LONDON, Sept 27 (Reuters) - The Inter-American

Development Bank's oversight body is scrutinizing whether a

record "debt-for-nature" swap struck by Ecuador for its

Galapagos Islands last year breached the lender's policies

following complaints from local groups.

Filings show the Independent Consultation and Investigation

Mechanism (MICI) of the Washington-based lender is examining the

groups' concerns over a "lack of accessible and relevant

information" and "lack of an engagement strategy with

potentially impacted communities".

Last year's Galapagos-focused debt swap attracted global

attention for being the first to break the $1 billion barrier,

but the 24 groups involved in the complaint are frustrated about

their lack of involvement in decisions and that conservation

money is yet to arrive.

Debt-for-nature swaps generate that money by buying up

existing bonds or loans of a country. They are then replaced

with cheaper debt, usually with the help of a development bank

like the IDB, with the savings then used for environmental

projects.

MICI's investigations are limited to potential breaches of

the IDB Group's "environmental and social policies and

standards", but concerns about how projects, including

disbursements, are managed, and public disclosure, fall under

that umbrella.

The Galapagos deal swapped $1.6 billion of Ecuador's bonds,

but it was also its focus on preserving the islands that

inspired Charles Darwin's Theory of Evolution that saw it

heralded as a landmark example of these types of transactions.

Dozens of other countries are now eyeing them and Ecuador is

looking to do more, potentially with the help of Hollywood star

Leonardo DiCaprio's conservation charity.

One of the organisations involved in the complaint, the

Centro de Derechos Eonómicos y Sociales of Ecuador (CDES), said

on its website MICI's decision to review "represents an

important step towards the protection of Ecuador's sovereign

rights and environmental conservation in the Galapagos Islands."

CDES added this would also benefit future debt swaps as it

would "seek to implement the best international practices."

Ecuador's finance ministry, the IDB's "client" for the debt

swap, did not respond to a request for comment.

The Galápagos Life Fund (GLF), which was set up to help

oversee the swap and is co-chaired by Ecuador's environment

ministry, says there have been a series of recent meetings with

locals and it is now preparing to allocate funding.

"We are committed to ensuring these funds are distributed

fairly and efficiently, benefiting both the ecosystems and the

people who rely on them," it said in a release on its website.

PROCESS

MICI now has until around the end of October to assess the

complaint and judge how to proceed. If resolution via dialogue

does not look possible, it can then present a case to the IDB's

Executive Board of Directors in Washington for a fuller

investigation, a MICI spokesperson said.

If the Board approves one, MICI's team then has up to a year

to "impartially and objectively investigate allegations of harm

and potential non-compliance with the environmental and social

policies and standards of the IDB Group".

Once done, it produces a report for the IDB Board which then

decides any "corrective action".

That usually comes in the form of an "action plan" which

MICI can then monitor for up five years in consultation with the

complainants and other stakeholders. The plans do not levee

fines, but cases in the past have led to changes to IDB

policies.

An investigation process would not prevent funds from the

debt swap being disbursed.

(Additional reporting by Alexandra Valencia in Quito; Editing

by Alex Richardson)