Chapter

chapter 8 Some Special Problems Involving Terms for Membership

Author(s):
International Monetary Fund
Published Date:
October 1985
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Amendment of Membership Resolutions

It has been seen in earlier chapters that a membership resolution may be amended before or after a country has become a member. Various amendments have been made at the request of an applicant before it became a member. If an amendment is made before membership, whether or not at the request of the applicant, it is able to decide whether it will accept membership under the amended resolution. The situation is different, however, if the resolution is changed after the applicant has become a member. In 1953, the Board of Governors amended the resolution for Thailand so as to authorize the Fund to permit exchange transactions, on such terms and conditions as the Fund might prescribe, before Thailand had established an initial par value for its currency. The question arose whether Thailand would have to modify its acceptance of membership. The instrument that Thailand had been required to deposit declared that it had accepted, in accordance with its law, “the Articles of Agreement and all the terms and conditions prescribed in this resolution,” and that it had “taken all steps necessary to enable it to carry out all its obligations under the Articles of Agreement and this resolution.” The Fund did not require any new or amended instrument, perhaps on the theory that the amendment relaxed a term of the resolution and benefited Thailand, which had requested the amendment. Thailand was not bound to take advantage of the amended term, and nothing required it to apply for a transaction before it agreed an initial par value. On the suggestion of the staff, however, Thailand acknowledged the Fund’s notice that the resolution had been amended and informed the Fund that it concurred in the amendment. The same kind of action was not taken in connection with the similar and contemporaneous amendment of the resolution for Indonesia.

When 26 membership resolutions were amended in 1963 and 29 in 1964 by resolutions of the Board of Governors, none of the members to which the resolutions applied deposited a new instrument of acceptance, and the formal concurrence of the members was neither suggested nor received, even though Thailand was one of the 26 members affected by the first of the two amending resolutions. Both of the amendments were beneficial to members. The first authorized the Fund to permit a member to engage in exchange transactions with the Fund, on terms and conditions imposed by the Fund, even though 30 days had not elapsed since the establishment of an initial par value. The second amendment authorized the Fund to permit exchange transactions with a member even though it had not yet agreed an initial par value for its currency.1

It is unlikely that in practice a member would be denied the opportunity to express its concurrence in an amendment of its membership resolution that imposed a new burden, even though it would be difficult to argue that the Board lacks the authority to change its decisions, at least before they are acted on by members. The procedure that would be followed if an amendment were to impose a new burden has not been clarified because there has been no occasion on which such an amendment has been made. The resolution adopted in 1963 to amend 26 membership resolutions introduced a condition in them under which a member had to put an initial par value into operation before it could engage in exchange transactions with the Fund. This condition was not a new burden, however, because it had been implicit in the original resolutions, but in any event the amendment was part of a broader amendment that deleted the condition that a member could not engage in exchange transactions before 30 days after the establishment of an initial par value and before it had paid its full subscription. Any delay in putting a par value into operation almost certainly would be much shorter than 30 days, and it was unlikely that a member would be unable to pay its currency subscription within that period, so that the amendment as a whole was clearly beneficial for members. When the practice was adopted of including in resolutions the term that requires a member not to change the exchange rates for its currency without the agreement of the Fund in the period before an initial par value is established, no attempt was made to amend earlier resolutions in order to incorporate this term in them. The reason that was given for refraining from amendment was the desire to avoid prejudice to members that had not been subject to this term when they accepted membership.

A proposal that would have increased the burdens of a membership resolution was rejected by the Executive Directors on March 18, 1947. Italy had established a free exchange market on May 9, 1946, but an executive director protested after the resolution had been adopted that the importance of the market had not been generally realized when Italy’s application for membership had been considered. The director alleged that the market was inconsistent with European practices and the obligations of the Articles. He suggested that Italy should not be allowed to become a member until the market was abolished, and that this refusal could be based on the term of the resolution that required the deposit of an instrument stating that Italy had taken all steps necessary to enable it to carry out its obligations under the Articles and the resolution. The Executive Directors decided that the proposed interpretation would have the effect of adding conditions to the resolution and that they had no authority to take such action. In deciding that they had no authority, the Executive Directors did not discuss the powers of the Board of Governors to impose additional conditions.2

Failure to Observe Terms of Resolution

In the early days of the Fund, the question arose whether a member that was in default because it had not yet paid its subscription to the Fund as required by the Articles would continue to be regarded as a member. It was concluded that a country that had complied with Article XX, Section 2 (a), was a member even though it failed to pay its subscription, because payment of a subscription was not a condition precedent to membership but an obligation arising after membership. The Fund would be able, if it wished, to employ the procedure of Article XV to compel withdrawal if the member failed to discharge this obligation.

