IFI Law - Reading 1

Question 1

Why could it be argued that IFIs (IMF and World Bank) exercise enormous power over the workings of the international financial system?

Answer 1

Half the world’s population and two-thirds of its governments are bound by the policies they prescribe.

Question 2

What is the ‘tension’ within IFIs in regard to politics?

Answer 2

The tension is between the concern of IOs to preserve their autonomy and the attempts of states, especially powerful ones, to further their own interests through the IOs.

Question 3

What controversies are generated by IFI policies?

Answer 3

The politics of IFIs are significantly shaped by immense controversies generated by the impact of IFI policies on developing states and the attitudes of IFIs towards human rights and environmental issues.

Question 4

How do IOs differ from states in regard to international law? What are their constituent documents?

Answer 4

IOs are creations of international law. Their constituent documents are their articles of agreement.

Question 5

What was the broad purpose of creating the World Bank and the IMF in 1944 at the Bretton Woods Conference?

Answer 5

The broad purpose was to coordinate and manage international monetary and financial matters.

Question 6

What distinctive but complementary functions were the World Bank and the IMF constituted to perform?

Answer 6

The World Bank was tasked with assisting in the reconstruction and development of territories, promoting private foreign investment, and encouraging the long-range balanced growth of international trade. The IMF, on the other hand, was to promote international monetary cooperation, facilitate the expansion and balanced growth of international trade, maintain orderly exchange arrangements among members, and provide short-term financial assistance to member states facing transitory monetary problems.

Question 6

What was the primary role of the World Bank in terms of financing?

Answer 6

The World Bank was intended to provide long-term financing for development projects.

Question 6

The IFIs are creations of international law, specifically what?

Answer 6

International treaty law.

Question 6

What was the expected role of the IMF in providing financial assistance to member states?

Answer 6

The IMF was expected to provide short-term financial assistance to member states facing transitory monetary problems, such as those related to balance of payments issues.

Question 7

Articles of agreement are the constituent documents of IFIs. What two aspects follow from these articles?

Answer 7

It provides them with an independent legal character and a system of governance.

Question 8

Where can the law governing the IFIs be found in broad terms?

Answer 8

In two distinct realms: first, in the articles of agreement, and second, in the larger universe of international law that creates the environment in which these international institutions operate.

Question 9

Apart from the articles of agreement, what is included in the larger universe of international law governing the IFIs?

Answer 9

The larger universe of international law includes other bodies of international law, such as international human rights law and international environmental law, which are connected in complex ways with the law directly applicable to the IFIs.

Question 10

What role do the articles of agreement play in the governance of the IFIs?

Answer 10

The articles of agreement outline the functions of the institutions, provide them with specific powers to perform those functions, and establish the governance structure of the IFIs.

Question 11

What is the basic governance structure of the World Bank and the IMF?

Answer 11

Both institutions have a president (World Bank) or managing director (IMF), and their powers are vested in a board of governors. The day-to-day running is entrusted to executive directors.

Question 12

Who administers the day-to-day operations of the World Bank?

Answer 12

The day-to-day running of the World Bank is entrusted to the executive directors of the Bank.

Question 13

What system of voting do the World Bank and the IMF use?

Answer 13

Both institutions use a weighted voting system based on contributions made by the member countries.

Question 14

How is the governance structure of the World Bank and the IMF similar?

Answer 14

Both institutions have a president or managing director and a board of governors, with executive directors responsible for day-to-day operations. They also use a weighted voting system based on member contributions.

Question 15

What are the World Bank and the IMF considered in relation to the WHO and ILO?

Answer 15

The World Bank and the IMF are considered specialized agencies, like the World Health Organization (WHO) and the International Labour Organization (ILO).

Question 16

How are the World Bank and the IMF treated differently from other international organizations?

Answer 16

The relationship agreements between the IFIs and the UN suggest that the World Bank and the IMF are effectively immune from control by the United Nations. They are treated as independent international organizations with special responsibilities.

Question 17

Are the IMF and the World Bank bound by decisions of the Security Council?

Answer 17

Unlike states, the IFIs are not legally bound by decisions made by the Security Council. Rather, they are required, in the conduct of their activities, to have ‘due regard for decisions of the Security Council’.

