Time to put an end to World Bank impunity

16 November 2006 by Eric Toussaint


Is it possible to sue the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

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Contrary to popular opinion, the World Bank (WB) is not entitled to immunity either as an institution or as a legal entity. Section 3 of Article VII of the Charter (articles of agreement) explicitly states that the WB may be taken to court under certain conditions. For example, the WB may be tried by a national court of justice in countries where it is represented and/or has issued bonds [1].
The possibility of bringing an action against the WB has existed since its foundation in 1944 and has never been modified until now for the simple reason that the WB finances the loans it grants to member-countries by borrowing (by issuing bonds) on the financial markets. Originally, these bonds were bought by the big, mainly North-American, private banks. Now, other institutions, including pension funds Pension Fund
Pension Funds
Pension funds: investment funds that manage capitalized retirement schemes, they are funded by the employees of one or several companies paying-into the scheme which, often, is also partially funded by the employers. The objective is to pay the pensions of the employees that take part in the scheme. They manage very big amounts of money that are usually invested on the stock markets or financial markets.
and trade unions, buy them too.
The WB’s founder countries estimated that they would not be able to sell the Bank’s bonds unless they guaranteed buyers the right to sue the Bank in case of default. This is why there is a fundamental difference between the immunity status of the WB and the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
. The IMF can have immunity since it finances its loans itself using the money paid in by its members in the form of pro rata shares. If the WB does not enjoy immunity, it is not for humanitarian reasons, but to provide creditors with the requisite guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). .

It is therefore perfectly possible to sue the WB in the numerous countries where it has offices. It is possible in Djakarta or in Dili, the capital of East Timor, in Kinshasa, Brussels, Moscow or Washington, since the WB is represented in all those countries.

Why sue?
Since the WB has been making loans [2], a good portion of them has been used to carry out policies that had a detrimental effect on the welfare of hundreds of millions of citizens. What do we mean by that? The WB has systematically given priority to loans for big infrastructures such as huge dams [3], investment in industries that extract raw materials (for example, open-cast mines, numerous pipe-lines - of which the most recent are the Chad-Cameroon and the Baku-Tbilisi-Ceyhan [4] pipelines), agricultural policies in favour of “all-export” at the expense of food security and food sovereignty, and power stations which devour tropical forests.

Moreover, the WB has frequently come to the aid of dictatorships known to be guilty of crimes against humanity: there were the dictatorships of the Southern Cone of Latin America from the 60s to the 80s; numerous African dictatorships (Mobutu from 1965 until his fall in 1997, the Apartheid regime of South Africa); regimes of the former Soviet Bloc such as the Ceaucescu dictatorship in Romania; those of Southeast Asia and the Far East, such as that of Marcos from 1972 to 1986 in the Philippines, Suharto from 1965 to 1998 in Indonesia, South Korea (1961-1987), Thailand (1966-1988), up to and including today’s dictatorship in China.

At the same time the WB, along with other actors, has contributed to the systematic destabilization of progressive and democratic governments by withdrawing all aid: this was the case for the Sukarno government in Indonesia until he was overthrown in 1965; the governments of Juscelino Kubitschek (1956-1960) followed by Joao Goulart (1961-1964) in Brazil, finally overthrown by a military coup d’état; Salvador Allende’s government in Chile (1970-1973), and so on.

Next there are all the loans made by the WB to the colonial powers (Belgium, Great Britain, France, Italy, the Netherlands...) to enable them to exploit the natural resources of the countries they ruled until the 60s. All those loans were later included in the external debt of the States when they became independent. For example, the independent State of Congo had to finish paying off the debt incurred by Belgium in its name. The same thing happened for Kenya, Uganda, Nigeria, Gabon, Mauritania, Algeria and Somalia for the debts contracted in their names by the colonial governments.

Then there are the structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
loans that the WB has granted since the 70s. These loans are not designed for any particular economic project - but are intended to help implement global policies with the ultimate aim of completely opening up the economies of the “beneficiary” countries to investments and imports, mainly from the principal shareholders of the WB. This means that the WB supports policies denationalising the assisted countries to the advantage of a few of its members. Thus a handful of industrial powers impose their wishes on the majority of the inhabitants and the countries of the planet. The fact that all their remedies - whether long-term structural remedies or the short sharp shock type - do more harm than good has been demonstrated repeatedly in the string of crises that began with the Tequila crisis that hit Mexico in 1994. The Bank’s new priorities, such as the privatization of water and land, along with its recent refusal to apply the recommendations of the independent Commission on Extractive Industries, clearly indicate that the Bank has no intention of changing its course and that new social catastrophes are in preparation - powerful tsunamis caused by the cataclysmic interventions of the WB!

