Current Legal Issues Affecting Central Banks, Volume IV.

1A. Some Specific Legal Features of the International Monetary Fund

Robert Effros
Published Date:
April 1997
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The fiftieth anniversary of the United Nations Monetary and Financial Conference was marked in 1994. This conference led to the creation of the International Monetary Fund and the International Bank for Reconstruction and Development. It was held at Bretton Woods, New Hampshire from July 1 to 22, 1944, which explains why the Fund and the Bank are often referred to as the Bretton Woods institutions.

The Articles of Agreement of the Fund and the Bank preceded the adoption of the charter of the United Nations, which was signed almost one year later, on June 26, 1945, in San Francisco, but the ratification process for the UN Charter was faster: the UN Charter came into force on October 24, 1945, whereas the Articles of the Fund and the Bank entered into force only on December 27, 1945.

Half a century has passed. The world has changed, and so has the Fund. The Bretton Woods Conference was attended by the delegations of 44 nations, some of which were still occupied by the enemy. As of July 6, 1994, the Fund had 179 members. In the meantime, the Articles of the Fund have been amended three times: in 1969, to introduce the Special Drawing Rights (SDR) mechanism; in 1978, to legalize the floating of exchange rates; and in 1992, to strengthen the Fund’s sanctions against delinquent members.

As an international organization, the Fund presents a number of original features that distinguish it from most other organizations, including, although to a lesser extent, other financial organizations. It is a well-known fact that international organizations are initially created for specific purposes but gradually tend to expand their activities so that they eventually overlap with those of other organizations. A consequence of this trend is that it becomes increasingly difficult to define an organization’s mandate and to tell what distinguishes it from others. Eventually, the time may come when all international organizations become fungible because they all work for the greater good of mankind.

For the time being, however, there are differences among organizations. Some of these differences can be attributed to their charters, while others are the result of practice. As illustrations, two examples relating to the Fund can be mentioned (not as an exhaustive list, but as illustrations). The first example is the Fund’s financial assistance to its members. The second example is state succession in the Fund.

Fund’s Financial Assistance to Its Members

The Fund’s financial assistance to its members is subject to different rules, depending on the origin of the resources involved.

In the General Resources Account (GRA), the Fund holds the currencies, gold, and SDRs contributed by its members in amounts equal to their quotas, plus all the accumulated reserves. These are the general resources of the Fund; they are available to all members.

In the Special Disbursement Account (SDA), the Fund holds the proceeds of the capital gains that it has made on sales of its gold, that is, the surplus over SDR 35 per ounce. These resources have been made available to developing countries with the lowest per capita incomes.

In Administered Accounts, the Fund holds resources contributed by members for specified purposes.1 The Fund, in the management and disposition of these resources, may act as agent of the contributors or as trustee, depending on the terms of the instrument establishing the account.

Given the greater importance of the GRA in the Fund’s financial assistance and the fact that most of the principles governing the GRA apply to the SDA, the following remarks will be limited to assistance from the GRA.

These remarks can be organized around three themes, which will show the specificity of the Fund as a financial institution:

  • the purpose of the Fund’s financial assistance;
  • the technique of such assistance; and
  • the conditions.

In these three respects, the specific features of the Fund’s assistance reflect the monetary character of the organization, although, over the years, this character has somewhat changed, and the specificity of the Fund’s assistance has diminished.


The purpose of the Fund’s financial assistance is set out in the language of Article I(v) of the Fund’s Articles:

To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.2

In plain language, this means that the Fund is prepared to provide foreign exchange to its members for their external deficits if they are willing to correct the source of the problem through measures acceptable to the Fund. Therefore, the purpose of the Fund’s assistance has two aspects: it helps the members solve their balance of payments problems, while avoiding their having to take recourse to harmful measures.

1. The reference to “balance of payments problems” is a key element in the definition of the purpose of the Fund’s assistance, because it determines also the measure of the Fund’s assistance. In other words, it is only to the extent that the member has an external financing problem that the Fund’s assistance will be available. The purpose of the Fund’s assistance also explains why the assistance is provided in foreign exchange rather than in the member’s own currency. For instance, a member cannot request Fund assistance to have its budget deficit or credit expansion financed by the Fund, for either would be a misuse of the Fund’s resources. To achieve either of these objectives, the member does not need foreign exchange: it can levy taxes or borrow the necessary amounts of its own currency. However, a budget deficit may also reflect net liabilities to foreign creditors as a consequence of an external imbalance, and credit expansion may be linked to import payments; accordingly, to that extent, the Fund’s assistance will be available.

