1. LAW, JUSTICE AND DEVELOPMENT WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT November 14-17, 2011 Washington DC LJD LAW JUSTICE and DEVELOPMENT

2. The IMF’s Approach Regarding Conflicts Concerning International Law and Domestic Law Ceda Ogada Assistant General Counsel International Monetary Fund Wednesday, November 16, 2011 LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT

3. General Concepts  A fundamental principle of international law is that it prevails over domestic law. But international law does not itself prescribe how this principle should be applied or enforced at the national level.  Moreover, the principle does not invalidate conflicting national laws or intrude into national legal systems. Rather, it requires a result as opposed to a method of implementation.  From the standpoint of the Fund, its Articles of Agreement are a treaty, and therefore the law of the Fund includes the applicable norms of treaty law and of other aspects of public international law. – In particular, this includes the notion that international law prevails over domestic law. LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT1

4. General Concepts Contd.  This notion is embedded in the Fund’s membership procedure, which entails the representation by a member that it has taken all the steps necessary under its domestic law to enable it to carry out all its obligations under the Articles. The Fund does not accept an instrument that contains a reservation or interpretation.  The representation by the member is continuing and does not relate exclusively to the date when membership was assumed.  For example, action may become necessary under domestic law to enable the member to perform its obligations under the Articles because of a later: – Amendment to the Articles – Interpretation of the Articles by the Fund LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT2

5. General Concepts Contd.  In some countries, once a new treaty obligation is accepted, it automatically becomes part of the domestic law.  In other countries, however, it is necessary to actually incorporate the provisions of the treaty into domestic law for it to have legal effect domestically.  From the Fund’s standpoint, it is the prerogative and responsibility of each member to determine whether compliance with the Articles would require changes in its own legal system.  In summary, the Fund does not accept a conflicting domestic law as a defense to a breach of the Articles. LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT3

6. Application of General Concepts  Three main areas in which this issue of conflicts has been experienced in practice by Fund lawyers: – Data Reporting Obligations – Obligations concerning exchange restrictions and multiple currency arrangements – Use of Fund Resources  Data reporting – Article VIII, Section 5—criticality of accurate and timely reporting of data to the Fund— policy advice, surveillance, lending, technical assistance – Sensitivity of certain data— example, IIP data (Article VIII, Section 5(a) (vii))—domestic law does not allow dissemination of data in some cases – Escalating sanctions, begin with persuasion, try to accommodate confidentiality concerns – If the problem persists, ends in publicized finding of breach of obligation, but typically does not escalate further as there is an agreed remedial plan of action, which brings member back into compliance LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT4

7. Application of Concepts in Practice Contd.  Exchange Restrictions and Multiple Currency Practices – Article VIII, Sections 2(a) and 3—response to “beggar thy neighbor policies” of the inter-war years (see Purposes—Article I (iii)) – Understanding that restrictions and MCPs sometimes necessary for balance of payments purposes, thus the Fund’s approach has been to use persuasion/peer pressure rather than a sanctions regime (badge of honor to have full current account convertibility status) – Approval policies – Transitional arrangements – Finding of breach/publication not required LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT5

8. Application of Concepts in Practice  Use of Fund Resources – Article V, Section 3(a)— Balance of Payments criterion – Adequate safeguards—conditionality – Financing is to help members resolve their BoP problems and to do so in a manner that ensures full and timely repayment to the Fund—conditionality helps to achieve this – Sometimes a condition that is inconsistent with a member’s domestic law has been judged by the Fund to be so critical to the success of the program that the Fund will not provide financing unless the domestic law is changed, even if it is the national constitution – Famous case involving governance and corruption issues of macro-economic implications. Fund wanted establishment of an independent anti-corruption commission with investigative and prosecutorial powers, but the member maintained that the condition was contrary to the constitution. Condition was not met, Fund did not lend. LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT6

9. Thank you! The International Monetary Fund Legal Department 700 19 th Street, NW Washington, D.C. 20431 cogada@imf.org Tel: 202-623-7886 LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT