Chapter

chapter 12 Cessation of Responsibility for Dependencies

Author(s):
International Monetary Fund
Published Date:
October 1985
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Cessation of Responsibility Under Article XX, Section 2 (g)

The United Kingdom, France, the Netherlands, and Belgium have ceased to be responsible under Article XX, Section 2 (g), for numerous former dependencies. On some occasions, the member formerly responsible for a dependency informed the Fund that the member’s responsibility had ceased because the territory had become independent. For example, on December 27, 1949 the Netherlands informed the Managing Director as follows:

In December 1945 Her Majesty’s Government signed the Articles of Agreement of the International Monetary Fund both on behalf of the Netherlands Metropolitan territory and in respect of the Netherlands overseas territories, the latter being at the time the Netherlands East Indies, Curaçao and Surinam.

As a result of the transfer of complete sovereignty from Her Majesty’s Government to the Government of the Republic of the United States of Indonesia on December 27, 1949 the territory of the Republic of the United States of Indonesia,—i.e., the territory of the former Netherlands East Indies with the exception of Netherlands New Guinea—can no longer be regarded as a territory on behalf of which Her Majesty’s Government has accepted the Articles of Agreement in the sense of Article XX section 2 (g).

Acting upon the authorization and instruction of Her Majesty’s Government we therefore inform you herewith that the responsibility of the Netherlands under the Articles of Agreement does not now exist with respect to the territory of the Republic of the United States of Indonesia.

To take another example, on December 10, 1947 the United Kingdom passed the Burma Independence Act, which declared that from January 4, 1948 Burma would be “an independent country, neither forming part of His Majesty’s dominions nor entitled to His Majesty’s protection,” 1 and on April 13, 1948 the Secretary of the Treasury of the United Kingdom informed the Managing Director as follows:

As a result … of the passing of the Burma Independence Act, 1947, Burma is no longer within His Majesty’s Dominions and can therefore no longer be regarded as a territory on whose behalf His Majesty’s Government has accepted the Articles of Agreement of the Fund.

I am to inform you, therefore, that the responsibility of the United Kingdom under Article XX (4) (g) and under other Articles of Agreement of the Fund does not now exist.

Annex B to the Agreement of January 27, 1947 between the United Kingdom and Burma, which was the basis for the independence of Burma, declared that “His Majesty’s Government have undertaken to do all they can to secure her effective membership, as soon as she is in a position to make the application and should she so desire, of the International Monetary Fund and the International Bank.” 2 Burma applied for membership in the Fund on October 9, 1950.3

There has been no fixed form of notice of the cessation of responsibility, and the same member has varied the form. For example, the following notices by the United Kingdom can be compared with the notice in respect of Burma:

This is to inform you that the Kingdom of Tonga on 4th June 1970 resumed full control of its external and defence affairs. Similarly on 10th October 1970 Fiji gained full independence. Both countries have therefore ceased to be territories in respect of which the United Kingdom has accepted the Fund agreement in accordance with Article XX section 2 (g).

This is to inform you that Abu Dhabi, Dubai, Sharjah, Ajman, Umm al Quwain, Ras al-Khaimah and Fujairah assumed full responsibility for all their affairs on the 1st December. …

The Cocos Islands are an example of a territory for which there was a change of responsibility. By a letter dated November 28, 1955, the United Kingdom informed the Fund that authority over the Cocos Islands had been transferred from the Government of Singapore to the Commonwealth of Australia, and that the Islands could no longer be considered territories in respect of which Her Majesty’s Government in the United Kingdom had accepted the Articles. The Fund then requested notice from Australia, which was received on December 16, 1955, that authority over the Cocos Islands had been transferred to Australia.

France had been responsible for five settlements in India when it joined the Fund. Authority over Chandernagore was transferred to India, with effect from May 2, 1950, as the result of a referendum that was confirmed by a treaty of cession that came into force on June 9, 1952. By treaty between India and France dated October 21, 1954, Pondicherry, Karikal, Mahe, and Yanaon were incorporated into India as of November 1, 1954. These former French possessions were the subject of a joint memorandum of November 29, 1954 from the executive directors appointed by India and France informing the Executive Directors that “the administration of the French possessions in India has been transferred to the Government of India as a consequence of an agreement between the Governments of India and France dated October 21, 1954. Accordingly the Government of India will hereafter assume instead of the Government of France the responsibility of these territories insofar as the rights and obligations of the Bretton Woods Agreement are concerned.” The statement must be taken to mean that the territories had become part of the territory of India and not that they had become dependencies for which India was responsible under Article XX, Section 2 (g).

Newfoundland is another example of a territory for which the responsibility of one member ceased when it became part of the territory of another member. Up to 1934, Newfoundland had been a self-governing Dominion of the British Commonwealth of Nations, but on February 16, 1934 the government was vested in a Governor acting on the advice of a Commission, with the Governor responsible to the Secretary of State for Dominion Affairs in the United Kingdom. The United Kingdom was thus responsible for Newfoundland under Article XX, Section 2 (g). On December 11, 1948 the terms of the Union of Newfoundland with Canada were signed, with effect from April 1, 1949. The responsibility of the United Kingdom ceased under Article XX, Section 2 (g), without engaging the responsibility of Canada under that provision. Newfoundland became a Province of Canada, so that it was part of the territory to which the membership of Canada applied.

The transfer of sovereignty with respect to West-Irian is a somewhat similar example. Under an agreement between the Netherlands and Indonesia signed in New York on August 15, 1962, the administration of West New Guinea was to be transferred to the United Nations Temporary Executive Authority (untea) and later by the untea to Indonesia. In a letter dated July 1, 1963, the Indonesian authorities informed the Managing Director as follows:

As a result of the transfer of sovereignty of West-Irian (West New Guinea) from the United Nations Temporary Executive Authority on May 1, 1963, the acceptance of the Articles of Agreement of the Fund by the Government of the Republic of Indonesia is to be regarded to comprise the territory of the former Netherlands New Guinea.

We therefore inform you herewith that the Republic of Indonesia has assumed responsibility under the Articles of Agreement with regard to West-Irian as of the date of May 1, 1963.

The cession of certain territories by the United Kingdom to the Federation of Malaya was different in one respect from the other transfers of authority that have been noted. Under the Agreement of July 9, 1963 of the United Kingdom with the Federation of Malaya, North Borneo, Sarawak, and Singapore:

The Colonies of North Borneo and Sarawak and the State of Singapore shall be federated with the existing States of the Federation of Malaya as the States of Sabah, Sarawak and Singapore in accordance with the constitutional instruments annexed to this Agreement and the Federation shall thereafter be called “Malaysia.” 4

This transfer of authority was different because the transferee changed its name, but no question of state succession was raised, and it was assumed that the former Federation of Malaya continued to exist with its new name and enlarged territory. On September 20, 1963, three cables were received by the Fund as from the Federation of Malaysia, one of which informed the Fund that the governor attending the forthcoming annual meeting of the Board of Governors represented the Federation of Malaysia and not the Federation of Malaya. The Secretary of the Fund issued a circular on September 24, 1963, headed “Malaysia” in which he informed recipients that

[v]arious cables have been received from Kuala Lumpur indicating that the name of the member has been changed from Malaya to Malaysia. Accordingly, the name of Malaysia will be substituted for the Federation of Malaya for all of the purposes of the Fund. This action corresponds to action already taken in the United Nations and it is understood that the ibrd is taking similar action.

The circular purported to deal with no more than the change of name, but the new name was attached to more extensive territory. The United Kingdom did not give notice until November 5, 1963 of the transfer of the territories and the cessation of its responsibility for them.

Notice to the Fund of changes in relation to Article XX, Section 2 (g), have come, therefore, from the transferor (in connection with Indonesia, Burma, the Cocos Islands, Newfoundland, North Borneo, Sarawak, and Singapore), from the transferee (in connection with West-Irian), and from both jointly (in connection with French settlements in India).

