Many voices have recently alerted to the impacts of the rulings by the US courts on Argentina’s ongoing dispute with a small minority of its creditors. Far from staying confined to Argentina, the decisions will have negative consequences on global financial stability have warned the International Monetary Fund, countries such as France, Mexico, Brazil and the US State Department, as well as economic analysts and civil society organizations.
In a recent statement human rights organizations are now calling on governments to consider the worldwide human rights impacts of this decision.
The dispute involves the government of Argentina and some of its creditors who sued in US courts to get fully paid on claims arising from debt that was not part of Argentina’s settlement with 93 per cent of creditors in 2005 and 2010 (for a complete and up to date timeline click here). The creditors that sued Argentina are popularly known as “vulture funds” as their business model consists of purchasing debt of countries in trouble at low cost and sue for the full amount when the country’s repayment capacity improves. Consistent with their modus operandi they refused to negotiate or participate in any of the debt restructurings Argentina agreed with the majority (more than 92 per cent) of its creditors. The United States judicial system now is refusing Argentina the chance to pay any of the creditors that were part of restructuring deals, unless they pay at the same time the amounts demanded by the “vulture funds.”
The practices of “vulture funds” did not begin with this case or with Argentina. Investors with this profile have long been operating in the markets and were able to profit at the expense of other creditors from debt restructurings in countries as diverse as Peru, Greece and Zambia, among others.
But the intensified impacts beyond the case emerge because the US courts have now tipped the balance of incentives for creditors to participate in future debt restructurings, thus crippling any country’s efforts to negotiate debt restructurings in the future.
Organizations signing the statement said that the conflict “must not be understood as an isolated case, but rather as the expression of a global problem that impacts the effective implementation of human rights.”
The dispute is putting the spotlight and bringing to an extreme a situation with clear human rights implications. Indeed, governments are required by human rights law to refrain from actions or omissions in any field – this includes debt negotiations — that can harm human rights. This obligation, derived from human rights principles, was developed in the Guiding Principles on Foreign Debt and Human Rights, adopted by the Human Rights Council. Principle 6 calls upon States to ensure that any and all of their activities concerning their decisions on lending and borrowing, including “the renegotiation and restructuring of external debt do not derogate their human rights obligations.” Principle 8 establishes that “any foreign debt strategy must be designed not to hamper the improvement of conditions guaranteeing the enjoyment of human rights and must be directed, inter alia, to ensuring that debtor States achieve an adequate level of growth to meet their social and economic needs and their development requirements, as well as fulfillment of their human rights obligations.”
The statement by civil society organizations calls for action to stop current conditions in the international financial system that place a few bondholders in a position to rely on predatory practices to curtail the ability of States to reach agreements with the majority of their sovereign debt holders and guarantee the economic, social and cultural rights of their people.
Today, this tension is at the center of one of the most heated debates in the international community about how to balance the interests of creditors and debtors in ways that ensure States can respect their obligations in the promotion and protection of rights. Only the collective action of States to establish a mechanism for sovereign debt restructuring that honors the obligation of States to respect, protect and enforce human right, both in their territories and extraterritorially, can do justice to it.