The concept of “balance of payments problem” might be understood as implying that, each time the Fund provides resources to a member, these resources must be earmarked for a particular payment. This may have been the intention of the founders of the Fund, as, in the original Articles, a member requesting assistance had to represent that it needed a particular currency, which it wished to obtain from the Fund, in order to make payments in that currency that were consistent with the Articles of Agreement.3 In particular, a member was not allowed to use the Fund’s resources in order “to meet a large or sustained outflow of capital.”4 While the condition of need of a particular currency has now disappeared, together with the reference to particular payments, the limitation in Article VI, Section 1 has survived all the successive amendments of the Articles because it reflects a purpose of the Fund, which is “to facilitate the expansion and balanced growth of international trade. . . .”5 Under the Articles, members are not allowed to impose restrictions on the making of payments and transfers for current international transactions,6 that is, payments for goods and services, but they are allowed to restrict capital movements and may even be requested by the Fund to impose such restrictions.7 Therefore, the limitation on the use of Fund resources parallels the member’s rights and obligations with respect to exchange restrictions.

The idea of earmarked resources also explains various decisions taken during the initial years of the Fund. For instance, the Articles of Agreement were interpreted as precluding the use of Fund resources for the purchase of military equipment, which implies that resources obtained from the Fund could be traced.

Over the years, however, the fungibility of foreign exchange reserves has been recognized. For instance, instead of directly requesting assistance from the Fund for making certain payments in foreign currencies, a member may decide first to use its reserves in order to discharge its financial obligations and then to turn to the Fund in order to replenish its reserves. Similarly, the need to identify a particular currency gradually lost its justification as more currencies became convertible and could be used as international means of payment and stores of value. The fungibility of major currencies also allowed the Fund to expand its stock of usable currencies beyond the U.S. dollar, which was initially the only currency in demand.

This evolution led to a broader definition of the purpose of the Fund’s assistance at the time of the Second Amendment. Although the concept of balance of payments problem still appears in Article I and is still widely used in Fund documents, the Articles now identify three possible purposes for Fund assistance. Under Article V, Section 3(b)(ii), the member must represent “that it has a need to make the purchase because of its balance of payments or its reserve position or developments in its reserves. . . .” It is clear from this provision that the specification of a particular currency by the requesting member has disappeared; the Fund has a stock of usable currencies that are available for financial assistance. More important, however, is the identification of three different types of “need.” In particular, a deterioration in a member’s “reserve position” may by itself justify the Fund’s assistance, even if there is no balance of payments deficit. For instance, a country with a balance of payments surplus would meet the condition of need if the level of its gross reserves fell too low because of some external payments. Even changes in the composition of reserves that are totally unrelated to balance of payments problems may give rise to Fund assistance.

In practice, however, as noted above, the traditional reference to a “balance of payments problem” as the criterion of Fund assistance has survived.

2. The second consideration that must guide the Fund in providing financial assistance is the avoidance of “measures destructive of national or international prosperity.”8 This is understood to mean avoiding exchange restrictions on current international transactions and also trade restrictions, to which the member might be tempted to resort when faced with a shortage of foreign exchange. More recently, concerns have been expressed about recourse to measures that may have an adverse effect on the environment or on the health or welfare of the population.


The Fund’s assistance in the GRA is not provided in the form of loans but rather in the form of exchanges between the requesting member’s currency and an equivalent amount of either another member’s currency or SDRs. The balance acquired by the Fund in the requesting member’s currency takes the form of an entry to the credit of the Fund in the books of that member’s central bank (the issuer of the currency), unless the member prefers to substitute a nonnegotiable, non-interest-bearing promissory note payable to the Fund.9 These swaps, which are called “purchases” by the Articles, are often referred to as “drawings” in Fund parlance. The terms “lending” and “loans,” although technically incorrect, are also sometimes used because they are more easily understood by nonspecialists.

