Chapter

chapter 9 A General View of Terms for Membership

Author(s):
International Monetary Fund
Published Date:
October 1985
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Scope of Terms and Conditions

The main standard terms of membership resolutions, it has been seen, deal with quota; subscription, including determination of the gold subscription; date of payment of the subscription; initial par value and changes in exchange rates before an initial par value is agreed; date when exchange transactions with the Fund may begin; and procedure for the acceptance of membership. There have been no other terms in membership resolutions that have dealt with matters of substance apart from those that were necessary on the re-entry of Indonesia at a time when the agreement for the settlement of all accounts following its withdrawal had not yet been fully performed. When the earliest membership resolutions were being considered, the idea was advanced that the resolution should declare that a new member was bound by decisions of the Fund adopted before the new member entered the Fund, but a term of this kind was never included in a resolution. It was considered unnecessary and even dangerous because it might undermine the legal conclusion that these decisions were automatically binding on new members.

The terms of a membership resolution are not confined to the imposition of obligations on a country before or after it becomes a member. Some terms confer benefits, such as the term that authorizes the Fund to permit the use of its resources by a member before it agrees an initial par value.

Except for those rights and obligations that are governed by its membership resolution, a new member has the same rights and obligations as all other members.1 This principle may be affected temporarily by circumstances. For example, if a member enters the Fund between regular biennial elections, the governor it appoints may vote immediately in the Board of Governors. In the Executive Directors no director will be entitled to cast the number of votes alotted to the member until after it has participated in the next regular biennial election by casting its votes for the election of an executive director. Until that time, all that it can do is designate a director to take care of its interests, without, however, augmenting the votes that he can cast. In exceptional circumstances, an interim election of an additional director may be held before the next regular biennial election. The member may participate in the election, and the number of votes allotted to it will then be cast by the newly elected director.2 On a number of occasions, procedures have been accelerated somewhat so as to enable an applicant to become a member in time to enable it to participate in a regular biennial election of directors.

The choice of terms for membership resolutions has been governed by a policy that new members should not have permanent rights and obligations that differ from those of original members. It has not been necessary, therefore, to consider the legal question whether the Fund would be able to adopt terms for membership that established permanent rights and obligations for one or more members that differed from those of original members. The provisions of the Articles that have not been applied to new members are provisions in which there was evidence that they could reasonably apply only to original members.

With the exception of the second membership resolution for Indonesia and the resolutions for Senegal and the Bahamas, the terms of resolutions have not dealt with events that might occur after agreement on an initial par value, and therefore the differences in rights and obligations between original and other members have disappeared on that date. Resolutions have not attempted to prescribe the terms on which a member may engage in exchange transactions with the Fund or change the par value of its currency after agreement on an initial par value. In limiting itself to terms that govern a new member’s position up to but not beyond agreement on an initial par value, the Fund has concentrated on adapting the provisions of Article XX and closely related provisions, such as Article III, Section 3, to members that are not original members. Once a member has complied with terms that correspond to these provisions of the Articles, all other provisions apply without qualification.

Under two of the three exceptional resolutions (see Appendix II), Indonesia and the Bahamas were required to repurchase the Fund’s holdings of certain amounts of their currencies, and installments might have become payable after agreement on an initial par value. The resolution for Senegal provided for an initial quota and four defined increases that were to take effect at annual intervals. Some of these increases might have occurred after agreement on an initial par value, and therefore the term of the resolution governing subscription might have been applicable after that date.

Resolutions deal with certain relations between the Fund and an applicant before it becomes a member. An applicant is required to make a certain representation before accepting membership and must provide such information as the Fund may request in connection with the subject matter of the representation. An applicant has had to pay its gold subscription not later than the day on which the Articles are signed on its behalf, but it has been able to pay earlier. The resolution has provided that if the applicant pays the gold but does not become a member, the gold must be returned.

Although normally a resolution does not regulate the rights and obligations of a new member after agreement on an initial par value for its currency, the period between acceptance of membership and agreement has been protracted for some members. The following tabulation lists the date of entry into the Fund of some members that on December 31, 1973 had not yet established initial par values in accordance with their membership resolutions:

MemberDate of Membership
KoreaAugust 26, 1955
LaosJuly 5, 1961
SenegalAugust 31, 1962
TogoAugust 1, 1962
Viet-NamSeptember 21, 1956

The following tabulation lists the date of entry of some other members and the date on which each agreed an initial par value for its currency under its membership resolution:

MemberDate of

Membership
Effective Date of

Initial Par Value
AfghanistanJuly 14, 1955March 22, 1963
ItalyMarch 27, 1947March 30, 1960
ThailandMay 3, 1949October 20, 1963

