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International Disaster Response Law pp 601–626Cite as

The Role of International Financial Institutions

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Abstract

Multilateral and regional financial institutions have adopted numerous instruments designed to provide financial assistance to countries hit by disaster. Their aim is to support immediate relief to populations, as well as recovery and reconstruction. Over the last decades, development banks have extended the scope of their assistance, on the assumption that to overcome emergencies and difficulties due to disaster, the adoption of preventive measures can be as important as post-disaster operations. Consequently, new financial instruments have been introduced, focusing on prevention and disaster risk reduction actions by beneficiaries. All these initiatives may include a component in favor of the least developed countries, to make financial resources available to them on concessional terms. In more recent practice, debt relief programs have also been introduced to reduce the debt of beneficiary countries toward international financial institutions, so that more resources can be allocated to humanitarian assistance, recovery, and reconstruction programs.This chapter will analyze the practice of the International Monetary Fund and the World Bank Group. The analysis will be carried out in the light of the general instruments of financial assistance adopted by these institutions, to explore to what extent positive discrimination is applied in favor of countries affected by disaster. Special emphasis will be placed on whether co-ordination mechanisms are implemented between these institutions and between them and other actors, both States and other intergovernmental (regional or universal) organizations providing financial assistance. The purpose is to explore whether mechanisms of international governance have emerged in the practice.

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Notes

  1. 1.

    See UNGA doc. A/RES/46/182, December 19, 1991 (establishing a central emergency funding mechanism for humanitarian assistance by the UN system: see Chap. 26 by Palandri in this volume), whose para 21 states that "[o]rganizations and entities of the United Nations system should continue to respond to requests for emergency assistance within their respective mandates”. See also the ECOSOC resolution 1993/205, where the Council stressed the importance of adequate financial resources both for relief and for the continuum of development processes in the affected States (para 21).

  2. 2.

    A comprehensive approach to disaster risk reduction has gained new momentum after the 2005 World Conference on Disaster Reduction, convened in Japan in the aftermath of the earthquake and tsunami in the Indian Ocean of December 2004 (see Chaps. 8 and 9 by Nicoletti and La Vaccara in this volume). In para 13a of the Framework for Action 2005–2015, issued at the end of the conference, States have recognized their primary responsibility for taking measures to reduce disaster risk, but specific mention is also made of ‘concerted international cooperation … to stimulate and contribute to developing the … capacities … needed for disaster risk reduction at all levels’. See paras 31–32 on the desirable role to be played by international organizations, including financial institutions.

  3. 3.

    In addition to the documents mentioned in note 1, see also the UN General Assembly resolution concerning natural disasters, where the organ ‘stresses … the importance of strengthening international cooperation, particularly through the effective use of multilateral mechanisms, in the timely provision of humanitarian assistance through all phases of a disaster, from relief and recovery to development, including the provisions of adequate resources’ (UN General Assembly doc. A/RES/65/264, January 28, 2011, para 13).

  4. 4.

    See para 4 of the annex to the UNGA doc. 46/182, cit. See also the report of the ILC Special Rapporteur on the protection of persons in the event of disasters, in UNGA doc. A/CN.4/629, 31 March 2010, 34 ff.

  5. 5.

    See UNGA doc. A/CN.4/L.76, 14 July 2010, 9 ff.

  6. 6.

    The IMF’s general resources mainly consist of quotas paid by members at the time of accession (Article II, section 2 and Article III, section 1), together with the assets borrowed by the Fund itself (Article VII, section 1(i)). Even if not forbidden by Article VII, the conclusion of debit contracts with private parties is made impossible by the immunity from civil jurisdiction and execution enjoyed by the IMF under Article IX, sections 3 and 4. As a consequence, the Fund’s resources are much more limited than those of multilateral development banks, which do not enjoy immunity before national courts under their respective establishing treaties, and obtain most of their financial assets through the emission of bonds into international credit markets.

  7. 7.

    For a synthesis of IMF assistance under the emergency instrument for natural disasters from 1962 to 2011, see IMF 2005, 3 and IMF Factsheet 2011.

  8. 8.

    See Horsefield 1969a 524 ff.

  9. 9.

    See decision no. 1543-(63/39) adopted in on July 1, 1963, in Horsefield 1969b, 240 ff.

  10. 10.

    See decision no. 1477-(63/8) of February 27, 1963 (Horsefield 1969b, 238 ff) as modified in 1966 with a new decision (ibidem, 492 ff).

  11. 11.

    For an analysis of this practice see Gold 1990, 633 ff.

  12. 12.

    In order to help members satisfy the food demand of their populations, in 1981 an ‘import element’ was added to the compensatory financing facility, but limited to balance of payments needs due to an increase in the cost for the imports of cereals: see decision no. 6860-(81/81), in Boughton 2001, 749 ff.

  13. 13.

    IMF 2011b.

  14. 14.

    Decision no. 14385-(09/79), adopted July 23, 2009. The text of the Instrument is in IMF 2010b, 183 ff. The list of IMF members eligible for assistance under the Trust is annexed to decision no. 8240-(86/56) SAF, as amended, in IMF 2010b, 495 ff; criteria for eligibility under the Trust are set forth by para 1(A) of decision no. 14521-(10/3), January 11, 2010, ibidem, 498 ff.

  15. 15.

    A recent analysis of the IMF’s role in fragile States may be found in IMF 2011c.

  16. 16.

    See IMF 2010b, 402 ff.

  17. 17.

