An extravagant ruling by NY courts empowered a minority of vulture funds with a weapon to sabotage sovereign debt restructurings by allowing them to block 92.4% of Argentina’s creditors from collecting.

The legal precedent set by NY courts has given unprecedented leverage to holdout vulture funds to abuse sovereigns, good faith creditors, financial institutions and the global financial system.

Unsustainable debts are an obstacle to sustainable human development and, thus a serious impediment to the realization of all human rights.

The rulings by NY courts in the case of Argentina’s sovereign debt restructuring have forever changed sovereign debt markets, rendering future sovereign debt restructurings virtually impossible.

The extravagant rulings in the Argentine sovereign debt restructuring case have systemic implications that jeopardize stability and predictability of international financial markets.

Because of an erroneous interpretation of a common clause found in most sovereign debt bonds around the world, the NY rulings stand against US and international creditors and threaten the preeminence of NY as a global financial center.

Vulture funds are hedge funds specialized in buying distressed debt in the secondary markets for pennies on the dollar with the sole purpose of litigating for the full repayment plus interest.

Vulture funds do not lend money. They abuse legal systems around the world in order to get extraordinary profits at the expense of countries, people, and the overwhelming majority of creditors.

Vulture funds are marginal actors of the financial system. Their predatory practices create more vulnerable, unfair and uncertain global financial markets.

Vulture funds exploit the absence of a sovereign bankruptcy regime. The global community, including the United Nations, the International Monetary Fund, the G20 and the International Capital Markets Association, among others, has warned about their predatory practices and is working on solutions to stop them.

Vulture funds are based in tax havens to avoid paying taxes in their home countries.

Vulture funds have targeted numerous sovereigns across all regions of the world, and are likely to continue to do so in the future, if actions are not taken. In the Argentine case, they bought debt many years after the default and sued for an unprecedented 1600% profit. They have spent millions of dollars in lobbying and PR campaigns against Argentina.

Argentina wants to find a solution for 100% of its creditors under fair, equitable, sustainable and legal conditions.

Argentina has a fair and reasonable offer already on the table that would end this litigation: holdouts can join the debt exchange under the conditions accepted by 92.4% of the bondholders.

By accepting Argentina’s offer, the vulture funds would obtain a profit of more than 300%.

Argentina cannot accept the vulture funds’ extortion. Vulture funds are holding the 92.4% of creditors hostage and demanding a 1600% profit for their release. This position is unreasonable and is a direct threat to the stability and predictability of the global financial system.

Looking forward: while the contractual approach of improved collective action clauses is a positive step, it remains insufficient since there are no fully “vulture proof” clauses. The international community needs to come together to establish a multilateral legal framework for sovereign debt restructuring processes. This process is already underway at the United Nations.

In 2001, after decades of over-indebtedness, and with the burden of a debt to GDP ratio of 166%, Argentina defaulted on its sovereign debt (US$81 billion), in the midst of the worst crisis in its history.

Since 2003, the governments of Nestor Kirchner and Cristina Fernandez de Kirchner, have moved forward in the process of normalizing the country’s financial obligations. The most challenging step was to restructure its debt with hundreds of bondholders under seven different currencies and multiple jurisdictions.

Argentina successfully restructured its debt with 92.4% of its bondholders (in 2005 and 2010). The offer was based on Argentina`s real payment capacity. By incorporating gross domestic product (GDP)-linked coupons, creditors became partners in the country’s prosperity.

However, a small minority of vulture funds chose not to join the debt exchange. These funds bought debt many years after the default and judicially harassed Argentina to obtain an exorbitant 1600% profit.

In a highly controversial decision, the US judicial system upheld the litigant’s request. Circumventing the sovereign immunities all nations have in the US, the ruling blocked 92.4% of Argentina’s exchange bondholders from collecting their payments until the litigants’ claims are fulfilled.