Agreement between the United Nations and the International Bank for Reconstruction and Development, United Nations Treaty Series 16 (1948); and Agreement between
the United Nations and the International Monetary Fund, Article VI.

The relationship agreements between other specialised agencies such as the WHO and the UN make no reference to the effect of Security Council decisions on the agency.

Question 18

How are the World Bank and the IMF protected against political interference?

Answer 18

The World Bank is protected against political interference by being prohibited from engaging in any political activity, and its officers are not allowed to interfere in the political affairs of any member. The IMF Articles of Agreement lack an explicit prohibition but are generally interpreted to prevent political interference.

Question 19

What explicit prohibition does the World Bank have regarding political interference?

Answer 19

The Bank and its officers shall not interfere in the political affairs of any member, and their decisions should be based solely on economic considerations.

Question 20

Who concluded that the IMF cannot interfere in the political affairs of a member state?

Answer 20

Sir Joseph Gold, the distinguished former General Counsel of the Fund, concluded that the IMF cannot interfere in the political affairs of a member state.

Question 21

What criteria should the IMF base its policies on, according to interpretations?

Answer 21

The IMF should base its policies solely on economic criteria, without interference in the political affairs of a member state.

Question 22

How did the British and the US attempt to control the Bretton Woods Institutions?

Answer 22

The British and the US agreed on a weighted voting system to control the Bretton Woods Institutions.

Question 23

What did the British emphasize in terms of the governance structure of the IFIs?

Answer 23

The British wanted the IFIs to operate on the basis of strictly technical and objective considerations, aiming for a governing structure doing a technical job and developing a sense of corporate responsibility to all members.

Question 24

What provision in the Articles of Agreement of the World Bank aims to prevent their politicization from within? How does this provision contribute to the independence of the World Bank? What is the conflict contained within?

Answer 24

The provision requiring officers, such as executive directors, to exercise their voting power according to the Articles of Agreement of the Bank. It mandates that officers follow the institution’s rules when making decisions, fostering the appearance of adherence to technical and objective considerations. However, challenges may arise due to the appointment of these officers by member states.

Question 25

How have the functions of the IMF and the Bank evolved since their creation?

Answer 25

The functions of the IMF and the Bank have evolved dramatically over the fifty years since their establishment. The IMF, initially created for managing monetary stability, has transformed into a major lending institution. The Bank, originally intended for post-World War II reconstruction, has become the principal development institution with jurisdiction over various areas of domestic policy. It is clear now that both IFIs have in effect become managers of economic policies of the developing countries

Question 26

What are Structural Adjustment Programs (SAPs)?

Answer 26

Structural Adjustment Programs (SAPs) are economic policies imposed by international financial institutions (IFIs) on developing countries seeking assistance. These programs typically involve reducing government spending, liberalizing the economy, privatizing state-owned enterprises, and devaluing the currency. They aim to enhance efficiency, promote economic growth, and increase resilience to economic shocks.

Question 27

What criticisms have been raised against SAPs?

Answer 27

Critics argue that SAPs are designed with little consideration for the specific needs of individual countries, employing a one-size-fits-all approach. The implementation of SAPs has been associated with negative consequences, including detrimental effects on health services, increased food and fuel prices, and heightened unemployment. Protests, often referred to as “IMF riots,” have occurred in countries where these programs were implemented. Critics further assert that the economic programs prescribed by IFIs primarily serve the interests of advanced industrialized nations, exacerbating the debt crisis in developing countries and prioritizing foreign creditors over the needs of the local populations.

Question 28

What criticisms have human rights and environmental lawyers raised against IFI policies?

Answer 28

Human rights and environmental lawyers argue that IFI policies, particularly Structural Adjustment Programs (SAPs), are indifferent or hostile to human rights and environmental concerns. Many African countries that implemented these policies are now worse off, deeper in debt, and prioritize debt repayment over providing essential welfare services. Critics contend that IFIs, such as the World Bank, have sponsored large infrastructure projects leading to significant environmental damage and the forced resettlement of thousands of people.

