Conditionality & its management by Bretton Woods Institutions
Implications beyond the formal conditions
©2003
Magisterarbeit
93 Seiten
Zusammenfassung
Inhaltsangabe:Abstract:
In the present master thesis shall be analysed hidden effects ensuing from approaches on Conditionality intended at the Bretton Woods Conference to be used by IMF and World Bank, as well of those that were finally executed by them. The main focus in this research lies on the altering management of that what is interpreted as Conditionality by these institutions, namely a barter of economic policy adaptations against complementary lending. In order to comprehend the accompanying implications behind, this view will be enriched of new aspects:
The first chapter highlights selected analogies to a related concept used widely within positivistic civil law, revealing, next to an even-handed functioning of the basic mechanism, also a concentration of institutional roles that would not be permissible on national level. The second analysis introduces to the historical background of the Bretton Woods Conference and evaluates according proposals concerning Conditionality. In the following there are taken into consideration global political evolvements too that opened the door towards ulterior fields of appliance, of whom development resulted being the most fertile one. This leads directly to the elaboration of the two basic strategies followed by the Bretton Woods Institutions in order to leverage their restricted financial capabilities.
Finally conclusions are drawn about the role that Conditionality plays within the value-creating chain of an international financial institution, whose outputs, like those of IMF and World Bank, are interpreted in terms of global public goods. The missing link between Conditionality and GPGs is bridged through the introduction of the Conditionality-GPG-Profile that allows the obtainment of a respective profile of Conditionality-bound institutional efforts.
Inhaltsverzeichnis:Table of Contents:
AbstractIII
Acronyms and AbbreviationsVII
1.Introduction1
2.The basic concept of Conditionality5
2.1Conditionality as it is seen by the Bretton Woods Institutions5
2.2The Conditional Contract of Italian Civil Law6
2.2.1The implications8
2.2.2Evaluation of Civil Law conditional concept11
2.3Conditionality and the Bretton Woods Conference13
2.3.1Political background of the Bretton Woods Conference14
2.3.2Keynes Conditionality underpinnings18
2.3.2.1Evaluation of Keynes basic ideas on Conditionality25
2.3.3Whites Conditionality underpinnings27
2.3.3.1Evaluation of Whites basic ideas on […]
In the present master thesis shall be analysed hidden effects ensuing from approaches on Conditionality intended at the Bretton Woods Conference to be used by IMF and World Bank, as well of those that were finally executed by them. The main focus in this research lies on the altering management of that what is interpreted as Conditionality by these institutions, namely a barter of economic policy adaptations against complementary lending. In order to comprehend the accompanying implications behind, this view will be enriched of new aspects:
The first chapter highlights selected analogies to a related concept used widely within positivistic civil law, revealing, next to an even-handed functioning of the basic mechanism, also a concentration of institutional roles that would not be permissible on national level. The second analysis introduces to the historical background of the Bretton Woods Conference and evaluates according proposals concerning Conditionality. In the following there are taken into consideration global political evolvements too that opened the door towards ulterior fields of appliance, of whom development resulted being the most fertile one. This leads directly to the elaboration of the two basic strategies followed by the Bretton Woods Institutions in order to leverage their restricted financial capabilities.
Finally conclusions are drawn about the role that Conditionality plays within the value-creating chain of an international financial institution, whose outputs, like those of IMF and World Bank, are interpreted in terms of global public goods. The missing link between Conditionality and GPGs is bridged through the introduction of the Conditionality-GPG-Profile that allows the obtainment of a respective profile of Conditionality-bound institutional efforts.
Inhaltsverzeichnis:Table of Contents:
AbstractIII
Acronyms and AbbreviationsVII
1.Introduction1
2.The basic concept of Conditionality5
2.1Conditionality as it is seen by the Bretton Woods Institutions5
2.2The Conditional Contract of Italian Civil Law6
2.2.1The implications8
2.2.2Evaluation of Civil Law conditional concept11
2.3Conditionality and the Bretton Woods Conference13
2.3.1Political background of the Bretton Woods Conference14
2.3.2Keynes Conditionality underpinnings18
2.3.2.1Evaluation of Keynes basic ideas on Conditionality25
2.3.3Whites Conditionality underpinnings27
2.3.3.1Evaluation of Whites basic ideas on […]
Leseprobe
Inhaltsverzeichnis
ID 6745
Pichler, Lukas: Conditionality & its management by Bretton Woods Institutions -
Implications beyond the formal conditions
Hamburg: Diplomica GmbH, 2003
Zugl.: Innsbruck, Universität, Magisterarbeit, 2003
Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte,
insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von
Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der
Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen,
bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung
dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen
der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik
Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich
vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des
Urheberrechtes.
Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in
diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme,
dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei
zu betrachten wären und daher von jedermann benutzt werden dürften.
Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können
Fehler nicht vollständig ausgeschlossen werden, und die Diplomarbeiten Agentur, die
Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine
Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen.
Diplomica GmbH
http://www.diplom.de, Hamburg 2003
Printed in Germany
Abstract
In the present master thesis shall be analysed hidden effects ensuing from approaches on
Conditionality intended at the Bretton Woods Conference to be used by IMF and World
Bank, as well of those that were finally executed by them. The main focus in this research lies
on the altering management of that what is interpreted as Conditionality by these institutions,
namely a barter of economic policy adaptations against complementary lending. In order to
comprehend the accompanying implications behind, this view will be enriched of new
aspects:
The first chapter highlights selected analogies to a related concept used widely within
positivistic civil law, revealing, next to an even-handed functioning of the basic mechanism,
also a concentration of institutional roles that would not be permissible on national level. The
second analysis introduces to the historical background of the Bretton Woods Conference and
evaluates according proposals concerning Conditionality. In the following there are taken into
consideration global political evolvements too that opened the door towards ulterior fields of
appliance, of whom development resulted being the most fertile one. This leads directly to the
elaboration of the two basic strategies followed by the Bretton Woods Institutions in order to
leverage their restricted financial capabilities.
Finally conclusions are drawn about the role that Conditionality plays within the value-
creating chain of an international financial institution, whose outputs, like those of IMF and
World Bank, are interpreted in terms of global public goods. The missing link between
Conditionality and GPGs is bridged through the introduction of the Conditionality-GPG-
Profile that allows the obtainment of a respective profile of Conditionality-bound institutional
efforts.
III
Table of Contents
Abstract
III
Acronyms and Abbreviations
VII
1.
Introduction. 1
2.
The basic concept of Conditionality.
5
2.1. Conditionality as it is seen by the Bretton Woods Institutions.
5
2.2. The "Conditional Contract" of Italian Civil Law.
6
2.2.1. The
implications.
8
2.2.2.
Evaluation of Civil Law conditional concept.
11
2.3. Conditionality and the Bretton Woods Conference.
13
2.3.1.
Political background of the Bretton Woods Conference.
14
2.3.2. Keynes'
Conditionality
underpinnings.
18
2.3.2.1.
Evaluation of Keynes' basic ideas on Conditionality.
25
2.3.3.
White's Conditionality underpinnings.
27
2.3.3.1.
Evaluation of White's basic ideas on Conditionality.
30
3.
Evolution of Conditionality since Bretton Woods.
33
3.1. The first years
33
3.2. Widening possibilities for the application of Conditionality in the next years.
35
3.3. Development as argument for the application of Conditionality.
38
4.
Relevant aspects of the actual application of Conditionality within collective
action. 44
4.1. Starting situation for collective action and Conditionality.
44
4.2. Two basic strategies of IFIs.
46
4.2.1.
Conditionality oriented towards crisis management.
46
4.2.2.
Conditionality oriented towards prevention.
48
5.
Conditionality and GPGs.
50
5.1. Identifying the role of Conditionality in the value-chain of IFIs.
50
IV
5.2. Evaluation approach of IMF's New Programs' Conditionality.
56
5.2.1.
Classification of GPGs.
56
5.2.2.
Classification of Conditionality.
57
5.2.3. The
Conditionality-GPG-Profile.
58
The following pages contain the instructions that explain how the Conditionality-GPG-
Profile works.
58
5.2.3.1. Description
of
C-GPG-Profile structure.
58
5.2.3.2.
Consequences of Structural Conditionality about
"General government tax and expenditure reform" and
the PG of "Global Security".
66
6.
Conclusion. 69
Appendix
71
References 77
Figures
2 - 1: Graphical elaboration of the concept of "Conditionality" within the Italian
Civil Law
7
2 - 2: States of unrest caused by IMF and World Bank
10
2 - 3: Positioning Civil Law's conditional contract
13
2 - 4: Allocation of common financial funds through Conditionality
19
2 - 5: Illustration of Fund access- and Penalty based ICU-Conditionality
21
2 - 6: Illustration of ICU's financial outflows and introits
22
2 - 7: Illustration of Gold arbitrage
14
2 - 8: Positoning of Keyne's Conditionality concept
27
2 - 9: Illustration of monetary tasks of non-US central banks in the BWS
28
2 - 10 Illustration of White's Fund access based Condtionality
30
2 - 11: Positioning of White's Conditionality concept
32
3 - 12: Growth of IMF membership
36
3 - 13: Growth of IBRD membership
36
3 - 14: IMF lending 1950-89
38
3 - 15: IMF credit facilities of the last decade
39
3 - 16: World GDP form 1950 to 2000
42
V
4 - 17: Monetary expansion and shrinking process (Chen 2001)
46
4 - 18: Error Controlled Regulation Crisis Management
47
4 - 19: Anticipatory Regulation Prevention
49
5 - 20: Position of Conditionality in IFI's value chain
52
5 - 21: Distribution of Structural Conditions by Economic Sector
63
Tables
3 - 1: Average time spent in years in all IMF programs
40
5 - 2: Estimated costs of major IMF activities FY 2000-02
53
5 - 3: Implementation of Structural Measures by Economic Sector Survey Sample
59
5 - 4: Conditionality-GPG-Profile of IMF's new program's
60 - 62
5 - 5: GPG profile outputs of the IMF
65
Appendix
6: Membership of the IBRD
71 - 74
7: Development of GDP from 1950 until 2000
74 - 75
8: Economic Sector Classifications of the IMF's New Programs
75 - 76
VI
Acronyms and Abbreviations
AoA
Articles
of
Agreement
B.o.p.
Accumulated balance of payments surpluses - balance of
payments level
BWI
Bretton
Woods
Institutions
CB
Central
Bank
C-GPG-Profile
Conditionality-Global Public Good- Profile
GMF
Global
Market
Failure
GMP
Global
Market
Player
GPG
Global
Public
Good
HIC
Highly
Industrialised
Country
HIPC
Highly Indebted Poor Countries
IBRD
International Bank for Reconstruction and Development
ICU
International
Clearing
Union
IDA
International
Development
Association
IFC
International
Financial
Corporations
IFI
International
Financial
Institution
II
International
Institution
IMF
International
Monetary
Fund
LDC
Low
Developed
Countries
PG
Public
Good
PRGF
Poverty Reduction and Growth Facility
SBA
Stand-By
Agreement
WTO
World
Trade
Organisation
WWI
World
War
I
WWII
World
War
II
VII
1. Introduction.
At the United Nations' International Monetary and Financial Conference of Bretton Woods in
New Hampshire, the Allied Powers reached an agreement about the design of the post war
monetary and financial system. In this regard Chapter 2 Identification of the basic concept
of Conditionality - illustrates analogies and discrepancies with contemporaneously introduced
articles within the Italian civil law concerning conditional contracts, as well as with the basic
designs of Conditionality furnished at the above-mentioned conference by John Maynard
Keynes and Harry Dexter White. Since the economic monetary system, crucially determined
by the last one, broke down in the period after 1971 and because of the impressive economic
recovery of Europe, both financial Bretton Woods Institutions, the International Monetary
Fund (IMF) as well as the International Bank for Reconstruction and Development (IBRD),
lost their intended missions.
Additionally, their relative financial weight on a global scale was consistently shrinking,
because of fast growing international capital and trade flows. Due to the emerging urgency to
change, both institutions expanded towards supplemental fields of activities: As elaborated
within Chapter 3 on the Evolution of Conditionality since Bretton Woods -, the World Bank
positioned itself in the field of development; assuming an aspiration that encompasses nearly
all possible kinds of financing being concerned with poor countries, ranging from micro-
financing of one man/women enterprises till to the provision of capital for national mammoth-
projects like dams or the build up of heavy industries. There it provides long term conditional
and non-conditional financing and other services through appropriate sub-organisations. In
this environment of predominately flexible exchange rates the IMF sought to provide short
term financing for debt-laden countries in need of hard currency. Later "... As the developing
world required increasing amounts of capital to fuel growth, the IMF adopted a more
proactive role and, with the advent of its structural adjustment policies, became a
macroeconomic tutor to the developing world, just as the World Bank had earlier become its
microeconomic teacher"
1
. If both international entities have the expertise of designing "good"
policies, this implies at the very end that countries in need are free to decide only whether to
adopt specific structural policies together with the financial support or to deny both. In this
sense the two institutions emancipated from their passive roles and restricted possibilities of
1
Stevenson (2000), p. 8.
1
1. Introduction
action, envisaged for them by the Bretton Woods Conference. This becomes particularly
visible as:
· First, they compensated their declining financial global weight by specialising
themselves on interventions were they are particularly able to leverage their influence.
Namely by concentrating on interventions in underdeveloped countries that face
severe economic difficulties. The herewith linked penalties, like the denial to access to
international financial institutions' (IFIs') funds, enable them to enforce agreed policy
reforms also beyond the mere contracting period. IMF and World Bank are in fact the
main pursuers of a flexible application of Conditionality. Even though their
implementation of a systemic concept of reciprocal commitment, in the form of
Conditionality, was not the first in history, in contrast to the attempt of the League of
Nations after the first world war (WWI), this one proved not only to be successful, but
also crucial for the further survival and evolution of both institutions.
