Cyn Rodriguez is an organizer with Colectiva Solidaridad, a Puerto Rican independence organization.Collective Solidarity), was sitting in the 350-seat auditorium of the Alexander Hamilton U.S. Custom House when they recorded a man who rose from his seat during the Fiscal Oversight and Management Board’s (FOMB) 31st “public meeting” on December 17, 2021. The man began shouting: “Puerto Rico not for sale! Not for sale! Not for sale!” He had interrupted Puerto Rico’s Department of Economic Development and Commerce Secretary Manuel Cidre Miranda, a “businessman” who once told Forbes that he believes in “reducing regulations [and] making Puerto Rico a one-stop shop for investors.”
Economic development agencies and the Puerto Rican government are slated to privatize more and more sectors of the economy as part of the FOMB’s debt restructuring plan and its “modernization” campaign. Two men dressed in suits approached the protester, and began to remove him from the premises. He struggled to resist them, saying, “How dare you stand there and tell lies?” He was one of four attendees who disrupted the meeting that day to draw attention to the injustice of exploitative proposals — and to the exploitation and subjugation that Puerto Rico has faced both in recent years and throughout its colonial history.
“I was angry the whole time,” Rodriguez said. “They [the FOMB]We were talking about Puerto Ricans as if they were laborers, and the archipelago as if it was a playground. Gringos — the rich and tourists.” Rodriguez said Puerto Ricans have been suffering due to the cruel austerity measures imposed by “La Junta,” the Spanish sobriquet for the FOMB, an unelected board created by the Obama administration in 2016 through the Puerto Rico Oversight, Management, and Economic Stability (PROMESA) Act. The FOMB oversees the restructuring of Puerto Rico’s $72 billion debt.
Several people were present before the meeting. protesters gathered outside the Custom House and held a banner that read (in Spanish and English): “We bring machetes to the vultures and say ‘get out of my island.’” The phrase was adapted from a Puerto Rican folk song’s lyrics. Protesters demanded that the incumbent governor of Puerto Rico resign. Pedro Pierluisi was urged to resign from his office and called for the immediate dismantling of the FOMB.
Hedge funds, also known as vulture funds have spent decades perfecting predatory investing practices that target financially-stressed countries around the globe. These include Puerto Rico, Argentina and Greece. Paul Singer of Elliott Management, Kenneth Dart from Dart Enterprises and Steven A. Tananbaum, of GoldenTree Asset Management, are just a few of the prominent vulture investors. Aurelius Capital Management’s Mark Brodsky is another.
These vulture investors “have followed a well-established playbook” to manipulate the $119 trillion bond market, according to a recent report published as part of the joint “Not a Game. It’s People!” corporate accountability project, which seeks to challenge predatory investment practices globally.
Maggie Corser, Rob Galbraith and Natalia Renta — in collaboration with consultants at Hedge ClippersThe Center for Popular Democracy and adjacent grassroots organizations — authored the report, titled, “Pain and Profit in Sovereign Debt: How New York Can Stop Vultures from Preying on Countries,” to reveal the ways in which vulture funds extract wealth from indebted countries and propose policy recommendations for New York lawmakers. “Because most sovereign debt contracts are governed by either New York State or English law, New York is uniquely positioned to step in and pass laws that would disrupt the vulture fund playbook and stop them from profiteering at the expense of countries in financial trouble,” the report stated.
According to the report, predatory financier actors use vulture fund playbook strategies to “extract debt payments to enrich themselves while communities face regressive taxes, slashed public services [and] privatized public goods.” Vulture investors knowingly purchase sovereign debt for “pennies on the dollar” from debtors that are desperate for credit and, in the process, impose exorbitant interest rates to maximize profits at the expense of local communities.
The report notes that asset management firms “often average a rate of return 300–2000% on their initial purchase of distressed sovereign debt.” Vulture funds also prolong debt restructuring processes by refusing to cooperate with debtors, use “high-powered lawyers” and “ruthless legal tactics” to sue indebted countries so that courts can mandate repayment in full and, finally, benefit from forced austerity policies and international debt relief initiatives, which they use to “hold both other creditors and the debtor country hostage.”
New York law has played a central role in enabling vulture funds’ predatory investment practices. Policy prescriptions outlined in the report look to establish a framework for countries to restructure their unsustainable debt, eliminate the capital gains tax loophole that vulture funds have long exploited and strengthen champerty law, “which is intended to prevent predatory financial actors from buying financial instruments for the purpose of filing a lawsuit.” In 1999, Elliott Management sued the national bank and government of Peru to demand full repayment of the country’s debt that it had purchased (with interest, of course). The case was ultimately settled. Court of Appeals decisionThis made the champerty law less effective, rendering it null.
Paul Singer, billionaire vulture investor and founder of Elliott Management, won his case. And so, the vultures kept circling — they had what they needed to “suck the blood out of” debt-ridden countries around the world, according to Julio López Varona, co-director of community dignity campaigns at the Center for Popular Democracy and longtime consultant for the corporate accountability campaign. “These are human beings making decisions.”
“A Moral Fight”
New York is not only in a critical position to disrupt vulture fund playbook but also nearly a quarter of the state’s residents are immigrants who, sources say, tend to come from communities that have been impacted by these predatory investment practices. New York Communities for ChangeNYCC), a grassroots organization involved in the corporate accountability campaign, has been staging direct action against vulture investors and engaging in legislative advocacy in recent years. The coalition of working families has more than 20,000 members.