Question 29

What is one example of criticism regarding the World Bank’s lending policies based solely on economic criteria?

Answer 29

In the 1960s, the World Bank made loans to both South Africa and Portugal despite their authoritarian and racist policies. The Bank justified its position by relying on Article IV.10, which prohibited interference in the internal political affairs of a state. This example led human rights advocates and lawyers to argue that IFIs should consider human rights when making lending decisions.

Question 30

What criticism arose in relation to the IMF’s handling of the Asian crisis?

Answer 30

The IMF’s handling of the Asian crisis gave rise to criticism for applying economic disciplines to powerful Asian economies like Korea and Thailand. Despite the desperate need for assistance, the IFIs offered help only under the condition that the recipient states met specific economic goals and implemented prescribed economic and institutional reforms. This approach, known as ‘conditionality,’ has been criticized for profoundly shaping the internal and external policies of the recipient state and expanding over time at the behest of creditor countries.

Question 31

What demands did the IMF make from Korea during the Asian crisis?

Answer 31

The IMF demanded a fundamental reorientation of Korea’s economy, involving higher taxes and interest rates, reduced spending, and a contractionary macro-economic policy.

Question 32

What are the major allegations against the IFIs?

Answer 32

Being run in the interests of the most powerful states.
Ignoring obligations of international human rights and environmental law.
Expanding their functions well beyond legally prescribed limits.
Interfering dramatically in the internal affairs of recipient states.

Question 33

What challenges do the IFIs confront?

Answer 33

Seeking to play an important role in contemporary international relations.
Maintaining independence despite the demands of powerful members.
Responding to changes in the international system and evolving norms of international law.

Question 34

How does the United States interact with the IFIs, according to Wade?

Answer 34

The United States seeks to control the IFIs to pursue its national interests, but it needs to maintain the appearance of the organizations acting according to rules decided by collective member governments to preserve their legitimacy of multilateralism.

Question 35

How do officials of the IFIs perceive their role, as mentioned in the text?

Answer 35

Officials of the IFIs see themselves as international civil servants furthering the cause of the international community, rather than merely acting as a cover for the policies of hegemonic powers.

Question 36

How has the Bank responded to criticisms regarding its international legitimacy and the governance of its operations?

Answer 36

In response to criticisms, especially after the South African episode, the Bank has recognized that its international legitimacy would be undermined if its operations were strictly governed only by its articles of agreement. It has sought to incorporate new international norms within its operations, arguing that this is permitted by the articles.

Question 37

How does the Bank justify its ability to consider human rights issues in its decisions, despite not being formally bound by human rights law?

Answer 37

The Bank justifies its ability to consider human rights issues by asserting that it can properly take such issues into account when they affect ‘development,’ as the promotion of development is one of the Bank’s central purposes. This argument allows the Bank to include anything impinging on ‘development’ in its deliberations, theoretically retaining independence from political considerations.

Question 38

What is the stance of Ibrahim Shihata, the Bank’s General Counsel, regarding the influence of political factors on the Bank’s decisions?

Answer 38

Ibrahim Shihata argues that the Bank should not allow political factors or events to influence its decisions unless it is established that they have direct and obvious economic effects relevant to the World Bank. Shihata emphasizes the Bank’s commitment to avoiding interference with the internal political affairs of a state.

Question 39

How does the Bank address the incorporation of environmental factors into its decision-making process?

Answer 39

The Bank contends that, since the emergence of environmental law and the concept of ‘sustainable development,’ environmental protection has become intricately linked with development concerns. Therefore, it is legitimate for the Bank to take environmental factors into account when making decisions.

Question 40

How does the Bank maintain its fundamental premise of being bound strictly by its articles of agreement while accommodating human rights and environmental considerations in its operations?

Answer 40

The Bank formulates a technique of appearing to accommodate human rights and environmental considerations by asserting its ability to consider issues that affect ‘development.’ This approach allows the Bank to address these concerns without departing from the fundamental premise that it is bound strictly by its articles of agreement.

Question 41

Under what framework have the IFIs engaged in law reform in recipient countries, and what principles have they emphasized during this process?

