INTERNATIONAL LAW

THE WORLD BANK, IMF AND STATE SOVEREIGNTY

INTERNATIONAL LAW

THE WORLD BANK, IMF AND STATE SOVEREIGNTY

Chris Chizindu Wigwe PhD,(Leeds) BL

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Readwide Publishers12 Ablade Road, Kanda Estates,P.O. Box OS600Osu-AccraGhana

International Law - The World Bank, IMF and State Sovereignty by Chris Chizindu Wigwe. LLM, PhD, BL

Published by Readwide Publishers 2010

All right reserved 2010

No part of this publication may be reproduced, in part or in whole, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of the publisher. Application for permission for other use of copyright material including permission to reproduce extracts in other published works shall be made to the publishers. Full acknowledgment of author, publisher and source must be given.

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ISBN 978 9988 7971 7 1

Readwide Publishers 2010

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Veronica, Lisa, Sophie, Stephanie, Sabrina, Sharon, Chris ( Jnr.) and Marcus.

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Acknowledgements

With gratitude to God Almighty, I acknowledge with great thanks the contributions of distinguished Professor Surya Subedi who was my supervisor during my doctorate degree programme at the University of Leeds UK. I would like to pay tribute to his eloquent, charismatic teachings, his persuasion and encouragement that propelled me to publish this book. Similarly, I appreciate the contributions of erudite Professor Andy Campbell, the Director of Centre For Business Studies, University of Leeds, who was my second supervisor during my PhD degree programme in the University.

My foremost editorial thanks, goes to Readwide Publishers Ltd in Ghana, Ansa Asari, the Director of Ghana Law school, Nana Kissiedu who have been so wonderful for devoting so much time to this book. I appreciate with great thanks the great skill and calm professionalism exhibited by Francis Nunoo of Department of Publishing Studies, Kwame Nkrumah University of Science and Technology, Ghana. In spite of my numerous telephone calls he never wavered throughout the period of this publication. My special thanks goes also to Professor Ben B. Kanyip, a Judge of Industrial Court Nigeria, who offered so many valuable advice, indeed he was quite reliable and dependable during the period of this publication.

My sincere thanks goes Justice Rosalyn Haggins of International Court of Justice, Justice Onnoghen, Justice Niki-Tobi, Justice Oputa and Justice Katsina-Alu, all, of the Supreme Court of Nigeria, whose judgements inspired and propelled me to pragmatically examine and analyze some topics in this book from the Positive and Realists Schools of thought perspectives. This acknowledgement will be incomplete without the mention of Chief Mike Onoja, former Permanent Secretary, Ministries of Defence and Power, in Nigeria, King Alfred Diete Spiff, former Governor of Old Rivers State in Nigeria and Chief I.H. Wigwe former General Manager of Hotels and Tourist Corporation, Port Harcourt, Nigeria. Their support and encouragements during my doctorate degree programme at the University of Leeds, UK, which eventually led to the publication of this book, are highly appreciated.

Finally, I acknowledge with great thanks the sacrifice and support of my wife, who at the time of writing this book, was rounding up her doctorate degree programme in Petroleum Law at the University of Dundee in Scotland, UK, but she still found time to participate in the conclusion of this book.

Chris C. Wigwe LLB, LLM, PhD (Leeds), BL

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summAry of tAble of contents

Acknowledgements Abstract Table of Cases Table of Treaties List of Abbreviations Chapter 1 Introduction Chapter 2 The Traditional Notion of State Sovereignty in International Law Chapter 3 The Modern Application of Sovereignty Chapter 4 Political and Economic Background to the WB and the IMF Chapter 5 The Powers of the World Bank and the IMF Chapter 6 The Relationship between The WB, The IMF and Member States Chapter 7 The Controversies Regarding the Operational Policies of the WB and the IMF Chapter 8 The Obligations of the WB and the IMF Chapter 9 Conclusion and Recommendations Bibliography Index Appendix

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tAble of contents

Acknowledgements viSummary of table of Contents viiAbstract xiiiTable of Cases xivTable of Treaties xixList of Abbreviations xxviiiChapter 1Introduction 1

1.1 The Subject 11.2 Issues 81.3 Arguments 101.4 Methodology 121.5 Outline of Chapters 13

Chapter 2The Traditional Notion of State Sovereignty in International Law 16

2.1 Definition of Sovereignty 172.2 The Legal Meaning and Purpose of Sovereignty 192.3 The Old World Order 222.4 Sovereignty as a Political Order 242.5 Absence of Referees to Enforce the Rules 242.6 Exercise of Sovereign Powers by External Bodies 262.7 Judicial Legal Hegemony 282.8 Capacity of States 292.9 The Role of The League of Nations 302.10 The New World Constitutional Order 332.11 Decolonization 34

2.11.1 A Brief History 341.12 Other Methods of Acquiring Sovereignty 36

1.12.1 Accretion 361.12.2 Artificially Induced Accretion 381.12.3 Acquisition of State Sovereignty by Cession 391.12.4 Acquisition of Sovereignty by Conquest 401.12.5 Acquisition of Sovereignty by Prescription 40

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1.12 Effects of Possession of State Sovereignty 421.13 Conclusion 43

Chapter 3The Modern Application of Sovereignty 45

1.1 The Essence and Legal Significance of Non-Intervention 481.2 Enforcement Powers of The United Nations 501.3 The Essence and Legal Significance of Economic Sovereignty 531.4 Sanctity of Economic Sovereignty 551.5 Economic Sovereignty after Resolution 1803 601.6 WB and IMF Policy on Nationalization Disputes 661.7 Charter of the Economic Rights and Duties Of States 691.8 Qualification and Transformation of Sovereignty 723.9 Applicability of Ultra Vires 743.9 Conclusion 77

Chapter 4Political and Economic Background to the WB and the IMF 78

4.1 The Great Economic Depression 794.2 Collapse of Peace and Security 804.3 The Impact of Reform on World Trade 814.4 The Positive Effect of World War II on the US Economy 824.5 The Urge to Establish the Institutions 824.6 Negotiations at the Conference 844.7 Dominant and Facilitating Influence at the Conference 854.8 The Articles of Agreement 874.9 The IMF 874.10 The World Bank 914.11 Marshall Plan 934.12 Structural Adjustment Lending 954.13 Conclusions 96

Chapter 5The Powers of the World Bank and the IMF 98

5.1 Economic Influence 995.2 The Influence of the Paris Club and the G8 1005.3 The Influence of the Group of Eight (G8) 1025.4 The Legal Framework 1035.5 Elastic Interpretation of the Legal Framework 1065.6 Universal Acceptance of the Aims and

Objectives of the Institutions 106

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5.7 Exercise of the Sovereign Powers of States 1075.8 Powers as Agents for the Member States 1095.9 Powers Under Public International Law 1105.10 Domestic and International Legal Capacity 1115.11 Specific Legal Nature of a World Bank Agreement 1135.12 Inspection Panel 1155.13 Conclusion 116

Chapter 6The Relationship Between the WB, the IMF and Member States 117

6.1 The Difference Between the WB, the IMF and Other International Organizations and their Member States 125

6.2 Delegation of Sovereignty to the WB and the IMF 1296.3 Revocation of Delegated Sovereign Power 1336.4 Concurrent Powers of the World Bank, the IMF and States 1346.5 Transfer of Sovereign Powers to International Organizations 1366.6 Facts in Support of Conferment of Sovereign Power

to International Institutions by Transfer 1386.7 Transfer as A Limitation on State Sovereignty 1396.8 Limits of Exercise of Transferred Sovereign Powers 1436.9 Conclusion 146

Chapter 7The Controversies Regarding the Operational Policies of the WB and the IMF 148

7.1 Obligations Under the Articles of Agreement 1527.2 Consent as a Necessary Ingredient 1547.3 The Object Clause and Purposes of the Institutions 1577.4 The IMF 157

7.4.1 Assessment of Compliance with the Object Clauses or Purposes of the IMF 157

7.4.2 Interpretation of Articles of Agreement or Treaty under General Principles of Law 158

7.4.3 Application of Article 1 (v) of the Articles of Agreement 1597.4.4 Overriding Obligations under the Articles of Agreement 1697.4.5 Interpretation of Articles of Agreement or Treaty under

International Law 1707.4.6 Conditions Recognized by the Articles of

Agreement for the Use of IMF Resources 174

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7.4.7 The Structural Adjustment Policy 1767.4.8 Financial Weakness of the Developing Countries 177

7.5 The World Bank 1797.5.1 Interpretation of Article IV (10) of the

World Banks Articles of Agreement 1867.6 Inconsistent Approach 1927.7 Public Sector Governance 1967.8 Administrative and Civil Service Reform Policy 1977.9 Counterfactual Argument 2077.10 Is Article IV (10) a Sword or a Shield? 2087.11 Conclusion 210

Chapter 8The Obligations of the WB and the IMF 212

1.1. Relationship among the WB, the IMF And the UN 2128.2. Obligations Under the UN Charter 2138.3 Lending Based on Democratic Criteria 2178.4 Political Reform Policy 2208.5 Constitutional Review Policy 2288.6 World Bank and Imf Judicial Reform Policy in BMS 2318.7 Brief Overview of the World Legal System 2328.8 Consent by Economic Pressure and Coercion 2368.9 Lending for Legal and Judicial Reforms 237

