Sun | Dec 8, 2019

Caribbean to adopt debt restructuring guide

Published:Friday | September 12, 2014 | 12:00 AM

A new United Nations General Assembly resolution on debt restructuring, that will set up a multilateral guide for the Caribbean and other countries to emerge from debt safely, is being touted as a plus for human rights and a means of pushing back at vulture funds.

Juan Pablo Bohoslavsky, an independent expert charged by the UN Human Rights Council to monitor the effects of foreign debt on all human rights, particularly economic, social and cultural rights, said "a multilateral legal framework would help to fill the current legal void and reduce uncertainty related to debt restructuring processes".

With 124 votes in favour, 11 votes against and 41 abstentions, the General Assembly adopted the resolution titled 'Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes' on Tuesday. It will establish an inter-governmental negotiation process aimed at increasing the efficiency, stability and predictability of the international financial system.

In a statement from the UN Human Rights Office, Bohoslavsky highlighted, in particular, the disruptive impact of so-called 'vulture funds', which buy unserviceable debt at a huge discount.

According to the World Bank, vulture funds buy up distressed debt knowing that multilateral debt relief has put the governments of heavily indebted poor countries in a better position to pay, and so may be persuaded to settle with them.

They frequently engage in litigation in the courts of rich nations to obtain judgments against the debtor and then attempt to attach the government's assets abroad, the UN said.

"Vulture fund litigation not only prevents indebted countries from using resources freed up by debt relief for social and economic rights, it also complicates debt restructuring processes," Bohoslavsky said.

In a letter to the Group of 77 developing countries sent before the UN General Assembly discussion on the resolution, he stressed that "financial markets need more prudence, not less.

"Financial business enterprises, including hedge funds, or so-called vulture funds, have to respect human rights and should exercise human rights due diligence to identify, prevent, mitigate and account for adverse human rights impacts as outlined by the 'Guiding Principles on Business and Human Rights'," Bohoslavsky said.

"An international legal framework should be seen as complementary to existing UN Guiding Principles on Foreign Debt and Human Rights and on Business and Human Rights, to national legislation limiting vulture fund litigation and to collective action clauses in sovereign bonds," he added.