International Monetary Fund must be held accountable

Mohamad Mova Al 'Afghani, Jakarta

Like other international organizations, the International Monetary Fund is a legal entity and is subject to international law.

Article IX of the IMF's Articles of Agreement adopted on July 22, 1944 says the IMF has capacity to enter into contracts, to acquire and dispose of immovable and movable properties and to institute legal proceedings. Thus, the IMF is not above the law and can be held legally responsible.

Unfortunately, the existing Public International Law has yet to possess any instrument establishing accountability for international organizations such as the IMF. A working group however, has been established by the United Nations International Law Commission to draft Articles on the Responsibility of International Organizations (ILC's Work).

The Asian and African countries, who met in Jakarta recently, need to support the ILC's Work, which will set guidelines on holding international organizations like the IMF responsible for their deeds. In addition to giving moral and political support to the ILC, Asian and African countries also need to insert provisions on draft articles that would support their legal interests.

The ILC's draft articles on the responsibility of international organizations are likely to include a specific clause on dispute-settlement mechanisms and designate a specific institution to adjudicate disputes between states and international organizations.

It is vital for the developing world that future dispute settlement bodies must possess be able to adjudicate cases that occurred before their incorporation. If this retroactive clause is inserted, IMF-"victim" states would be able to institute legal proceedings against the IMF that occurred prior to the incorporation any tribunal.

Another difficulty in suing the IMF is that, there are no actual black-on-white agreements enforced between the IMF and debtor states that could stand as an adequate legal basis for claim.

The Letter of Intent that sets the terms and conditions for the states in obtaining loans is not binding as a treaty and thus there is no legal obligation toward the debtor states and the IMF.

Nevertheless, the IMF and other World Bank institutions might not be able to escape charges based on due diligence principles. Any omission conducted by the IMF's board of executive directors in formulating the "wrong prescription" to "victim states" would be attributable to the IMF as an institution. The same would apply to any ultra vires (exceeding authority) actions.

However, as the IMF's decisions are influenced by the level of nations' financial contributions, IMF shareholders could also be liable. If one day an international tribunal decided the IMF was guilty for certain omissions, the United States, the nation that holds 17 percent of the vote, and other G7 countries, which hold about 45 percent of the vote, would be held liable if they had condoned the IMF's decision.

The legal burdens of those countries could become heavier as they hold significant influence in appointing World Bank and IMF's chiefs, which are traditionally an American and a European respectively.

The IMF and World Bank also operate as brokers between commercial banks to debtor states. Most Third World countries owe money not to creditor nations of the World Bank but to commercial international banks. As the IMF also organizes and negotiates directly with commercial banks to arrange combined IMF-commercial loan packages, these commercial banks may also be susceptible to legal claims and share a burden of responsibility.

Possible remedies resulting from the institution of legal proceedings against the IMF and other World Bank institutions could be varied. The ultimate remedy is of course, compensation. Such compensation could be sought if debtor states could prove the IMF or World Bank conducted were grossly negligent in their advice to debtor states.

Giving the wrong prescription to a state may involve the livelihoods of more than 200 million people who might have had a better future if the right prescription was given or the country did not enter the IMF scheme.

Any compensation to victim states would be reasonable as these "failed states" need to catch up economically with their neighbors.

Two other remedies applicable to ordinary negligence claims could be in the form of writing off or rescheduling loans.

It would be much better however if the "liability without fault" principle was incorporated. For example, if both the IMF's executives and the government of a state had done their best to reform the economy but still failed to do so, then it would make sense that loans were written off.

The possibilities outlined in this article may materialize once the ILC's Work has been completed. There is no doubt that moral and political support from Asian and African countries for this work will be very important.

The writer is a lawyer at Lubis Ganie Surowidjojo. He can be reached at movanet@yahoo.com.