· Second, both institutions were able to increase remarkably the number of members,
giving them a more and more global shape. Now their membership, encompassing a
large part of all nations of the globe, is comparable to that of the United Nations or, in
order to remain within the narrow economic sphere, to that of the WTO.
At difference of the Bretton Woods sisters, the World Trade Organisation does not act
directly through financing; nonetheless there exists a crucial similarity: "Global membership"
and an "official penalty system" seem to be decisive ingredients for the effective pursuing of
collective interests. Further such penalty systems vary according to the procedures that lie
behind: For instance the WTO empowers its amendments or at least those of the signing
members through the "dispute settlement body", disposing of quasi jurisdictional powers in
the case of decisions regarding the appropriateness of specific trade policies. World Bank and
IMF on the other side reside on another base of enforcement: Namely the connection, they
build between their member nations requests for lending ensuing from economic hitches and
the complementary national policy reforms, conglomerate which is widely described as
Conditionality.
According to Chapter 4, on Relevant aspects of the actual application of Conditionality
within collective action -, Conditionality plays also a strategic role for IFIs. In fact, the
2
1. Introduction
appropriate timing of conditional financing, aimed at the spread of policy reforms, allows a
differentiation of two basic strategies that can be pursued by institutions applying
Conditionality: that of a crisis manager and that aimed at prevention. This distinction allows
an explanation of the behaviour of the Bretton Woods Institutions beyond their usual
distinction where the IMF is thought to operate only on the short term, while the World Bank
is considered to be long term oriented. The respective consequences resulting from the
strategic application of Conditionality have in every case a wider range than the connected
financial commitment may let assume.
Generally the evaluation of specific policy-conditions proves to be very difficult, these can in
fact neither be easily valued singularly, nor without questions be compared in their
consequences from country to country. Assuming now that the aims of Conditionality must lie
beyond the mere aim of risk reduction for IFI-lending, the connections between applied
Conditionalities and the collective interest of member nations achieve primary importance for
the justification of such efforts. Already during the Bretton Woods conference the IMF and
Worldbank were established to ensure the delivery of specific GPGs. Consequently Chapter 5
on Conditionality and GPGs proposes two approaches in order to assess: First the role that
Conditionality plays within the creation of GPGs through an IFI-value-creation-chain analysis
and second, to enlighten the link between Conditionality and its practical realisation points,
means the measures that are finally perceived as GPGs, through a Conditionality-GPG-
Profile.
Besides, what if both institutions operate in the same country, with two "Conditionalities",
eventually with contradictive measures? Herein their mutual solutions, next to the historical
and strategic interdependencies between the institutions, recall the investigation of both
Bretton Woods sisters from the beginning. Especially as their reciprocal accentuation of
differences may in part be a result of their common operational fields. Further the BWI are
often accused of specific preferences, emerging in the form of different severe appearance of
the applied Conditionality, in front of diverse countries. The institutions explain this through
varied necessities encountered in each case
2
. Critics on the other side complain on moral
hazard in form of temporarily favoured treatments of countries where foreign capital is
2
See also IMF (1979), from the Guidelines on Conditionality, point 9 "The number and content of performance
criteria may vary because of the diversity of problems and institutional arrangements of members.
Performance criteria will be limited to those that are necessary to evaluate implementation of the
program with a view to ensuring the achievement of its objectives. ...".
3
1. Introduction
menaced by economic crises. There remains the fact that financial commitments and policies,
agreed within Conditionality negotiations, reflect essential and often overdue changes, while
on the other side their economic and political priorities are unquestionably influenced by the
major shareholders of the respective Institutions.
4
2. The basic concept of Conditionality.
This chapter is concerned with the different concepts of "Conditionality". The first section
will therefore give a short overview on the terminology around the expression. The described
shortfalls provide hereby the reason for the following introduction to a comparable concept,
existing within the positivistic Italian Civil Law, in the next part. The third point finally opens
the door to the basic proposals concerning Conditionality once made at the Bretton Woods
Conference by John Maynard Keynes and Harry Dexter White.
2.1.
Conditionality as it is seen by the Bretton Woods Institutions.
"Conditionality" represents one of the main tools of the World Bank Group and of the IMF.
Notwithstanding, there exists no formal definition of the concept provided by the institutions,
although internal documents give some hints. In fact in the Articles of Agreement (AoA) of
the IMF of the 22
nd
July 1944, the notion of Conditionality is not even mentioned,
nevertheless these provide some key-suggestions on lending that serve as justification for the
application of Conditionality by the Fund.
