Last week, the Human Rights Council adopted a resolution condemning the activities of vulture funds for their impacts on the capacity of governments to fulfill their human rights obligations.
In a resolution passed with 33 of the votes of members, only 5 countries voting against (United States, Germany, Japan, UK and Czech Republic) and 9 abstentions, the Council held that debt repayment to the aforementioned funds, under predatory abusive conditions, bears a direct negative effect on human rights.
Although the upheaval created by US courts’ recent ruling on a case between Argentina and some of its creditors – NML v Argentina case – did, no doubt, add momentum for this decision by the Council, the Council built on the work carried out since several years ago by the Independent Expert on Foreign Debt and Human Rights on issues that extend far beyond the Argentina debt restructuring.
In fact, in an amicus curia filed with the Supreme Court in the course of that litigation, debt campaigning organization Jubilee USA network argued that “Allowing the decision below to stand would…equip financial companies that prey on the poorest nations and people of the world with a game-changing legal precedent to accelerate their predation.”
This is consistent with the Independent Expert on Foreign Debt and Human Rights’s finding, in 2011, that there had been more than 50 commercial creditor litigations against heavily indebted poor countries, many of them still ongoing, and called attention to the threat that vulture funds posed for the capacity of indebted poor countries that have benefited from debt relief to create the necessary conditions for the realization of human rights.
According to the resolution, vulture funds oblige indebted countries to divert financial resources saved from debt cancellation and diminish the impact of, or dilute the potential gains from, debt relief for these countries, thereby undermining the capacity of governments to guarantee the full enjoyment of human rights of its population.
The resolution represented a resounding triumph for human rights campaigners worldwide who had been arguing that vulture fund activity should be addressed from the perspective of international human rights law. In one of its decisions, the resolution reaffirmed that “the activities of vulture funds highlight some of the problems in the global financial system and are indicative of the unjust nature of the current system, which directly affects the enjoyment of human rights in debtor States, and [called] upon States to consider implementing legal frameworks to curtail predatory vulture fund activities within their jurisdictions.”
In doing so, States endorsed almost word-by-word inputs submitted by more than 100 human rights organizations from around the world.
The document also referred to the Guiding Principles on Foreign Debt and Human Rights, adopted by the Council in 2011. One of the Guiding Principle calls upon States to “ensure that any and all of their activities concerning their lending and borrowing decisions, those of international or national public or private institutions to which they belong or in which they have an interest, the negotiation and implementation of loan agreements or other debt instruments, the utilization of loan funds, debt repayments, the renegotiation and restructuring of external debt, and the provision of debt relief when appropriate, do not derogate from [human rights] obligations.” (Principle 6) The resolution also refers particularly to Guiding Principles 8 and 20, which require that debtor States in their strategies to deal with foreign debt should ensure they can achieve an adequate level of growth to meet their social and economic needs, as well as fulfilment of their human rights obligations, and not lead to the deliberate adoption of retrogressive measures – measures that retrogress on the status of enjoyment of rights by the population.
The resolution is also important insofar as it provides the human rights foundations and demands for the negotiations that are about to start at the UN General Assembly on the development of a multilateral legal framework for sovereign debt restructuring. The General Assembly decision to go-ahead with such negotiations was adopted early in September. In a letter preceding the respective vote, human rights groups called upon governments to ensure the human rights perspective would be fully incorporated into the resolution’s text and in the deliberations.
Also before that vote, the Group of 77 (the developing countries’ bloc at the UN) required an expert opinion from the Independent Expert on Foreign Debt and Human Rights. This was an unprecedented step, hardly one ever taken before by the Group of 77 or any other bloc of countries voting resolutions on economic issues at the UN General Assembly, and which speaks volumes about the close link between this issue and human rights. In his opinion, the Independent Expert offered a recap of the international human rights law principles that justified filling the global legal void on sovereign debt restructuring and said that human rights obligations and in particular minimum essential levels of satisfaction of each economic, social and cultural right should be respected, including in the context of debt restructuring. He commented that vulture funds’ disruptive litigation is only one – but probably the most prominent – evidence of the consequences of the global legal void on debt restructurings. “If sovereign debtors are forced to grant a few private and highly speculative lenders preferential treatment at the expense of creditors that made sacrifices to let the country recover, the duty to perform a serious credit risk assessment will be the first victim,” he added.
The Human Rights Council now has urged States to participate in the negotiations aimed at establishing a multilateral legal regulatory framework for the sovereign debt restructuring processes and called upon States participating in the negotiations to ensure that such a multilateral legal regulatory framework will be compatible with existing international human rights obligations and standards.
Other provisions of the Human Rights Council resolution will create important tools for organizations engaged in ongoing efforts to curtail the activity of vulture funds. The resolution entrusted the Human Rights Council Advisory Committee with the preparation of “a research-based report on the activities of vulture funds and the impact on human rights.” In preparation of that report it requested the same Committee to seek views of, among others, national human rights institutions and non-governmental organizations, human rights mechanisms, Member States and relevant international and regional organizations.