8.9.1 Case Study 2388.9.2 Legal and Judicial Reform as Conditionality 240

8.10 Population Control Policy 2428.11 Conclusions 243

Chapter 9Conclusion and Recommendations 244

9.1 Conclusion 2449.2 Articles of Agreement 2459.3. United Nations Charter 2469.4 Political/Democratic Reform Policy 2479.5 Reforms in Domestic Regulatory Laws 2489.6. Constitutional Reform Policy 2499.7 Legal and Judicial Reforms Policy 2509.8 The Role of G8 and the Paris Club 2529.9 Population Control Policy 2529.10 Recommendations 253

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BibliographyIndex 291Appendix 293IBRD Articles of Agreement 293Articles of Agreement of The International Monetary Fund 323Charter of the United Nations; June 26, 1945 399

CHAPTER I Purposes and Principles 399CHAPTER II Membership 401CHAPTER III Organs 402CHAPTER IV The General Assembly 402CHAPTER V The Security Council 406CHAPTER VI Pacific Settlement of Disputes 408CHAPTER VII Action with Respect to Threats to the Peace,

Breaches of the Peace, and Acts of Aggression 410Chapter VIII Regional Arrangements 413CHAPTER IX International Economic and Social Co-Operation 414CHAPTER X The Economic and Social Council 415CHAPTER XI Declaration Regarding Non-Self-

Governing Territories 418CHAPTER XII International Trusteeship System 419CHAPTER XIII The Trusteeship Council 423CHAPTER XIV The International Court Of Justice 424CHAPTER XV The Secretariat 425CHAPTER XVI Miscellaneous Provisions 427CHAPTER XVII Transitional Security Arrangements 428CHAPTER XVIII Amendments 428CHAPTER XIX Ratification and Signature 429

Vienna Convention on the Law of Treaties 431PART I. Introduction 432PART II. Conclusion and Entry into Force of Treaties 434PART III. Observance, Application and Interpretation of Treaties 441PART IV. Amendment and Modification of Treaties 445PART V. Invalidity, Termination and Suspension of

The Operation of Treaties 447PART VI. Miscellaneous Provisions 458PART VII. Depositaries, Notifications, Corrections and Registration 459PART VIII. Final Provisions 462

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AbstrAct

This study deals with the question of whether in practice the policies of the World Bank and the International Monetary Fund (IMF) erode the sovereignty of the borrowing member states. Sovereign powers that are subject to international law are inherently vested in states. However, some of these powers are delegated to the World Bank and the IMF in the enabling instruments empowering them to execute specific duties towards preventing the recurrence of events such as those that led to the economic depression of the 1930s and the World War II.

With the delegation of sovereign powers clearly provided in the constituent documents of these institutions, the legitimacy of their exercise of sovereign powers are not in doubt, yet there is a growing concern as to whether their policies are consistent with or even ultra vires the legal framework as provided in their constituent documents. Policies apparently inconsistent with and ultra vires the legal framework not only risk eroding the member states sovereignty, but also potentially increase an undermining of international law which could in turn lead to a reinvention of the old legal order.

To sustain and encourage the compliance with international law that promotes peace and security within the community of nations, the World Bank and the IMF must limit their policies to the extent of the sovereign powers delegated or conferred on them, in order to prevent a trend by other international organizations towards the erosion of state sovereignty.

The World Bank and the IMF should operate within the parameters of their constituent documents. If they need to expand their activities into new areas, they should seek to amend such constituent documents to suit the new situation, rather than continue operating on the basis of the so-called creative and elastic interpretation of the existing rules which may likely sharpen the edges of the old world order before the creation of United Nations and the League of Nations.

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tAble of cAses

1. Admission Case ICJ Reports 1947-1948 174, 221, 249, 276, 287

2. Advisory Opinion Case ICJ Report (1949) p 172

3. Advisory Opinion on Western Sahara, ICJ Report (1975) p 12

4. Agip v Popular Republic of Congo, (1982) 27 ILM p 117

5. American Power & Light Co. v Security and Exchange Commission (1967)329 US p 90.

6. Amin Rashhed Shipping Corporation v Kuwait Insurance Co [1984] AC p 50

7. Arab International Monetary Fund v Hashim, (1991) AC p 114

8. Arab Monetary Fund v Hashim and Others (1991) All ER p 871.

9. Arab Monetary Fund v Hashim and others. (1990) 1 All ER p 690

10. Ashbury Railway Carriage & Iron Co. v Riche (1875) LR 7 HL p 653

11. Australia v US, AJ 10 (1916) (Special Suppl. 306) in Oppenheim, L., ed. Lauterpacht (1963) p 364

12. Bell Houses v City Wall Properties Ltd. (1966) 2 QB 656 (1966)

13. Bultwick v Grant (1924) KB 483

14. Cambodia v Thailand in the case concerning the Temple of Fresh Vihear, ICJ Report 15 June 1962.

15. Cameroon v Nigeria. Judgement delivered on 10 October 2002 by International Court of Justice (ICJ)

16. Cameroon v United States of America BIT, making of America Trade Agreements in http//www.tcc.mac.doc/cgi-bin/doit accessed 22 February 2006

17. Commonwealth of Massachusetts v State of New York argued 4 March 1926 decided 12 April 1926 and citation as 271 US 65 1926.

18. Condition for Admission Case ICJ Report 1948 and Condition for Admission Case, ICJ Report (1956) p 23. 167, 174, 221, 222, 225, 240249, 253, 274

Table of Cases

xv

19. Costa v ENELI (1964) ECR p 585

20. Cotman v Brougham (1918) AC 514 (H L)

21. Cutter v Eagle Star Insurance (1998) 4 All ELR 417

22. Dayton v Czechoslovak Socialist Republic and Others, US District Court, District of Columbia, 19 December 1986 79 ILR p 596.

23. Delaney v Staples (1992) 1 AC 687 at 692

24. Dredge v Conway, Jones & Co (1901) 2KB 42

25. Edlow International Co v Nuklearna Elektrarna Krsko, US District Court, Columbia, 7 December 1977 63 ILR p 100 at 103.

26. ERTA case, ECR (1971) p 263

27. Federal Republic of Germany v The Netherlands (Continental Shelf Case)

28. First Sports Ltd v Barclays Bank plc. (1993) 1 WLR p 1229

29. Foto-Frost v Hauptzollamt, ECR (1987) pp 4199; 4230.

30. France v US (1952) ICJ pp 185; 188

31. Frontini v Ministro delle Finanze, 2 CMLR (1974) p 372

32. German European Parliament and Council of European Union ECR 2000, p 1.8524.

33. Greg v. Planque (1936) 1 KB 669

34. Grey v Pearson (1857) 6 HL Case 1

35. Haslund v City of Seattle (1976) 547 p 2D at p 1230.

36. Head v Filley (1869) 4 Ch. App. 548

37. Heydons Case (1584) 3 Co Rep. 7a

38. IBRD and the IMF v All American Cable and Radio Inc. (1953) FCC, US. 22 ILR p 705

39. ICJ Report in Reparation of Injury case (1949) p 174 at p 184

40. Illinois v Kentucky (1991) 500 US 380.

41. Industrial Union Department AFL-CIO v American Petroleum Institute (1980) 487 US p 607

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42. International Court of Justice in Rights of United States Nationals in Morocco, ICJ Report 1952.

43. International Tin Council v Amalgamet Inc. 524 NYS 2d (1988) p 971

44. JH Rayner Ltd v Department of Trade and Industry (1989) 3 WLR 969 and J H Rayner v Department of Trade (1990) AC p 418

45. JH Farrar v DG Powles (1973) 36 MLR 270.

46. Jewsbury v Newbold (1857) 26LJ 7 HL 802

47. Jones v DPP (1962)1 QB 273

48. Jones, Justice, Opinion Judgement Delivered in Commonwealth of Massachusetts v State of New York (1927) 271 US 65.

49. Klausner v Levy 83 F. Supp. (EEVA, 1949).

50. Legality of the Threat or Use of Nuclear Weapons, ICJ Reports (1996) p 64 at p 79 para 25

51. London and North Eastern Railway v Berriman (1946) AC 278.

52. Lord Oliver of Aylmerton in Tin Council case, (1990) 29 IML p 670 at p 700.

53. Lotus Case, France v Turkey, Permanent Court of International Justice, 1927 (1927) PCIJ 3

54. Maastricht Case, CMLR (1994) p 57.

55. Maclaine Watson v International Tin Council (1988) Ch 1 at p 23 and Maclaine Watson v International Tin Council, (1989) Ch. 253 at p 257

56. Maclaine Watson v Department of Trade and Industry (1989) 80 ILR p 39 at 114

57. Namibia Case ICJ Report (1971) p 45

58. Namibia/Botswana and Kasikili/Sedudu (Kasikilis case) ICJ Report 1999

59. Namibias case, ICJ Report (1976) p 203.

60. National Bank de Cuba v National Bank of New York, 431. F.21.919720 394, 399-402.

61. Nauru v Australia, ICJ Report 1989.

62. Nicaragua v United States of America, ICJ Report (1986) p14

Table of Cases

xvii

63. Norberg, Charles Robert, Current Issues in International Commercial Arbitration: reported US v United Mexican States, 12 Journal Intl Bus (1989) 86 and 91.