Formal Equality of Members

The Fund’s policy of standard terms for applicants and its policy of assimilating the rights and obligations of new members to those of original members are in accord with the spirit of the Articles, which make no permanent distinctions among categories of members. The principle of the Articles is that all members are equal in the application of the Articles to them, although certain features of the structure of the Fund can be regarded as exceptions to that principle. The members with the five largest quotas are entitled to appoint executive directors whereas all other members join in the election of directors, and in elections the American Republics not entitled to appoint directors are assured of the right to elect two directors.3

There is no provision, either in Article I, in which the purposes of the Fund are set forth, or elsewhere, that distinguishes between developing and developed members. There is nothing corresponding to the categories in the General Agreement on Tariffs and Trade (gatt) of the contracting party with an economy that “can only support low standards of living and is in the early stages of development” and the contracting party that “is in the process of development but … does not come within” the former category.4 Similarly, the Articles make no distinction comparable to the lists of developed and developing members that are incorporated, without language identifying them in that way, in the Articles of Agreement of the International Development Association.5

At the Bretton Woods Conference, the Indian delegation proposed a formulation of Article I (ii) that would have made a specific reference to developing members:

To facilitate the expansion and balanced growth of international trade, to assist in the fuller utilisation of the resources of economically underdeveloped countries and to contribute thereby to the maintenance in the world as a whole of a high level of employment and real income, which must be a primary objective of economic policy.6

Another proposal by the Indian delegation was drafted as follows:

To facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and to the development of the resources and productive power of all member countries, with due regard to the needs of economically backward countries.7

The refusal to make any formal distinction of this kind can be seen clearly by comparing these proposals with the agreed text of Article I (ii):

To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.

A major reason for the reluctance at Bretton Woods to refer to development and for the refusal to mention developing members in the Articles was the fear that the Fund would assume part of the task of promoting development, a task that was one of the major functions assigned to the Bank.8

A member may decide to avail itself of the transitional arrangements of Article XIV under which the full obligations of convertibility in Article VIII, Sections 2, 3, and 4, are mitigated until the member decides to perform them, but the option is open to all members without distinction. Once a member forgoes or surrenders the benefits of the transitional arrangements, it cannot resort to or resume the use of them.9

One consequence of the formal equality of all members is that any proposed policy or practice that appears to confer benefits or impose burdens unevenly is subject to special scrutiny. This bias in favor of uniformity has not become an announced principle of operation, and it has not prevented the adoption of policies or practices that are intended to be more beneficial in effect for some members, usually developing countries, than for others. But the justification for this unequal effect must be clear, and even then it may be necessary to draft the policy so that it does not offend the formal equality of members by implying that there is a class with special rights or duties.

Certain policies on the use of the Fund’s resources are good examples of the approach that manages to give special consideration to the problems of some members without suggesting that they are a class that is entitled or subject to separate treatment. The Fund makes its resources available to a member not for particular items in its balance of payments but because it is in difficulties resulting from its balance of payments as a whole. This principle does not prevent the Fund from recognizing, and helping a member to deal with, the particular problem that is responsible for or has contributed to its difficulties.

If the problem is generic in character, the Fund may be disposed to adopt a policy to deal with the problem whenever it arises. If, however, the nature of the problem is such that it is not likely to trouble all members, a special policy might appear to be a privilege for a limited class of members. For example, the Fund has decided to provide financing to compensate members that suffer shortfalls in certain export proceeds. The immediate impulse for this policy was the desire to assist the exporters of primary products because they suffer from special difficulties, but the Fund’s decision makes the policy available in principle to all members: “The Fund has reviewed its policies to determine how it could more readily assist members, particularly primary exporters, encountering payments difficulties produced by temporary export shortfalls. …” 10

Similarly, when the Fund decided to make its resources available to alleviate difficulties connected with the financing of international buffer stocks, it declared that the policy was “intended essentially as a facility under which Fund resources are made available to members in their capacity as exporters of primary products.” The Fund felt compelled to add, however:

When importing countries assume financial commitments in buffer stock arrangements, for example, as one of the possible means of ensuring equity and a balanced responsibility for operation of buffer stocks, the facility should be available to them as well. The sums involved for importing countries would probably rarely be such as to have a significant effect on the balance of payments of these countries, save possibly in the case of a developing country that was a large importer of a primary commodity.11

It will be apparent from the example of these two facilities that the uniform legal position of all members under the Articles does not prevent the adoption of policies that favor developing members, even though in form the policies may purport to embrace all members. Sometimes, however, an appeal for uniformity has been made on behalf of developing members with the allegation that a policy or practice of the Fund discriminated against them. An illustration of this charge is the practice by which the Fund makes resources available under stand-by arrangements in installments and subject to the observance of performance criteria. The Fund had approved stand-by arrangements for some members without these features because they represented that in their special circumstances the full amount of the arrangement should be available as a masse de manoeuvre. Executive directors elected by developing countries objected to this diversity of practice, with the result that the Fund decided that stand-by arrangements without phasing would be confined to truly exceptional cases, and that if one were granted, it would have to be subject to performance criteria and certain special safeguards. Moreover, the Fund refrained from defining the exceptional cases, and therefore did not confine them to problems involving the reserve currency countries.12