It may be noted in passing that, in the SDA and in Administered Accounts, loans in the true sense of the word are used to provide resources to members. The difference of loans from purchases is that in the former the borrowing member does not provide an equivalent amount of its currency.

Why are there purchases rather than loans in the GRA? The justification may have been that swaps are a well-known technique of support between central banks. These swaps between central banks are reversible, but, in the meantime, the borrower’s currency is held as a form of collateral that may eventually be spent or sold if the swap is not reversed. Similarly, in respect of a purchase, the Fund would have the power to spend or sell its holdings of the member’s currency. In practice, a sale would take place only if, by the due date, the transaction were not reversed; until then, the Fund would refrain from selling that currency to avoid a drain on the member’s reserves. A sale by the Fund can be made only to another member, unless the issuer of the currency ceases itself to be a member of the Fund, in which case a sale in the market becomes possible. Despite the apparent guarantee provided by this technique, it would be extremely difficult for the Fund to dispose of the currency of a member in default, because that currency would have depreciated and might not be accepted by any purchaser except at a heavy discount. Moreover, the Fund’s holdings are not held in notes and coins. These holdings may be reflected in a balance in the Fund’s account with the debtor’s central bank, in which case the transfer of the Fund’s holdings needs to be recorded by that central bank. Alternatively, they may be represented by a promissory note, in which case, when encashment is requested, the debtor has to be able and willing to provide the required amount of its currency. The system is built on confidence and assumes that good faith will prevail.

Depreciation of the issuer’s currency is one of the risks of this type of transaction. The drafters of the Articles were aware of this risk. They imposed on all members an obligation to maintain the value of the Fund’s holdings of their currencies in the GRA;10 the value must be maintained in terms of the SDR, which is the unit of account of the GRA.


Each new member of the Fund is offered a quota, which must be fully paid in the media specified by the Fund. Typically, a new member would pay 75 percent of its quota in its own currency (for example, by crediting the Fund’s account with the member’s central bank or by issuing a promissory note) and 25 percent in SDRs or another member’s currency as specified by the Fund. (Formerly, that portion was paid in gold but with some limitations.) Quotas are periodically reviewed and may be increased with the payment of additional amounts, but no change can take place without the consent of the member concerned.

The member’s net contribution to the Fund is equivalent to the amount paid in SDRs or foreign currencies, which is usually 25 percent of quota. An equivalent amount can be drawn on the Fund by the member at any time, without cost or conditions other than the substitution of the member’s own currency;11 there is no obligation to repurchase the amount drawn. Because the net contribution used to correspond to each member’s gold payment to the Fund, the equivalent available amount used to be called the gold tranche; it is now known as the reserve tranche. Drawings in the reserve tranche are a form of use of the Fund’s resources,12 but they are not regarded as part of the Fund’s financial assistance.

Once the reserve tranche has been fully drawn and replaced with the purchasing member’s currency, the Fund’s holdings of the member’s currency stand at 100 percent of quota. Beyond that, the member is using the Fund’s financial assistance, and the use of the Fund’s general resources will continue as long as the Fund’s holdings of the member’s currency are not reduced to 100 percent or below.

Above 100 percent of quota, the Fund’s conditions for the use of its general resources gradually tighten, and these conditions may also vary with the type of problem faced by the member. Different policies have been adopted by the Fund to assist members facing different types of balance of payments problems. These policies will not be discussed here, but some general principles will be mentioned.

First, between 100 percent and 200 percent of quota, a member is “entitled” to use the Fund’s resources. Under the original Articles of Agreement, it was not clear whether the Fund could impose certain conditions on the exercise of this entitlement. Countries had different interpretations of the Articles on this point. The United States, which was the main provider of usable resources to the Fund, was firmly of the view that the Fund could deny a request for assistance if it found that the member’s adjustment policies were inadequate. The U.S. position prevailed. As early as March 1948, this interpretation was adopted by the Fund.13 The result was that the financial activities of the Fund almost came to a halt because the main potential users of Fund resources did not wish to face a possible challenge to their requests, which would have been perceived as a public affront to their governments and criticism of their policies.

