's efforts on debt-swaps for social purposes.