The Human Rights Council condemns vulture funds
The 27th session of the UN Human Rights Council (HRC), held in September 2014, saw the adoption of a resolution condemning the activities of vulture funds. This year, the follow-up work on the resolution will commence.
Within this context, the Human Rights Council Advisory Committee will start preparing a research-based report on the activities of vulture funds and the impact on human rights. In doing so, the Human Rights Council Advisory Committee will seek a variety of views and inputs, including from Member States, United Nations agencies, as well as non-governmental organizations.
This article reviews the content of the resolution and the positions taken by selected Member States in the process of the vote that took place on the resolution.
By Kinda Mohamadieh
The 27th session of the UN Human Rights Council (HRC) adopted, through a vote, a resolution condemning the activities of vulture funds. The resolution is motivated by the direct negative effect that the debt repayment to those funds, under predatory conditions, has on the capacity of governments to fulfill their human rights obligations, particularly economic, social and cultural rights and the right to development.
The resolution, officially entitled “Effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights: the activities of vulture funds” (A/HRC/27/L.26) was presented by Argentina together with Algeria, Bolivia, Brazil, Cuba, Pakistan, Russia, Uruguay, and Venezuela. The resolution was supported by a broad group of more than 80 countries.
In the vote on the resolution, 33 Members of the HRC voted in support of the resolution, while 9 Members abstained, and 5 Members voted against it.
The content of the resolution
The resolution focuses on the effects of vulture funds’ practices, including through litigation and other means, that oblige indebted countries to divert financial resources saved from debt cancellation and undermine their capacity to guarantee the full enjoyment of human rights for their populations.
Vulture funds have a long history of acquiring defaulted sovereign debt at vastly reduced prices and then seeking repayment of the full value of the debt through litigation, seizure of assets, or political pressure.
Such predatory action is enabled given the voluntary nature of international debt relief schemes and the absence of a multilateral legal framework for the orderly and predictable restructuring of sovereign debt.
The resolution reaffirms that the activities of vulture funds highlight problems in the global financial system and are indicative of the unjust nature of the current system. The resolution calls upon States to consider implementing legal frameworks to curtail predatory vulture fund activities within their jurisdictions.
The resolution also encourages all States to participate in the negotiations aimed at establishing a multilateral legal framework for sovereign debt restructuring processes, as referred to in General Assembly resolution 68/304.
[On the 9th of September 2014, the UN General Assembly had adopted resolution 68/304, which “decides to elaborate…a multilateral legal framework” to regulate the sovereign debt restructuring process (A/68/L.57/Rev.1). The resolution, which was presented by the Group of 77 and China, was adopted by a majority of 124 votes (11 UN Member States objected while 41 abstained). Almost all developing countries voted in favor, including Brazil, China and India. The majority of European countries, including France, Greece, Spain and Italy abstained].
Furthermore, the resolution requests the Advisory Committee of the HRC to prepare a research-based report on the activities of vulture funds and the impact on human rights, and to present a progress report of that research to the thirty-first session of the HRC. In preparation of the report, the Advisory Committee will seek the views and inputs of Member States, United Nations agencies, relevant international and regional organizations, the Office of the United Nations High Commissioner for Human Rights and relevant special procedures, including the UN Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights (hereafter referred to as the UN Independent Expert), as well as national human rights institutions and non-governmental organizations.
In presenting the resolution, the Minister of Foreign Affairs of Argentina, Mr. Hector Timerman, noted that the issue of foreign debt and its effect on the enjoyment of human rights has been on the agenda of various human rights bodies of the United Nations for over two decades. Since the 1990s, the Human Rights Commission and subsequently the HRC, in various decisions and resolutions, highlighted the challenges that the burden of foreign debt represents for full enjoyment of human rights, in particular economic, social, and cultural rights. The Minister added that the former United Nations Independent Expert, Mr. Cephas Lumina, described the activities of vulture funds as those that manage to divert countries’ financial resources saved from debt cancellation, thereby undermining the capacity of governments to guarantee human rights to their people.
In Africa, the Minister highlighted, activities of vulture funds have endangered or even removed the capacities of states to carry out development and poverty reduction programs. Vulture funds allocate part of their vast amounts of profits to protect their despicable conduct, the Minister explained.