On some occasions, there has been no notice to the Fund that a member had ceased to be responsible for a territory under Article XX, Section 2 (g). On other occasions, the territory itself has informed the Fund that it had become or would become independent and has applied for membership as soon as possible or as soon as it could be arranged after independence. For example, by a letter of May 18, 1960 in which the Prime Minister of Togo requested information about the Fund, he informed the Managing Director that “[o]n April 27, 1960 Togo became a sovereign independent country. On May 6, 1960 Togo applied for membership in the United Nations. It was formerly a trust territory, and its candidature will be sponsored by the last trust power, France.”

The United Nations has informed the Fund of the attainment of independence by some countries. On March 20, 1956 the protectorate of France over Tunisia was terminated. In a letter of August 20, 1956, the Secretariat of the United Nations informed the Fund of a communication from the Foreign Minister of Tunisia, dated July 28, 1956, requesting the Secretariat to take the necessary steps so that in the future all communications from the United Nations or the specialized agencies would be sent to the Ministry without transmitting them through any intermediary. The Minister’s letter stated that in view of Tunisia’s independence, following the signing of the Protocol between France and Tunisia on March 20, 1956, there was no longer any justification for the United Nations or the specialized agencies to communicate with Tunisia “through a friendly but foreign power.”

The Fund has not insisted on notice of any kind, and has been content to make its own findings on the status of territories, although it has regarded notice as a useful contribution to certainty.

When responsibility for a territory is transferred from one member to another, or the territory is transferred from one member to another, or the territory becomes independent, no problems of the settlement or assumption of any indebtedness between the territory and the Fund arises because the territory was never a member of the Fund and therefore never in a position to engage in transactions with the Fund. Moreover, the member that was formerly responsible for the territory was never able to engage in transactions with the Fund on behalf of the territory. A member can use the resources of the Fund only if it has a problem connected with its balance of payments as a whole. It cannot use the Fund’s resources on behalf of a dependency even if the dependency has a separate currency and a separate balance of payments.

Cessation of Control

A member’s loss of control over a dependency must be distinguished from the cessation of responsibility for it under Article XX, Section 2 (g). A member may lose control over a dependency in circumstances in which the international community refuses to recognize that the dependency has become independent, and the Fund may take the same view. In these circumstances the member remains responsible to the Fund for the dependency, although obviously the Fund would not treat the member’s inability to ensure the performance of its obligations with respect to the dependency as a willful default. The insistence on legal responsibility in these circumstances, however, is useful in order to minimize international disorder and harm to the interests of other members. The consequences of the unilateral declaration of independence by Rhodesia illustrate these propositions.

Restrictions on the making of payments and transfers for current international transactions with Rhodesia or persons in its territory were imposed by the United Kingdom and other members of the Fund. As explained in Chapter 10, the restrictions imposed by the United Kingdom were not on the making of payments and transfers for current transactions that could be considered “international” for the purposes of Article VIII, Section 2 (a), but the restrictions also affected payees in other member countries who ordinarily would be paid from sterling accounts in London held by residents of Rhodesia. These latter effects were considered restrictions on the making of payments and transfers for current “international” transactions, as were the restrictions imposed by other members on payments and transfers involving Rhodesia. All of these restrictions were subject to the necessity for approval by the Fund under Article VIII, Section 2 (a), and approval was obtained.

The procedure employed for seeking and obtaining approval was the special procedure established by the Fund’s decision of August 14, 1952 on payments restrictions imposed for reasons of security. The decision affirms that the Fund’s jurisdiction under Article VIII, Section 2 (a), applies to all restrictions on payments and transfers for current international transactions whatever may be the motive for which or the circumstances in which they are imposed. The sole motive for some restrictions may be “the preservation of national or international security.” The Fund is not a suitable institution for “the political and military considerations” that lead to these actions, although it is not always possible to draw a precise line between restrictions involving only these considerations and others in which, in whole or in part, there are economic motivations and effects. In order to safeguard the interests of members, the Fund decided that a member intending to impose restrictions that, in the judgment of the member, are related solely to the preservation of national or international security, should notify the Fund in advance of imposing them whenever possible, and the Fund will react promptly. If the member finds that the circumstances preclude advance notice, it should notify the Fund as promptly as possible and ordinarily within 30 days of imposing the restrictions. Each notice is circulated immediately to the Executive Directors. Unless the Fund informs the member within 30 days after receiving notice that it is not satisfied that the restrictions are imposed solely to preserve national or international security, the member may assume that the Fund has no objection to the imposition of the restrictions.5 No objection was expressed to any of the restrictions involving Rhodesia.

