Midterm 1

Question 1

Obligation

Answer 1

• IOs (IGOs) are founded by treaties among states
• The treaties specify obligations and rules
  – Also goals and powers of the
  IO
• So governments voluntarily accept these obligations
  – Explicit rules in treaty
  – Indirect obligations that arise
  over time

Question 2

Compliance

Answer 2

• Why, when, how well do states
  live up to these obligations?
• States are often tempted to
  act in ways that go against IO
  rules
  – Cheat on trade deals
  – US invasion of Iraq in 2003
  after being turned down at
  UNSC
• Compliance records are mixed

Question 3

Enforcement

Answer 3

• Most IOs have very limited
  enforcement powers against
  states who are not in
  compliance
• Some important exceptions:
  – IMF can withhold further
  loans
  – UNSC can authorize
  sanctions and military action
  – WTO can authorize trade
  sanctions
• Even then, the threat of enforcement is indirect and uncertain

Question 4

What is International Law?

Answer 4

Making international law:
– Rules that constrain behavior
– Body of rules that are linked by a
common logical structure
– Based on sovereignty
– Primary and secondary rules

Question 5

Customary international law

Answer 5

• Develops through practice
• Additional codification in recent
  decades

Question 6

Hard vs Soft International Law

Answer 6

Hard law:
– Obligatory, precise, and high delegation
– Binding, mandatory, and enforceable

Soft law:
– Exhortatory, ambiguous, low delegation
– Better suited to uncertain
circumstances or issues central to
sovereignty

Soft law frequently becomes hard law over time.

Question 7

Characteristics on international law: Obligation

Answer 7

1. Obligation:
   – Degree to which agents are legally bound
   – High obligation = compliance is
   unconditional
   – Low obligation = compliance is
   aspirational

Question 8

Characteristics on international law: Precision

Answer 8

2. Precision:
   – Specificity of obligations
   – Reduces scope of reasonable
   interpretation

Question 9

Characteristics on international law: Delegation

Answer 9

3. Delegation:
   – Third-party interpretation and
   application
   – Courts make new laws when
   precision is low and delegation
   is high

Question 10

Does International Law Matter?

Answer 10

Proponents:
* Overall compliance rates are
high
* Most states comply most of
the time
* Compliance failure may be
driven by imprecision
or lack of state capacity
Skeptics:
* Imprecise law can’t address
most conflicts
* Laws follow practice

Question 11

The European Court of
Justice

Answer 11

• Located in Luxembourg
• Adjudicates disputes covered
  by the Treaty of Rome
  – Lots of issues!
• Hears cases on whether
  member states and EU
  institutions are acting
  properly within EU law
• 28 judges and 9 Advocates
  General
  – Appointed for 6-year
  renewable term
  – Supposed to be independent
  of national
  background
• Cooperates with member-
  state national courts
  – Preliminary rulings
• Considers actions for member-
  state failure to fulfill
  obligations
  – Cases can be brought by the
  Commission or a member
  state
  – ECJ can fine a state if it doesn’t
  comply

Question 12

The International Criminal
Court

Answer 12

• Headquartered in The Hague,
  Netherlands
• 110 countries are members
• Mandate: “to put an end to
  impunity for the perpetrators
  of ”war crimes, genocide, and
  crimes against humanity”
  – And so to contribute to
  prevention of those
  crimes
• Criminal court of 18 judges
  – Plus prosecutor’s office and
  some staff
• Has jurisdiction if the crime
  occurred on the territory of a
  state party
  – Or committed by a citizen of
  a state party
• And if domestic courts have
  failed
  – To respect state sovereignty
• Enforcement: can impose
  prison sentences on those
  found guilty
• No police or military
  capability
• Relies on national
  governments to capture
  and deliver suspects

Question 13

IOs allow for Centralization

Answer 13

• CENTRALIZATION
  – An organizational structure &
  administrative apparatus
  managing collective activities
• May allow for immediate
  action (UN Security Council)
• Or for specialization (OECD
  has >200 working groups)
• Governance may have flexible
  design (IMF voting structure)
  or be rigid (UN Security
  Council)