64. North Eastern Railway Co v Berriman (1946) 1 All ER p 225

65. North Sea Continental Shelf case (1969) ICJ Reports, p 3

66. Powell v Kempton Park

67. Prosecutor v Dusko Tadic,Case No IT.94.I.7 May 1997.

68. Puyallup Indian Tribe v Port of Tacoma, (1983) 717F 2d 1251.

69. R v Allen (1872) LR 1CCR p. 367

70. Reparation for Injuries Case ICJ Report (1949)

71. Rutili v Minister of Interior ECR (1975) p 1219.

72. Salmon v Salmon and Co. (1897) AC 22

73. Saudi Arabia v Arabian American Oil Company (1991) at 117 particularly at p 119.

74. SS Lotus Case (France v Turkey) PCIJ (1929) No 9 .

75. State of New York v State of New Jersey (1998) 66 LW 4389

76. State v Wakeen (1953) 263 Wisconsin 401

77. Suncorp Insurance and Finance v Milano SPA (1993) 2 Lloyds Report 225 at 241.

78. Supreme Court of Israel in Attorney General of Israel v Kamiar, 9 June 1968, 44 ILRP 197 at 249.

79. Tempest v Kilner, (1846) 3 CB 249.

80. Texaco Overseas Petroleum v. Libya (1978) 17 ILM

81. Turner v Sawdon (1901) 2 K B 653

82. United States v Holt States Bank (1924) Ct. 197, 548, 152 US.1.

83. Van Gend en Loos v Nederlands (1963) ECR p1 at p 12

84. Vincent v Southern Railway Corporation (1927) AC 430

85. Voting Procedure Case, ICJ Report (1955) p 67.

86. Welsh Development Agency v Export Finance Co (1992) BCLC 148 at p 173.

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87. Whitley v Chappell (1868) LR 4 QB147

88. Whitworth Street Estates Ltd v James Miller & Partners Ltd [1970] AC 583

89. WHO and Egypt Case, ICJ Report 1980 pp 87-90

90. Williams v Shipping Corporation of India, US District Court, Eastern District Virginia, 10 March 1980, 63 ILR P 590 at 596.

91. Wimbledon Case PCIJ Report (1923)

xix

tAble of treAties

1. Westphalia Treaties of 1648

2. Amendment of Multilateral Treaties, Articles 40 (40) and Articles 30 (4) (b) of Vienna Convention on the Law of Treaties 1969.

3. Treaty establishing the European Constitution, submitted to the President of the EU on 18 July 2003, CONV 850

4. Investment Treaty between Cameroon and the United States of America, Senate Treaty Documents, 99-22 signed 26 February 1989.

5. EC Treaty

6. Paris Peace Treaty/League of Nations 1919

7. Protectorate Treaty of 1912

8. International Tin Agreement

9. Maastricht Treaty

10. United Nations Charter, San Francisco, 1945

Official documents1. 14 IMF Survey (October 1985) p 297

2. 17 UN GAOR Supp (No17) at 15 UN Doc A/5217 14/12/1962

3. Afghanistan Constitution 14 January 2004

4. Agreement between IBRD and IMF signed in New York on 15April1948 cited as UNTS Vol. 16 (1948)

5. Agreement the UN and the IBRD 1948

6. Amendment of Multilateral Treaties, Articles 40 (40) and Articles 30 (4) (b) of Vienna Convention on the Law of Treaties 1969

7. Annan, Kofi, UN Secretary General, 2003 in Building Inclusive FinancialSystem, Donor Guidelines, The World Bank Publications

8. December 2004

9. Article 24 of German Constitution

Table of Treaties

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10. Articles 1 (2) World Bank and IMF Relationship Agreement between theUnited Nations (UNTS) Vol. 16, (1948) p 346

11. Articles 10 of Directive 2002/95 EC of 27 January 2003

12. Articles 176 of Brazilian Constitution

13. Articles 28 (II) Greece Constitution of 7 June 1975

14. Articles 3 Roman Convention

15. Articles 59 (1) of the treaty establishing the European Constitution, submitted to the President of EU on 18 July 2003, CONV 850

16. Articles 73, Azerbaijani Law on the Constitution of 1978 amended 1993

17. Australia Constitution as altered on 31 October 1993

18. Austrian Constitution Amended on 1 July 1981

19. IMF Fiscal Affairs Department, Working Paper No 02/58, 2002

20. An Agenda for Peace, United Nations, New York 1992

21. Chechnya Constitution of 12 March 1992

22. Civil Service Pay And Employment, World Bank Publication 1991

23. Civil Service Reform Loans to Brazil-Loan No. 4046-BR dated 29 May 1996, Civil Service Reform Loan to Ukraine No 4118UA dated 15 November, 1996. and Loan to Russia-No 4058 RU 5 June 1996

24. Civil Service Reform; A Review of the World Bank Assistance Report No 19211 of 27 April 1999

25. Compact adopted by the State of Oklahoma and the State of Texas in respect of Red River Boundary on 24 May 1999. Section 12.002

26. Cooperation and Independent Agreement between the Bretton Woods Institutions and the UN, 16 UNTC (1948) p 346

27. Covenant of the League of Nations

28. Decisions 149 of 25 Issues of 2000, Decision 7925 of 8 March 1985

29. Directive 2002/95 EC of the European Parliament and the Council of 27 January 2003

30. Draft Constitution of the EU

31. 20 IMF Survey 337 of 18 November 1991

32. England Bill of Rights 1689

Table of Treaties

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33. European Economic Area Joint Committee Decision No 182/1999 of 17 December 1999

34. Executive Board Decision No 155-(52/57) of 1 October 1952

35. Federal Republic of Nigeria Constitution, 1979

36. France Constitution of 27 October 1946 as reconfirmed in their Constitution of 4 October 1958

37. French Law of Agency and Distributorship Agreements (1976)

38. General Agreement to Borrow (GAB) Executive Board Decision No 1289 24th Issues 1999

39. General Counsel of the World Banks letter to the United Nations Secretariat on 5 May 1967 cited in the United Nations Juridical Year Book (1967) p 121

40. IMF Survey, Vol. 10. 23 May (1983) p 146

41. The International Monetary Fund in International Law. An Introduction, IMF pamphlet series no. 4, Washington DC (1965)

42. Conditionality, 2 IMF Pamphlet Series, No 31 of 1979

43. IBRD Articles of Agreement

44. IBRD, Second Annual Report, (1947) p 17

45. IBRD, Third Annual Report, (1948) p 14

46. ICAO Council Case (1972) ICJ Report p 46

47. ILC Articles on States Responsibility 2002

48. ILM Vol. XIV No 6 Nov. 1975 pp 1579-1585

49. IMF Annual Report (2003) p 15

50. IMF Annual Report, 1989 p 35

51. IMF Annual Report, Table 11.3 and 11.4, 2001

52. IMF Articles of Agreement

53. IMF Pamphlets Series 19 November 1976 p. 7

54. IMF Press Release 6 June 2003

55. IMF press Release No 02/29 of June 2002, IMF and World Bank Highly Indebted Poor Countries (HIPCs)

Table of Treaties

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56. IMF Press Release No 98/7 of 19 March 1998

57. IMF Press Release No. 01/51, 7 December 2001

58. IMF PRGF 2000

59. IMF Public Information Notice (PIN) No. 04108 27 September 2004

60. IMF Public Information Notice No 05/107 of 9 August 2005

61. IMF Washington DC Guidelines on Continuality, (1989) Item 4

62. Institutional Development Fund, Established in 1992-World Bank Annual Report 1992

63. International Arbitral Award, 19 January 1977, 17 ILM 1 (1977) P 389

64. International Civil Aviation Articles

65. International Development Association (IDA) Articles of Agreement.

66. International Finance Corporation Agreement

67. International Legal Material (ILM) Vol. 8 (1969) p 1339, UN Doc. A/AC.109/333 of 3 July 1969

68. International Legal Materials (ILM) Vol. VI (1967) pp 150-153 especially at p 152

69. International Monetary Fund Annual Report 1983-86

70. International Telecommunication Commission

71. Investment Treaty Between Cameroon ant the United States of America, Senate Treaty Documents, 99-22 signed 26 February 1989

72. Landell-Mills J. Helping the Poor the IMF New Facility for Structural Adjustment, A Report sponsored by the D IMF research team, IMF Washington DC 1991 and 1992

73. IMF Fiscal Affairs Department, Working Paper No. 97/179, 1997

74. McNair A. The Law of Treaties (1961)

75. Memorandum Report of World Bank IDA/R80-22, 5 February 1980

76. Memorandum Report of World Bank R80-17/1, 20 March 1980

77. Memorandum Report WB R-122 IDA/R80-83, 9 May 1980

78. Netherlands Constitution of 17 February 1983

79. Nigeria Constitution of 1979

Table of Treaties

xxiii

80. Nigerian Civil Service Code 1985

81. Nigerian Civil Service Code 1990

82. Nigerian Constitutions as amended in 1999

83. Re-thinking Civil Service Reform: An Agenda for Smart

84. Government, World Bank Publication No 86, 1997.

85. Parliamentary Assembly of the Council of Europe Report and Draft Resolution, 7th Committee on Economic Affairs and Development on the Bretton Woods Institutions. Doc. 7256, 17 February 1995

86. Polish Nationals in Danzig case (1931) PCIJ Reports, Series A/B No 44 at page 24

87. Preamble, Vienna Convention on the Law of Treaties, 1969

88. Regulation on the Use of the IMF General Resource and Stand-by Arrangement, Decision No 6056-(79/38) of 2 March 1979

89. Report of Working Group and Statement by Central Bank Governors and Finance Ministers of G7 Countries, 29 April 1983, 12 IMF Survey ( June 1983) p 137

