The Challenge of Making IFIs Legally Accountable

Malaluan is a trustee of the Action for Economic Reforms (AER) and representative of the Access to Information Network to the Executive Committee of the Global Transparency Initiative. Lumba is an assistant professor at the University of the Philippines College of Law and a fellow of AER. This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, May 12,2008 edition, pages S1/4 – S1/5.

The Board of Governors of the Asian Development Bank (ADB) convened in Madrid, Spain for their 41st Annual Meetings on 5-6 May 2008. This year’s annual meetings discussed the economic outlook in the region in the context of global financial difficulties, soaring food and oil prices, and climate change. But even before the discussions, its strategy had already been more or less set:  to use its financial and institutional resources in the five core areas of infrastructure, environment, regional cooperation and integration, finance sector development and education.

Even as ADB repositions its operations strategy in the context of emerging challenges, one area that was untouched in the Annual Meetings concerned the legal parameters under which the ADB operates. It will continue to operate under a legal framework of very generous legal immunities and privileges in respect to its operations.

There is, however, a growing clamor to evolve and define workable legal constraints on the ADB’s  and other international financial institutions’ (IFIs) exercise of their vast powers. The demand to make these institutions legally accountable comes from communities directly affected by IFI programs and projects and from non-government organizations working with these communities.  These effects are certainly not always positive. In infrastructure, for example, the negative implications on the life and security of sections of the affected communities are undeniable, including dislocation, loss of livelihoods, and on some occasions, even loss of lives. For these affected communities, unfortunately there remains no effective mechanism for redress.

For IFIs to be considered legally accountable, two questions must be affirmatively answered. First, in the exercise of their powers, are IFIs subjects of law? Second, if IFIs are subjects of law, are there mechanisms to enforce their liability for breach of law?

On the first question, it is now broadly accepted that the major IFIs possess international personality. They have lawful objects and organs.  Their members constitute a substantial bloc of the international community.  They have the capacities to institute legal proceedings, to enter into treaties or loan agreements with states, and to acquire and dispose immovable properties.  But at the same time that they enjoy such rights, they are also bound by duties and obligations under international custom and general rules of international law, or under international agreements creating them or to which they are parties. Also, as their rights extend beyond the international plane, it may be argued that they also incur duties and obligations under the domestic law of the countries in which they operate.

It is in the second question where the big gap in the legal accountability of IFIs exists. To date, there are no international courts where peoples and communities can enforce responsibilities of IFIs in relation to them.  The international courts that exist today either do not have jurisdiction over IFIs or do not grant standing to individuals, peoples and communities.  There are administrative tribunals within some IFIs, but they only adjudicate disputes arising from employer-employee relations. The arbitral tribunals are another possibility to pursue legal accountability, but it is rare if not unheard of that IFIs would voluntarily bind themselves to arbitrate a claim by peoples and communities.

A recent development is the introduction by IFIs of accountability mechanisms under their internal rules. The ADB has an Accountability Mechanism that consists of a Consultation Phase and a Compliance Review Phase.

The Consultation Phase allows people affected by ADB-assisted projects to file a complaint to voice out their concerns over the negative effect or the direct and material harm to their rights and interests brought about by the project.  It triggers the assistance of a Special Project Facilitator in facilitating in discussing a possible agreement among the ADB operations personnel concerned, the complainant, and the government executing agency or private project sponsor.

The Compliance Review Phase allows people who are directly, materially and adversely affected by an ADB-assisted project to file a request for compliance review. This will trigger Compliance Review Panel to investigate violations of ADB’s operational policies and procedures, and recommend measures that will bring the project into compliance and/or mitigate any harm, if appropriate.

But while these mechanisms may provide relief to peoples and communities, it should not be forgotten that these bodies, as they are structured, are not intended to provide judicial-type remedies such as injunction and damages. Moreover, they generally apply only to violation of the IFIs’ internal rules, and do not contemplate claims based on international obligations such as violation of human rights or fundamental freedoms.  Also, the accountability bodies can only recommend to the management of IFIs.  They do not possess oversight powers to ensure that the recommendations are carried out.

Under such circumstances, one legal alternative of peoples and communities is to file their claims before domestic courts. Unfortunately, here they will encounter broad IFI privileges and immunities, including from legal processes and from all forms of execution, unless waived.

Even in the face of these obstacles, it is incumbent upon defenders of the rights of affected communities to build a practice on exacting legal accountability from IFIs. The issue of accountability of international organizations has received closer organized attention from the international law community. In May 1996, the International Law Association (ILA) created a Committee on Accountability of International Organizations. The committee has completed its work and presented its Final Report at the association’s Berlin conference in 2004. For its part, the International Law Commission (ILC) decided in May 2002 to include the topic “Responsibility of international organizations” in its current program of work. The Special Rapporteur on the topic has since submitted several reports.

While the evolution of formal remedies will take time, the present constraints should not deter the struggle to break down the barriers to legally enforcing IFI responsibility by instituting carefully studied test cases. This struggle is animated by the principle that no one is above the law, and that power, wherever it may rest, is to be exercised within the constraints of law.

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