Question 14

IOs allow for Independance

Answer 14

• INDEPENDENCE
  – The ability/authority to act
  with a degree of autonomy
  within defined spheres

Question 15

Rational Choice Perspective/Contractualism

Answer 15

• Self-Interest:
  – LEADERS create/use IOs
  when benefits of
  cooperation outweigh costs
  (including perhaps
  sovereignty costs)
• IOs
  – produce collective goods in
  Prisoners’ Dilemma settings
  – solve coordination problems

Question 16

Constructivist theory

Answer 16

• Anarchy is what you make of
  it!
• Where do ideas and
  preferences come from?
• Focus on norms, beliefs,
  knowledge, and (shared)
  understandings
  International ideas -> IOs
  IOs -> International ideas
• Vital for the understanding of
  major concepts such as
  legitimacy and norms

Question 17

What do IOs do for their members?

Answer 17

• Pooling resources
  – (IMF/World Bank, World
  Health Organization) - share
  costs, economies of scale
• Direct joint action
  – military (NATO), financial
  (IMF), dispute resolution
  (WTO)
• LAUNDERING?
• Allow states to take (collective)
  action without taking direct
  responsibility (or take
  responsibility with IO
  support)
  Examples:
  – The IMF does the dirty work
  – US president wants to reward
  allies, punish adversaries
  – Sometimes difficult to get
  action through Congress
  – Lenient terms for allies,
  enforcement against
  adversaries

Question 18

Fixed Exchange Rates vs Floating Exchange Rates

Answer 18

fix to gold or float in relation to the value of other currencies.

Fix is more stable and consistent
Float is more profitable but less stable. Also allows countries to manipulate currency values to get certain economic outcomes

Question 19

Classical Gold Standard

Answer 19

Countries went “on gold” by promising to exchange their currency for gold at a fixed rate. Spread nearly worldwide.

Crises did occur: e.g. bank failure in London put pressure on British pound.

Question 20

Bretton Woods

Answer 20

U.S. dollar fixed at $35/ ounce of gold. Other currencies pegged to dollar. Stability, but not as rigid as the gold standard. Central bank cooperation again important.
The IMF oversaw currency relations:
– Provided short-term
assistance
– Provided information
– Set standards of behavior.
Nixon broke the link to gold
in 1973 after large deficits and the tie to gold failing.

Question 21

Managed Float System

Answer 21

Since 1973, have been on floating rate system among major currencies. Cooperation among major currencies still necessary: G8 summits. Sometimes see large currency movements. Smaller countries often link to a major currency to provide stability.

Question 22

National paper standard

Answer 22

National paper currency
standard:
– National currencies backed
only by government
commitments to maintain
their value.
– A few major (“key”) currencies
are used as the basis for
international exchange.
– This has been the system
since 1973, with the $ and €
as key currencies.

Question 23

Competitive devaluations

Answer 23

Governments benefit from a
well-functioning regime.
Incentives to “cheat”:
– Intervene to keep currency
low in floating system.
– Devalue in fixed system:
“competitive devaluations.”
If country A devalues and B doesn’t A has an advantage. If both devalue then they both lose. Better for both to not devalue

Question 24

IMF: Origins

Answer 24

1. Establishment of the IMF: The International Monetary Fund (IMF) was created towards the end of World War II during the Bretton Woods conference, held in 1944.
2. Historical Context: Previous efforts at international monetary coordination during the interwar period failed, with currency policies worsening the Great Depression.
3. Conference Goals: The Bretton Woods conference aimed to design an institution to oversee the international monetary system and prevent destructive economic competition.
4. Attendance and Withdrawal: 45 countries, including the Soviet Union, attended the conference. However, the Soviets withdrew as they recognized U.S. dominance in the IMF, particularly during the onset of the Cold War.
5. Initial Membership: The IMF started operations on March 1, 1947, with 29 member countries.