“This is a moral fight,” NYCC Program Director Alicé Nascimento told Truthout. “It’s really about the poorest countries in the world versus the richest people in the world, who are made rich because these countries are poor.”
Nascimento explained that awareness about these injustices is increasing because of the work of organizers.
“Now, there’s this realization — not just in the U.S. but around the world — that these are not good faith players and that they’re out betting on many countries’ economic failures for their own profit,” she continued. “This is something that has affected our membership since we’ve come into this fight.”
Over the last three years, the New York State Legislature increased taxes on New York’s wealthiestResidents, passed incremental police reform legislationIt is built upon it Climate Leadership and Community Protections Actto eradicate environmental racism in the state. Nascimento believes that these reforms have created a ripe political environment for the report’s policy recommendations to be passed.
“There is an environment … here and a disposition to challenge concentrated wealth that we have not seen before,” Nascimento said. “People are really seeing what’s behind the veil.”
Members of the corporate accountability team have sent the report directly the legislators. State Senator Gustavo Rivera, and Assemblywoman Maritza Dvila co-sponsor the report. Senate Bill S6627And Assembly Bill A7562This legislation, if passed would prevent predatory creditors delaying debt negotiations. Ron Kim, Assemblymember, is sponsoring the Capital Gains TaxS2522/A3352Together with Senator Rivera, ) bill. This bill would require vulture funds that they pay taxes on investment income. The Carried Interest Tax bill, which seeks to tax “the carried interest income vulture investors as traditional earned income,” is being co-sponsored by State Sen. Brad Hoylman and Assemblymember Jeffrion L. Aubry.
These bills together represent a coordinated policy effort of lawmakers to disrupt the vulture-fund playbook.
Growth or stagnation
“You can’t squeeze water from a stone,” Joseph StiglitzThe former chief economist of the World Bank and Nobel Laureate in Economics, he spoke to the crowd at the 2021 Growth Policy Summit. “If they can’t pay, they can’t pay.”
This is exactly what vulture funds did to debtors.
Asset management firms have jeopardized the long-term economic well-being of debt-ridden countries — the majority of which are located in the Global South — through ruthless litigation and lobbying. Vulture investors engage in extortion on a global scale, impeding sustainable development, draining indebted countries’ resources through endless cycles of litigation and weaponizing international debt relief processes to demand more from indebted countries, which, in turn, deepens economic stagnation.
Natalia Renta, senior strategist at the Center for Popular Democracy, said Truthout that although the focus of the organizations’ work is on New York, “international institutions [e.g., the International Monetary Fund] should be more responsive to the needs of debt-ridden countries instead of the greed of wealthy investors.”
The market-based or private contractual approachThe favoritism toward vulture funds is evident in the restructuring of sovereign debt. It is decentralized, unregulated and lacks oversight. sovereign immunity protections. The limitations mentioned above can be overcome in two ways. international economic law) or a “soft law” approach (via the quasi-judicial system) that drastically improves sovereign debt agreements by making them more equitable and efficient.
Vulture capitalism is having an impact on many places.
“We need to do more to build bridges between countries where this is happening,” López Varona said. “The suffering that happens in Puerto Rico … is not disconnected to the suffering of other places.”
Puerto Rico has lacked a “mechanism to force creditors to the negotiating table” since 1984, according to the “Pain and Profit in Sovereign Debt” report. Vulture funds have fought against the status quo. Former Gov. Alejandro García Padilla announced that Puerto Rico’s debt was “unpayable” instead of declaring bankruptcy in 2015. Under U.S. rule, Puerto Rico cannot control its economy, as it lacks access to international markets, debt reliefAnd the ability to negotiate its debt, some of which is of “questionable legality,” according to Stiglitz. Moreover, Stiglitz has made it clear that the current restructuring plan will “further weaken” the Puerto Rican economy and leave it with “an unsustainable level of debt.”
“Independence is the only way for us to be free,” Colectiva Solidaridad’s Rodriguez said. “This is a struggle that has lasted 123 years.”
Rodriguez explained that the group’s demands include independence for Puerto Rico, canceling its debt, abolishing “La Junta,” repealing the Jones Act and Act 60, and securing reparations for “heinous crimes” committed by the U.S. Rodriguez cites the following: land grab exploitation; human experimentation; mass sterilization; torture and murder.
Colectiva Solidaridad began as a group that supported mutual aid organizations in the archipelago. Since then, they have shared educational materials (in English or Spanish) about the U.S. empire and other issues on Puerto Rico via the internet. Colectiva Solidaridad, which has been able to provide support both in person and remotely during the pandemics, has teamed up with numerous independence groups in the diaspora and the mainland to take direct action. It will launch a campaign to combat La Junta’s debt and other issues in the early 2022.
To exert pressure on legislators to create a multilateral framework that either enhances or surpasses the existing contractual approach, solidarity, education and direct action are necessary. The solution is simple economics.
“If you grow very rapidly, you can repay more. But if you don’t grow, you can’t repay,” Stiglitz said at the summit. “It isn’t really in the interest of the creditors to demand too much of [indebted countries].”