Financing the Right to Health: How New York Law Aids Global Health Injustice

*Editor's note: This blog is the third in a series addressing the global debt crisis. Read the first and second.

At Partners In Health (PIH), providing a preferential option for the poor in healthcare means working to support the equal dignity of all people everywhere, which requires understanding the social and power dynamics that produce poor health. For PIH Co-Founder Dr. Paul Farmer, respecting, protecting, and fulfilling the right to health required “a searching analysis of the systemic drivers of deprivations of dignity," from colonialism to unfair economic ordering.

Excessive burdens of sovereign debt, or the money countries borrow from a variety of sources, is a crippling factor that prevents many low- and middle-income countries from investing in public services, like health care, education, and infrastructure.  

Nearly 50 developing countries with around 3.3 billion people currently spend more on interest payments alone than on either education or health, according to a report by United Nations Trade and Development.

While the Global North touts an annual aid budget of $2 trillion to support the Global South, they annually extract around $5 trillion from those same countries, meaning there's an estimated $3 trillion of net financial flows from the Global South to Global North each year, and debt is a huge part of this. This large imbalance means that poorer countries are developing richer countries rather than the other way around.

“[Sovereign debt] is perhaps the most important component right now given the context of the larger global debt crisis, but it's only one element of public spending,” said Joel Curtain, PIH senior director of advocacy. “Other elements take the form of unjust financial arrangements that facilitate exorbitant interest payments on debts, tax evasion, illicit money transfers, and unjust trade rules designed to benefit Global North countries that enable them access to artificially cheapened labor and resources in the Global South.”

As PIH takes a holistic approach to addressing barriers to comprehensive health financing, the Advocacy Team is moving to ease this unjust and lopsided burden of debt.

Welcome to New York

New York State’s legal system is a big part of the sovereign debt problem. The state's current legislation allows abuse by holdout creditors—creditors who refuse to participate in restructuring deals in the hopes of obtaining a better deal than other creditors. At their worst, these creditors purchase the debt at cheap rates and sue for full collection, plus interest. Funds that use this holdout tactic are called vulture funds. One such vulture fund is responsible for creating a legal precedent that helps enable this behavior in New York.  

In 1996, Elliott Associates, a United States-based hedge fund, bought approximately $20 million of Peruvian debt for $11 million and immediately sued Peru in New York courts for full collection of the debt, plus interest. In 1998, the Southern District of New York U.S. District Court issued a judgement in favor of Peru, ruling that the conduct violated a specific part of New York law called the Champerty Doctrine, which states that one cannot buy claims, like debt, for the purpose of suing on them.  

Shortly after the initial court case, the company appealed the decision, and in 1999, received a ruling in their favor.

“The courts effectively decided that because it couldn’t be proven that the sole intent of purchasing the debt was to sue, these types of lawsuits can be allowed so long as the primary purpose is to collect payment—even if there was never an expectation that full payment could be provided,” explained Chloe Dahleen, PIH’s advocacy specialist.

Elliott also successfully obtained a court order that would ensure Peru would have to first pay them and the other vulture funds that had sued for full collection, before paying its other bondholders who agreed to participate in a debt restructuring deal. This tactic has since been used repeatedly to extract profit from poor countries.  

Vulture funds then spent several years lobbying in New York to officially change the Champerty Doctrine, and in 2004, the New York Legislature adopted a loophole that allowed any purchase of debt over $500,000 to be excluded from the purview of the law—a loophole that still exists today.

The IMF estimates that in some cases, claims by vulture funds constitute as much as 12 to 13% of a country’s GDP. In 2015, the World Bank estimated that nearly one-third of countries that were eligible for debt relief and other poverty alleviation programs were the targets of nearly 26 vulture funds.  

Now, you may be asking why vulture funds are targeting these countries that are already burdened by debt and suffering from poverty. Well, unfortunately, it works. Vulture funds have averaged recovery rates of about 3 to 20 times their investment, equivalent to returns of 300%-2000%. They also routinely get 20% better terms than official and multilateral creditors during restructuring deals.  

It’s all completely legal, and is also a key reason low- and middle-income countries have less money to invest in public services, like health care, for their people.

PIH Advocacy’s Legislative Campaign

Over half of all sovereign debt bonds, or a total of approximately $870 billion, are governed by New York state laws. The PIH Advocacy Team has been involved in supporting the push for legislation to help countries that are suffering due to unjust—and immoral—debt payments.  

PIH helped convene experts, legislators, and advocates to push for the strongest possible legislative proposals in New York State that would curtail vulture funds’ attempts to extract profit through sovereign debt restructuring. These efforts are generating global attention to the problem of debt restructuring, and comparable legislation has been introduced in the United Kingdom parliament.  

Eliminating legal loopholes for vulture funds will reduce expensive legal battles, eliminate unfair payouts, and help streamline the restructuring process, freeing up millions of dollars for indebted countries. By convening experts and advocate groups, and participating in coalitions with other global organizations, PIH hopes to turn the tide for countries crippled by the debt crisis—including the ones where our patients live and receive care.  

In June 2024, one of the bills PIH had been advocating for passed the New York Senate.

“This was the first time since 2011 that any legislative body in a high-income country passed legislation to address the growing sovereign debt crisis in any meaningful way,” Dahleen said. “This was not just a groundbreaking moment for us at PIH and for New York, but a groundbreaking moment for the world.”

Impact on PIH Patients

The PIH Advocacy Team knows that what happens in New York’s legal system has a direct impact on our staff around the world and the patients we serve. Nearly every country where PIH works is suffering from a lack of public funding for health care, in large part due to their astronomical debt payments.

Currently, in the countries where PIH works:

• Sierra Leone and Haiti spend over twice as much public money on servicing debt than on funding health care.
• Health investment is approximately 6% of Peru’s GDP, while external public debt amounts to 17%, including 13% owed to private creditors.
• In Lesotho, Haiti, and Mexico, annual debt payments outstrip health budgets.  
• Debt payments are more than four times the health budget in Malawi and around one and a half times in Liberia.

In Sierra Leone, the 2024 national budget notes that “debt service payments account for an average of 25 percent of domestic revenues, thereby reducing the resources available for spending on Government priority programmes.”

“[Sierra Leone’s] 2024 budget reduced their health spending from about 12% to 7%,” Curtain said. “And they noted that this was due to large debt service payments in their budget. We know that health budgets are dwindling as a consequence, but for them to say it explicitly makes it very clear that it has to be imperative for us to stop this behavior and increase health spending as a result.”

Stay tuned for the last part of this series, which will examine how global debt affects Malawi's ability to fund its public health care system.