Mr. Timerman stressed that the there are currently two defined groups, on one hand countries that are concerned with the defence of the human rights of their people, and on the other hand the vulture funds. This is the context in which the resolution should be considered, he added, noting that the resolution does not represent a clash between nations nor a criticism of an economic or political system. Pope Francis noted the need for financial reform along ethical lines that will produce an economic reform to benefit everyone, Mr. Timerman added. It is a resolution in favour of peace and peoples’ economic, social, and cultural rights. He underlined that it is vital that countries commit to developing an international framework that is able to promote an investment market of high social impact, therefore combating the economy of exclusion and rejection.
Mr. Timerman reminded the HRC that it is not only developing countries that highlight the threat of vulture funds. As far back as 2002, he recalled, the then finance minister of the United Kingdom, and subsequent Prime Minister, Mr. Gordon Brown, referred to the severity of the problem in a special session of the UN General Assembly. Mr. Brown had highlighted then the immorality of vulture funds, noting that every time a country has to defend itself in front of courts, it diverts significant amount of time, attention, and resources that should be allocated to poverty reduction, health and education, and called for doing all that countries could to put an end to this practice.
Minister Timerman recalled the resolution entitled “Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes” (A/68/L.57/Rev.1) that was presented by G77 and China to the UN General Assembly and adopted on the 9th of September 2014.
[The resolution was adopted by a majority of 124 votes, while 11 UN Member States objected and 41 abstained. Almost all developing countries voted in favor, including Brazil, China and India. The majority of European countries, including France, Greece, Spain and Italy abstained].
The Minister noted that the approval of the resolution on a multilateral legal framework for sovereign debt restructuring processes reflects the reaction of the developing world to the Argentinian case.
Not content with access to credit, vulture funds are now violating the possibility of successful debt restructuring, Minister Timerman explained. Their message is clear, he added: vulture funds want Argentina to pay the 1600% of profit that they are claiming or they will not allow the country to get back on its feet.
A legal vacuum exists in regard to debt restructuring and leaves sovereign states vulnerable to the abuses of speculators, Mr. Timerman warned. According to him, the resolution adopted by the UN General Assembly represents a fundamental change of discussions on debt restructuring as it decided to adopt a multilateral legal framework establishing effective and transparent rules to achieve sovereign debt restructuring processes that are orderly and predictable.
As regard the content of the resolution presented to the HRC, the Minister explained that it is based on language adopted in previous HRC resolutions, and merely updates those.
The Minister noted that Argentina knows that the countries that supported the resolution are not acting out of their friendship with Argentina but rather they are driven by the conviction that behind the speculation and financial conspiracies and complicity in greed, lurk the inescapable burdens of debt.
Minister Timerman pointed out that the billions the vulture funds take from the impoverished South translate into closing schools, hospitals deprived of medicines, poverty, political instability, hate, violence, and fall of governments. He warned the members of the HRC that “vulture funds will not stop until we stop them”.
The Minister reminded the HRC that during the years of military dictatorship in Argentina, the Council always supported the victims of that regime and gave them refuge and a voice so that they were able to denounce the atrocities of the dictatorship. According to him, what the Argentinian government does today is representing those victims of the dictatorship and supporting them in the face of vulture funds that carry the inheritance of the dictatorship.
In support of the resolution, Algeria stated that the resolution- in spirit and letter- reflects the recommendations of the former UN Independent Expert, in particular his recommendations on vulture funds. The reports of the Independent Expert revealed the negative effects that vulture funds have on debt relief measures adopted by the international community and its destabilizing effects on the economies of victims of vulture funds, Algeria noted. Algeria pointed out the fact that the international financial system today is inadequate and needs reform, and that debt has a major impact on developing countries and their development. Algeria stressed the need to shed objective light on the activities of vulture funds and their impact on the right to development. Algeria called for adopting the resolution by consensus.