90. Resolution 2131 [XX] of 21 December 1965

91. Resolution 523 (VI) of January 1952

92. Resolution 670 adopted by the UN Security Council at its 2943rd meeting on 25 September 1990

93. Resolutions 2054A (XX) of 15 December 1965

94. Sanford JE in IBRD and IDA Yearbook of the United Nations Vol. 26 (1972) p 316

95. Sectoral Adjustment Loan Report, 24 January 1986 (R86-9) p 34 para.4

96. Statutes of International Court, Articles 38

97. The French law of Agency Distributorship (1976)

98. Title V of the Draft Constitution, in particular Articles 111-193

99. Treaties of Westphalia 1648

100. UK Companies Act 1985

101. UN and IBRD and IMF Documents signed in New York on 15 April 1948: UNTS Vol. 16 (1948) p 344

Table of Treaties

xxiv

102. UN Charter on Human Rights Obligations 1948

103. UN Condition for Admission Case ICJ Report 1948 p 64

104. UN Document E/C.120 of 22 July 1947

105. UN Gen.Res. 2158 Paragraph 5 of 25 November 1966

106. UN General Assembly 20th Session, Supplement No 14 United Nations Document A/6014

107. UN General Assembly Declaration on Principles of International law Concerning Friendly Relations and Cooperation among States of 24 December 1974

108. UN General Assembly modified Resolutions 1803 of 25 Nov. 1966

109. UN General Assembly Resolution 1803 (XVII) of 14 December 1962 61,68,70,80

110. UN General Assembly Resolution 2625 [XXV] of

111. 24 October 1970

112. UN General Assembly Resolution 2626 (XXV) of 24 October 1970

113. UN General Assembly Resolutions 1514 (XV) of 14 December and renewals until 22 November 1988

114. UN General Assembly Resolutions 2426 of 18 September 1968

115. UN General Assembly Resolutions 2526 of 24 October 1974

116. UN General Assembly Resolutions 2625 (XXV) 24October1970

.. 52,125,245,251,255,256,283

117. UN General Assembly Resolutions 3171 of 17 December 1973

118. UN General Assembly Resolutions 3281 of 12 December 1974

119. UN General Assembly Resolutions 55/146 in 2000 declaring that colonialism must end by 2010

120. UN press Release/GA/SHC/3753 Ensuring Rights of Self Determination, 28 October 2003

121. UN Resolution 1267

122. UN Resolution 1333 of December 2000

123. UN Resolution 3082 (XXVIII) of 6 December 1973

Table of Treaties

xxv

124. UN Resolution 46/87 of 16 December 1991

125. UN Resolution 748 of 31 March 1992

126. UN Resolution 883 of 11 September 1993

127. UN Resolution 917 adopted on the 6 May 1994

128. UN Resolutions 1508 of 19 September 2003

129. UN Resolutions 1510 of 13 October 2003

130. UN Resolutions 1521 of 22 December 2003 concerning Liberia

131. UN Resolutions 2625 (XXV) of 24 October 1970

132. UN Resolutions 3379, 10 November 1975

133. United Nations Charter 1945

134. United Nations Document E/C1/120 of 22 July 1947

135. United Nations Resolution 670 adopted by the Security Council at its 2943 meeting on 25 September 1990

136. United Nations Resolutions 731 of 21 January 1992

137. United States Diplomatic and Consular Staff in Tehrans case, ICJ Reports, (1980) pp3-29

138. United States Exchange Commission Rule 10 b 5 824 of 1943

139. Universal Declaration on Human Rights in reference to Articles 1, 55, 56, 68 and 76 of the United Nations Charter 10 December 1948

140. Universal Postal Service Union

141. US Bill of Rights 17 September 1787

142. Use of the Fund General Resources Decisions 6056 of 1979

143. Vienna Convention on the Law of Treaties 1969

144. Westphalia Treaty of 1648

145. World Bank and the IMF-Legal Reforms Project (Loan 4035) of 21 June 1996

146. World Bank Annual Development Report 1990

147. World Bank Annual Report (1991) p ii, iii and 1

148. World Bank Annual Report 1989-1999

Table of Treaties

xxvi

149. World Bank Annual Report 1992

150. World Bank Annual Report November 1992

151. World Bank Articles of Agreement

152. World Bank Burkina Faso Fourth Poverty Reduction Credit Project Program Doc. No. 28293-BUR of 14 April 2004

153. World Bank Civil Service Reform No 19211 of 1999

154. World Bank Decentralization, Civic engagement, challenges of intergovernmental Reform Sector Report No. 24384- SEN of October 2003

155. World Bank Decision Sec M90-445, 6 April 1990.

156. World Bank Development Report 1995

157. World Bank Discussion Papers No. 199 of 1993

158. World Bank General Condition Applicable to Loans and Guarantees, 1 January 1985

159. World Bank General Conditions Applicable to Loan and Guarantee Agreements, 1 January 1985

160. World Bank Group 3 and the Private Sector Development (Sec M 95-867, IFC/SecM95-149, MIGA/Sec95-25 in 4 August 1995

161. World Bank Interim Report on Adjustment Lending, R88-15, 25 January 1988

162. World Bank Legal Technical Assistance 2, World Bank Policy Research Working Paper No. 1414, 1995

163. World Bank Madagascar, Second Poverty Reform Adjustment, Program Doc. No. 32516-MAG of 9 June 2005

164. World Bank Policy Reform Working Paper No 1414 (Legal Department 1995)

165. World Bank Population Control in Philippines, by Insight Staff, Issue: July/August 2002

166. World Bank Public Administration Reform in Morocco, Program Doc. No. P7589-MOR of 4 June 2004, World Bank Basic Education Support Program Project Appraisal Doc. No. P3O721 7 January 2005

Table of Treaties

xxvii

167. World Bank Public Expenditure Reform Adjustment Credit Vol. 1 of 21 December 2000

168. World Bank Sector Report No 24384-SEN October 2003 Senegal; Decentralization, Civic Engagement and the Challenges of intergovernmental Relations Reform For Better Service Delivery

169. World Bank Staff Appraisal Report, Peru Judicial Report Project, Report No 17137-PE October 1997

170. World Bank Venezuela and Infrastructure loan for training legal personnel and providing buildings Project Loan No. 3514-VE of 30 December 1993, Bolivia Judicial and Legal Loan No PPF825-1-BO of 19 August 1994

171. World Bank Working Paper 733 May 1995

172. World Bank Working Paper July 1999

173. World Bank Working Paper Series No 945 1992

174. World Bank, IDA, IFC, Policies and Operations, World Bank Document (1968) p 43

175. World Bank, Managing Development: The Governance Dimension. A Discussion Paper, 1991, World Bank Washington DC

176. WTO Agreement Articles, XI, X

177. Yoo, Byun Chul, a Superintendent at the Correction Bureau of the Ministry of Justice, Republic of Korea who is also currently a PhD student at the Faculty of Law, University of Leeds, interviewed on 29 March 2006

xxviii

list of AbbreviAtions

ARAMCO Arabian American Oil CompanyBIT Bilateral International TreatyBMS Borrowing Member StateCSR Civil Service ReformDSB Dispute Settlement BoardEC European CommissionECOWAS Economic Community of West African StatesED Executive DirectorsEEA European Economic AreaESAF Enhanced Structural Adjustment FacilityESAP Enhanced Structural Adjustment ProgrammeEU European UnionG8 Group of Eight Industrialized CountriesGAB General Agreement to BorrowGDP Gross Domestic ProductHIPC Heavily Indebted Poor CountryHR Human RightsIAEA International Atomic Energy AgencyIBRD International Bank for Reconstruction and DevelopmentICC International Criminal CourtICCPR International Covenant on Civil and Political RightsICJ International Court of JusticeICSID International Centre for Settlement of DisputesIDA International Development AssociationIFC International Financial CorporationILO International Labour OrganizationIMF International Monetary FundIMFGC International Monetary Fund Guideline on ConditionalityITA International Tin AgreementMIGA International Investment Guarantee Agency

List of Abbreviations

xxix

MNC Multinational CorporationMS Member StateNAB New Agreement to BorrowNEIO New International Economic OrderNGO Non-Governmental OrganizationOECD Organization for Economic Cooperation and DevelopmentPRF Poverty Reduction FacilityPRP Poverty Reduction ProgrammePSD Private Sector DevelopmentSAF Structural Adjustment FacilitySAL Structural Adjustment LoanSAP Structural Adjustment PolicySDR Special Drawing RightsSFF Special Facility FundUDHR Universal Declaration of Human RightsUK United KingdomUN United NationsUNESCO United Nations Economic Social and Cultural OrganizationUNGA United Nations General AssemblyUS United StatesUS United States of AmericaUSSR (Former) Union of Soviet Socialist RepublicsWB World BankWGCLG World Bank General Conditions Applicable to Loans and

GuaranteesWMD Weapons of Mass DestructionWTO World Trade OrganizationWWI World War IWWII World War II

1

Chapter 1

introduction

1.1 the subject

The World Bank and the IMF were established in 1944 towards the end of World War II with the main aims of encouraging world trade by stabilizing and promoting regulated uniform foreign exchange rates, the removal of unhealthy and competitive import licences that restricted world trade, including the infrastructural development particularly for the war-torn areas in Western Europe. The process leading to the establishment of the institutions started long before 1944, yet because of the independence of states and their sovereignty, it took several rounds of negotiation that spanned three years before a consensus was reached in 1944.

