After Hurricane Maria destroyed Puerto Rico’s infrastructure in 2017, several high-risk hedge funds bought up much of the country’s assets.

According to reporting by The Intercept, “Not counting pension obligations, Puerto Rico is estimated to be saddled with about $74 billion total in municipal debt.”

The investment funds that make money from financially-distressed economies are commonly called vulture funds. While a boon for investors, according to Assembly Member Jessica González-Rojas, their success comes at the expense of the economies they are buying into at bargain basement prices.

To address the issue, she and Senator Liz Krueger have introduced legislation to limit the purchasing of securities for use in litigation (A5290/S5623).

“What we’ve seen is after these vulture funds purchase all this debt, they go to these countries and force repayment (though litigation),” González-Rojas explained.

In order to repay their debt obligations to these funds, countries, including Puerto Rico, have had to implement austerity measures, stunting its economy.

“We’ve seen public universities defunded, particularly in Puerto Rico. We’ve seen social services slashed. We’ve seen health care facilities shut down and we’ve seen pensions cut. And it’s happened not just in Puerto Rico, but in places like Venezuela, Ecuador, Peru,” said González-Rojas. “Often, we wonder why there’s a migrant crisis. We’ve allowed Wall Street to destabilize these economies.”

Most of this sovereign debt is governed by New York Law, because much of the financial industry is located here. The bill introduced by González-Rojas would prohibit the practice of purchasing securities and financial instruments for the sole purchase of suing to get that money back.

“What they (vulture funds) do is purchase the debt and then they sue the territory or nation for repayment. The current loophole that exists exempts transactions over $500,000. Obviously, these debts are billions of dollars. So, my bill would eliminate that loophole,” the Assembly member explained.

The loophole cited was created in the 1990s by New York lawmakers after being heavily lobbied by an influential hedge fund manager.

The bill goes hand-in-glove with another bill (A2970/S4747) that would impose strict regulations on New York state’s investments in foreign entities, sponsored by Senator Brad Hoylman-Sigal and Assembly Member Pat Fahy. The legislative session is scheduled to wrap up next week.

“The bills on sovereign debt regulation illustrate why Albany should stay out of international finance — the bills do not do what the legislators believe and would damage the access to credit of the countries they want to help," said Kathryn Wylde, president and CEO of the Partnership for New York City. "The legislation is so poorly crafted that it impacts all institutions that manage or invest in sovereign debt, banks, asset managers, pension funds, etc— it is not targeted to vulture funds. In other words, the bills are not helpful to any cause but could disrupt the sovereign debt market and move that investment activity out of New York, which I don’t think is deliberate on anyone's part.”