The 1948 interpretation was a success for those that wanted to limit the use of Fund resources, but that success soon became a source of concern for the organization, which had to find some means of restoring access to its resources. The obvious remedy was to create an entitlement that would not be subject to challenge. That is how stand-by arrangements (initially stand-by agreements) were invented. Beginning in 1952, decisions assuring members that they could purchase a certain amount of foreign exchange over the next six months were adopted. The policy was formalized in 1953, with, as its key element, the concept of a right not subject to review by the Fund, that is, a right that cannot be challenged when exercised by the member.

Stand-by arrangements were supposed to be for six-month periods. However, the pendulum later started moving in the other direction, and arrangements were granted for longer periods. The exercise of the member’s right gradually became subject to various conditions that were objectively defined (performance criteria) and to periodic reviews by the Fund for the setting of subsequent conditions.

Since the Second Amendment of the Articles, a stand-by or other arrangement (which may include an “extended arrangement” of longer duration) is defined by the Articles as “a decision of the Fund by which a member is assured that it will be able to make purchases from the GRA in accordance with the terms of the decision during a specified period and up to a specified amount.”14

This definition is interesting in two respects. First, it confirms the traditional legal position of the Fund on the nature of Fund arrangements: they are not contracts between members and the Fund, but unilateral decisions of the Fund. Second, the definition recognizes that the member’s right to make purchases under the arrangement is subject to the terms of the arrangement, which means that conditions can be imposed, such as performance criteria and reviews. However, conditions are not obligations. If the member fails to meet the conditions under the arrangement, its right to make purchases is suspended, but there is no breach of an international or other obligation to the Fund.

Despite this provision, the legal nature of Fund arrangements remains controversial. Some writers have taken the view that, as a Fund arrangement is approved at the request of a member, the request is an offer by the member and the Fund’s decision an acceptance, which, taken together, constitute a contract. Given the unambiguous language of Article XXX, the discussion is purely academic. The underlying logic of Article XXX can be explained as follows. Although the entitlement conferred by the Articles to use the Fund’s general resources has been weakened by the 1948 interpretation, which has now been incorporated into the new Article V, Section 3(c), the entitlement still exists.15 The Fund cannot deny a request for a purchase if the member meets the required conditions. Therefore, the approval of an arrangement is not an exercise by the Fund of a discretionary power, but the recognition of the member’s entitlement to use the Fund’s general resources.

Second, when the Fund’s holdings of the member’s currency reach 200 percent of quota, the entitlement ceases, and, for any additional assistance, a waiver must be obtained from the Fund. As a condition of the waiver, the Fund has the authority to require collateral or the acceptance of particular obligations, such as a shorter repurchase period. In practice, such conditions have not been imposed.

Third, whether the Fund authorizes a purchase or approves an arrangement, the use of its resources is subject to conditions that are themselves related to the purpose of the assistance, namely, to solve the member’s balance of payments problems without resorting to measures destructive of national or international prosperity. However, the conditions are also intended to safeguard the Fund’s resources. The Fund’s conditionality is defined by the policies of the Fund adopted in accordance with Article V, Section 3(a):

The Fund shall adopt policies on the use of its general resources, including policies on stand-by or similar arrangements, and may adopt special policies for special balance of payments problems, that will assist members to solve their balance of payments problems in a manner consistent with the provisions of this Agreement and that will establish adequate safeguards for the temporary use of the general resources of the Fund.

In the practice of the Fund, it is understood that conditionality must be uniform for all members. When access limits are specified for a particular policy, it must be expressed uniformly for all members in terms of quotas. Obviously, given the diversity in individual circumstances of members, individual conditions for the use of Fund resources may vary, but within a common framework. Different policies can also be implemented for different types of problems, but not for different countries or lists of countries. For instance, in the GRA, no distinction is made between developing and developed countries. In 1993, the Systemic Transformation Facility was created for countries facing an acute balance of payments problem due to the transition in their international trade from nonmarket prices to market pricing, but any country facing that problem could receive the financial assistance of the Fund within the prescribed limits and conditions.16

Conditionality must be geared strictly to its purpose. There is no room for political conditions or any other irrelevant considerations, tempting as it may be to use the Fund’s resources for such purposes.