At the negotiation stage during the Atlantic Charter, most state delegates were more apprehensive about the functions designed to be performed by the IMF than those of the World Bank, because the formers activities have the tendency to impinge upon the national affairs and sovereignty of member states. However, there were safeguards: the injunctive restrictive clause in Article 1 (V) of the World Bank Articles of Agreement1 provides, among other features, that the Bank shall be guided in all of its decisions by the purposes set out in the Articles of Agreement; Article IV Section 10 of the World Bank Articles of Agreement2 dealing with political neutrality of the Bank and restricting its officers from interfering in member states political activities. Similar injunctive restrictive clauses are also provided in Article 1 (V) of the IMF Articles of Agreement3 that the Fund shall be guided in all of its policies and decisions by the purposes set out in the Articles of Agreement. Together, these suggest that the institutions from the start never intended to interfere in the sovereignty of member states.

1 Article 1 (V) World Bank Articles of Agreement2 Article IV Section 10 World Bank Articles of Agreement3 Article 1 (V) IMF Articles of Agreement.

Introduction

2

Over an extended period, the activities of the World Bank and the IMF have come under intense scrutiny and criticism, while some authors are of the view that there is an increasing integration and overlap in their activities, and that their policies are touching on an increasing number of economic issues of member states, particularly those of the developing world;4 other writers have taken the extreme views that the World Bank and IMF policies are not only unjustifiable, but that they also undermine the respective sovereignty of the borrowing member states.5

Similarly, some authors have acknowledged the role of the institutions, especially the World Bank, in resolving disputes amongst its members. One example is the Indus River dispute in the 1950s between India and Pakistan in South Asia, the resolution of which by the World Bank and the IMF was based on the principles of equity, fair play and no harm to either party. It constitutes a landmark in water dispute resolutions brokered by the World Bank. However, the formulation of its own internal guidelines in forestalling such disputes as that which occurred between India and Pakistan creates more growing concern that there is a tendency for both institutions to exceed their own constituent documents and dictate to borrowing member states their own controversial conditions, with the guidelines on international waterways being such an example.6 While the effective role of the World Bank as a third party in providing the solution to the Indus Water dispute has been acknowledged, certain other activities of the institutions are not provided for in their Articles of Agreement.7 Since both bodies are expanding in their activities, they are also urged in their lending policies to take an interest in promoting and protecting human rights.8 This view can be endorsed only, when it is given legal validity by amending the Articles of Agreement, as activities not included in the articles of agreement are deemed to be essentially within the domestic jurisdiction of a member state.

Also, in contrast to the common criticisms of some authors and some non-intergovernmental organizations, this book is not a study of the political, economic and social justification of the World Bank and IMF policies; it is,

4 Subedi, Surya P., The Challenges Ahead for the World Bank and the IMF with Regard to the Human Rights Agenda in Human Rights and Development: Law, Policy and Governance, LexisNexis, Hong Kong, Singapore. Malaysia School of Law, City University of Hong Kong (2006) p 177.

5 Danaher, Kevin, 10 Reasons to Abolish the IMF and World Bank (2001) pp 10-34.6 Subedi, Surya P., Resolution of International Water Disputes: Challenges for the 21st

Century, The Permanent Court of Arbitration/Peace Palace Papers, 8 November 2002.7 Ibid., p 37.8 Subedi, Surya P. (2006) op. cit. p 178.

Introduction

3

rather, an investigation as to whether some of these policies in practice erode the sovereignty of the borrowing member states.

While it can be said that one of the cardinal principles of state sovereignty is non-intervention in members states internal affairs, it may equally be argued that policies actually arising from the activities conferred on the institutions appear not to erode state sovereignty even when they are not justifiable. Conversely, the accusation of erosion of state sovereignty by the World Bank and the IMF levelled by some critics may be sustained even when their policies are justifiable yet are not covered in their constituent documents. Most of the criticisms of the World Bank and the IMF have been based on presumed justifiable and unjustifiable policies. Little attention has been paid to investigating the legitimacy of these policies, which appears to be one of the legal bases for determining whether or not state sovereignty is indeed eroded by the institutions.

Aside from compliance with the institutions constituent documents as the bases for complementing the principles of state sovereignty, the provisions of the UN Charter, the Vienna Convention on the law of treaties, and principles of public international law, all of which are geared towards protecting state sovereignty and promoting peaceful international relations and security, are interpreted conjunctively in the course of investigation as to whether the policies of the World Bank and the IMF erode the sovereignty of the borrowing member states.

The book is divided into two parts: the first part will examine the facts leading to the establishment of the institutions; these facts will be relied upon to avoid absurdity in the interpretation of their constituent documents, their purposes and the powers that enable them to implement the policies, including the examination of the meaning and the essence of state sovereignty and the various methods of its acquisition. The second part analyzes whether the institutions policies are in compliance with their legal framework drafted to conform to the principles of sovereignty and international law, as policies that are in breach of the latter could erode the sovereignty of the borrowing member states

Member states of the World Bank and the IMF possess fundamental and inherent sovereign rights; however, at the establishment of the Bretton Woods institutions, some of the states sovereign rights were conferred upon them for specific purposes either through agency relationship, transfer or delegation of power. The limit and the extent of the conferred powers are clearly provided in their Articles of Agreement. The growing concern is whether the institutions are able to exercise the conferred sovereign powers within their legal framework and without an infraction of the sovereignty of the borrowing member states not expressly conferred or delegated to them, as compliance with the legal framework complements rather than erodes state sovereignty.

Introduction

4

Sovereignty is an exclusive right of an independent state and its citizens to exercise authority within its geographical territory, while in relation with other states, the state government usually exercises its sovereign powers9. It can be said that the state membership of World Bank and the IMF could limit their sovereignty, however it is not obligatory for states to become members of such international organizations. But, it is obligatory for international organizations to respect the principles of state sovereignty and limit themselves to the conferred powers as such organizations cannot on their own determine their competence.10 The entire world depends on the coexistence of sovereignties between states, yet these sovereignties are legitimately exercised by international organizations when delegated by states through a treaty.11 The argument and part of the decision of the court that international treaties could not deprive a state of its sovereign rights12 can be endorsed in this book. Furthermore, although the doctrine of self-determination is an attribute of state sovereignty, the courts have similarly declined to give judgement for a treaty that prevents states from performing a particular act based on a restrictive interpretation of a treaty that prevents states from exercising legitimate sovereign rights.13

The World Bank and the IMF are now global institutions. They were established just before the end of World War II by a group of states who pooled some of their sovereignty into a limited subject area to enable the institutions to perform certain specific duties for their common benefit and expressed in an international treaty in the form of Articles of Agreement. While the World Bank was set up to handle the reconstruction of the war-torn areas and provide infrastructural development, the IMF was set up to regulate the member states foreign exchange and to reconcile the problems associated with member states balance of payment accounts.14

The purposes of the institutions are clearly provided in their Articles of Agreement and there is no provision therein that their duties can be varied or performed interchangeably, neither jointly nor severally by either institution. At the beginning of the institutions activities, their functions were quite distinct, but the distinctions between the institutions later became blurred. In order to prevent perhaps unsustainable allegation or claims from critics regarding the erosion of state sovereignty by the institutions, their unauthorized variation of functions

9 Bouviers Law Dictionary, Revised Sixth Edition (1856) p 433.10 Brownlie I., Principles of Public International Law, Fifth edition (2001) pp 289-90

especially at 290 para 1.11 Ibid., p 290.12 Wimbledon Case, PCIJ Report (1923) 7, 28, 192 and 273.13 Ibid., Sheila Weinberger, The Wimbledon Paradox and the World Court, 10 Emory

International Law Review (1996) p 397.14 Article 1 of World Bank and IMF Articles of Agreement.

Introduction

5

will be examined to ascertain whether they are in conformity with the conferred powers as expressed in the Articles of Agreement. The fusion of their activities without amending the articles of agreement may also constitute a ground for a claim of erosion of state sovereignty. The legal validity of the fusion of their functions can be achieved only through amending the Articles of Agreement as provided in their constituent documents.15

There has been a growing controversy over both the restrictive and elastic interpretation of the Articles of Agreement of the two institutions, as the forms of interpretation have the capacity to erode a states sovereignty. In the Wimbledon case the court declined to give judgement for a restrictive interpretation of Article 380 of an international treaty, which provides that Germany should not exercise its sovereignty within its territorial waters;16 similarly, it can be said that an elastic interpretation17 of international agreements is likely to erode the sovereignty of an organizations member states sovereignty given that the interpretation could vary from the actual authorized delegated sovereign power. For instance, it does appear perhaps that Article 1 (V) of the IMF Articles of Agreement, under which the institution derived its powers to create most of its reform policies, may have been given an elastic interpretation.

The Articles of Agreement provide, inter alia, that the institution shall give confidence to members by making general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with the opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. In adopting legal literal rules of interpretation the courts in North Eastern Railway v Berriman, Vincent v Southern Railway Corporation, Dredge v Conway, and Jones & Co and Greg v Planque,18 cases with identical facts, held also that words must be given their ordinary meanings in interpretation, otherwise the situation could lead to absurdity. Even currently, these courts decisions are still the locus classicus adopted in non-subjective interpretations.