Question 25

IMF: Changes Over Time

Answer 25

The IMF began as a tool to regulate the value of the US dollar to ensure that it stayed pegged to the price of gold. After Bretton Woods collapsed in 1971 and the gold standard was thrown out, the IMF leaned into its other role of offering aid to lower income countries in financial crises to assist them in regulating their economies. They offered loans with conditions for countries to follow to ensure that their reconstruction was successful.
There was also a significant transition in the types of conditions offered to states. When the IMF began it offered few conditions to using aid. As it developed and perceived that states might be using funding in improper ways they began to add more conditions. When this new strategy didn’t work, the IMF doubled down on conditions and added very strict limits on what countries could do with their funds.

Question 26

IMF: Main Functions

Answer 26

Surveillance (of financial developments through all echelons)

Encouragement (of policies that foster economic stability and reduce vulnerability to crises)

Financial Leeway (states to correct balance of payment problems and develop appropriate financing plans) (Largest borrows of 2024 are Argenina, Egypt, Ukraine, Pakistan, and Ecuador; also large precautionary loan to North Macedonia)

Technical Assistance (train and help to assist member countries in developing and implementing effective financial policies and procedures)

Question 27

IMF: Governance

Answer 27

IMF accountable to its member country governments

Top of IMF: board of governors: one governor and one alternate governor from each member country (generally from the central bank or ministry of finance)

Meets once a year. twenty four governors sit on IMFC (international monetary and financial committee) and meet twice a year

BoG delegates day-to-day management to executive board (EB) which is 24 members
Guided by IMFC and supported IMF staff. the Managing Director (MD) is head of IMF staff and chair of EB - traditionally American

Question 28

IMF: Possible Reforms

Answer 28

Proposed reforms are broken down into two categories

Changing the system of representation

Changing the conditions attached to the IMF programs

Question 29

Tequila Crisis 1995

Answer 29

Mexican government in 1993-95 running large deficits, carrying high debt
– Debt financed by tesobonos,
indexed to US $
* Debt crisis triggered by:
– Low oil prices
– Armed rebellion in Chiapas
– Assassination of presidential
candidate in 1994
* Zedillo let the peso float
– Fell from a value of
4 pesos: $1 to 7.2 pesos: $1

Question 30

East Asian Financial Crisis 1997

Answer 30

• Japan wants to help Thailand, Indonesia,…– provides liquidity
  – Coordinated regional lending
  to crisis countries, for
  example $16 billion to
  Thailand
  – In September, proposes an
  Asian Monetary Fund with
  $100 billion in funding
  – Forced to withdraw this
  proposal in November in the
  face of U.S. and Chinese
  opposition
• US worried about “moral hazard”

Question 31

Moral Hazard

Answer 31

a situation where a country or actor takes excessive risks because they expect another party, like a powerful nation or international organization, to bear the consequences of those risks

Question 32

rapid liquidity

Answer 32

Sort of the opposite side of Moral Hazard
* Political interests are at
stake
* Economic ties with the
crisis-country are dense
* This approach will provide
a quick recovery of the
crisis economy
* Benefits creditors

Question 33

Asian Monetary Fund

Answer 33

• $100 billion
• 10 members:
  – Australia, China, Hong Kong,
  Indonesia, Japan, Malaysia,
  Philippines, Singapore, South
  Korea, Thailand
  – NOT the United States

Question 34

Key differences between the IMF and the
World Bank

Answer 34

IMF:
– Exchange rate stability &
monetary policy
– Large loans for macro-targets
($100s millions to billions)
– Staff: around 2000 people –
mostly in DC

World Bank
- Development
– Smaller loans than IMF ($10s
millions to $100 millions)
– Specific projects (dam,
schools, oil pipeline)
– Multiple projects in one
country
* big countries may have several project loans, e.g., India >10
– Staff ~ 10,000 people – also
mostly in DC but 100 offices
worldwide 4

Question 35

World Bank Conditionality

Answer 35

World bank also puts conditions on aid

Question 36

political power at the World Bank

Answer 36

• Officially, does the World Bank interfere with the political
  affairs of its members/clients?
  – No; focus on human capital, food security, climate, development
• But does politics influence its lending decisions?