Answer 41

The IFIs have been involved in law reform in recipient countries under the framework of ‘technical assistance.’ During this engagement, they have stressed the importance of the ‘rule of law’ and ‘good governance’ as essential elements for achieving development and economic stability.

Question 42

How has the concept of ‘good governance’ been utilized by the Bank to justify its actions and expand its range of operations?

Answer 42

The concept of ‘good governance’ has been powerfully deployed by the Bank to legitimize its actions and broaden its scope of operations. This term, now prevalent in international law and international relations scholarship, is ambiguous enough to support various initiatives and strategies.

Question 43

What is the association between ‘good governance’ and international human rights law according to the text?

Answer 43

In terms of international human rights law, ‘good governance’ is associated with the creation of a system of government that is accountable and transparent. It involves a government supported by a vibrant and effective civil society, along with democratic institutions that uphold and promote the rule of law.

Question 44

When did the Bank first introduce the concept of governance, and in what context was it initially articulated?

Answer 44

The Bank first introduced the concept of governance in a 1989 study of Sub-Saharan Africa. This introduction occurred when the Bank sought to account for the poor development record of many recipient African countries, attributing it to the lack of good governance in those countries.

Question 45

How did the Bank use the concept of ‘good governance’ to address criticism of its development record in African countries?

Answer 45

When confronted with criticism of the dismal development record of many recipient African countries (and, by implication, its own record), the Bank argued that the problem could be attributed to the lack of good governance in those countries. This allowed the Bank to counter arguments by economists who claimed that its prescribed policies had exacerbated poverty.

Question 46

According to the Bank, what was the primary cause of the violation of economic and social rights resulting from the intensification of poverty in recipient countries?

Answer 46

The Bank attributed the violation of economic and social rights, stemming from the intensification of poverty, to the lack of governance in recipient countries. The Bank asserted that the causes of failure were to be located at the local level rather than the international level, thereby deflecting responsibility from itself.

Question 47

What new target did the shift to governance suggest for International Financial Institutions (IFIs) management, and how did it influence their policies?

Answer 47

The shift to governance suggested a new target for IFI management. Instead of solely focusing on economic factors, IFIs began asserting that economic success depended on good governance and the political system of a country. This allowed them to justify new initiatives explicitly aimed at reforming the political institutions of recipient states.

Question 48

How has the Bank’s governance campaign focused on reforming the political institutions of recipient states?

Answer 48

The Bank’s governance campaign has focused on creating a system of government that is accountable, transparent, and democratic. Initiatives include reforms in judiciaries, enhancing participation in decision-making, formulating environmental policy, restructuring the public service and governmental auditing functions, and strengthening the role and effectiveness of the press.

Question 49

Instead of being seen as violating human rights, how do International Financial Institutions (IFIs) present themselves through their engagement with governance issues?

Answer 49

Through their engagement with governance issues, IFIs present themselves as upholding human rights. They claim to be furthering civil and political rights by promoting a ‘structural environment’ in which human rights can be advanced, rather than directly claiming to promote human rights.

Question 50

How does the Bank distance itself from human rights while promoting development, and what does this approach presume about Bank policies?

Answer 50

The Bank maintains a certain distance from human rights by suggesting that it promotes the ‘structural environment’ in which human rights can be furthered, rather than directly promoting human rights. This approach presumes that Bank policies further all the important social and economic goals encompassed by the term ‘development.’

Question 51

How does the Bank use the concept of good governance to assert authority over various activities in the name of promoting development?

Answer 51

By arguing that it can assume jurisdiction over any activity that affects ‘development,’ the Bank can exercise authority over virtually any activity it pleases in the name of promoting good governance and, hence, development.

Question 52

What two objectives has the Bank achieved through its use of the concept of good governance?

Answer 52

The Bank has achieved two objectives through its use of the concept of good governance: first, suggesting affinities between its activities and general international law, enhancing its legitimacy; and second, developing new roles and functions that are arguably inconsistent with its own articles of agreement.

Question 53

How does the IMF approach the concept of governance in comparison to the World Bank, and what aspects of governance does the IMF claim to confine itself to?