Similarly, the Vienna Convention on the Law of Treaties, which is similar to the English common law rules of interpretation, provides that treaty and international agreements shall be interpreted in good faith with emphases on

15 Article XXVIII of the IMF Articles of Agreement; Article VIII of IBRD Articles of Agreement.

16 Wimbledon Case, supra.17 Maxwell, Peter, Interpretation of Statutes, Twelfth edition (1969) pp 239-40.18 North Eastern Railway Co v Berriman (1946) 1 All ER p.225; Vincent v Southern

Railway Corporation (1927) AC 430; Dredge v Conway, Jones & Co (1901) 2KB 42; Greg v. Planque (1936) 1 KB 669.

Introduction

6

the ordinary meaning of the text.19 However, in the event of ordinary meaning leading to absurdity, the Vienna convention treaty requires that the preamble and the annexes including any relevant rules of international law should be used as an aid to the interpretation. Following the provision of the Vienna convention on the law of treaties, in order to arrive at objective interpretation of the articles of agreement, it can be suggested that the term adequate safeguard should be interpreted to mean financial relationship and caution that exist between borrower and lender in ordinary. It can be argued that this analysis could be used even when adopting the golden rules of interpretation,20 or the mischief rules, which requires that reference should be made to the main reason, and purpose that the statute is meant to achieve respectively as decided in the Heydon case.21 Also, even when the ejusdem generis rules approach is adopted in interpreting the term adequate safeguards, the interpretation will fall within the parameters of the common practice between lender and borrower in a financial relationship. Where the parties have exhausted the three main rules of legal interpretation, the applicable common practice should be used in the interpretation. This was also decided in Powell v Kempton case.22 Similarly, the argument that interpretation which are at variance with accepted norms may lead to absurdity,23 alter common rules and order,24 can be endorsed in this book as the institutions are expected not to exceed the sovereign powers only conferred or delegated to them by the member states.

The views of intergovernmental organizations25 and legal authors26 that all of both institutions powers and policies are based on pressure, coercion and the influence of the US may not be totally correct and endorsed in this book; the institutions can be said to be acting under some legitimate conventional powers, based on the Articles of Agreement. Unconventional powers based both on their economic influence and on their domestic and international legal personality are, furthermore, founded in international law and the general principles of law. While it may be claimed that the Articles of Agreement provide evidence of the conferred sovereign powers and nonetheless regulate the institutions exercise of

19 Articles 31 Vienna Convention on the Law of Treaties.20 R v Allen (1872) LR 1CCR p. 367; Smith & Bailey Modern English Legal System, Third

edition (1996) pp 351-403.21 Heydons Case (1584) 3 Co Rep. 7a. 22 Powell v Kempton Park Racecourse Company, (1897) 2 QB 242 at 260.23 Graham, R.N., Unified Theory of Statutory Interpretation, Doc. No 1999. 002 CIT p 1.24 Bennion, Francis, Statutory Interpretation, Second edition (1992) p 618. 25 Danaher, Kevin, The Ten Reasons Why the World Bank and the IMF Should be Abolished,

(2001) pp 6-10.26 Brown ,S., The United States and the Politicization of the World Bank: Issues of International law

and Policy: Elements of Coercion Analysis (1991) pp 31; 53; 162-164.

Introduction

7

the sovereign powers, on the one hand, and even though they have an independent autonomous agreement with the United Nations,27 perhaps on the other hand the institutions are also bound to be regulated by the UN Charter and Declarations,28 its being a global body regulating the international affairs of members and non-members alike. It could be held that those policies of the institutions in conformity with the conferred sovereign powers complement rather than erode state sovereignty; also, the institutions policies within the conferred sovereign powers appear not to fall under matters essentially within the domestic jurisdiction of states; those subject matters have been legally and legitimately conferred upon the institutions through the Articles of Agreement.29

Apart from the Articles of Agreement of the two institutions it can be argued that policies not in conformity with Articles 1 (2) and 2 (7) of the UN Charter may probably erode the sovereignty of the borrowing member states.30

The merits or justifications for the institutions policies may possibly be said not be a ground for the presumption of erosion of their member states sovereignty, as long as the policies are in conformity with the conferred sovereign powers in the legal framework;31 it can similarly be suggested that those policies are consistently ultra vires the Articles of Agreement and at variance with the international legal obligations imposed on the institutions could erode state sovereignty.

27 United Nations Document E/C1/120 of 22 July 1947; UN, IBRD and IMF Documents signed in New York on 15 April 1948: UNTS Vol. 16 (1948) p 344. Articles 57 and 63 of the UN Charter provide for specialized agencies defined under Article 57 to be brought into a relationship with the Economic and Social Council (ECOSOC) subject to the approval of the UNGA. There was, though, a test case as to whether the UN could exercise control over the affairs of the institutions in spite of their independent and autonomous agreement: during the cases of apartheid in South Africa, and Human Rights abuse in Chile and Portugal. (ILM) Vol. 8 (1969) p 1339, UN Doc. A/AC.109/333 of 3 July 1969.

28 UN General Assembly Resolution 2426 of 18 September 1968 appealing to all international organizations to stop giving aid to countries abusing human rights, UN Resolutions 3379, 10 November 1975 relating to Apartheid in South Africa and UN Resolution 46/87 of 16 December 16 1991 that brought the oil, aid and technical assistance sanctions ending the apartheid regime in South Africa.

29 Article 1 (1)-(5) of World Bank and the IMF Articles of Agreement dealing the object clauses and purposes of the institutions.

30 Article 1 (2), 2 (1) and 2 (7) of the UN Charter.31 The IMF and World Bank Articles of Agreement.

Introduction

8

1.2 issues

The book aims to examine whether some of the policies of the World Bank and the IMF lie within the parameters of the sovereign powers conferred on them by their constituent documents. This is because sovereign powers not conferred in the constituent documents may be said to involve matters essentially within the respective domestic affairs of member states; if the World Bank and IMF policies impinge upon the domestic affairs of a member states, the result may be an erosion of this states sovereignty.

It is therefore necessary to define and to delimit clearly the meaning and essence of state sovereignty, from the Old World Legal order to the New World Legal Order. For clarity and the understanding of the importance attached to the principles of international law, the various methods of acquiring state sovereignty, and the effects of political and economic sovereignty, including the principles of non-intervention that amplifies the fundamental rights to self-determination, are briefly elucidated.

States are subjects of international law, and only they possess inherent sovereign powers. However, some of these sovereign powers are conferred on the World Bank and the IMF either by the specific transfer of a certain duty, an agency relationship or a delegation of powers evidenced by the legal framework. At the conclusion of the legal framework, the institutions acquired an international legal personality similar to that of each state. They may have greater unconventional powers expressed through their economic influence, while the exercise of their sovereign powers remains limited to that granted or conferred by the states as expressed in the Articles of Agreement or legal framework. Their legal framework or the Articles of Agreement comprise the object clauses and purposes, including the modus operandi, clearly and unambiguously expressed in writing. Given that the institutions possess special rights and privileges, they are also bound by their international legal obligations, which consist of:

Obligation under the Articles of Agreement: Whether the institutions policies are in conformity with the Articles of Agreement that have clearly set out the object clause and purposes; including the modus operandi and the process of amendment, where and when it is desirable. Where and when might it become necessary to alter, vary or change the object clause and purposes, whether due process as anticipated and expressly prescribed by the member states was indeed followed in amending the Articles of Agreement? It may sometimes be possible for a policy of the institutions that could erode the sovereignty of states to have been based mistakenly on a wrong or subjective interpretation of the Articles of Agreement; were the statutory rules of interpretation applied to prevent absurdity and the erosion of member states sovereignty?

Introduction

9

Obligation under the UN Charter: Whether the institutions policies are in conformity with the UN Charter.32 Some of the provisions of the charter,33 such as the non-intervention in the affairs of another member state, which can be said to be synonymous with the doctrines of state sovereignty, are regarded as peremptory norm, for which derogation may not be allowed. It can be argued that the institutions observance and due regards to these provisions is obligatory.

Obligation under the UN General Assembly Declarations: Whether the institutions policies are in conformity with the UN General Assembly Declarations, particularly those dealing with non-intervention, self-determination, sovereignty over natural resources, and specifically, that each state has the right to choose and develop its political, social, economic and cultural systems.34

Obligation under International law: Whether the institutions policies are in conformity with the principles of public international law and particularly, the principles relating to agency relationships, territorial sovereignty and domestic jurisdiction35, the principles of self-determination,36 and the responsibilities of international organizations.37 The provisions of the treaty may be said to bind the World Bank and the IMF to being non-state actors in international law,38 including the mode of observance of the treaty39 and its application and interpretation.40 There is a general presumption that the institutions, under the principles of public international law, should take steps to amend the treaty before any change or alterations in their policies.

Obligations under the General Principles of Law: Whether the institutions policies are in compliance with the general principles of law. Although the ultra vires doctrines are recognized by international law,41 they are more commonly applied in domestic law. Confirming the meaning of ultra vires doctrines as unauthorised

32 Articles 2 (1), 2 (7) 57 and 63 of the UN Charter.33 Articles 2 (4) and (7) UN charter.34 UN General Assembly Resolution 1803 (XVII) of December 1962, dealing with

Permanent Sovereignty over Natural Resources; UN General Assembly Resolution 2626 (XXV) of 24 October 1970 dealing with the Declaration on Principles of International law Concerning Friendly Relations and Cooperation Amongst States in Accordance with the Charter of the United Nations, including the Universal Declaration on Human Rights in reference to Articles 1, 55, 56, 68 and 76 of the United Nations Charter of 10 December 1948.

