International Monetary Fund must be held accountable

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.