The notice from the United Kingdom and the Fund’s treatment of it under the decision of August 14, 1952 in order to grant approval of the restrictions of the United Kingdom to the extent that approval was necessary recognized the continued responsibility of the United Kingdom under Article XX, Section 2 (g). It followed, therefore, that the Fund would regard the establishment by Rhodesia of a new monetary unit in February 1970 as a nullity.

The principle that a member does not cease to be responsible under Article XX, Section 2 (g), for a dependency over which it has lost control because of illegal action by the dependency has an analogue in the principle that any portion of a member’s metropolitan territory over which the government has lost control does not become nonmember territory by virtue of that fact alone. Therefore, the restrictions imposed on December 17, 1950 by the United States on the making of payments and transfers for current international transactions by persons within its jurisdiction to China or its nationals, with the exception of those portions of China that were under the control of the Government of the Republic of China that was recognized by the Government of the United States,6 were treated eventually as restrictions that came within Article VIII, Section 2 (a), and the decision of August 14, 1952. The restrictions imposed by Cuba to help in making the restrictions of the United States effective were treated in the same way. If the territory not controlled by the Government of the Republic of China had been regarded as other than the territory of a member, the restrictions would not have been subject to the need for approval under Article VIII, Section 2 (a), but would have been permitted by Article XI, Section 2. The restrictions imposed by the United States on the making of payments and transfers for current international transactions to North Korea on December 17, 1950 7 and to North Viet-Nam on May 5, 1964 8 were not approved at any time under Article VIII, Section 2 (a), and the decision of August 14, 1952, on the theory that the restrictions were not imposed against the territory of a member. The Republic of Korea became a member of the Fund on August 26, 1955 and the Republic of Viet-Nam on September 21, 1956.

The loss of control over a dependency as a result of the illegal action of the dependency must be distinguished from the loss of control that occurs when the dependency of one member falls under the military occupation of another member. In Chapter 11, the view was advanced that occupied territory is under the “authority” of the occupying power within the meaning of Article XX, Section 2 (g). The responsibility of the occupying power under the provision is confined to the period of occupation, and in itself does not change the legal relationship of the territory to the member that had accepted the Articles in respect of it.

Change of Status from Article XX, Section 2 (g), to Membership

When a territory that was formerly subject to Article XX, Section 2 (g), attains independence, it has no claim to membership on the basis of “succession” or any other doctrine of international law, and no territory has ever claimed that it had become a member automatically on attaining independence. When a former dependency becomes a member, it has no privileges or liabilities arising from its earlier status in relation to the Fund, and it is in exactly the same legal position as new members to which Article XX, Section 2 (g), never applied. For example, if the member that had accepted the Articles in respect of a dependency gives the Fund notice that it is no longer availing itself of the transitional arrangements of Article XIV and thereafter will perform the obligations of convertibility under Article VIII, Sections 2, 3, and 4, the notice applies to the separate currency of the dependency unless the member makes an exception for the dependency. Even though the separate currency of the dependency had become “convertible” under the Articles, the Fund permits the former dependency, as a new member, to choose between the transitional arrangements of Article XIV and performance of the obligations of Article VIII, Sections 2, 3, and 4.

Another consequence of the irrelevance of a member’s former status under Article XX, Section 2 (g), is that the Fund’s approval of exchange practices applied in the former dependency does not continue to be effective for the new member. Any approval by the Fund of the exchange practices of a former dependency lapses because the approval was given on the request of a member that ceased to be responsible for the territory when it became independent. This reason alone suffices to explain the lapse of approval, but in addition there is likely to be a period in which the newly independent territory has the status of a nonmember. It is virtually impossible to avoid an interval between the attainment of independence and membership, even though the interval may be reduced to a minimum by the procedure under which the Board of Governors adopts a resolution before independence in order to permit membership on independence.