3
Actually the state of affairs of a missing common
denominator of Conditionality remains unresolved. Even recent publications still face the
need to fix the content in question on their own. Most remain within its simplest conception,
where the access to IFI funds depends on the formal introduction of economic policies. This
position is also explained on the current IMF-homepage, where Conditionality is referred to
as "the link between the approval or continuation of the Fund's financing and the
implementation of specified elements of economic policy by the country receiving this
financing"
4
. Nonetheless, some authors face the need to go beyond these limits. Like Hanna
Nagy, stating in a World Bank paper on "Conditionality as Mutual Commitment Mechanism"
of 2000 that: "Traditionally, the World Bank has viewed Conditionality as a blueprint
package of policy conditions attached to tranches release of single loans. We propose a
broader view of Conditionality as an evolving process in support of a policy compact based
on mutual commitment."
5
An other more empirical attempt by the World Bank called ALCID
Adjustment Lending Conditionality and Implementation Database shows the other
extreme solution to the assessment of the concept, by declaring: "Conditionality is interpreted
3
See also Hofstetter (1996), p. 4-6.
4
See also IMF (2001), point II. Experience with Conditionality.
5
Hanna (2000), p. 1.
5
2. The basic concept of Conditionality
broadly to include actions taken or recommended in the President's Report which form part of
the adjustment program supported by the loan, not only those listed in legal documents"
6
.
Further each condition is summarised in a brief text and defined by 17 variables belonging to
three broad areas: Loan data, attributes of the conditions and information on the extent of
implementation.
At the very end the World Bank as well the IMF provide only rarely a deeper inquiring on the
scheme of Conditionality that goes beyond their need to optimise and justify actual
approaches. This is surprising because in the first four decades of their existence these
institutions accentuated remarkably the uniqueness of their operations through Conditionality.
As second aspect is that Conditionality sets roles and possibilities from the beginning. Alone
the fact that only nations with economic difficulties are subjected to this procedure shows the
difference. Especially as both BWI have always avoided putting under "Conditionality"
highly industrialised countries (HIC). Certainly they may enjoy a greater creditworthiness in
terms of GDP per capita, literacy rate and so on, but they also diluted necessary reforms for
decades or faced political instability.
2.2.
The "Conditional Contract" of Italian Civil Law.
In order to view Conditionality from a new perspective it may be useful to begin with an
independently elaborated and largely tested design of Conditionality: The Civil Law
Conditional concept. This allows to get a more distinct position in front of Conditionality,
concentrating on the basic concept without being distracted by the usual assumptions and
connotations of IMF and World Bank. For this purpose this part will rely on respective
formulations taken from the Italian Civil Law, although there are two important differences to
keep in mind:
· From a legislative viewpoint, Conditionality is effective only INTER PARTES - only
between the parts. Hereupon the Italian Civil Law is aimed only at the regulation of
relationships between legally equal, private entities. This is at odds with collective
action, where the contracting parts are usually an IFI on one side and a government of
6
World Bank (1990), Introduction.
6
2. The basic concept of Conditionality
a country in need on the other. Here the effects resulting from Conditionality can not
be said to act only on the contracting parts.
· There is a superior authority, the state, that provides the regulations, judges illegalities
and that disposes of the necessary executive power. Collective action doesn't include
that institutional set-up; its powers are more subtle.
The evolution of "Conditionality" as a legal concept has its roots in positivistic national Civil
Laws where it regulates contractual relationships between private entities. One of the most
recent elaborations dated before World War II (WWII) is provided by the Italian Civil Law,
introduced with a royal decree of 1942, whose article 1353 states:
"Conditional Contract. - The parts can subordinate the effectiveness or the cancellation of the
contract or of a single pact to a future and uncertain event."
7
Figure 1: Graphical elaboration of the concept of "Conditionality" within the Italian Civil Law.
Activated Conditionality
Deactivated Conditionality
Effectiveness
of contract
Future
and
uncertain
event
Contract
between two
parts
Cancellation
of contract
0
T
im
e
dim
ension
1
This signifies that there are identifiable two decisional moments along the time dimension:
· Time point 0, where the contract per se is stipulated, i.e. the contributions of the single
parts are set. At the same time the agreement includes underlying conditions, i.e. a
future and uncertain event on which depends the effectiveness of the contract.
7
Majo (1995), Libro Terzo Della proprietà, art. 1353, translated from: ,,Contratto condizionale. Le parti
possono subordinare l'efficacia o la risoluzione del contratto o di un singolo patto a un avvenimento
futuro e incerto."
7
2. The basic concept of Conditionality
· Time point 1, where the future and uncertain event happens and whose failed
fulfilment of before agreed conditions leads to the cancellation, or in the other case to
the effectiveness of the contract.