In conclusion, the Fund’s financial assistance from the GRA is specific in its purpose, technique, and conditions. However, the law of entropy applies to international organizations. As time passes, the initial purposes are forgotten or seem no longer relevant, and specific features tend to be eroded. Purchases from the Fund are often called loans, which trivializes their nature, and many seem to believe that these so-called loans should be disbursed for the same purposes as those of a development institution. The principle of uniform treatment of members is seen by some as a relic of the past that should be replaced with a distinction between developing and developed countries, with only the former being given financial support. Pressure is applied to bend general policies toward case-by-case decisions where political considerations can play a decisive role. Nongovernmental organizations urge governments to expand the Fund’s conditionality to achieve their own agenda. Intergovernmental organizations that have no financial resources would like to make the Fund the instrument of their own policies.

Fifty years after its creation, the Fund has reached a crossroads. Evolution has taken place and will continue. The question is how far this evolution can go before the Fund loses its specificity as a monetary institution and thus its raison d’être.

State Succession in the Fund

State succession is one of those difficult problems of international law that have not yet found universally accepted solutions. Two conventions have been prepared by the International Law Commission, but they have not entered into force, essentially because of remaining disagreements on some of their provisions.17

In the history of the Fund, there have been several cases of changes in the legal status of members. Sometimes a member has absorbed a non-member: the German Democratic Republic, which was a nonmember, acceded to the Federal Republic of Germany, a member, in 1990. Slightly different but similar in its effects is the merger between a nonmember and a member: Tanganyika (a member) and Zanzibar (a nonmember) merged in 1964. In both cases the result was an expansion of a member’s territory, without any effect on membership in the Fund.

A third type of case is the merger of two Fund members: in 1958, Egypt and Syria merged to create the United Arab Republic, and, in 1990, the two Yemens merged to become the Republic of Yemen. In both instances, the Fund’s membership was reduced by one unit, but there was no membership procedure as for the admission of a new member. There was no resolution of the Board of Governors and no calculation of a new quota. The Executive Board took note of the merger, and the quotas of the former members were amalgamated to form the single quota of the new country. In a sense, it was a continuation of membership under a single name instead of two. The only practical consequence of a merger is that, as each member is allotted 250 basic votes, the total of 500 basic votes for the two members before the merger is reduced to 250 after the merger.

More difficult are the problems raised when territories within a member state become independent. There are two possible situations.

The first one is secession. For instance, Pakistan seceded from India in 1947, Singapore from Malaysia in 1965, Bangladesh from Pakistan in 1972, and Eritrea from Ethiopia in 1993. In addition, numerous former colonies have become independent over the years. In each case of secession, the international community has recognized that the seceding territory’s accession to independence does not affect the continued existence of the country from which it has seceded. Consequently, that country does not lose its membership in international organizations. More specifically, in the Fund, that country will retain its quota, as well as all its assets and liabilities; the Fund could not impose a reduction in quota on a member, even when its territory has been reduced. Conversely, the newly independent country does not automatically become a member of the Fund. In order to be admitted to membership, it must make an application that will be examined by the Fund. If the conditions for membership are met, a membership offer with a specified quota, as calculated by the Fund, will be made by the Board of Governors. The procedure will be completed when the new member signs the Articles of Agreement, thus accepting the obligations attached to membership under the Articles.

The other situation, less common but more difficult, is the dissolution of a member. For instance, in 1961, after three years of existence, the United Arab Republic was dissolved; Egypt and Syria regained their respective independence. It was undisputed that there was no secession of one or the other from the United Arab Republic but a disintegration of the United Arab Republic into two successor states. The Fund, as well as the United Nations, took the view that there was no need to go through an admission procedure for Egypt and Syria. They were recognized by the Executive Board as separate members of the Fund, and their former respective quotas were reinstated. Fortunately, there had been no change in the quota of the United Arab Republic during the interim period. Otherwise, the reallocation of that quota between the two countries could have been problematic.