The lapse of any approval of the exchange practices of a former dependency is likely to be advantageous for the territory as a new member. The former approval will have been granted for a “temporary” period or for a defined period. If the dependency had remained in that status, the Fund would have been able to terminate the temporary approval or the period of approval might have expired. If, however, the practices are still in force when the former dependency becomes a member, they may be maintained for an indefinite period in accordance with Article XIV, if the member has decided to avail itself for the time being of the transitional arrangements of that Article. If the new member undertakes to perform the obligations of convertibility under Article VIII, Sections 2, 3, and 4, it may maintain any multiple currency practices and discriminatory currency arrangements affecting payments and transfers for current international transactions that are in effect when it enters the Fund, subject to an obligation to consult the Fund “as to their progressive removal.”

There are, of course, other consequences of a change of status from dependency under Article XX, Section 2 (g), to membership. For example, the dependency’s holdings of the convertible currency of the member that had accepted the Articles in respect of the dependency become “monetary reserves” of the former dependency as a new member. In addition, the holdings of the new member became “currency liabilities” of the issuing member, the banks within its territories, or its official institutions in the calculation of the monetary reserves of the issuer, although the relevance of the concept has been almost completely eliminated since the amendment of the Articles on July 28, 1969.9 Again, any restrictions that a member imposes on the making of payments and transfers for current transactions between itself and its dependencies, or between residents in its territory and the territory of a dependency, become restrictions on the making of payments and transfers for current “international” transactions, and require the approval of the Fund, once the dependency becomes a member.

Burma Independence Act, 1947, 11 Geo. 6, c. 3, sec. 1.

Conclusions Reached in the Conversations between His Majesty’s Government and the Delegation from the Executive Council of the Governor of Burma, Cmd. 7029 (London, January 1947), Annex B.

Cf. Ceylon Independence Act, 1947, 11 Geo. 6, c. 7, under which “as from the appointed day His Majesty’s Government in the United Kingdom shall have no responsibility for the government of Ceylon” (sec. 1 (2); the “appointed day” was February 4, 1948). The External Affairs Agreement of November 11, 1947 between the United Kingdom and Ceylon provided that “[t]he Government of the United Kingdom will lend its full support to any application by Ceylon for membership of the United Nations, or of any specialised international agency as described in Article 57 of the United Nations Charter.” Ceylon applied for membership in the Fund on November 7, 1949.—Proposals for Conferring on Ceylon Fully Responsible Status within the British Commonwealth of Nations, Cmd. 7257 (London, November 1947), Annex II.

The protectorate of France over Tunisia was terminated by agreement on March 20, 1956, and on June 15, 1956 the two countries agreed that “France will second Tunisia’s candidacy to international organizations in which the latter is not represented.”—Art. 3 of the Diplomatic Accord, signed in Tunis, June 15, 1956; see American Journal of International Law, Vol. 51 (1957), pp. 683–85. See also the Agreement of May 28, 1956 between France and Morocco following the joint declaration of March 2, 1956 ending the protectorate over Morocco and recognizing its independence.

British and Foreign State Papers, 1963–64, Compiled and Edited in the Library and Records Department of the Foreign and Commonwealth Office, Vol. 167 (London, 1971), p. 49.

See the quotation (in Chapter 13 below) from the letter dated September 4, 1965, by which the Minister of Finance and governor of the Fund for Malaysia informed the Fund that Singapore ceased, on August 9, 1965, to be a State of Malaysia and became a sovereign state. The notice resembled the notice given by the Netherlands of the independence of Indonesia and the cessation of the Netherlands’ responsibility to the Fund for it.

Decision No. 144-(52/51), August 14, 1952, Selected Decisions, pp. 93–94. History, Vol. II, pp. 259–60.

History, Vol. II, p. 259. 31 C. F. R. §500.201.

U. S. Treasury Department, Press Release, December 16, 1950. 31 C. F. R. §500.201.

U. S. Treasury Department, Press Release, May 5, 1964. 31 C. F. R. §500.201.

See Gold, Reform of Fund, pp. 35–36.

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