The Fund’s decision called the General Arrangements to Borrow has been criticized because it distinguished between a group of industrialized countries and all other members, most but not all of which were developing countries. Under the decision, eight industrialized members and the central banks of two others stand ready to lend to the Fund to supplement its resources in order to enable it to finance transactions with any of these ten but not with other members.13 The General Arrangements are the legal foundation for the Group of Ten. As a result of the decision, the Fund’s own resources have probably been more adequate to meet the needs of members other than the Ten, but this effect has not eliminated the disquiet provoked by the limited membership and majority voting power of the group on the occasions when it has discussed important issues affecting the international monetary system as a whole.

The most impressive application in recent years of the principle of the formal equality of members has been the right of all members to participate in the Special Drawing Account. Some of the plans that were advanced for the deliberate control of international liquidity through the creation of a new reserve asset rested on the hypothesis that there were “major countries with a key role in the functioning of the international monetary system” and that these countries would have special responsibilities for backing any scheme and accepting the new asset in transactions. It was argued by some officials in these countries that for these reasons the scheme should be confined to the main industrial countries, and that any arrangements made for other countries should be outside the scheme and should have a different character.14

As Managing Director of the Fund, Mr. Schweitzer warned the negotiators of the dangers of distinguishing between groups of members. Not the least of the Managing Director’s objections was that “any attempt to divide the countries of the world into separate groups”—which the Articles avoided—”would be bitterly resented, and could bring grave damage to the cause of international cooperation in monetary and economic matters.” 15 His view prevailed, and the Articles as amended on July 28, 1969 provide that any allocation of special drawing rights shall be made, at rates expressed as the same percentage of quotas, to all members that choose to participate in the Special Drawing Account, and no distinction is made among participating members in the operation of the Account.

Another recent manifestation of the formal equality of all members is the composition of the Committee of the Board of Governors on Reform of the International Monetary System and Related Issues (the Committee of Twenty) and their Deputies. The structure of these two bodies is based on the composition of the Executive Directors, and gives effect to the statement in the preamble of the resolution of the Board of Governors establishing the Committee and the Deputies that “it is generally recognized that decisions relating to the reform should be taken with the full participation of both developed and developing member countries.” This resolution is the first in which the Board referred overtly to developed and developing members.16

Although the principle of the formal equality of members can be defended as one that prevents discrimination against members, its realism may be questioned. It has been seen that the Fund has created special financial facilities for some members but has had to give them the appearance of general application. The members that have not yet undertaken to perform the obligations of convertibility under Article VIII, Sections 2, 3, and 4, are overwhelmingly members within less developed areas:17

Article VIIIArticle XIV
Industrial countries14
Other developed areas310
Less developed areas2374

Of the 29 members that on December 31, 1973 had not yet agreed an initial par value under membership resolutions, all but one were in less developed areas. By the same date, 15 members had entered into 58 exchange transactions with the Fund, for a total amount equivalent to SDR 572.06 million, before they had agreed initial par values for their currencies, and all of these members but one were in less developed areas. By that same date, 23 stand-by arrangements, for a total amount equivalent to SDR 654.5 million, had been granted by the Fund to 4 members that had not yet agreed initial par values, and all were in less developed areas.

It is also possible to ask whether the principle of formal equality impedes benefits for less privileged members. The Committee of Twenty in its communiqué of March 27, 1973 recognized the special needs of developing members:

4 (d). There should be a strong presumption against the use of trade controls for balance of payments purposes. Developing countries would, however, be exempt wherever possible from trade and capital controls imposed by other countries and their particular circumstances would be taken into account in assessing controls that they themselves felt it necessary to apply.

5. The Members of the Committee recognised the concerns of developing countries under current conditions and their interests in a reformed system. They affirmed the desirability on the occasion of the reform of promoting economic development and the flow of real resources from developed to developing countries.18

The report of September 24, 1973 by the Chairman of the Committee of Twenty to the Board of Governors on the status of the Committee’s work and the accompanying First Outline of Reform contain a number of references to the special interests of developing countries and the need to recognize these interests in a reformed international monetary system.19

These passages and the Fund’s experience suggest that the principle of the formal equality of all members under the Articles may not be maintained. Developing countries have pressed for the recognition of their special interests, and they are now more numerous and more conscious of their common interests than they were at the time of Bretton Woods. If it is decided not to maintain the principle, and to establish different rights or duties for classes of members, the distinctions will have to be introduced by amendment of the Articles or by new decisions of the Fund to the extent that this will be possible under the Articles, or of course by both.