35 Brownlie, op. cit., p 57736 Ibid., p. 59937 Ibid., p. 557, 38 Article 26 Vienna Convention 196939 Article 27 Vienna Convention 196940 Article 28 Vienna Conventions 1969.41 Amerainghe, C.F., Principles of Institutional law of International Organizations (1996) p 163.

Introduction

10

acts,42 the court has held amongst other things that it is an act performed without any authority.43 It can be argued that in domestic or national law, while the ultra vires act may only vitiate a contract or the contract be declared null and void, it goes beyond this boundary in international law: every ultra vires act of the institutions could be said to erode the sovereignty of the member states, as it is performed without the conventional authority of the state. The fact that an unconstitutional and illegal act is made and obeyed gives no rise to binding obligations; an assertion by some authors that the doctrines of ultra vires are not applicable in international law44 may be contested in this study, as such a claim defeats the entire purpose of the Articles of Agreement and the sovereignty of states.

1.3 arguments

The member states hold inherent sovereign powers. However, some of the sovereign powers are conferred on the World Bank and the IMF through the delegation of power, an agency relationship or the transfer of specific powers in order to enable them to execute certain specialized functions. Whether the conferment of the sovereign powers is achieved by an agency relationship, the transfer of powers or by the delegation of powers, the fact remains that states are the principals of the institutions. It does not, therefore, appear that the institutions policies can be accorded legal validity in international law when they exceed the limit of those powers conferred on them, given that such a step might be inconsistent with the doctrines of non-intervention.

It can be said that the principles of state sovereignty reach beyond the legal protection and regulation of the conduct of states in international relations to protecting ethnic minorities and individuals within the weak and strong nations alike. This view appears to further the doctrines of non-intervention, with the Articles of Agreement regulating, aiding and sustaining the institutions and their policies. The policies of the institutions that are not made within the constituent documents not only affect the rights of the borrowing member states, but also those of the non-borrowing states who may not expressly have endorsed a new policy in accordance with the due process dealing with amendments as already provided in the constituent documents.

It can be said that the Articles of Agreement of the institutions evidenced the conferred sovereign powers. Policies not in conformity with the conferred powers are considered as interference in the domestic affairs of member states. It can be

42 Blacks Law Dictionary, 1950 p 1,522.43 Haslund v City of Seattle (1976) 547p 2d p 1230.44 Osieke, A., Unconstitutional Acts, 28 ICLQ (1979) pp 2-3.

Introduction

11

argued that matters within the exclusive jurisdiction of a member state are those not conferred by the Articles of Agreement; the justification for the policies of the institutions is immaterial as long as it is legally conferred with such authority based on the principles of self-determination and international law without any form of domination and coercion.

The functions and purposes of the World Bank and the IMF are separate and distinct; the sovereign member states did not confer on the institutions the sovereign power to vary their activities and functions. Also, there is no provision in the constituent documents that their functions can be performed interchangeably or jointly and severally. Thus, regarding policies which tend to blur the distinction and fall outside the necessary due process as provided in Article XXVIII of the IMF, that any modification of the activities of the institution, whether proposed by the Board of Governors, Executive Directors or the member states, must be approved by three-fifths of members having eighty-five per cent of the total voting power,45 a similar provision is given in Article VIII of the World Bank Articles of Agreement.46

Certain policies made as a result of modification, the expansion of activities, or creative innovation, whether they be in furtherance of promoting good governance, accountability, and the prevention of corruption, including other moral, patriotic and effective roles not covered within the parameters of the constituent documents and not carried out with the express mandate of the member states according to the doctrinal analysis of Articles 2 (7) of the UN Charter in this study, can be presumed to impinge upon the domestic affairs of member states and are thus likely to affect the member states sovereign rights.

Under the general principles of law, whether it be contract law, constitutional law, or even criminal law, the agreements, rights, and obligations of corporate bodies and individuals are regulated by law, terms of contract, and obedience to civil law. As parties are bound by their agreements, no party can be prosecuted on the ground of immorality. Similarly, in international law, their treaties, rights, duties bind parties, and obligations arising from the treaties has legal validity and creates international legal obligation. Also, obligation arising from the creative innovative policies of one of the parties, whether from a state or a non-state actor, affects the rights of the party upon whom the obligation is imposed.

Even where the obligation of either party is compelled under any form of pressure, the consistent practice may not acquire the status of customary international law because of the directive nature of the policies that are either not in conformity with or are completely in breach of the treaty. Although the

45 Article XXVIII IMF Articles of Agreement.46 Article VIII World Bank Articles of Agreement.

Introduction

12

World Bank and the IMF may rely on an elastic interpretation of the constituent document to expand their activities, this claim can rest on the resort to legal rules of interpretations where the mischief rules, requiring that where all other rules or interpretations lead to controversies or absurdity, state that the last resort should be made by inquiring into the factors that led to the establishment of rules, law and the agreement. In endorsing this rule in this analysis, it can be said that where the institutions are interpreting the constituent documents under the principles of implied or ostensible powers, reference should be made and a high degree of importance attached to the reasons and events that led to the establishment of the institutions; perhaps, also to examine the minutes of the negotiations. The argument is predicated on the grounds of the accurate and objective interpretation of the constituent documents or the amendment through the procedure prescribed by the member states to prevent a possible infraction of state sovereignty.

1.4 methodology

The methodology is founded in the doctrinal literature survey and on a legal qualitative analysis based on the positive philosophical school of thought and legal jurisprudence that the policies and decisions of the World Bank and the IMF must conform with their constituent documents; that were drafted to promote the economic development and progress of member states under the checks and balances of public international law. This presupposes that international law, conventions, rules, or declarations of the UN General Assembly Resolutions, including the general principles of law, are a unique socio-political phenomenon guiding the behaviour of state and non-state actors in international relations. The legal validity of the institutions policies thus depends on compliance with this philosophical approach.

The examination and analysis is also predicated on the fact that the constructive and objective interpretation of the constituent documents of the institutions asserts individual state legal rights and affirms the legal validity of the policies and the principles of state sovereignty, rather than eroding the borrowing member states sovereignty; the legal approach is likely to guarantee the principles of justice, fairness and procedural due process.

The methodology in this study does not underplay the Natural and Realist philosophical approach, but after evaluating the international political economy before the Westphalia Convention of 1648 and before the universal acceptance of the concept of state sovereignty as a legal norm and doctrine, the positive philosophical approach is adopted. This approach may be said not to shut the door on political and social phenomenal changes in circumstances and times: the

Introduction

13

notion of international legal obligation which seems to suggest that the rules must be followed may not preclude progressive variation and amendment under the legal due process.

The current author paid visits to the headquarters of the World Bank, the IMF in Washington and their regional offices in the UK, China and Nigeria, including the United Nations in New York, for the purposes of using the library to research primary documents and engage in discussions with their staff. However, little was achieved in this regard as visitors to the institutions and the UN have, since the 11 September crisis, been restricted from access to these institutions. Discussions with the staff of the Central Bank of Nigeria and the Ministry of Finance were nevertheless quite helpful.

The substance of the academic research is based on books, judicial decisions, journals, and opinions of courts of competent jurisdictions; the United Nations Charter and the UN General Assembly Resolutions; the Vienna Convention on the Law of Treaties, including various countries constitutions, and on the opinions of other researchers.

1.5 outline of chaptersChapter One offers a brief account of and the background to the events that led to the establishment of the World Bank and the IMF, including the apprehension of state delegates as regards the effects of such institutions on their state sovereignty, despite their enthusiasm for the concept. The chapter gives the reasons behind the motivation before consensus was reached during the negotiations at the conference that members should surrender only the necessary few of their sovereign powers, just enough to enable the IMF to perform some specified functions.

Chapter One also elucidates the legal issues to be analysed in this thesis and the arguments supporting them, most of which are based on the moderate legal analytical concepts and philosophical approach of the Positivist school of thought; the methodology is included.

Chapter Two discusses the definition and the early concepts, including the legal meaning and the purpose of state sovereignty, starting from before the period of Treaties of Westphalia in 1648; the chapter addresses the interpretation from the 1933 Montevideo Convention on state sovereignty to the modern meaning and legal order, as well as the role then played by the League of Nations in comparison with the present role of the United Nations towards maintaining world peace and security. The emphasis placed on state sovereignty by the United Nations is analysed in the light of the roles of such institutions as the World Bank and the IMF

Introduction

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in eradicating colonialism and encouraging the independence, self-determination and sovereign equality of all nations that are synonymous with state sovereignty.

Chapter Three examines the modern notion of sovereignty and the essence and legal significance of state sovereignty. The study may be completely appreciated only when the importance and the legal significance of sovereignty is analysed. State sovereignty goes beyond the political and economic sovereignty that has been briefly discussed to the individual rights of self-determination aggregated to state sovereignty.

Chapter Four examines the events that led to the establishment of the institutions. The negotiations at the Bretton Woods conference, the successes of the Marshall Plan, the domination of the Chief Executive of the both institutions by the US and Europe, with the object clauses and purposes of the institutions as separately assigned to each of them are also briefly discussed.

Chapter Five examines the powers of the World Bank and the IMF, as they seem to have both conventional and unconventional powers. Their powers under the Articles of Agreement and the UN Charter as international organizations have been critically analysed. Also, as non-state actors in international law, they possess a domestic and international legal personality that enables them to do business with member states and third parties. The cooperative nature of the institutions as designed on paper enables them to enjoy special privileges and immunities as non-profit and communal co-operative organizations. The chapter discusses their unconventional powers, which includes both their economic influence and that of the Paris club and the G8. These powers of course enable the institutions to perform their functions in any member state with great confidence and impunity for their staff and institutions in those member states.

