Chapter

Part II. Commentary

Author(s):
International Monetary Fund
Published Date:
June 2004
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This Commentary examines, first, the conditions for the imposition of suspension of voting and related rights of a member, then the consequences of suspension, and finally the conditions and effects of a termination of suspension.

A. Conditions of Suspension

1. The conditions applicable to a suspension of voting and related rights of a member are set out in a revised version of Article XXVI, Section 2. Suspension forms part of a required sequence: it can be imposed only after the expiration of a reasonable period of time following a declaration of ineligibility of the member to use the general resources of the Fund under Article XXVI, Section 2(a), and compulsory withdrawal of the member can be required by the Fund under Article XXVI, Section 2(c) only after the expiration of a further reasonable period of time following the decision of suspension of the voting rights of the member.

2. Under Article XXVI, Section 2(d), the member must be informed in reasonable time of the complaint against it, and must be given an adequate opportunity for stating its case, before the Fund can decide to suspend its voting rights. The provision means that the complaint preceding a decision of suspension is distinct from the complaints that must be made before the member is declared ineligible to use the general resources of the Fund and before the member is required to withdraw.

3. Suspension requires a decision of the Executive Board by a 70 percent majority of the total voting power. It can be imposed in case of breach of any obligation under the Articles, except, in accordance with Article XXIII, Section 2(f), for the breach of an obligation with respect to special drawing rights.

B. Consequences of Suspension

1. Article XXVI, Section 2(b) provides that “the Fund may … suspend the voting rights of the member” and that “[d]uring the period of the suspension, the provisions of Schedule L shall apply.” Therefore, while the decision of the Fund is to suspend the voting rights of the member, the precise consequences of that decision are set out in Schedule L, and they include not only the suspension of voting rights of the member (paragraph 1 of Schedule L), but other consequences as well (paragraphs 2 to 4 of the same Schedule).

2. The consequences of suspension listed in Schedule L are automatic, temporary, indivisible, and exhaustive. They are automatic in the sense that they take effect without the need for any further action on the part of the Fund. They are temporary because their effects cease upon termination of the suspension (see Section C below). They are indivisible, since all the consequences set out in Schedule L apply as a unit; the Fund cannot decide that some of the consequences in the Schedule shall apply and some others shall not apply. Finally, they are exhaustive, because no consequences other than those listed in the Schedule can attach to the decision of suspension.

3. A decision to suspend the voting rights of a member results in the suspension of the right of the member to participate in the adoption of a proposed amendment of the Articles (paragraph 1(a) of Schedule L). Therefore, the member will not be asked whether it accepts a proposed amendment and will not be counted among the members that have accepted it, and the number of votes allotted to the member will not be included in the voting power of the members accepting the proposed amendment, for purposes of the last sentence of Article XXVIII(a). In addition, the member is excluded from the total number of members, and the number of votes allotted to the member are excluded from the total voting power, for purposes of the same sentence (paragraphs 1(a) and 2 of Schedule L, respectively). As a result of these provisions, the suspended member is to be disregarded for purposes of ascertaining whether a proposed amendment has been accepted by the required majorities. Such an amendment will nevertheless enter into effect for the suspended member, as for all other members, in accordance with Article XXVIII(c). The suspension of the voting rights of the member does not affect, however, the right of the member to participate in the adoption of, and otherwise be counted for purposes of, proposed amendments that require the acceptance of all members under Article XXVIII(b) or proposed amendments that pertain exclusively to the SDR Department. The member shall be treated like non-suspended members for the purposes of the adoption of such amendments, although, as a result of the suspension, pursuant to paragraph 3 of Schedule L, there will not be any Governor, Executive Director, or Councillor for the member to participate in the process of recommendation and approval of the amendment. The right to participate in the adoption of a proposed amendment must be distinguished from the right to propose an amendment; the suspension of the voting rights of the member does not preclude the member from proposing an amendment in accordance with the first sentence of Article XXVIII(a).

4. The other voting right of the member that is suspended (paragraph 1(b) of Schedule L) is the right to select or participate in the selection of officials of the Fund who are entitled to cast the number of votes allotted to members, namely, a Governor and an Alternate Governor, as well as an Executive Director (Councillors and Alternate Councillors are also named in case the Council is established). The suspension affects the right of the member to select such an official either on its own or with other members of a group, and either by way of appointment or by way of election. Alternates to Executive Directors are not included because they are appointed by the Executive Directors and not by the members (Article XII, Section 3(e)), and Associates in the Council are omitted because they are not entitled to cast votes (Schedule D, paragraph 1).

