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protection against erosion of the fund through inflation. As the bonds mature, the principal will be invested establishing an endowment to maintain Fundacion Natura and its conservation programs. The existing agreement with the Central Bank and Fundacion Natura permits further debt exchange up to $10,000,000.

The WWF [[underlined]] purchased [[/underlined]] the debt instruments from creditor banks with funds donated by the Weeden Foundation. Conservation International and the Nature Conservancy have similar conservation arrangements in Bolivia and Costa Rica. Now, in addition, a bill has been introduced in the Congress to amend tax legislation to allow creditor banks, for example, to deduct the full face value of [[underlined]] charitable contributions [[/underlined]] of their Third World debts to 501(c)(3) organizations. This bill limits the swaps to nature conservation. The sponsors of the legislation include Senators Chafee, Mitchell and Boren, and Representatives Pease, Cooper and Porter.

The U.S. Treasury Department considers debt swaps revenue neutral. With the support of Secretary of the Treasury Baker, the Department has issued a revenue ruling (87-124) which, short of amending tax laws, permits charitable tax deductions to creditors contributing discounted debt instruments to not-for-profit institutions in the United States that are party to agreements with the donor and a debtor nation's central bank. Under this ruling, the local currency proceeds of a donation to a 501(c)(3) organization may be credited to a debtor nation's charitable organization so long as its U.S. counterpart retains prior program approval and accountability. The effect of the guidelines would be to permit donors a tax deduction of the full face value of the bad debt and permit the swap to serve conservation as well as other not-for-profit activities.

Such "swaps" are being encouraged by the State Department and the Agency for International Development in addition to the Treasury Department. These agencies support efforts to reduce those debts unlikely to be repaid in dollars. They prefer efforts to turn the debts to good use through mutually advantageous agreements with the debtor nations covering environmental programs, for example, over action by creditor institutions simply to write the debts off.

Efforts of the conservation organizations are currently being supported by academic institutions and the Institute of International Finance (IIF), a Washington think-tank serving commercial banking. UCLA's Vice Chancellor for External Affairs is working to draw together interested academic institutions in order to seek donations or to purchase large blocks of debt instruments. He is working also to design agreements for such a consortium to sign with donor banks and with the debtor nations' central banks. Such coordination would produce swaps that were larger and more attractive swaps for the banks and simplify negotiations with both debtor nations and creditor banks, though these commercial banks will need encouragement to make the necessary charitable contributions. An active "secondary market" for these debt instruments currently provides an attractive alternative to the banks to help them cut losses on some nations' debts.