Human Rights Council condemns activities of vulture funds

Vulture funds have come under attack at the UN’s top rights body, which adopted a resolution stressing that their “predatory” activities undermine the enjoyment of human rights in debtor countries.

by Kanaga Raja

GENEVA: The UN Human Rights Council on 26 September condemned the activities of vulture funds “for the direct negative effect that the debt repayment to those funds, under predatory conditions, has on the capacity of Governments to fulfil their human rights obligations, particularly economic, social and cultural rights and the right to development.”

In a resolution (A/HRC/27/L.26) adopted by a vote, the Council requested its Advisory Committee, composed of 18 experts, 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 Council for its consideration at its 31st session.

The Human Rights Council held its regular 27th session from 8-26 September.

The resolution on the activities of vulture funds was adopted by a vote of 33 in favour, five against and nine abstentions.

Those that voted in favour were Algeria, Argentina, Benin, Botswana, Brazil, Burkina Faso, Chile, China, Congo, Costa Rica, Cote d’Ivoire, Cuba, Ethiopia, Gabon, India, Indonesia, Kazakhstan, Kenya, Kuwait, the Maldives, Mexico, Morocco, Namibia, Pakistan, Peru, the Philippines, Russia, Saudi Arabia, Sierra Leone, South Africa, the United Arab Emirates, Venezuela and Vietnam.

The Czech Republic, Germany, Japan, the United Kingdom and the United States voted against the resolution, while Austria, Estonia, France, Ireland, Italy, Macedonia, Montenegro, the Republic of Korea and Romania abstained.

The vulture fund threat

The draft resolution was introduced at the Human Rights Council by Argentine Foreign Affairs Minister Hector Timerman on behalf of Argentina, Algeria, Bolivia, Brazil, Cuba, Pakistan, Russia, Uruguay and Venezuela.

Pointing out that a total of 74 co-sponsors supported this draft resolution, the Argentine Minister told the Council that the issue of foreign debt and its effects on the enjoyment of human rights had been on the agenda of various UN human rights bodies for over two decades.

Since 1990, the Human Rights Commission and subsequently the Human Rights Council, in various resolutions and decisions, had highlighted the challenges represented by the burden of foreign debt on the full enjoyment of human rights, in particular economic, social and cultural rights, he said.

Along these lines, he noted, the UN independent expert on foreign debt, Cephas Lumina, had referred to vulture funds, describing their activities as those that managed to divert a country’s financial resources that were saved from debt cancellation, thereby undermining the capacity of governments to guarantee the human rights of their people.

For the most part this had happened in Africa, where the activities of vulture funds had endangered or even removed the capacity of these states to carry out their development and poverty reduction programmes.

The Argentine Minister highlighted the need for financial reform along ethical lines that would produce in its turn economic reform to benefit everyone.

It was not only developing countries that had highlighted the threat of vulture funds to the full enjoyment of human rights. As far back as 2002, the then finance minister (Chancellor of the Exchequer) of the United Kingdom, and subsequently Prime Minister, Gordon Brown, had referred to the severity of the problem in a special session of the UN General Assembly.

According to Timerman, a legal vacuum existed in terms of debt restructuring and it left sovereign states vulnerable to the abuse of speculators.

In some general comments before the vote at the Human Rights Council, Algeria, referring to a report by the independent expert Lumina, said that vulture funds had negative effects on debt relief measures that had been adopted by the international community and these funds had a destabilizing effect on the economies of countries that were their victims.

Algeria said that among the main messages of the draft resolution was the fact that the international financial system was inadequate today and therefore needed to be reformed; that the debt burden had a major impact on developing countries and their development; and that there was a need to shed an objective light on the activities of vulture funds and their impact on the right to development.

Cuba said that the draft resolution brought before the Council a subject of vital importance to developing countries, namely, the negative effect of vulture funds on the enjoyment of human rights.

Venezuela said that for many years it had been hearing in international fora, in particular in the Human Rights Council, about the negative effects on the enjoyment of human rights of the excessive and unjust debt burden. Today, this was exacerbated by the global crisis of capitalism, it added.

Pakistan said that all countries had a sovereign right with regard to their debt restructuring. Calling for this to not be influenced by political and extraneous pressure tactics, it said that these tactics undermined the capacity of states, particularly developing countries, to fulfil their human rights obligations and to achieve sustainable development.

Pakistan further said that vulture funds reflected the inherent flaws in the current financial system and could be used to challenge the sovereignty of indebted countries through economic pressure and huge financial implications.

The United States said that it would call for a vote on the resolution and would vote “no”.

It said that while it remained committed to the stability of the international financial system, this resolution raised serious concerns. Discussions on mechanisms to advance orderly debt restructuring were technical in nature and, if not handled appropriately, risked creating uncertainties which could drive up borrowing costs or even choke off financing for developing countries, it maintained.

There were already active discussions underway in other, more appropriate fora that took these complex technical considerations into account, it said, adding that the issue the resolution purported to address fell outside the scope and mandate of the Human Rights Council and did not belong in this forum.

Italy, on behalf of the European Union members of the Human Rights Council, said that there should be no doubt over its solidarity with countries that had faced or were still facing economic and financial crisis. However, in its view, the Council was not the appropriate forum for discussing issues related to financial policy.

France, announcing its intention to abstain on the vote, said that the effectiveness of international mechanisms for the restructuring of sovereign debt was a core concern for it. It said its stance and position of amicus curiae in the dispute between Argentina and litigious creditors before the US Supreme Court clearly demonstrated France’s commitment.

However, it considered that the issue of sovereign debt restructuring did not fall within the mandate of the Human Rights Council. The issue should be discussed within the competent international bodies, which was already the case, it said, citing as examples the International Monetary Fund and the Paris Club.

Unjust system

In the resolution that was eventually adopted, the Human Rights Council noted the concern expressed in the declaration that heads of state and government of the Group of 77 and China issued at their June summit in Santa Cruz de la Sierra, Bolivia, that reiterated the importance of not allowing vulture funds to paralyze the debt restructuring efforts of developing countries, and that these funds should not supersede the state’s right to protect its people under international law.

The Council affirmed that debt burden contributes to extreme poverty and hunger and is an obstacle to sustainable human development, to the realization of the Millennium Development Goals and to the right to development, and is thus a serious impediment to the realization of all human rights.

The Council also noted that “the international financial system does not have a sound legal framework for the orderly and predictable restructuring of sovereign debt, which further increases the economic and social cost of non-compliance.”

It expressed its concern about the voluntary nature of international debt relief schemes which has created opportunities for vulture funds to acquire defaulted sovereign debt at vastly reduced prices and then seek repayment of the full value of the debt through litigation, seizure of assets or political pressure.

Condemning the activities of vulture funds, the Council reaffirmed, in this context, 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.”

It called upon states to consider implementing legal frameworks “to curtail predatory vulture fund activities within their jurisdictions”.

The Council encouraged all states to participate in the negotiations aimed at establishing a multilateral legal framework for sovereign debt restructuring processes, as referred to in UN General Assembly resolution 68/304, and invited states participating in the negotiations to ensure that such a multilateral legal framework will be compatible with existing international human rights obligations and standards. (SUNS7884)       

Third World Economics, Issue No. 577, 16-30 Sept 2014, pp6-7, 16