Another question that was considered at the same time was the effect of the deposit of an instrument in accordance with Article XX, Section 2 (a), if it was discovered later that the signatory had not accepted the Articles in accordance with its law or had failed to take all steps necessary to carry out its obligations under the Articles. It was concluded that a purpose of Article XX, Section 2 (a), was to absolve the Fund from the necessity to inquire into the steps taken by the signatory government. Membership was completed when the signatory government signed the Articles and deposited an instrument that contained the proper declarations. It would be unreasonable to conclude that membership had not been completed because it was discovered years after the Articles were signed and the instrument deposited that some domestic step had not been taken to give effect to all obligations. A member has numerous and varied obligations, relating for example to privileges and immunities 3 and the unenforceability of certain exchange contracts,4 and it is conceivable that, although a member may have thought that it did not have to take action, or further action, its courts may come to a different conclusion. The Fund would then expect the member to take the action necessary to comply with the declarations in its instrument, and if the member neglected to take this action, the Fund could employ those measures that are available to it when a member fails to fulfill its undertakings.

The legal position is substantially the same under membership resolutions. They have required an applicant, however, to pay the gold portion of its subscription not later than the day on which it signs the Articles, so that this payment has been a condition precedent to membership. The applicant has become a member once it has paid this portion of the subscription, deposited its instrument, and signed the Articles. The acceptance of membership does not depend on the payment of the rest of the subscription, and the resolution does not provide that membership shall cease automatically on failure to pay the balance of the subscription in accordance with the terms of the resolution. A member is deemed to have withdrawn, however, if agreement on a par value is not reached in accordance with the term in the resolution that deals with the determination of an initial par value. This term is based on a somewhat similar provision in the Articles that applied to original members.5

Membership resolutions now require an applicant, before it becomes a member, to supply the Fund with such information as the Fund may request in order to substantiate the applicant’s representation that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles. For some years now, the Fund has requested a memorandum of law in which the applicant’s legal authorities explain the actions they have taken. If, however, it should be discovered after the applicant becomes a member that in fact it had not taken all necessary action, it would be in the same legal position as an original member that had failed to take all necessary action.

Re-entry

By a letter dated January 20, 1965, Indonesia informed the Secretary-General of the United Nations that it had decided “at this stage and under present circumstances to withdraw from the United Nations.” The Secretary-General acknowledged receipt of the letter and took certain administrative actions that were compatible with Indonesia’s withdrawal. On September 19, 1966, Indonesia informed the Secretary-General that it had decided “to resume full co-operation with the UN and to resume participation in its activities starting with the twenty-first session of the General Assembly.” The President of the General Assembly made a statement at the 1420th plenary meeting in which he said that it appeared to be Indonesia’s view that it had ceased to cooperate with, but had not withdrawn from, the United Nations. The action of the United Nations up to that date, he continued, did not appear to preclude that view, and if it was also the general view of the membership, the Secretary-General would give instructions for the necessary administrative action to be taken for Indonesia to resume participation. There was no objection, so that the membership must be taken to have accepted the thesis that Indonesia had not withdrawn, although actions had been taken in the United Nations that could have been regarded as implying withdrawal.6

The procedures in the Fund are less likely to be ambiguous. In the Fund, a member can withdraw at any time by giving written notice to the Fund.7 It has been noted in Chapter 7 that Indonesia, which had been a member since April 15, 1954, withdrew voluntarily with immediate effect on August 17, 1965 under the express authority of the Articles, and that it applied for membership again on July 5, 1966. The Board of Governors adopted a resolution with effect from September 30, 1966 permitting Indonesia to re-enter, and Indonesia became a member once more on February 21, 1967. The application was treated according to the normal procedures for membership, except that it was necessary to negotiate the terms on which the unexecuted settlement agreement, which had been adopted by the Fund on February 16, 1966, would be incorporated in the membership resolution. There are, therefore, terms in that resolution that are unique because Indonesia is the only country that has re-entered the Fund so far.8 The settlement agreements with other countries that have withdrawn have been executed so that the negotiation and the kind of terms that were necessary on the re-entry of Indonesia would be unnecessary if these ex-members were to become members once again.

The second membership resolution for Indonesia refers to the “reacceptance” of membership and to the fact that Indonesia would “again accept membership.” There is no legal significance in this terminology because Indonesia had to take the same steps as are taken by any other applicant. It had to deposit an instrument of acceptance and sign the original copy of the Articles once again.

1See also Chap. 7, pp. 199 and 200-201 above.
2When the resolution for Italy was adopted, it had not yet become the practice to include a term requiring a member not to change the exchange rates in effect when it entered the Fund without obtaining the agreement of the Fund. Even if there had been such a term, however, it would not have applied to the introduction of the Italian free market because the practice was in effect before Italy became a member.
4Article VIII, Section 2 (b).
5Article XX, Section 4 (b).
6Schermers, International Institutional Law, Vol. I, pp. 49–51. See also Frances Livingstone, “Withdrawal from the United Nations—Indonesia,” International and Comparative Law Quarterly, Vol. 14 (1965), pp. 637–46.
8The second membership resolution for Indonesia is reproduced in Appendix II, pp. 511–15 below.

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