2.2.1. The implications.
The above-mentioned and graphically shown definition about the conditional contract allows
to specify the kind of "Conditionality" used:
· First, "ex ante". This means that the conditions that finally decide the effectiveness of
the contract are set before its execution. In the prevailing situation the contract seems
to be advantageous for both. But there exist constellations where both parts prefer to
avoid the execution of the contract, or similarly where this is the case for only one part
while the other is indifferent to its execution. Herein is further distinguished between
"suspend conditions", which suspend the effects accompanying the contract till the
above specified event sets in, and "resolutive conditions", whose fulfilment
extinguishes the effectiveness of the contract
8
. These preset conditions describe an
automated decision point that facilitates the achievement of a commonly accepted
drop out. This can also be understood in terms of Pareto-efficiency because, due to the
effectiveness or the cancellation of the contract, determined in advance by
Conditionality, at least one contracting part is better off. Obviously this is consistent
only if simultaneous disadvantages for the other group are excluded. In this sense the
conditional contract, instead of an unconditional, can decrease the risk of a Pareto-sub-
optimal solution as it represents a later and also an already known "go out" alternative
for both partners. This has stabilising effects on the relationship between the parts, at
least in the case of foreseeable risk.
· Second, the illustration above treats the concept as an unique event. It contains no
consequences that past rounds of negotiations can have on the actual one. However,
lending-against-policy-negotiations between countries in need and BWIs usually
reflect the whole history of repeated interventions. Many borrowing countries show
indeed a continuous dependence on institutional funds.
8
See also Zatti (1997), p. 412, La condizione.
8
2. The basic concept of Conditionality
It is important to point out crucial distinctions between the understanding of Conditionality
along national legislations and along IFI's applications. Within the former, the application of
the conditional contract is subordinated to laws and for the case of disputes to the judgement
of an independent court. IFIs on the other side, as it is often criticised by NGOs, economists,
as well in the last times also by politicians, are not subjected to such principles. Only recently
a motion brought in at the Italian parliament and directed at the respective government,
requested in fact a total revision of the actual role and the policies of the IMF
9
. Other useful
analogies concerning specific matters around Conditionality could also be identified: For
example art. 1354
10
of the Italian Civil Codex states that a contract has to be intended as
nullified if the applied conditions run counter imperative norms, moral principles or against
the public order. One may note that during the economic and social catastrophe lived by
Argentina in 2002, IMF-Conditionality was publicly condemned by national media as being
one of the primary determinants that finally caused the disruption of the public order.
Theoretically something like a "global supreme court", adopting legislative principles like the
above cited law 1354, could arrive at the result that an already applied Conditionality had to
be declared as not any more binding, due to its destabilising effect on the public order. As this
can happen only ex-post, it follows that agreed policy reforms would not be realised, while
the repayment of the financial commitments to the IFIs wouldn't be very probable in
circumstances where economic difficulties continue to persist next to public disorder. On one
side such a success-based repayment of conditional IMF-credits, instead of the actual
precedence of institutional debts on repayment, would increment enormously the risks of
lending, setting off basically also the risk reducing intent behind ex-ante Conditionality. On
the other hand moving back to the real world: On the 14
th
of January 2003 Austrian radio
news announced that the IMF will cancel about $ 8 billion of Argentinean debts whose
9
These tendencies are mainly attributable to the last events in Argentina because its strong historical relations to
Italy. More specifically here is referred explicitly to a motion by the parliament directed to the
government that asked a) a total revision of the role and the policies of the IMF and b) the convocation
of a new international conference like that of Bretton Woods, aimed at founding a new international
monetary system. (Source: Parliamentary documentation (Italy) - Camera dei Deputati, 23rd September
2002). There is to add further that this motion was retired before its voting by the parliament. On the
25th September nearly the same text, this time without the critical parts cited above, was largely
accepted in the "Camera dei Deputati" in the form of a common resolution (Source: Parliamentary
documentation (Italy) - Camera dei Deputati, 25th September 2002).
10
Majo (1995), Libro Terzo Della proprietà, art. 1354 "Condizioni illecite o impossibili: - È nullo il contratto
al qual è apposta una condizione, sospensiva o risolutiva, contraria a norme imperative, all'ordine
pubblico o al buon costume.
La condizione impossibile rende nullo il contratto se è sospensiva;
se è risolutiva, si ha come non apposta.
Se la condizione illecita o impossibile è apposta a un patto
singolo del contratto, si osservano, riguardo all'efficacia del patto, le disposizioni dei commi precedenti,
fermo quanto è disposto dall'articolo 1419."
9
2. The basic concept of Conditionality
repayment would be overdue within June of the same year. A legislative background would
also not necessarily help to avoid risks, but it would certainly be useful to determine
independently, reliably and on global scale the inherent negative effects around
Conditionality. In this regard an NGO, called World Development Movement, tried to
generate a global map of all disturbances of the public order (figure 2), that were attributed to
the two BWIs. Although these connotations are very questionable as such, they show the
impressive range that is attributed to the influence of Conditionality. It remains only to repeat
that the here treated Conditionality as it is applied by IFIs, lies beyond the regulative
influence of national laws. Nonetheless the comparison between the national regulated and
the international application of Conditionality lets appear the whole mechanism in a new
light, opening a fundamental question:
Figure 2: States of unrest caused by IMF and World Bank according to an NGO.