Cuba noted that the resolution brings to the HRC a subject of vital importance for developing countries. Cuba as a promoter of the resolution recognised the relevance of the HRC’s activities on this issue, and the increasing importance to establish a multilateral legal framework for sovereign debt restructuring. Activities of vulture funds are a new form of aggression on countries of the South, Cuba added, which is fed by the economic conditions generated by foreign debts and the crisis of capitalism. More than twenty countries have been victims of vulture funds, Cuba warned. These activities are basically directed against progressive governments that are defending their sovereignty, as recently highlighted by the G77 summit held in Bolivia. Cuba reiterated the importance of upholding the right of countries of the South to sustainable development and to a just international economic order.
Brazil stressed their belief that reduced debt burden and enhanced fiscal capacities contribute to the necessary conditions for the realization of human rights, particularly economic, social, and cultural rights. Brazil reiterated its support for bilateral and international initiatives necessary to avoid having the debt burden of indebted countries become an impediment to economic growth, including social inclusion and poverty eradication. The international community needs to fully understand and better address the financial and legal uncertainties and negative social and economic implications that may result from the lack of a predictable mechanism for debt restructuring, Brazil stressed. The proposed resolution is a step forward as it can help shed light on the situation and its implications on the full enjoyment of human rights, according to Brazil.
Russia highlighted how the initiative draws attention to the predatory activities of vulture funds, including the related social problems that undermine national sovereignty, and which shatter the global financial stability paving way for financial and economic crisis. Russia noted that the resolution would be another building block in constructing a more just and fair world order based on equal participation of all states in the global economy. Russia commended the constructive and transparent approach adopted by Argentina during the work on the draft resolution.
Venezuela highlighted that there has been talks for years in international fora and in the HRC about the negative effects of the excessive and unjust debt burdens on the enjoyment of human rights. This is exacerbated by the global crisis of capitalism, Venezuela noted. The harmful activities of vulture funds that carry excessive speculative activities oblige countries with sovereign debt to harness the resources they saved through debt relief, according to Venezuela, thereby undermining possibilities of governments to comply with their human rights commitments. The obligations shouldered by states in international financial agreements should not affect their capacity to guarantee the full enjoyment of human rights of their peoples, Venezuela stressed, in particular economic, social, and cultural rights including the right to development. Venezuela recalled the quote by the President of Argentina at the 69th session of the UN General Assembly, who stated that “it is not only terrorists that plant bombs but economic terrorists destabilize the economies of countries and cause hunger, poverty, and extreme poverty”. Venezuela called for continuing progress towards a universally shared commitment to achieve international cooperation in addressing problems pertaining to economic and social rights and in promoting the respect of human rights and fundamental freedoms enshrined in the UN charter.
Pakistan noted that all countries have sovereign rights in regard to their debt restructuring, which should not be influenced through political and extremists pressure tactics that undermine the capacity of states, especially developing countries, to fulfil their human rights obligations and achieve sustainable development. Vulture funds reflect inherent flows in the current international financial system and could be used to challenge the sovereignty of indebted countries through economic pressures and huge financial implications, according to Pakistan. Although this issue is of special resonance for developing countries, it is also a threat to developed countries. The activities of vulture funds highlight some of the grave problems in the global financial system and are indicative of the unjust nature of the current system, Pakistan underlined. Pakistan added that measures to combat vulture funds and other debt restructuring issues should be part and parcel of reforms in the international financial system. Pakistan emphasized the importance of a timely, effective, comprehensive, and durable solution to the debt problems of developing countries, and reiterated its support to the negotiations aimed at establishing a multilateral legal framework on sovereign debt restructuring.
Countries took the floor to explain their vote
Mexico explained that it willvote in favor of the resolution as a sign of solidarity with Argentina and the difficulties it faces in the process of restructuring its debt. Mexico noted that the negative effects of vulture funds are a concern given their effects on the institutional capacity of governments when taking measures to fulfill their obligations in regard to economic, social, and cultural rights. Mexico added that this type of speculative investments should not be invoked as a condition to prevent people from enjoying their full human rights or a justification by states that fail to comply with their international obligations. Mexico noted that it would have been desirable that the resolution would include reference to the essential obligation of states to comply with their human rights obligations as recognized in the Vienna declaration and program of action. Mexico had faced debt restructuring and has constantly been seeking to ensure that the framework applicable to debt restructuring processes allow solving problems that may arise in practice and grant certainty to the involved parties. In the past decade, significant steps forward have been noted and debt-restructuring processes are on the way to be perfected, Mexico added. These are processes being discussed at the competent international institutions, Mexico explained, and it is essential to continue to strengthen the framework applicable to debt restructuring. No debt restructuring process should impose unsustainable burdens on countries nor endanger the development of their people, Mexico noted, while stressing that the peoples’ human rights should not be contingent on the economic conditions of states.
