State responsibility and international financial obligations : a case study of the International Monetary Fund stand-by arrangements with developing country members
University of British Columbia
Master of Laws - LLM
Since the international debt crisis arose in 1982, various forms of debt relief measures have been applied by international creditors to alleviate the difficulties encountered by most developing countries in meeting their financial obligations. Renegotiation of external debts within the framework of official and private creditor clubs, however, has become the widely acceptable procedure in recent years. A sine qua non to this process is the entry by a debtor state into a stand-by arrangement with the International Monetary Fund. Compliance with the terms of the stand-by arrangement is closely linked, either in a formal or informal manner, to the enforcement of bilateral loan rescheduling agreements with creditor governments and syndicated loan agreements with private commercial banks. The crux of IMF financing is a commitment by a debtor state to implement economic policies aimed at improving the latter1s balance of payments position. However, the impact of these economic austerity measures upon the political stability of the debtor's government and the living standards of its citizens has generated an attitude of reluctance among the leaders of several developing countries to consult the IMF in accordance with current renegotiation procedures. In this thesis, the writer will examine the salient legal and political issues arising from the practice of international creditors in using compliance with the terms of the IMF stand-by arrangement as a parallel condition under their loan agreements with a debtor state. Three main arguments have been considered by this writer in shedding light upon this study. Firstly, the assumption that compliance with the terms of the IMF stand-by arrangement constitutes an international obligation is not in accord with the law and practice of the IMF. Any inference of breach entailing state responsibility, therefore, is unwarranted on account of the characterization of the IMF stand-by arrangement as a non-binding instrument. Secondly, a debtor state experiencing extreme economic hardship may be justified under international law to take unilateral action having the effect of deviating from the stand-by arrangement provisions. It will be argued in particular that the principle of "freedom for payments" embodied in stand-by arrangements is subject to an exception applying the rule of a state of necessity under international law. Finally, it will be argued that the political sustainability of economic adjustment for debtor states through the stand-by arrangements could be enhanced by incorporating human rights principles as a juridical standard for adjustment policies formulated in consultation with the IMF.
International finance; Debts, External -- Developing countries; International Monetary Fund
Law, Peter A. Allard School of