On 9 September 2014, the United Nations General Assembly took a historic step and voted in new global rules to help deal with government debt crises.

Such rules, which would be akin to bankruptcy procedures for companies, would put an end to the scourge of ‘vulture funds’ – private equity funds which buy up the debts of a country cheaply, when it’s in crisis, then sue it for a huge profit.

The resolution was passed with unanimous support from the countries of the global South. Unfortunately, the European Union decided to abstain, while Britain and Germany joined the United States and voted against. In total, 124 countries voted in favour of ‘a multilateral legal framework for the sovereign debt restructuring processes’, with just eleven voting against.

Speaking after the vote, Ruben Zamora, the representative of El Salvador, said: ‘It is difficult for us to understand the limited number of countries who don’t want to deal with this problem. They are the same countries which imposed financial bubbles on us, which caused so much devastation across the world.’

The impetus for the global South to push for this new debt framework comes from the most recent case involving vulture funds, which has seen Argentina forced to default on its debts.

After a decade of closely following IMF-prescribed policies, in 2001, Argentina stopped paying its astronomically high debt. Following the default, two vulture funds, NML Capital (owned by US billionaire hedge-fund manager, Peter Singer) and Aurelius Capital Management, bought up some of Argentina’s debt cheaply, knowing that the South American country would be unable to pay.

Since then, Argentina has reached an agreement with 93 per cent of its creditors, paying back 30 cents to every dollar owed. However, the two vulture funds have refused to accept the agreement, and have since been suing the country for the full amount owed, plus interest and charges, which would represent a profit of over 1,000 per cent on what they initially paid ($48 million) for the debt.

Because the bonds are issued in New York, the case falls under New York jurisdiction and is being tried by US Republican Judge Thomas Griesa. He has ruled that unless the vulture funds get paid, no one else can be paid either. This means it has become illegal for US banks to process any debt payments from Argentina, forcing the country into default.

Griesa’s ruling applies to foreign-held debt as well, which means British creditors are also affected, even though US courts should have no jurisdiction in London.

A global debt-arbitration process could prevent such situations, by requiring all creditors to comply with an agreed debt restructuring.

Governments should be allowed to choose whether or not to use the process, rather than have it imposed on them. Assessments of how much debt is sustainable should be conducted by a body independent of debtors and creditors, especially avoiding the IMF, which is itself a large lender; it should also take into account the level of debt needed to provide for basic human needs. All creditors should be required to take part in any debt reduction process, including the IMF, the World Bank and governments, as well as the private sector.

In theory, the British government should be supporting such global rules. The Liberal Democrats have pledged to ‘lead international calls for the creation of a fully transparent international debt arbitration service’, but their silence in government has been deafening.

The 2010 coalition agreement committed the government to ‘review what action can be taken against vulture funds’; instead, they have now actively sought to block the action. On the other hand, over 100 backbench British MPs have recently publicly supported creating ‘a fair, independent and transparent arbitration mechanism for sovereign debt’.

Still, Conservative MP George Osborne and Liberal Democrat MP Danny Alexander collectively decided that Britain should try to block the resolution. While people across the world would benefit from a sensible and fair way to resolve government debt crises, vulture funds and other financial speculators would lose out. Once again, the current British government has sided with the wishes of big finance rather than the public interest.

The British government has yet to publicly admit why it voted this way.

The US has been more forthcoming, saying that it believes the market should be left to make its own rules, and that the right venue for discussions on debt is the IMF, rather than the UN. With a vastly disproportionate share of the votes, the US and UK want to keep economic discussions where they can control them.

The government of Jamaica responded to the US, saying: ‘The UN General Assembly is the appropriate forum for these discussions. Market-based remedies should be complemented by international mechanisms which are underwritten by law.’

The UN resolution requires a decision by the end of the year on what form a debt-resolution mechanism should take. While establishing a debt-arbitration mechanism will most realistically happen if Britain, other European countries and the US engage with the process, it is possible the global South could create its own.

María Cristina Perceval, Argentina’s UN representative, said after the vote: ‘We will not give in to the scepticism and indifference of the wealthy. The peoples of the world have spoken.’

Tim Jones is policy officer at Jubilee Debt Campaign.

Take action: Please email your MP and urge them to ask the British government why it didn't vote against the vulture funds, and whether it will now constructively engage in the UN process.