IFI Law - Book Chapter 4

Question 1

According to international law, what constitutes the legal personality of the IMF and WBG?

Answer 1

The legal personality of the IMF and WBG is defined by their founding treaties, giving them the capacity to contract, acquire and dispose of property, and institute legal proceedings.

Question 2

What is the significance of the legal personality of the IMF and WBG?

Answer 2

The legal personality grants these institutions an independent existence from their member states, and their powers and responsibilities are determined primarily by the terms of their founding treaties, which take precedence over general international law.

Question 3

What capacity does the IBRD possess according to its Articles of Agreement?

Answer 3

The IBRD possesses full juridical personality, including the capacity to contract, acquire and dispose of property, and institute legal proceedings (Article VII Section 2 of the IBRD Articles).

Question 4

IFIs are creations of international law and their powers, rights, and obligations arise from applicable international law. What does that mean?

Answer 4

Pursuant to Article 38 of the Statute of the ICJ, it can be understood to consist of any treaties to which the organizations are signatories, the principles of customary international law, and general principles of law.

Question 5

In what case did the ICJ hold that inter-state organizations created by treaty are subjects of international law?

Answer 5

Reparations case 1949.

Question 6

IFIs’ founding treaties are lex specialis. What does that mean?

Answer 6

They take precedence over any general international law instruments and principles that may be inconsistent with them.

Question 7

What is the explicit prohibition stated in the IBRD Articles regarding political interference?

Answer 7

Article IV(10) of the IBRD Articles explicitly prohibits the Bank and its officers from interfering in the political affairs of any member. Their decisions regarding financing or services should only be influenced by economic considerations, not the political character of the member states.

Question 8

How do member states limit interactions between the World Bank Group (WBG) and a member state, and what is the usual designated contact point?

Answer 8

Member states limit interactions by requiring each state to designate a government actor, typically the Ministry of Finance, as the contact point for all interactions between the WBG and the member state. This designation does not prevent other interactions but is expected to be the primary point of contact.

Question 9

How does the IBRD ensure loyalty of its employees?

Answer 9

IBRD Articles. The President, officers and staff of the Bank, in the discharge of their offices, owe their duty entirely to the Bank and to no other authority. That includes Executive Directors.

Question 10

How is the duty of loyalty and responsibility of Executive Directors in the WBG defined in relation to the organization and member states?

Answer 10

Executive Directors in the WBG have a duty of loyalty to the organization, expected to act in its best interests, but are also appointed by member states and have a responsibility to represent and consult with those member states on the board. The Articles do not provide guidance on balancing these responsibilities.

Question 11

How does the IMF’s Articles of Agreement address the organization’s approach to the domestic social and political policies of its member states?

Answer 11

The IMF’s Articles of Agreement, specifically Article IV(3)(b), stipulate that the IMF, in its surveillance of member states, should respect the domestic social and political policies of members, paying due regard to their circumstances. The IMF has historically interpreted this provision as being more or less equivalent to a political prohibition in the articles of tie IBRD.

Question 12

How do the articles of the IMF push the organization to pay attention to the policy-making capacities and decisions of member states seeking its financial support?

Answer 12

The IMF Articles, particularly in Article V Section 3, direct the organization to consider the policy-making capacities and decisions of member states seeking financial support. This is basically the IMF’s due diligence obligation.

It requires the IMF to ensure that the provided financing assists members in solving their balance of payments problems in a manner consistent with the Articles and establishes adequate safeguards for the temporary use of the Fund’s general resources. This implies an assessment of whether a member state’s proposed policies are likely to lead to a resolution of the balance of payments problem and enable timely repayment to the IMF.

Question 13

How did the International Court of Justice (ICJ) contribute to the interpretation of the powers of international organizations?

Answer 13

The ICJ, in its advisory opinion interpreting the agreement between the World Health Organization (WHO) and Egypt, endorsed a functional view of the powers of international organizations. The Court stated that international organizations possess both express powers outlined in their founding treaties and additional implied powers necessary to fulfill their mandates. This perspective is in line with Article 31(1) of the Vienna Convention, which emphasizes interpreting treaties in light of their object and purpose, known as a teleological approach.

Question 14

Why do international organizations, such as the World Bank Group, require immunity?

Answer 14

International organizations require immunity to ensure they can conduct their operations freely on the territories of member states without interference. This immunity includes protection from prescriptive jurisdiction, lawsuits in member states’ courts, inviolability of premises and records, immunity from taxation, and immunity for personnel within the scope of their responsibilities.

