Abstract

In recent years borrowing has been added to the categories of the financial operations engaged in by the Fund. Under Article VII, Section 2, if the Fund deems it appropriate to replenish its holdings of a member’s currency, it may agree to borrow that currency from the member itself or, with the approval of the member, from some other source either within or outside the territories of the member. No member is under any obligation to lend to the Fund or to approve a borrowing by the Fund from any other source.87

In recent years borrowing has been added to the categories of the financial operations engaged in by the Fund. Under Article VII, Section 2, if the Fund deems it appropriate to replenish its holdings of a member’s currency, it may agree to borrow that currency from the member itself or, with the approval of the member, from some other source either within or outside the territories of the member. No member is under any obligation to lend to the Fund or to approve a borrowing by the Fund from any other source.87

In 1961, the Fund deemed it appropriate to make arrangements under which it could call for advances of the currencies of ten members, in the case of eight currencies from the member issuing the currency and in the case of the other two currencies from the central bank of the issuing member.88 The total commitments of the ten potential lenders amounted to the equivalent of six billion U.S. dollars, and probably constituted the largest loan agreement ever made. The purpose of the arrangements was to ensure that the Fund would be able to supplement its resources in order to meet the requests of the ten members involved to purchase each other’s currency from the Fund. The new conditions of widespread convertibility had made it possible that there would be requests of a magnitude that the Fund would not be able to meet readily without supplementary resources, and that without such resources it would not be able to forestall or cope with an impairment of the international monetary system. The arrangements that were negotiated by the Fund and the ten members constitute an elaborate international agreement, in the form of a decision of the Executive Directors, called the General Arrangements to Borrow, to which the potential lenders (“the participants”) were invited to adhere. All ten have adhered.

The final provision in the General Arrangements, Paragraph 20, is entitled “Interpretation” and reads as follows:

“Any question of interpretation raised in connection with this Decision which does not fall within the purview of Article XVIII of the Articles shall be settled to the mutual satisfaction of the Fund, the participant raising the question, and all other participants. For the purpose of this Paragraph 20 participants shall be deemed to include those former participants to which Paragraphs 8 through 14, 17 and 18(b) continue to apply pursuant to Paragraph 19(c) to the extent that any such former participant is affected by a question of interpretation that is raised.”

There are a number of interesting features of this provision. The special rule for settling questions of interpretation that arise in connection with the General Arrangements does not extend to questions that fall within the purview of Article XVIII. It would not have been possible for the Fund to abdicate its power and duty of interpretation under Article XVIII. Moreover, it follows from this that the Fund itself must determine whether a question of interpretation is or is not within the purview of Article XVIII.

If a question of interpretation connected with the General Arrangements does not fall within the purview of Article XVIII, the question is to be settled to the mutual satisfaction of the Fund, the participant raising the question, and all other participants. In short, authority to interpret the General Arrangements has not been vested in the Fund alone as it has in the case of the Articles. The need for the concurrence of the participants in any interpretation under Paragraph 20 of the General Arrangements means that, although the General Arrangements are a decision of the Executive Directors, they are not the sole interpreters of their decision. In requiring the concurrence of the Fund and all participants, Paragraph 20 is consistent with the rule of unanimity which is a characteristic of the General Arrangements but is in sharp contrast to Article XVIII of the Articles. Under that provision, the Fund can adopt interpretations of the Articles by a majority of votes cast.

The process of interpretation under Paragraph 20 would operate, therefore, as follows. The Fund would have to be willing to accept a proposed interpretation and, if formally called upon to indicate this, would do so by a decision of the Executive Directors. This decision, if not adopted by the consensus which is the normal feature of Fund practice, would be taken by a majority of the votes cast. The Executive Directors appointed or elected by the eight participating members and the two members whose central banks were participants in the General Arrangements would cast the votes of these ten members when the Executive Directors decided whether the Fund agreed with a proposed interpretation. However, each of the ten participants would have to agree separately, outside the Fund, before the interpretation could be regarded as having been adopted.

It is an interesting reflection that the rule of unanimity for formal interpretations of the General Arrangements is not only more severe than the voting requirements for the adoption of interpretations under Article XVIII of the Articles but also more severe than the requirements for the adoption of most amendments of the Articles. For amendments modifying three provisions of the Articles, the acceptance of all members is required, but for all other amendments, approval by three fifths of the members, having four fifths of the total voting power, is sufficient.89

It cannot be denied that Paragraph 20 would lead to an impasse if there should be a difference of opinion among the eleven parties, i.e., the Fund and the ten participants, which proved persistent. In practice; nothing of the kind has happened. On the contrary, there has been a strong disposition by all to interpret the General Arrangements in a flexible and practical manner and to do this by more informal procedures than those established by Paragraph 20. In this respect, the experience with Article XVIII and the informal interpretation of the Fund’s Articles has been repeated, although there have been far fewer occasions on which interpretative understandings of the General Arrangements have been necessary.

Paragraph 20 makes the interpretation of the provisions of the General Arrangements depend on the concurrence of even former participants in some circumstances. If the General Arrangements are not renewed or are terminated before expiry, or if a participant withdraws before the General Arrangements expire or are terminated, certain prescribed provisions continue to apply to any outstanding indebtedness of the Fund to the former participants until repayment is completed. If a question of the interpretation of the General Arrangements arises which affects a former participant to which the Fund is still indebted, the concurrence of that former participant in a proposed interpretation is necessary before the interpretation can be deemed to be adopted.

The position as explained in the preceding paragraph assumes that the former participant in the General Arrangements remains a member of the Fund. If a participating member or a member whose institution is a participant withdraws from the Fund, participation in the General Arrangements ceases when the withdrawal from the Fund takes effect. The Fund’s indebtedness under the General Arrangements is then part of the settlement of all accounts between the Fund and the former member. If any disagreement arises between the Fund and the former member as to the settlement of all accounts, whether the disagreement relates to accounts arising under the General Arrangements or arising under the Articles, Article XVIII (c) will apply. That is to say, the disagreement must be submitted to a tribunal of three arbitrators, consisting of one appointed by the Fund, another by the former member, and an umpire.

Under the General Arrangements, the Managing Director makes proposals for loans to the Fund by the participants, and each of them notifies him of its acceptance. The participants have agreed on procedures by which they confer among themselves in order to decide how to respond to the Managing Director’s proposals. These procedures are set forth in letters of December 15, 1961 that were sent by the then Minister of Finance of France to the other participants. The letters are res inter alios acta from the viewpoint of the Fund. Nothing is said in the letters about interpretation. Presumably, the rule of unanimity would apply by implication. If this is correct, the implied rule for interpreting the letter is more severe than the rule in the letter according to which the participants may be bound to lend. Under that rule, if certain prescribed majorities are attained, even dissenting participants will be bound to lend.90

Recently, the Fund has entered into its first bilateral borrowing agreement. This is one under which Italy has agreed to lend the Fund lire in an amount equivalent to 250 million U.S. dollars. The provisions of the agreement are based on those of the General Arrangements, but adapted, of course, to the fact that the agreement is not plurilateral in character and provides, moreover, for an immediate advance by Italy and not credits to be called on when needed. Paragraph 9 of the agreement is obviously inspired by Paragraph 20 of the General Arrangements:

“Any question of interpretation of this agreement which does not fall within the purview of Article XVIII of the Articles shall be settled to the mutual satisfaction of Italy and the Fund.”