If distinctions are made between the rights and duties of developed and developing members, or among developing members, difficult problems of the classification of members will have to be faced. Even if definitions are not incorporated in the Articles and the technique of listing members is adopted, it will still be necessary to determine the criteria according to which the lists are to be compiled and adapted.

Cf., e.g., Art. 93 of the Charter of the United Nations and Art. 35 (2) of the Statute of the International Court of Justice.

See Gold, Voting and Decisions, pp. 72, 75–79.

Article XII, Section 3 (b) (i), (iii), and (iv).

John H. Jackson, World Trade and the Law of GATT: A Legal Analysis of the General Agreement on Tariffs and Trade (New York, 1969), pp. 650–51. (Hereinafter referred to as Jackson, World Trade and Law of GATT.)

Schedule A of the Articles of Agreement of the International Development Association (ida).

Alternative C, Procs. and Docc, p. 23. (Italics in original.) See also the proposal of the New Zealand delegation, Alternative J, ibid., p. 234, and Joseph Gold, “‘… To Contribute Thereby to … Development …’: Aspects of the Relations of the International Monetary Fund with Its Developing Members,” Columbia Journal of Transnational Law, Vol. 10 (1971), pp. 267–302. (Hereinafter referred to as Gold, “To Contribute Thereby to … Development.’”)

Alternative I, Procs. and Docs., p. 184.

Gold, “‘To Contribute Thereby to … Development,’” pp. 267–76.

See Joseph Gold, The Fund’s Concepts of Convertibility, IMF Pamphlet Series, No. 14 (Washington, 1971), pp. 11–12. (Hereinafter referred to as Gold, Fund’s Concepts of Convertibility.)

Decision No. 1477-(63/8), February 27, 1963, as amended by Decision No. 2192-(66/81), September 20, 1966, Selected Decisions, p. 44. See also Joseph Gold, “Use of the International Monetary Fund’s Resources: ‘Conditionality’ and ‘Unconditionality’ as Legal Categories,” Journal of International Law and Economics, Vol. 6 (1971), pp. 10–13 (hereinafter referred to as “Use of Fund’s Resources: ‘Conditionality’ and ‘Unconditionality’”), and Gold, “To Contribute Thereby to … Development,’” pp. 285–87.

The Problem of Stabilization of Prices of Primary Products: Report of the Executive Directors [and] Scope for Action by the Fund (Part II of a Staff Study) (Washington, 1969), p. 14.

See Gold, Stand-By Arrangements, pp. 32–33, 81–84, 122–23, 147. Phasing and performance criteria are never applied to purchases within the first credit tranche under a stand-by arrangement.

The eight members are the United States, the United Kingdom, France, Italy, Japan, Canada, the Netherlands, and Belgium. The two central banks are the Deutsche Bundesbank and the Sveriges Riksbank.—Decision No. 1289-(62/1), January 5, 1962, Selected Decisions, pp. 70–81.

Group of Ten, Report to Ministers and Governors by the Group of Deputies (July 7, 1966), pars. 56–61 and Annex I. (Hereinafter referred to as Group of Ten, Report to Ministers and Governors.)

International Monetary Fund, International Financial News Survey, Vol. XVIII (1966), p. 144. See also ibid., Vol. XVII (1965), p. 215; Joseph Gold, “The Role of the International Monetary Fund in International Monetary Reform with Special Reference to Developing Countries,” in Development: International Law and Economics, Proceedings of a Symposium held at Stanford University on March 1–3, 1967, Gene L. Armstrong, ed. (Stanford School of Law, 1967), pp. 42–47; Annual Report, 1966, pp. 18–20; and Group of Ten, Report to Ministers and Governors, par. 65.

Resolution No. 27-10, adopted by the Board of Governors effective July 26, 1972, Summary Proceedings, 1972, pp. 353–56. Resolution No. 22-9, adopted by the Board of Governors effective September 29, 1967, referred to developing countries by quoting the text of a resolution that had been adopted by a group of 15 members.—Summary Proceedings, 1967, p. 280.

The statistics relate to the position on December 31, 1973. Two member countries—Bangladesh and the United Arab Emirates—as of that date had not yet opted for the status of either Article VIII or Article XIV. The classification of countries follows the one employed in International Financial Statistics: see, e.g., Vol. XXVII, No. 1 (January 1974), pp. 8–11, 18–25.

Communiqué of the Committee of the Board of Governors on Reform of the International Monetary System and Related Issues, IMF Survey, Vol. 2 (1973), p. 100.

IMF Survey, Vol. 2 (1973), pp. 305–308.

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