Immunity is usually outlined in the organization’s founding treaties, bilateral treaties with host states, and, for UN specialized agencies, recognized in specific conventions.

Question 15

How does the immunity of the International Monetary Fund (IMF) differ from that of the International Bank for Reconstruction and Development (IBRD)?

Answer 15

The IMF, relying on resources from member states, enjoys absolute immunity unless expressly waived. In contrast, the IBRD, which raises funds from financial markets, waives its immunity for certain purposes, such as attracting investors, and appoints agents for service of process in member states. This difference reflects the distinct financing models of the IMF and the IBRD.

Question 16

Which act grants IFIs immunity in the US?

Answer 16

Immunity of International Organizations Act

Question 17

Why do the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) have different immunity provisions?

Answer 17

The different immunity provisions for the IMF and IBRD are based on their distinct financing models. The IMF, relying on member states’ resources, has absolute immunity unless expressly waived, as it wasn’t expected to raise funds on private financial markets. In contrast, the IBRD, financing its operations through commercial financial markets, waives its immunity to attract investors and appoints an agent for service of process in member states, aligning itself with other issuers of bonds. This illustrates the functional approach to interpreting the powers and capacities of international organizations.

Question 18

What role do UN Security Council resolutions play in the operations of International Financial Institutions (IFIs) such as the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD)?

Answer 18

IFIs, recognizing the authority of UN Security Council resolutions under Chapter VII of the UN Charter, acknowledge that they must defer to and comply with these resolutions. Even without this explicit requirement, the de facto compliance is expected since each member of their Board of Executive Directors would be bound by their home state’s obligation to adhere to relevant resolutions when voting on the IFI board.

Question 19

What is an example of the International Bank for Reconstruction and Development’s (IBRD) capacity to conclude international agreements, and what are the implications of this capacity?

Answer 19

An example is the loan agreements of the IBRD. Its Articles specify that it can only lend to its member states or with the guarantee of its member states.

Therefore, every IBRD loan transaction involves a treaty, either a loan agreement or a guarantee agreement, between a sovereign state and an international organization. These agreements must be registered with the UN, are publicly available, and require the process of ratification in member states.

This principle does not apply to the International Finance Corporation (IFC) since its mandate is to lend to the private sector.

Question 20

How does the International Monetary Fund (IMF) differentiate its standby arrangements from international agreements, and what are the implications of this distinction?

Answer 20

The IMF maintains that its standby arrangements are not contractual in nature and, therefore, do not qualify as international agreements. As a result, they are not required to be registered with the UN and are not obligated to be made publicly available, although states have the option to do so on their own initiative.

This distinction applies to IMF financing facilities using the organization’s general resources. However, financing from other sources, such as the concessional financing provided by the Poverty Reduction and Growth Trust, may be in contractual form, making it an international agreement between a sovereign state and an international organization, possibly requiring registration with the UN.

Question 21

How does the status of international organizations as subjects of international law impact their relationship with customary international law?

Answer 21

International organizations, being subjects of international law, are bound by customary international law. However, due to the specialized functions of each International Financial Institution (IFI), it may be unclear which specific customary international law principles apply. The content of customary international law is often unclear, and the provisions of an IFI’s founding treaty, as lex specialis, can potentially override customary international law principles. An exception to this is the binding nature of jus cogens principles on IFIs.

Question 22

What are the customary international law principles that are generally applicable to the operations of International Financial Institutions (IFIs)?

Answer 22

Good faith: Requires parties to international agreements, including IFIs, to act honestly and with sincerity in their dealings.
Pacta sunt servanda: Mandates the fulfillment of treaty obligations in good faith; agreements must be performed as promised.
Clausula rebus sic stantibus: Allows a party to be released from a treaty obligation if there is a fundamental change in circumstances; treaties are binding only as long as the conditions under which they were made remain unchanged.
Respect for state sovereignty: Acknowledges the importance of recognizing and not unduly interfering with the sovereign prerogatives of member states in the operations of IFIs.

Question 23

Can International Financial Institutions (IFIs) create customary international law, and what are the conditions for doing so?

Answer 23

Yes, IFIs can potentially create customary international law if their actions demonstrate both consistent practice and opinio juris—general acceptance as obligatory. These principles may apply either specifically to the IFIs or more broadly.

Question 24

What are the environmental and social safeguard policies in the World Bank Group (WBG) and how do they impact project assessments?

Answer 24

The WBG has environmental and social safeguard policies that guide the scope of ex ante impact assessments for projects, influencing project proposals, financing terms, and project implementation, reflecting a common practice among multilateral development banks and potentially establishing a customary international law principle.