(Source: World Development Movement).
· Who judges about the appropriateness of specific Conditionalities?
In first line this happens through the two IFIs in question themselves. This negates every form
of division of power between being the judge and at the same time the lawyer of "good"
economic policies. For this purpose the two institutions indicate suitable statistical data and
10
2. The basic concept of Conditionality
outcomes of their surveillance operations. As solution in this context Stiglitz proposes the
following: "Separating out the surveillance and data collection function from the Fund would
potentially not only increase the efficacy with which these functions are performed, but also
reduce the monopoly power of the IMF"
11
. Basically the next sections come to a similar
conclusion, but will reveal also that in extremis the institutions concentration of power is
necessary in order to compensate their lack of legislative and executive powers in front of
nation states.
2.2.2. Evaluation of Civil Law conditional concept.
In order to obtain a characteristic profile of certain kinds of Conditionality, its specific
applications are aligned along two dimensions, namely "Flexibility" and "Neutrality". These
express issues accompanying Conditionality. Hereby, as the two are not directly linked, the
delimitation of one in the name of the other is thought to reveal underlining intentions. The
accordingly high or low achievements of "Flexibility" and "Neutrality", expressed by the
positions in the evaluation graph, have nonetheless to be put in relation to the surrounding
economic and political environment in order to allow an appropriately profound judgement.
· "Flexibility" refers to the freedom of contracting parts to apply desired conditions.
Liberty which ensues to be delimited if inherent contents
12
, explicit nominations or
alterations are not available as option.
· "Neutrality" refers to the degree to which the conditions reserve an equal treatment to
both contracting parts. This Equality shows to be the more infringed the more one part
is underprivileged by explicit nominations or by inherent contents.
As far as concerns Flexibility, seen from a legislative viewpoint, the existence of
Conditionality within Civil Law allows a rather elastic design and consequent improvement of
contractual relationships. The herewith pursued contributions in favour of the common public
good are facilitated by its sole regulative functions concerning specifically relationships
11
Stiglitz (2000), p. 9-18.
12
See also Majo (1995), Libro Terzo Della proprietà, Italian Civil Law, art 1362 cc, About the interpretation of
the contract contracting parts' intentions: The interpretation of the contract has to inquire which was
the common intention of the parts and this should not be limited to the sole explicit sense of the words.
In order to determine the common intention of the parts, has to be evaluated also their general behaviour
posterior to the conclusion of the contract.
11
2. The basic concept of Conditionality
between privates. The hereby available contractual conditions pursuable by these are in fact
delimited only through restrictive terms injuring law in general, more explicitly imperative
norms, disturbance of the public order and moral principles as mentioned in art. 1354 cc
13
.
Hereinafter, the indisputable legislative authority disposes also of the necessary executive
power to enforce its amendments. At difference of IFIs which, not only have to deal with
sovereign entities disposing of their own legislative, jurisdictional and executive powers, but
are today expected to be and partly criticised for being themselves the main sources of the
negotiation contents, concerning Conditionality.
As far as concerns "Neutrality", following more a jurisdictional path, the conditions inherent
to an according contract result to be subordinated not only to limitations mentioned within
contractual law,
14
but also to law in general
15
, in order to guarantee a certain impartiality in
front of both contracting parts. Exemplarily all Italian courthouses show it with big
characters: "La legge é uguale per tutti", the law is the same for all. On the other side the
"clients" of this service have commonly to deal with insidious difficulties, as the often cited
excessive delays and resulting expenditures within the Italian legal system prove. This, by
inhibiting the pursuing of equal rights by people that can't afford these costs, inflicts heavily
on the above conveyed equality, which is a jurisdictional principle that is already problematic
per se. Should all parts be treated on the same way, or should they be treated differently in
order to secure similar possibilities?
Surely the division of work between the legislative, jurisdictional and executive powers
provides a valuable solution to improve the neutral as well flexible treatment of the matter.
Nonetheless a direct comparison with IFI-Conditionality is remarkably complicated by the
fact that Civil Law stands over the contracting parts wills and is additionally enforced by
jurisdictional and executive powers. IFIs not only lack such a regulative roof, but face both
also ambivalent identities: They are "clients" when negotiating conditions with governments
and have to be "judges" in order to be able to take influence by evaluating themselves the
efforts prescribed by Conditionality. Identified this source of authority, it would be interesting
13
See also Majo (1995), Libro Terzo Della proprietà, Italian Civil Law, art. 1354.
