Policy
NY proposed legislation takes aim at ‘vulture funds’ that profit from poor governments’ debt
After trying to pass legislation to establish a fair debt negotiation process since 2021, New York lawmakers say they’ve laid the groundwork to finally get it over the finish line.
Bronx state Sen. Gustavo Rivera, who is Puerto Rican, said he’s “looked in horror” at some of the issues plaguing Puerto Rico because of its debt. Lev Radin/Pacific Press/LightRocket via Getty Images
Like the annual Somos conference in Puerto Rico, the New York Somos conference this weekend is slated to be prime time for political schmoozing and ripe with opportunities to address issues facing the Latino community – while having some fun. Advocates and lawmakers also have plans to build enthusiasm around a bill to protect the government of Puerto Rico and governments of foreign nations from hedge funds seeking major profits from their debt during the conference.
Bronx state Sen. Gustavo Rivera, who is Puerto Rican, said he’s “looked in horror” at some of the issues plaguing Puerto Rico because of its debt. “I started asking myself: ‘How does this actually happen?’ Vulture funds in New York are directly responsible for putting this immense pressure on countries all around the world,” Rivera said. Rivera reintroduced the bill earlier this month.
According to the International Monetary Fund, 60% of low-income countries are on the brink of being unable to pay back their debts. When countries are in debt distress, they begin a debt restructuring process to try to seek relief from the governments and banks that have lent them money. The bill, sponsored by Rivera in the Senate and Assembly Member Maritza Davila, aims to protect governments with national debt from being taken advantage of by New York-based financial institutions during the restructuring process. If passed, the bill would establish a fair process for debt negotiations between governments and those financial institutions. Supporters of the bill argue the absence of regulation has resulted in “bad-faith” debt negotiations, which then propels those governments further into economic despair – especially during times of economic crisis. After Hurricane Maria devastated Puerto Rico in 2017, private hedge funds bought hundreds of millions of dollars worth of cheap debt from the U.S. territory, eventually profiting massively from the tragedy.
The bill was first introduced in 2021 but has stalled in the Banks Committees of both chambers in the last two legislative sessions. Advocates, along with Rivera, are planning to rally in Albany for the bill on Saturday during the Somos Conference. They say they’ve done the groundwork to get the bill over the finish line this session.
Julio López Varona, co-chief of campaigns for the Center for Popular Democracy, said the priority of the last legislative session was to gain support from lawmakers through education which resulted in 30 co-sponsors of the bill. As the new legislative session gets underway, advocates are prepared to take things a step further by “not only calling out the bad players of bad faith debt negotiations but also enablers.”
“The power is literally with the Legislature to improve the lives of our neighbors by making sure that negotiations when a country is in trouble, and having a debt crisis, are not being impaired by two or three actors that have too much money to be so greedy – but they still are,” Varona said.
With budget negotiations well underway, one of the challenges stumping supporters of the bill is the many other legislative priorities – including affordable housing, criminal justice reform and funding for mental health services – that may take precedence over the bill for lawmakers.
Rivera underscored that challenge while asserting his optimism the bill will be able to make it across the finish line this legislative session.“There are so many legislative priorities that folks have to deal with that are immediately impacting their constituency. It sometimes takes a little bit of time to educate folks on some of the intricacies of the bill,” Rivera said. “But, there has work done leading up to this moment to move the bill forward.”
In a statement to City & State, Davila also underscored her plans to garner support for the bill in the Assembly. “The session will be educating members about the role New York State can play in these transactions,” Davila wrote. “If we do not act, many of these countries will be pushed past the brink of collapse of their local economies.”
Advocates also point to supporting the bill as an area Hochul could use to further improve her relationship with Puerto Rico. When asked about the bill in October 2022 ahead of the annual Somos conference in Puerto Rico, a spokesperson said the governor would review “all legislation that passes both houses of the legislature” in a statement to a City & State.
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