The United States (US) called for a vote on the resolution. The US noted that it remains committed to the stability of the international financial system and development of partners around the world, however in its opinion the resolution raises serious concerns. The US explained that discussions on mechanisms to advance orderly debt restructuring are technical in nature and risk creating uncertainties if not handled appropriately, which could drive up borrowing costs or even choke off financing for developing countries. The US was of the opinion that there are already active discussions underway in other more appropriate fora that take these complex technical issues into account. According to the US, the issues that the resolution addresses fall outside the scope and mandate of the HRC, and may prompt states to use debt distress as an excuse for human rights violations. The US added that the states’ obligations to promote and protect freedoms and human rights are not conditioned on its sovereign debt situation.
Italy, speaking on behalf of the European Union (EU), pointed to their solidarity towards countries that face economic and financial crises, but noted that the HRC is not the appropriate forum to discuss issues covered by the resolution.
The United Kingdom (UK) aligned itself with the statement by the EU. The UK recognized the importance of many of the issues raised in the resolution including the need for timely, predictable, and effective debt restructuring processes and the need for coordinated action to resolve the situation where a country cannot afford to repay its debts. The UK noted its active role as a member of the Paris club, where the UK delivered USD 7 billion in debt relief as part of the ‘Highly Indebted Poor Countries’ (HIPC) initiative. Domestically, the UK introduced targeted legislation to limit the ability of commercial creditors recovering through the UK courts an amount of debt in excess of that consistent with the HIPC initiative. The UK explained that they will vote against the resolution as there are discussions related to financial policies taking place in other international fora. The HRC is not the right forum to discuss these technical issues, according to the UK. The UK noted that they are already involved in the IMF’s work to update the framework on sovereign debt restructuring. This work seeks to identify contractual solutions to reduce the power of hold-out creditors. The UK noted their support to previous calls to explore this issue in the UN, including a call by the Secretary General to assess options for enhanced approaches to debt restructuring and resolution mechanisms. The HRC should continue to focus on its core mandate to promote the implementation by States of their human rights obligations and avoid duplication of work undertaken by other bodies, according to the UK.
France abstained in the vote. In its explanation of its vote, France noted its concern regarding the effectiveness of international mechanisms for restructuring of sovereign debt. France referred to the submission it made as amicus curiae in the dispute that Argentina faced before the US Supreme Court. However, France reiterated the position of the EU and the US that considers that the issue does not fall within the mandate of the HRC, adding that it considers the obligations of a state in regard to its sovereign debt are independent of its obligations in the sphere of human rights. France added that issues of sovereign debt restructuring should be discussed within the competent international bodies, noting that the IMF has already started work in this area. France added that it is active in the context of the Paris Club and that the G20 Economic and Financial Forum has the vocation of dealing with this issue.
Previous resolutions and decisions on foreign debt and its effects
The HRC and its preceding Commission on Human Rights had adopted several resolutions and decisions on the effects of structural adjustment and economic reform policies and foreign debt on the full enjoyment of all human rights, particularly economic, social and cultural rights.
The most recent was the resolution adopted by the HRC in April 2014, which extends the mandate of the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights for an additional three years (A/HRC/25/L.28 of 15 April 2014).
In July 2012, the HRC had also adopted the “Guiding Principles on Foreign Debt and Human Rights”. In 2010, the UN’s Independent Expert had issued a report with a thematic focus on vulture funds. The report addressed the negative impact of the activities of vulture funds on international debt relief efforts, and on the capacity of indebted poor countries that have benefited from debt relief to create the necessary conditions for the realization of human rights, including the right to development.
Kinda Mohamadieh is a Researcher at the South Centre.