5. The first sentence of paragraph 2 of Schedule L provides that the number of votes allotted to a suspended member shall not be cast in any organ of the Fund (i.e., the Board of Governors, the Council if it is established, and the Executive Board). This provision complements the provisions of paragraph 3 of Schedule L, under which the Governor, the Alternate Governor, and the Executive Director (as well as the Councillor and the Alternate Councillor, if the Council is established) for the member cease to hold office, whereupon they are unable to cast the number of votes allotted to the suspended member. While paragraph 3 of Schedule L sets out the rule that these officials cease to hold office immediately upon effectiveness of the decision of suspension, it allows, in specified circumstances, an Executive Director (and a Councillor) to remain in office for a short period of time (see paragraph 7 below). Pursuant to paragraph 2 of Schedule L, the Executive Director (and the Councillor) for the suspended member shall not cast the number of votes allotted to the suspended member during that period of time.

6. The second sentence of paragraph 2 has the effect of excluding the number of votes allotted to the member from the calculation of the total voting power, not only for purposes of the acceptance of proposed amendments of the Articles (see paragraph 3 above), but also for purposes of the adoption of decisions by organs of the Fund. It is not necessary to exclude the Governor, Councillor, and Executive Director for the suspended member from the calculation of quorums under the Articles, since these officials cease to hold office, and therefore cease to be regarded as Governor, Councillor, and Executive Director for any purpose under the Articles, including the calculation of quorums, pursuant to paragraph 3 of Schedule L.

7. Under paragraph 3 of Schedule L, all the officials selected by the member who are entitled to cast the number of votes allotted to the member cease to hold office (the Alternate to the Executive Director for the member is not referred to in the provision, because he is not appointed by the member, but by the Executive Director who can replace him at any time). This means that these officials cease to be officials of the Fund for all purposes under the Articles.

(a) The principle is that these officials cease to hold office immediately upon effectiveness of the decision of suspension. This principle applies to the Governor and the Alternate Governor appointed by the member. It also applies to the Executive Director appointed by the member, if the member may appoint an Executive Director under Article XII, Section 3(b) or (c), except, as discussed below, in the case of an appointed Executive Director who is entitled to cast the number of votes allotted to members other than the member that appointed him, pursuant to an agreement under Article XII, Section 3(i)(ii). Finally, the principle that the official ceases to hold office immediately upon the effectiveness of the decision of suspension applies also to an Executive Director elected by one member that has later been suspended, or by several members, all of which have later been suspended (the principle also applies to a Councillor and Alternate Councillor in similar circumstances).

(b) The principle that the officials chosen by the member shall cease to hold office immediately receives an exception in the case of an Executive Director who is entitled to cast the number of votes allotted to other, non-suspended members, in order to allow the number of votes allotted to these members to continue to be cast (the same exception applies to a Councillor and an Alternate Councillor who were appointed by a group of members that includes non-suspended members). This may apply either when the Executive Director was elected by more than one member, or when the Executive Director was appointed by a member and it was agreed that this Executive Director would cast the number of votes allotted to other members in accordance with Article XII, Section 3(i)(ii). Then, the Executive Director in office when the decision of suspension became effective is entitled to remain in office for a short period, the length of which will depend on whether or not a regular election of Executive Directors under Article XII, Section 3(d) is about to take place. On the one hand, if a regular election is scheduled to be conducted within 90 days after the date of effectiveness of the decision of suspension, the Executive Director in office when the decision of suspension became effective will remain in office for the remainder of the term. If, on the other hand, a regular election is not scheduled to be conducted within 90 days, a special election will be conducted to replace the Executive Director in office, as in the case contemplated in Article XII, Section 3(f). This new Executive Director, who may be the same person, will be elected by the non-suspended members by a majority of the votes cast. Once elected, he will be entitled to cast the number of votes allotted to all such non-suspended members and will serve for the remainder of the term of the Executive Director who ceased to hold office as a result of the suspension. The Executive Director in office when the decision of suspension became effective shall cease to hold office not later than 30 days after the date of effectiveness of the decision of suspension, even if another Executive Director has not yet been elected by that time. In such case, the Alternate Executive Director would still, however, hold office until another Executive Director is so elected, or until the next regular election, whichever comes first. It is expected that a period of 30 days will provide sufficient time for the other members of the constituency to hold an election.

8. The amendment does not contemplate that, if a member having one of the five largest quotas were suspended, the member with the sixth largest quota would be called upon to appoint an Executive Director so as to maintain at five the minimum number of Executive Directors appointed on account of the size of quotas. Instead, the number of Executive Directors appointed by members would be reduced during the period of the suspension.