Chapter Six establishes that the sovereign powers inherent in member states are legitimately conferred upon the institutions, through the delegation of powers, an agency relationship or a transfer of specific powers to enable them to execute the designed and specifically assigned functions. Although there are sustained arguments that the World Bank and the IMF are non-state actors with an agency relationship with member states and as such are referred to as state actors in the international arena, the general assumptions are furthermore that the member states are principal to these non-state actors. The chapter further analyzes the powers of the agent and principal where such a relationship exists, as the agent acts only under the authority conferred by the principal except in certain cases where the authority is implied within the parameters of the assigned duties.

The comparison between the likely effects of the authorized acts of agents in domestic national law and in international law is briefly discussed and analyzed in this chapter in support of the proposition of this study.

Introduction

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Chapter Seven examines the international legal obligations of the World Bank and the IMF as they enjoy rights, privileges and immunities in international law; there are corresponding duties and obligations to which they are bound. Their non-compliance with an international legal obligation may be seen not only as a violation of international law, but could also be said to erode the sovereignty of the member states. The chapter discuses and analyzes one of the major obligations under the Articles of Agreement and the effects on the sovereignty on states in interpreting some of its provisions.

Chapter Eight examines the obligations of the institutions under the UN Charter, including a critical analysis of a selection of the reform policies. Given that the UN Charter is one of the basic documents of international law, some measures that protect and promote the modern notion of state sovereignty are provided therein. Aside from the World Bank and the IMF, member states have obligations under the UN Charter. The chapter analyzes some of the policies of the World Bank and the IMF, and whether they are in compliance with the provisions relating to the protection and respect of state sovereignty. For example, one of such provisions is in Article 2 (7) of the UN Charter,47 which provides inter alia that the United Nations, which by implication includes other international organizations such as the WB and the IMF, shall not intervene in matters essentially within the domestic jurisdiction of another state.

The doctrinal analysis of this provision is that sovereign powers not expressly conferred or implied within the parameters of the institutions constituent documents thus lie within the respective domestic jurisdictions of member states. The probable effects of non-compliance with this obligation under the UN Charter and the assumptions as to where they may exist have been critically analyzed and elucidated, with selected states used as case studies and illustrations to support the research findings in this chapter.

Chapter Nine contains the Conclusions and Recommendations.

47 Article 2 (7) UN Charter.

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Chapter 2

the trAditionAl notion of stAte sovereignty in internAtionAl lAw

This chapter examines the international normative framework that upholds the sovereign statehood in the world, during and after Imperialism and Colonialism. A brief history of the old world order, where some states are administered as Colonies, Mandates and Trust territories by Imperial Masters, is given. The chapter discusses various methods of acquiring state sovereignty to enable the appreciation of the core theme of this thesis. The enjoyment of sovereign rights by, according to the modern terminology, Developing and Developed states48 will also be examined, including the modus operandi adopted in achieving the institutionalization of the concept of sovereign rights particularly among the former Third World states, as they were then designated.49 The chapter analyzes the unique political and constitutional framework that evolved as a result of the universal institutionalization of the basic concept of sovereignty. There is no concrete codified definition of sovereignty, yet the supposition is that legal authors merely describe the concept and the objectives it is meant to achieve. While some merely apply it as the basic constitutional doctrine of the law of nations,50 others are of the opinion that it provides for the preservation and protection of self-government and self-determination without external influence for constitutionally independent nation-states with a view towards protecting the dignity of their citizens.51

The further purpose of this chapter is to set out the scope, significance, and examination of the sanctity of state sovereignty as a foundation and means for sustainable world peace and security, including the preservation of each individual

48 Cox, Robert W., Social Force: States and World Orders, Beyond International Relation Studies Theory Millennium, Journal of International Studies (1981) Vol. 10 pp 126-55.

49 Worsley, Peter, The Third World: A Vital New Force in International Affairs (1970) Second Edn. p 390.

50 Brownlie, I., The Principles of Public International Law, Fifth Edition (1998) p 289.51 Schrijver. Nico, The Changing Nature of State Sovereignty, The British Yearbook of

International Law 1999, Oxford: Clarendon Press (2000) p 59.

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nation-states social and cultural identity, guaranteeing their independence without external interference, as the erosion of state sovereignty by another state or non-states actor could threaten international peace and security.

Furthermore, the examination of sovereignty will be restricted to the aspect that deals with the self-determination and equality of states as a legal condition: principles, standards, conventions, practices, and international legal jurisprudence. The jurisprudence of this concept provides a common denominator for a number of related rules,52 such as the self-determination that is a result of the common denominator forming part of the jus cogens of the law of nations.53 The chapter concludes by examining different methods of acquiring state sovereignty, the roles played by the League of Nations and the UN, the judicial hegemony, and the legal effects of state sovereignty.

2.1 definition of sovereignty

Sovereignty represents the basic constitutional doctrines of the law of nations that governs a community consisting primarily of states, having a uniform legal personality. If international law exists, then the dynamics of state sovereignty can be expressed in terms of law.54

Many authors have tried to define the term sovereignty; the term can better be described than defined, although some philosophers present the term as a rule of law made to preserve internal order and the integrity of state, and to protect the state from external interference.55 However, certain authors argue that sovereignty is an organized principle of international politics according every state the prerogative to pursue its rights and organize internally into a form of economic integration that facilitates the development desired by the state for its citizens.56

Sovereignty has been defined as the power a country has to govern itself and make its own laws.57 Others have defined sovereignty as the supreme, absolute and uncontrollable power by which any independent state is governed: supreme political authority, the power to accomplish the will of the state within the state and with no accountability to an external body.58 The meaning and importance

52 Schwarzenberger, G., and Brown, E.D., A Manual of International Law, Sixth Edn. (1976) pp 33-6.

53 Brownlie, I., Principles of International Law, Third Edition (1979) p 515.54 Brownlie, I., Principles of International Law, Fifth Edition (1998) p 289 para. 1.55 Bodin, Jean, The History of Political Thought: Sovereignty (1992) p 23. 56 Milestein, Brian, The Crisis of External Sovereignty: The US and the World. 57 Oxford School Dictionary, Third Edition (2002) p 681.58 Blacks Law Dictionary, Sixth Edition (1996) p 1020.

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of sovereignty were consolidated at the Peace of Westphalia in 1648 when Europe moved from the Middle Ages to the regime of sovereign states.59 After the Westphalia conference, the authority of states was no longer being challenged by the Roman Empire as states began to respect the principles of non-interference in another state.60 It can also be said that the norms of sovereignty, as it was then understood, encouraged and sustained peace and are enshrined in Articles 2 (4) and 2 (7) of the UN Charter; this prohibits attacks on the political independence and integrity of, and sharply restricts intervention in the affairs of, another state.

It has been said that no Treaty provision or international agreement, can deprive a state of its sovereign rights.61 All of a states obligations, including its relationships with other states, arise from its sovereign rightsa term sometimes used to describe the legal competence of a state. Although treaty obligations and the membership of an international organization could limit the states sovereign rights, that is as far as and the extent to which the sovereign powers are conferred on each one. The limitation is to prevent the erosion of state sovereignty. International law may to some extent primarily be based on the notion of state sovereignty. This assertion can be supported by the fact that the first principle of the UN Charter commenced with an injunction of the sovereign equality of all members.62 The decision in the Wimbledon case63 gave an indication of the importance of state sovereignty, yet not as an absolute concept; it is, however, a concept that guarantees the self-determination of a nation, the violation of which will erode the sovereignty of that state.64

The concept has been liberalized following changes in the worlds political economy where international organizations are allowed to exercise a limited amount of sovereign powers on behalf of states;65 in such circumstances, the rules of conduct are quite prescriptive, laid down, acted on, applied and regulated by international law as the worlds political order.66 The concept of sovereignty can be said to undergo change and transformation in line with global growth, thus the concept clearly confers independence on states. When considering the political

59 Kantorowwics, E., A Study in Medieval Political Theology (1959) p 10.60 Philpot, D., Revolutions in Sovereignty; How it shaped Modern International Relations (2001)

p 23.61 Ibid., p 290.62 Article 1 (2) of the UN Charter63 Wimbledon Case (1923) PCIJ p 25.64 Ibid., p 26.65 Twining, W. and Miers, D., How To Do Things with Rules, Second Edition (1984) pp 126-

7.66 Emmet, Dorothy, Rules, Roles and Relations (1966) p12. The philosopher is of the view

that the structure of a general norm guiding conduct and rules remains unchanged while the outlook can be fantasized.

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economy and interdependence of states, in practice absolute sovereignty and independence might be remote.

State sovereignty has for the past decades been a defining principle of interstate relations and a deep foundation of the world order. The concept lies at the heart of both customary international law and the UN Charter, with the main object of maintaining international peace and security, including protecting weaker States against the stronger ones67. The concept has never been inviolable, either in law or in practice, as its legal definition might imply: a factor observed by some political leaders. They argue that even where absolute sovereignty may have seemed to exist, it was highly theoretical; hence, it has never matched reality.68

2.2 the legal meaning and purpose of sovereigntyLegally, state sovereignty denotes the capacity and competence, independence and legal equality of states. The concept, which became the foundation of International law, was shaped to the acceptance