Answer 53

The IMF, being a more conservative organization than the World Bank, has adopted the concept of governance in more guarded terms. The IMF claims to confine itself to ‘economic aspects of governance’ directly connected to matters fulfilling its purposes. These aspects include institutional reforms of the treasury, budget preparation and approval procedures, tax administration, accounting and audit mechanisms, exchange, trade and price systems, financial system aspects, taxation, banking sector laws and regulations, and the establishment of free and fair market entry.

Question 54

What is the primary strength of the IMF in terms of its focus on issues, and how does it compare to the World Bank in this regard?

Answer 54

The primary strength of the IMF lies in its concern to focus on fewer issues. While the World Bank addresses a broader range of issues, the IMF’s focus on key economic aspects gives it significant influence, even though it may address fewer topics.

Question 55

How does the IMF differ from the World Bank in its engagement with human rights issues, and what is the primary focus of the IMF according to the text?

Answer 55

The IMF differs from the World Bank in its limited engagement with human rights issues. The IMF maintains that its focus is on monetary matters, which it considers distinct and separate from human rights issues. In contrast, the World Bank argues that its principal concern, development, promotes human rights.

Question 56

How do these crucial components of good governance serve as justifications for the law reform projects that the Bank undertakes in developing countries?

Answer 56

The components of good governance, such as the rule of law, accountability, and democratic decision-making, serve as justifications for the law reform projects that the Bank undertakes in developing countries. These components are presented as essential for good government, and the Bank uses them to justify its interventions.

Question 57

What is the problem identified in the text regarding the International Financial Institutions (IFIs) in relation to the standards they prescribe for good governance?

Answer 57

The problem identified is that the IFIs, including the Bank, are lacking in crucial components of good governance themselves, such as the rule of law, accountability, and democratic decision-making. Critics and commentators question how the IFIs measure up to the standards they prescribe for good government.

Question 58

What aspect of the International Financial Institutions (IFIs) is the subject of increasing scrutiny and criticism, according to the text?

Answer 58

The lack of accountability of the IFIs is the subject of increasing scrutiny and criticism. Critics highlight that the countries most affected by IFI policies are generally the least represented on the executive boards of the IFIs, and that the accountability mechanisms in place are inadequate.

Question 59

From a legal perspective, what significant aspect do the International Financial Institutions (IFIs) lack, and why is it considered problematic?

Answer 59

From a legal perspective, the IFIs lack any system of effective accountability. The absence of independent judicial review to ensure that the IFIs comply with their own articles of agreement is considered problematic. Disputes on the interpretation of the articles are resolved by the executive board, creating a fundamental conflict that undermines the notion of a ‘rule of law.’

Question 60

What factor in the voting structure of the IFIs is believed to contribute to their operation for the benefit of richer countries?

Answer 60

The voting structure of the IFIs, which gives the Group of Seven (G7) control over them, is believed to contribute to their operation for the benefit of richer countries.

Question 61

What crisis are the International Financial Institutions (IFIs) currently facing, and what are the contributing factors mentioned in the text?

Answer 61

The IFIs are currently facing a legitimation crisis. The text suggests that this crisis is attributable in part to their deviation from the legal norms they espouse, especially in terms of their politicization from within and their failure to comply with the standards of ‘good governance’ that they prescribe for developing countries.

Question 62

What steps has the World Bank taken to address the legitimation crisis and establish accountability equivalents?

Answer 62

The World Bank has attempted to address the legitimation crisis by making its operations more transparent and seeking the support of non-governmental organizations. For instance, it has established a tribunal to ensure that any project it funds meets its environmental guidelines. These efforts are seen as attempts to establish equivalents of accountability, even though they fall short of the legal accountability prescribed for governments.

Question 63

How does the Bank interpret human rights and environmental standards to serve its own agenda, and what challenges does this approach present?

Answer 63

The Bank interprets human rights and environmental standards in ways consistent with its own articles of agreement and its principal purpose of bringing about development. This self-serving interpretation enables the Bank to further its neoliberal agenda. However, this approach raises challenges, as the Bank justifies programs that reform the political institutions and practices of a country, potentially interfering in the political activities of the developing state, which is prohibited by its articles of agreement.