Question 37

Governance

Answer 37

– Even officially, however, the World Bank does try to improve
“governance” – this is a euphemism for “democracy.” Many members
(e.g., China) would object if “democracy” were used officially.

Question 38

What is the “World Bank“
as opposed to the “World Bank Group”?

Answer 38

• International Bank for Reconstruction and Development
• IBRD (often called “the World Bank”)
• International Development Association
• IDA – created in 1960 – concessional financing
• “WORLD BANK”
• IBRD & IDA are tightly connected – work as a single unit (though the terms of their loans are quite different)
• International Finance Corporation
• IFC – lends to private companies for private sector projects. Has its own
  building, own executive vice pres. & staff (more “entrepreneurial”)
• Multilateral Investment Guarantee Agency
• MIGA – provides insurance to private companies against political risk
• ICSID – International Center for the Settlement of Investment Disputes

Question 39

World Bank Lending: Creditworthy Borrowers from IBRD

Answer 39

• Middle-income countries.
• Per capita incomes in this group are below the IBRD
  graduation threshold (~$6000 per cap)
• But too high for the countries to be eligible for
  credits or grants from the IDA (~$1000 per cap)
• Some of these countries elect not to borrow from
  IBRD but the Bank often provides analysis and advice
  (South Africa, Gulf States)

Question 40

World Bank Lending: Countries That Only Borrow From IDA

Answer 40

• Eligible for IDA credits –
  not considered
  creditworthy for IBRD
  loans.
• Almost all African
  countries.
• Loans at concessional
  rates

Question 41

World Bank Lending: IDA/IBRD “Blend” Countries

Answer 41

• Eligible for both IDA (by
  per capita income) and
  IBRD lending
  (creditworthiness
  standards) and elect to
  borrow from both. E.g.:
  India and Nigeria.

Question 42

World Bank Lending: Problem Countries

Answer 42

Member countries that are not
eligible for either IBRD or IDA
lending because of armed
conflict, economic
mismanagement, or failure to
service World Bank debts.
* Myanmar/Burma.
* WB performs low level of
operational work “watching
brief”

Question 43

World Bank Lending: Special Cases

Answer 43

• Especially countries in post-conflict and post-
  crisis situations
• Some are ineligible for IDA or IBRD financing
  nonetheless participate in multi-donor program
  financed by special funds, often administered in
  trust by the World Bank
• E.g.: Liberia, Timor Leste (prior to independence),
  the Occupied Palestinian Territories, Iraq

Question 44

World Bank Lending: “Rich” Countries

Answer 44

• Countries considered too rich to borrow from the
  World Bank
• Above per capita of $6,000 (IBRD threshold).
• Some are “graduates”
• De-graduation possible: countries that had ended
  their lending relationship ran into difficulties and
  sought renewed World Bank support.

Question 45

Contradictions in World Bank

Answer 45

• Is there any irony in the
  World Bank’s “dream” (A
  world without poverty)?
  – It would go out of business.
  – Bureaucratic perspective?
• Washington Consensus
  – World Bank has historically
  promoted market solutions,
  but its projects are non-
  market 24

Question 46

African Development Bank (1966)

Answer 46

• Closed to non-African countries until 1982
• Board of Executive Directors made up of member countries
• The voting power determined by the size of each member’s share
• Currently 60%-40% between African and “non-regional” member
  countries (“donors”) – e.g., US, Japan, China, & Korea (since 1982)
• The largest African Development Bank shareholder is Nigeria with
  nearly 8.7 percent of the votes
• “No member country, or a group of countries has veto power;
  Board decisions are generally made through discussion and
  consensus rather than through the exercise of voting powers. ”

Question 47

Inter-American Development Bank Group

Answer 47

• “the main source of development financing for
  Latin American and the Caribbean”
• The IADB lends money and provides grants. With
  a triple-A rating, the Bank borrows in
  international markets at competitive rates.
  Hence, it can structure loans at competitive
  conditions for its clients in its 26 borrowing
  member countries. (48 members)
• Countries that receive IADB financing also hold a
  majority of its shares.