The dissolution of the United Arab Republic could be handled in a pragmatic fashion because that entity was itself the recent product of the merger of two Fund members. In 1992, however, two much more difficult cases had to be faced by the Fund: the dissolution of the Socialist Federal Republic of Yugoslavia and the dissolution of Czechoslovakia. The two cases were similar in most respects, except for three major differences. The first one was that two of the six federal republics that constituted the Socialist Federal Republic of Yugoslavia (Serbia and Montenegro) were of the view that the Federation had not been dissolved18 and that the independence proclaimed by the other four republics should be considered as a case of secession from, not of dissolution of, the Socialist Federal Republic of Yugoslavia. The second difference was that war had erupted in the territories of the Socialist Federal Republic; the Federal Republic of Yugoslavia (Serbia and Montenegro) was subject to sanctions imposed by the Security Council of the United Nations, and the territory of the Republic of Bosnia and Herzegovina was not fully under the control of its government. The third difference was that, among the six former republics of the Socialist Federal Republic of Yugoslavia, the Republic of Macedonia was not recognized by many countries for various reasons, one of which being its name, which was found unacceptable and even offensive by its neighbor, Greece.19 The international status of the Socialist Federal Republic of Yugoslavia was further complicated by the inability of the United Nations to reach a conclusion as to its continuation or dissolution: the Security Council recommended a finding of dissolution, but the General Assembly preferred to suspend the exercise of Yugoslavia’s rights in the UN without terminating its membership.20

In the Fund, a finding of continuation of Yugoslavia would have meant that the four “seceding” republics (Slovenia, Croatia, Bosnia and Herzegovina, and Macedonia) would have had to be admitted with quotas additional to that of the Socialist Federal Republic of Yugoslavia, which would have remained the same, although for a much smaller country (Serbia and Montenegro). Moreover, there was a general feeling that the new Federal Republic of Yugoslavia could not be regarded as a continuation of the old Federation, as that had disintegrated. The Arbitration Committee of the Conference on Yugoslavia (chaired by Mr. Robert Badinter) had reached the same conclusion.21 Therefore, dissolution, rather than secession, was the more obvious conclusion.

If dissolution it was, who were the successors? On what basis would the assets and liabilities of the Socialist Federal Republic be allocated among them? Once an allocation had been calculated, could a successor object to its share, and how would the dispute be settled? Would all the successors be jointly and severally liable to the Fund for the debt of the Federation?

Assuming that these difficulties were overcome, how would a successor become a Fund member? Under what procedure: admission pursuant to a resolution of the Board of Governors, or otherwise? Could there be a succession to membership as there was a succession to assets and liabilities? Would the successors be allowed to become members individually, or would there be a collective succession to membership? In the latter case, failure by one of the successors to meet the conditions for membership or its unwillingness to become a member could prevent the others from succeeding to membership; individual admission would be their only recourse.

In the absence of any explicit provision in the Articles on state succession, all these questions required innovative answers. Precedents were also relevant, which showed a willingness on the part of the Fund to find pragmatic solutions, preferably with the consent of all the parties concerned. Moreover, the specific features of the Fund could not be ignored. If the successors to the Socialist Federal Republic joined the Fund as new members, the accounts of the old member would have to be liquidated. In the SDR Department, the SDRs allocated to the Socialist Federal Republic would have to be canceled, thus creating an additional liability for the successors, which would have to return an equivalent amount to the SDR Department. In the General Department, the successors would lose the benefit of any capital gain on the gold subscription of the Socialist Federal Republic as this capital gain can belong only to members that joined the Fund before September 1, 1975. These adverse consequences could be avoided only if the successors were deemed to continue, each for its share, the membership of the Socialist Federal Republic of Yugoslavia in the Fund. Admission to membership as new members would not achieve that objective, while succession to membership would. Another advantage of succession was that it did not require a resolution of the Board of Governors: the Executive Board could take all necessary decisions.

An analysis of the different aspects of the problem showed that two stages had to be identified. First, regardless of the position taken on membership, the succession to assets and liabilities had to be determined. Then, once the allocation had been made, admission or succession to membership could be envisaged, with succession as the preferred approach, given the disadvantages of admission.

However, the two stages had two common elements. First, both the allocation and the membership decisions had to be based on a quantitative criterion, namely, the notional share of each successor in the quota, assets, and liabilities of its predecessor in the Fund. Second, the number of successors had to be decided. Clearly, Slovenia, Croatia, Bosnia and Herzegovina, and the Federal Republic of Yugoslavia (Serbia and Montenegro) were recognized by the international community. The existence of Macedonia as an independent country was undisputed, but it was not officially recognized. Ignoring its existence would have led to a division of the quota, assets, and liabilities of the Socialist Federal Republic among four successors, thus leaving out Macedonia—a totally unrealistic solution. Therefore, it was concluded that Macedonia should be included in the calculation, but with a provisional designation as “the former Yugoslav Republic of Macedonia” until a name was agreed upon between that country and the Fund.