Who might bring a legal action?

Associations representing the interests of people adversely affected by WB loans and/or by its support for dictatorships could bring an independent action and sue the WB for damages in national courts. Holders of WB bonds - there are not only bankers, but also trade unions - could sue the Bank over the use it makes of the money it borrows from them. There is no guarantee that such lawsuits would be successful, but it is hard to see why citizens’ movements should not use their right to hold the WB accountable for its acts. It is inconceivable that the nefarious practices of an institution like the WB should not one day be sanctioned by a decision of justice.

Why have no such procedures ever been initiated?

The clause of the WB Charter (Article VII, Section 8) which grants immunity to the decision-makers and to officials in the exercise of their duties has tended to obscure the possibility of suing the WB as a legal entity (Article VII, Section 3, see note 1 of this article). Yet it is more important to be able to demand that the WB answer for its actions as an institution than to simply hold its executives to account. Indeed, the same clause of its Charter (Article VII, Section 8) provides for the WB to decide to remove the immunity protecting its directors and officials. Actions could also be envisaged against high-ranking officials after they have left office.
Another reason why so far there have been no actions brought against the WB is that it has taken a very long time for the truth to emerge, and for people to realise just how systematic and generalized the reprehensible practices of the WB are. In the eyes of the citizens, it is often their national governments that are seen to be responsible for the policies demanded by the WB, so its true role passes unnoticed.

Does the U. N. Convention of 1947 not give full immunity to the specialized agencies of the United Nations to which the World Bank belongs?

A United Nations Convention on the Privileges and Immunities of the Specialized Agencies was approved by the General Assembly on 21 November 1947 [5]. Article X section 37 of the Convention, concerning the annexes and the application of the Convention to every specialized institution, states that the Convention “becomes applicable to each specialized agency when it has transmitted to the Secretary-General of the United Nations the final text of the relevant annex and has informed him that it accepts the standard clauses, as modified by this annex (...)”. The Bank sent its copy back.
Annexe VI concerns the International Bank for Reconstruction and Development, and thus the World Bank. And what does it contain? This is where the Bank has actually inserted those of its statutes which specify the circumstances under which it loses its immunity!
Within the United Nations, the World Bank thus prefers to conform to it status as a bank rather than take advantage of the immunity given to the United Nations agencies. Here is the relevant paragraph: “The convention (including the current annexe) will apply to the International Bank for Reconstruction and Development (hereafter mentioned under the name of “the Bank”) with reservation of the following provisions: 1. The following text will replace the one of section 4: “The Bank can only be sued in a court that has its jurisdiction in a member state where the Bank has a branch, where it has appointed an agent in order to accept demands or notice of demands or where it has issued or guaranteed transferable securities””.
It is therefore possible to sue the World Bank under the terms of the 1947 United Nations convention and its annexes.




Copyright Eric Toussaint 2006

Translated by Virginie de Romanet and Vicki Briault

Footnotes

[1Section 3 of Article VII: “Actions may be brought against the Bank only in a court of competent jurisdiction in the territories of a member state in which the Bank has an office, has appointed an agent for the purpose of accepting service or notice of process, or has issued or guaranteed securities.”

[2The first loan dates back to 1947.

[3According to the report of the Commission on Large Dams, 60 to 80 million people have been displaced as a result of the construction of large dams. In a many cases, the rights of these people in terms of compensation and resettlement have not been respected.

[4According to the report of the Commission on Extractive Industries published in December 2003, a large portion of the projects financed by the WB have had negative effects on the populations of the countries concerned. See chapter 17.

[5In Article I of the Convention entitled “ Definition and Application” Section 1, the specialized institutions mentioned by name are the following: International Labour Organisation (ILO); the United Nations Food and Agricultural Organisation (FAO); the United Nations Educational, Scientific and Cultural Organisation (UNESCO); the Organisation of International Civil Aviation; the International Monetary Fund (IMF); the International Bank for Reconstruction and Development (IBRD); the World Health Organisation (WHO); the Universal Mail Union; the International Telecommunications Union.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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