Developing Country Debt Crises, International Financial Institutions, and International Law: Some Preliminary Thoughts

Abstract

While the question of how effectively the IFIs have performed their international economic, financial, social, environmental and developmental responsibilities in their work with these debtor countries has been extensively analyzed and debated, their compliance with their applicable international legal obligations has been less examined. The IFIs' responsibility in this regard, is based on their mandates, as defined in their Articles of Agreements, and general principles of customary international law. Their customary international legal obligations include upholding such principles as pacta sunt servanda and rebus sic stantibus and respecting the sovereignty of their member states.

The thesis of this paper is that, when measured against these legal standards, the IFIs record in dealing with sovereign debtors in difficulty during 1982-2007 is mixed. They made effective use of the principles of pacta sunt servanda and rebus sic stantibus to influence the course of the negotiations between debtor member states and their creditors but were less effective in meeting their responsibility to promote sustainable development and poverty alleviation in their member countries. In addition, the way in which the IFIs have implemented their mandates to achieve these objectives has resulted in significant expansion in the scope of their missions, which has led many to raise concerns about their encroachment into the areas of responsibility of other international organizations and the efficacy and the legitimacy of their roles in the international financial order.

In order to establish this thesis, the paper briefly describes the key IFIs, namely the World Bank Group (WBG or WB) and the International Monetary Fund (IMF), and their international legal obligations. It then provides a brief overview of the IFIs' role in the debt crises of their member states over the past 25 years and of their implementation of the applicable international law principles. The final section of the paper evaluates their compliance with their international legal obligations.