In spite, or perhaps because, of their complexity, the problems of state succession in Yugoslavia gave the Fund the opportunity to clarify its position on a number of issues of principle. These conclusions can be summarized as follows:

• It is for the Fund to determine, for its own purposes, whether a member has ceased to exist and, therefore, has ceased to be a member of the Fund. The Fund, when making this finding, is not bound by the position taken (or absence thereof) by other organizations, including the United Nations.

• If a finding of dissolution is made, it is for the Fund to identify the successor states. The fact that a successor state is not generally recognized by the international community does not preclude the Fund from finding this state to be a successor to the former member if its existence as an independent state is in fact acknowledged.

• The former member’s assets and liabilities in the Fund are allocated by the Fund among the successor states on the basis of calculated “notional quotas.” Each successor state may either accept its share in assets and liabilities as calculated by the Fund or challenge it before an arbitral tribunal. The successor states are not jointly and severally liable for the debts of their predecessor to the Fund.

• Any successor state that has accepted its share in assets and liabilities as calculated by the Fund (or as amended by arbitration) may succeed to its predecessor’s membership in the Fund, within the period specified by the Fund, if it has been found by the Fund to be able to meet its obligations under the Articles of Agreement and has no arrears to the Fund or in the SDR Department. The successor’s quota will be equal to the notional quota that was used to allocate assets and liabilities.

• A successor state that succeeds to its predecessor’s membership will be deemed to continue that membership in the Fund. To that extent, there will be no liquidation of the predecessor’s accounts with the Fund. In particular, the SDRs allocated to the predecessor will not be canceled, and, in case of liquidation of the Fund, any outstanding capital gain on the predecessor’s gold subscription will be paid to the successor if the predecessor joined the Fund before September 1, 1975 (which was the case for Yugoslavia, but not for Czechoslovakia).

On the basis of these principles, the Fund, on December 14, 1992, found that the Socialist Federal Republic of Yugoslavia had ceased to exist, determined the respective shares of the five successors in the assets and liabilities of the Socialist Federal Republic in the Fund, and made an offer of membership to all of them subject to the conditions mentioned above.

Recourse to “individual offers of membership,” rather than a a declaration of joint successions to membership (as in the case of the dissolution of the United Arab Republic), was made necessary by the circumstances of Yugoslavia.22 First, at the time of the finding of dissolution by the Fund, the Socialist Federal Republic of Yugoslavia was in arrears to the Fund, and it was not clear when each successor could discharge its share of these liabilities to the Fund. Probably, given their different circumstances, the membership process would not be completed at the same time for all of them. Second, the Fund had to take account of the war in Bosnia and Herzegovina and the international sanctions against the Federal Republic of Yugoslavia (Serbia and Montenegro), which were likely to delay the Fund’s finding of ability to meet membership obligations.23 It was not clear at the time of the decision when any of these countries would be able to meet their obligations under the Articles. For the more difficult cases, a radical approach would have been not to make them an offer, but this would have been discriminatory; alternatively, an offer subject to further confirmation by the Fund would not have been an offer at all. It may be noted that the conditions attached to the offer reflect the standard condition for all new members: the finding of ability to meet membership obligations is usually implicit but always precedes the adoption of the Board of Governors’ resolution. The clearance of arrears is a partial demonstration of that ability.

Since the decision of December 14, 1992, Croatia, Slovenia, and the former Yugoslav Republic of Macedonia have become members of the Fund. The period initially prescribed for the completion of the membership procedure has been extended for the other two successors.

In the case of the dissolution of Czechoslovakia, the same basic principles were applied, except that simultaneous succession to membership of the two successor states could be arranged because the finding of ability to meet membership obligations did not raise any difficulty.24 The Czech Republic and the Slovak Republic became members on January 1, 1993, thereby succeeding to the membership of Czechoslovakia in the Fund.

The successors of the Socialist Federal Republic of Yugoslavia in the Fund are now deemed to have been members of the Fund since December 27, 1945, and the successors of Czechoslovakia since September 20, 1990.

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