Question 25

Does the IMF conduct environmental and social impact assessments for its operations?

Answer 25

No, historically as a standard practice, the IMF does not conduct impact assessments, arguing that it is not a project lender. However, it has expressed a growing recognition of the need to address environmental and social issues in its operations, suggesting a potential shift in its approach in the future.

Question 26

Are IFIs signatories to any human rights treaties?

Answer 26

No.

Question 27

What international document requires the IFIs to encourage respect for human rights?

Answer 27

The Universal Declaration of Human Rights (UDHR) requires the IFIs, as “organs of society,” to encourage respect for human rights.

Question 28

Is the Universal Declaration of Human Rights a treaty, and what status does it have in international law?

Answer 28

The UDHR is not a treaty but a declaration. While it does not directly impose obligations, its status has grown, and some contend its contents have achieved the status of customary international law.

Question 29

What is one principle from the Universal Declaration of Human Rights that has acquired customary international law status?

Answer 29

The right of access to an effective remedy in cases of harm is one principle from the UDHR that has acquired customary international law status.

Question 30

What is the key requirement for compliance with the standard of law regarding an effective remedy for harm caused by IFIs?

Answer 30

The key requirement is that IFIs should offer all parties claiming harm an effective remedy, providing an opportunity to address their claims, ideally involving a hearing, and resulting in appropriate relief.

Question 31

What is the minimum requirement for an effective remedy according to customary international law?

Answer 31

At a minimum, an effective remedy involves providing stakeholders with an opportunity to address their claims, ideally through a hearing, and obtaining relief if appropriate.

Question 32

What are some forms of relief that an effective remedy, according to customary international law, may involve?

Answer 32

An effective remedy may involve

stopping the offending conduct,
acknowledging the harm suffered,
holding perpetrators accountable,
awarding compensation,

or a combination of these forms of relief.

Question 33

Who are the various stakeholders of IFIs that need to be considered in terms of the effective remedy for harm?

Answer 33

The stakeholders include member states, staff and management, contractors, investors, and individuals/communities affected by IFIs’ operations.

Question 34

How does an effective remedy for harm differ for each category of IFI stakeholders?

Answer 34

The effective remedy may vary for each stakeholder but should, at a minimum, provide an opportunity to address claims, ideally through a hearing, and result in appropriate relief.

Question 35

What rights do member states have in holding IFIs accountable, according to the text?

Answer 35

Member states have representation on the Board of Governors and Board of Executive Directors, channels to raise concerns, rights pursuant to the Articles of Agreement (e.g., right to withdraw in serious disputes), and, in the case of the WBG, contractual rights in loan or credit transactions.

Question 36

In case of disputes with the WBG, what contractual rights do member states typically have?

Answer 36

In most loan or credit agreements with the WBG, member states have an arbitration clause that they can invoke to resolve disputes regarding the particular transaction.

Question 37

How does the IMF handle disputes with member states regarding its standard financial arrangements?

Answer 37

The IMF, in the case of standard financial arrangements financed from its general resources, maintains that it does not have a contractual arrangement with member states. Disputes can lead to the member state declining the financing, with no legal consequences for the IMF.

Question 38

How do IFIs handle disputes in contracts for goods and services, given their immunity from suit?

Answer 38

IFIs include arbitration clauses in their agreements for goods and services, providing an alternate forum for dispute resolution. However, negotiation is often preferred over arbitration.

Question 39

How is the situation different for WBG bondholders in terms of holding the WBG accountable for non-performance of contractual obligations?

Answer 39

The Articles of the WBG allow entities to waive immunity, enabling bondholders to sue in a court of competent jurisdiction to enforce contractual rights. Bondholders are treated like any other debtor in the financial market.

Question 40

How does the WBG address the accountability gap for individuals and communities harmed by the failure to comply with its policies?

Answer 40

The WBG has established independent accountability mechanisms authorized to accept and investigate complaints from affected communities. These mechanisms are authorized to accept and investigate complaints from communities and groups of individuals who claim they have been harmed by the failure of WBG staff and management to comply with the institution’s operational policies and procedures. Based on these investigations, the mechanisms submit reports to the Board with their findings on compliance/non-compliance.

Question 41

Why is it challenging for individuals and communities harmed by the IMF’s financing to hold the IMF accountable?

Answer 41

The IMF, providing general budgetary support rather than project loans, lacks detailed operational policies like the WBG. This makes it difficult for affected parties to identify standards and establish a clear causal link between IMF financing and adverse effects, making accountability challenging.