14
See also Majo (1995), Libro Terzo Della proprietà, Italian Civil Law, art. 1355 Mere Enforcing Condition:
Such a condition, which results from the mere will of only one part has to be intended as expired, art.
1356 Outstanding condition: While waiting for an outstanding condition the acquiring part is enabled
to conduct conservative acts on the treated matter.
15
See also Majo (1995), Libro Terzo Della proprietà, Italian Civil Law, 1358 Behaviour of the parts in case
of outstanding: The obligated part has to assure the other parts interests according to the general
prescriptions on the good will.
12
2. The basic concept of Conditionality
to determine further some basic behavioural patterns, favouring "Flexibility" or "Neutrality"
at the cost of the other: According to the former all "clients" can enjoy diverse conditions in
order to take account of the actual needs, while following the second all parts are bound to the
same rules of creditworthiness. However the choice might be, fundamentally this deficit
marks simultaneously the basic dilemma accompanying every form of Conditionality. It is in
fact scarcely possible that Conditionality can handle simultaneously to be neutral and flexible
because the above described nature of international institutions constrains them to give the
one or the other of these dimension more weight.
max
min
Figure 3: Positioning of the conditional contract concept of the
Italian Civil Law along the dimensions of
"Flexibility" and "Neutrality".
Civil Law
conditional
contract
N
eu
tra
lit
y
Flexibility
max
2.3.
Conditionality and the Bretton Woods Conference.
The following section will give an overview about the historical background accompanying
the United Nations Monetary and Financial Conference of Bretton Woods. In the next two
sections, on Keynes' and White's Conditionality underpinnings we will see that the
Conference saw diverse approaches towards Conditionality, in contrast to the actual
discussion were only one perception of Conditionality is dominant.
13
2. The basic concept of Conditionality
2.3.1. Political background of the Bretton Woods Conference.
Due to their particular history, the BWI are to understand as an outcome of the will to
overcome specific economic and political failures. With time passing these clear relationships
diluted mainly because of environmental changes that rent the original pursuit of these
institutions futile. Therefore, in order to be able to comprehend the changes undergone from
their implementation, these need to be put in relation to the once actual historical context. The
same is truth also for the adoption of Conditionality as a systematic financial tool, that should
prove decisive for the further evolution of the BWIs. In order to concentrate on the essential,
the following description outlines points chosen due to their importance for the United
Nations Charta of 1942 and the Conference of 1944. In the author's understanding the former
represents at least the necessary condition for the last.
Since 1940 the United States were provisioning Great Britain and France with military
equipment on the basis of "cash and carry". Because of the aggravation of the military
situation and the lack of funds of the European Allies, since March 1941 the US government
amplified its efforts by adopting a system of "Lend and Lease", including also transportation
and correspondent risks in their service package. Next to the enormously increase of the
lending position of the States, that should become a crucial aspect in the after-war financial
system, as this altered also the American status of behaviour in the Atlantic: Changing from
one "no warfare" towards one of "non-declared de facto warfare"
16
. Nonetheless in the UN-
Atlantic-Charta
17
of the 14
th
August 1941 Churchill and Roosevelt agreed to constrict
themselves to waive from territorial annexations, next to the total military dismantling of all
aggressor states, as well to grant the self-assertion of nations and the freedom of the seas, The
announcement was addressed without doubt to the Axis-powers. After the widening of the
war to a global scale through the Japanese attack on Pearl Harbour in the Pacific on the 7
th
December 1941
18
, also Germany consigned the official declaration of war to the American
ambassador on the 11
th
of the same month. USA's political answer was embodied in a
declaration of the United Nations, in the so called Washington-Pact of the 1
st
January 1942,
subscribed all in all by 26 countries: Its aim was to negate Axis-powers singular armistices or
peace negotiations
19
, in order to avoid partial solutions. At the same time Russia undertook its
16
See also Microsoft (1997), Path: Stichwortverzeichnis - Weltkrieg Zweiter/Die USA und der Kriegsschauplatz
in Europa.
17
See also Digel (1982), p. 151.
18
See also Overesch (1991), p. 228.
19
See also Overesch (1991), p. 237.
14
Details
- Seiten
- Erscheinungsform
- Originalausgabe
- Jahr
- 2003
- ISBN (eBook)
- 9783832467456
- ISBN (Paperback)
- 9783838667454
- DOI
- 10.3239/9783832467456
- Dateigröße
- 1.1 MB
- Sprache
- Englisch
- Institution / Hochschule
- Leopold-Franzens-Universität Innsbruck – Sozial- und Wirtschaftswissenschaften, Wirtschaftstheorie, -politik und -geschichte
- Erscheinungsdatum
- 2003 (Mai)
- Note
- 1,0
- Schlagworte
- conditionality world bank global publiv goods interntationaler währungsfond