9. Paragraph 4 of Schedule L confers an entitlement on suspended members to send representatives to meetings of the Board of Governors and the Executive Board (and the Council if it is established) whenever these organs consider requests made by the member or matters that particularly affect the member. The provision does not create an entitlement for suspended members to send representatives to meetings of committees of these organs of the Fund when such matters are under consideration, because non-suspended members do not have such an entitlement under the Articles. In the cases where suspended members do not have an entitlement to send representatives to meetings of these organs or of their committees, the provision does not prohibit, however, such representatives from being invited to such meetings in accordance with the applicable rules of procedure.

C. Termination of Suspension

Conditions for Termination

1. The termination of suspension requires a decision of the Executive Board carried by the same majority required for the imposition of suspension, namely, 70 percent of the total voting power.

2. The amendment leaves it to the Fund to decide when to terminate suspension. In particular, the Fund is not compelled to terminate the suspension upon resumption by the suspended member of compliance with all of its obligations under the Articles, nor is it prohibited from terminating the suspension prior to the resumption by the member of compliance with all such obligations, if this were considered appropriate. The Fund has similar flexibility under the Articles with respect to termination of a member’s ineligibility to use the general resources of the Fund.

Effects of Termination

3. Termination of suspension revives the voting and related rights of the member that had been suspended. Thus, the member may immediately participate in the adoption of a proposed amendment of the Articles. For instance, if a proposed amendment had been submitted to members for their acceptance under Article XXVIII(a), and the Fund had not yet certified to members that the required majorities had been obtained by the time the member’s suspension was terminated, the member shall be asked whether it accepts the proposed amendment and both the member and the number of votes allotted to it shall be counted for purposes of calculating whether the majorities of three fifths of the members and of 85 percent of the total voting power have been obtained.

4. Immediately upon termination of the suspension, the member is also able to appoint a Governor and an Alternate Governor, as well as a Councillor and an Executive Director if it is a member that appoints such officials, and the number of votes allotted to the member can again be cast in any organ of the Fund by such officials as soon as they are appointed by the member.

5. In the case of a member that may not appoint an Executive Director, different situations must be envisaged, depending on the timing of the termination:

(a) if no regular election of Executive Directors has been conducted under Article XII, Section 3(d) between the date of the suspension and the termination of the suspension, the member is automatically reintegrated in the constituency to which it belonged before the suspension (subject to paragraph (c) below). Accordingly, the number of votes allotted to the member will be cast by the Executive Director who has been elected under paragraph 3(c) of Schedule L as a result of the member’s suspension (or by any successor of such an Executive Director, if in the meantime he has been replaced in accordance with Article XII, Section 3(f) or paragraph 3(c) of Schedule L);

(b) if a regular election of Executive Directors has taken place before termination of suspension, the possibility is offered instead to the member to join any constituency prior to the next regular election, provided that all the members of that constituency agree (a comparable provision appears in Article XII, Section 3(i)(ii)). In that case, the member becomes part of that constituency and is thereupon treated as if it had participated in the election of the Executive Director elected by the members of that constituency;

(c) if the member was the only member of the constituency, or if all the members of the constituency have been suspended, the member will also have to join a constituency by agreement, even if no regular election of Executive Directors has been conducted during the period of the suspension, because there is no Executive Director in office to whom the member could be automatically attached;

(d) if suspension is terminated before another Executive Director is elected in accordance with paragraph 3(c) of Schedule L, since the electoral process has already been initiated, the election required by Schedule L must take place notwithstanding the termination of the suspension and the member will participate in that election; in the meantime, in accordance with Article XII, Section 3(i)(v), the number of votes allotted to the member will again be cast by the same Executive Director who was casting this number of votes prior to the suspension.

6. When a member becomes part of a constituency in accordance with the procedure described in paragraph 5 above, it is deemed to be one of the members that participated in the election of the Executive Director elected by the members of that constituency. Accordingly, if the office of that Executive Director subsequently becomes vacant, the member will participate in the election of the successor of that Executive Director. Another effect is that the Executive Director is automatically entitled to vote and cast the number of votes allotted to the member, including for decisions under Article XXI(a)(ii) on matters that pertain exclusively to the SDR Department, even in the case where the member has joined the constituency by agreement with the other members. Also, as a result of becoming part of a constituency for the casting of votes in the Executive Board, the member automatically becomes part of the corresponding group of members for purposes of the Council (paragraph 5(f) of Schedule D); accordingly, the Councillor appointed by the group will cast the number of votes allotted to the member and the member will participate in the appointment of any successor Councillor with the other members of the group.

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