Question 48

European Bank for Reconstruction and Development (EBRD)

Answer 48

• Initially founded to
  provide development aid
  to Eastern bloc countries
  after the collapse of the
  Soviet Union
• Now lends to over 30
  democracies extending to
  Central Asia and North
  Africa
• US largest shareholder
  (surprise?)

Question 49

Asian Development Bank (ADB)

Answer 49

• Founded 1966 – Modeled on
  the World Bank
• Regional/non-regional vote
  shares: 65/35

Question 50

Japanese and US Political Influence in the ADB

Answer 50

• ADB mandate is
  apolitical
  – Should base lending on
  need and development
  effectiveness
• Should be more
  independent than
  bilateral aid agencies

US and Japan are dominant

Question 51

Asian Infrastructure Investment Bank (AIIB): Establishment

Answer 51

The AIIB was proposed by China in 2013. From its founding, the AIIB quickly gained support from numerous Asian countries.
While primarily focused on Asia, the AIIB has attracted global interest. The AIIB has a capital base of around $100 billion, with regional members holding the majority. The AIIB began operations in 2016.
The AIIB is headquartered in Beijing. There have been concerns about Chinese dominance and the AIIB’s neutrality. Some countries, including the US, have chosen not to join.

Question 52

Asian Infrastructure Investment Bank (AIIB): Purpose

Answer 52

The major stated goal of the AIIB is to address a major infrastructure funding gap in Asia. Another motivation for establishing the AIIB on the part of China is Chinese frustration with the very slow pace of reform in existing global economic institutions. Providing capital for investment in the region would also suit China’s goals of developing friendlier relations with its neighbors, many of whom (such as the Phillipines and Malaysia) have regional security disputes with China.

Question 53

Asian Infrastructure Investment Bank (AIIB): Governance

Answer 53

Board of Governors is composed of one Governor from each member country.
Meets annually to discuss and make high-level decisions.

Board of Directors:
Consists of 12 Directors.
Nine Directors are elected by regional members (Asia and Oceania as defined by the UN).
Three Directors are elected by non-regional members.
Responsible for the day-to-day operations and decision-making of the AIIB.

President:
Elected by the Board of Governors.

Membership:
Any country that is a member of the International Bank for Reconstruction and Development (IBRD) or the Asian Development Bank (ADB) is eligible to join the AIIB.
Admission decisions are made by the Board of Governors, ensuring a controlled and strategic expansion of membership.

Voting Power:
Voting power is determined by a combination of Basic Votes, Share Votes, and additional votes for Founding Members.

Question 54

Asian Infrastructure Investment Bank (AIIB): Concerns

Answer 54

The main public objection to the AIIB is that it may not follow the same good governance practices that the World Bank and ADB follow. The U.S. points in particular to the potential for problems related to the environmental consequences of development projects and attention to social standards.
However, the larger underlying U.S. concern is that the AIIB may really be “China’s Trojan Horse,” a mechanism for undermining the existing U.S.-led financial system. The AIIB represents China’s attempt to begin exercising full-fledged economic leadership in Asia. China’s initial proposals for the AIIB raised further concerns. Prior to major changes in March 2015, China envisioned the AIIB as being open only to Asian states. Some Chinese officials used language suggesting that the AIIB would act as China’s aid agency, or that it would essentially be a bank that would invest looking to make high profits.

Question 55

Asian Infrastructure Investment Bank (AIIB): “Maybe Not So Bad”

Answer 55

-China wants more influence in Asian IOs (limited power in WB and ADB)
-China heavily promoted the AIIB and has plans to use it as a branch of the Chinese aid agency (therefore, US and Japan oppose it)
-57 states signed up as Prospective Founding Members
-AIIB becoming a part of a network of investment multilateral IOs to create competition and accountability
-Might not be so bad and US should consider joining