    See decision no. 14282-(09/29), March 24, 2009, in IMF 2010b, 326.

  18. 18.

    See IMF 2011b, para 2.a and decision no. 14385-(09/79), op. cit. n. 14 above, para I.a (iii). See also IMF 2011a, 7, note 8 and IMF 2009, 23, note 47.

  19. 19.

    See decision no. 14385-(09/79), op. cit. n. 14 above, section II.2.b.

  20. 20.

    A further differentiation between recourse to RFI and to the RCF component of the PRGT, to be added to those analyzed in the text, pertains to the formal qualification of the transaction between the Fund and the assisted member. In the former it is named ‘purchase’ of foreign currency (with the obligation for the member to transfer an equivalent amount of national currency to the Fund, to be ‘repurchased’ afterwards). In the latter, the transaction is qualified as a ‘loan’ under which the member does not provide the IMF with any national currency.

  21. 21.

    The only path the IMF might follow to decide to increase the resources under the Trust by itself is the adoption of a decision to sell its gold holdings on the market, acting under Article V, section 12.c and f (ii). However, in recent times it has been followed only once, in 2009, with the purpose to transfer the earnings to the PGRT only in part.

  22. 22.

    See decision 12341-(00/117) adopted on November 28, 2000, in IMF 2010b, 401 ff.

  23. 23.

    See decision no. 14649-(10/64), adopted on June 25, 2010, in IMF 2010b, 302 ff. For some considerations, see IMF 2010a. The Debt Trust complements the already existing trusts established by the Fund for debt relief purposes, i.e., the Heavily Indebted Poor Countries Initiative (adopted in 1996 jointly with the World Bank, to reduce the debt burden upon poor members within the framework of general policies for growth and poverty reduction) and the Multilateral Debt Relief Initiative (established in 2005 together with the World Bank and the African Development Fund, governing the cancellation of all debts due to the Fund at the end of 2004, as a contribution to accelerate the pursuit of the Millennium Development Goals).

  24. 24.

    Decision no. 14521-(10/3), op.cit. n. 14 above, para 5.

  25. 25.

    See n. 14 above.

  26. 26.

    See n. 23 above.

  27. 27.

    For the Inter-American Development Bank, reference must be made to the Disaster Risk Management Policy (doc. GN-2354-5 of February 23, 2007). On this basis, the Bank manages the Disaster Prevention Sector Facility (doc.GN-2085-3 of March 9, 2001) and the trust Disaster Prevention Fund (doc. GN-2405-3 of March 16, 2006) to support risk reduction and mitigation activities. Post-disaster instruments have been introduced with the twofold purpose of supporting immediate humanitarian assistance and the subsequent recovery in case of natural hazard events, and of helping members to cope with the physical damage due to technological accidents. In this case, the Bank’s operations are financed through the Emergency Technical Cooperation (to deliver grants supporting humanitarian assistance by international or local aid organizations) and the Immediate Response Facility for Emergencies Caused by Natural and Unexpected Disasters, introduced in 2003 (see IDB 2007, 15).

  28. 28.

    Within the Asian Development Bank, the approach to disaster support was comprehensively formulated with the adoption in May 2004 of the Disaster and Emergency Assistance Policy (ADB 2004). With this as its basis, emergency assistance loans are approved for members to smooth short-term assistance in order to help restore basic infrastructures and economic, social and governance activities. These loans have been supplemented by the establishment of the Asia Pacific Disaster Response Fund (ADB 2009), for the provision of grants in the immediate aftermath of natural disasters to face very urgent needs of the affected population. The Bank’s ordinary development loans are considered appropriate for the reconstruction phase, incorporating preventive, mitigation, and preparedness activities. However, for specific events, the Bank has decided to create special funds, such as the 2005 Asian Tsunami Fund (ADB 2005), a regional instrument aiming to provide support to governments and aid actors in the countries hit by the December 2004 tsunami in the Indian Ocean through grants to finance investment projects for reconstruction and associated development activities.

  29. 29.

    In 1974, the African Development Bank established the Special Relief Fund, on whose basis it may approve grants for members in order to help them meet short-term needs when a disaster has occurred within their territories (AfDB 2008). Initially devised for the benefit of States having to face droughts, nowadays the Fund may be used in a variety of situations, including not only natural disasters, but also conflicts and accidents.

  30. 30.

    As for the European Bank for Reconstruction and Development, established in 1991 to facilitate transition to a market economy for Central and Eastern Europe and Central Asian countries, its financial assistance is provided through loans funded by a group of donor States and the European Union. In disaster situations, its involvement is limited to nuclear safety, so as to address all potential risks arising from the existence of obsolete nuclear sites in the territory of its members. See www.ebrd.com/pages/sector/nuclearsafety.shtml. Accessed 9 January 2012.

  31. 31.

    The text of the treaties establishing the IBRD and IDA may be found on the web site www.worldbank.org. Accessed 9 January 2012.

  32. 32.

    See Operational policy 8.00, Rapid Response to Crises and Emergencies, March 2007 (hereinafter OP 8.00), superseding the Operational policy 8.50 Emergency Recovery Assistance, August 1995 (hereinafter OP 8.50).

  33. 33.

    For broader considerations, see World Bank 2007, 2 ff and 5 ff. For example, notwithstanding the 1995 operational policy did not refer to man-made disasters, the Bank provided its financial support in these circumstances as well. See also IEG/World Bank 2006, 55 ff.

  34. 34.

    See OP 8.00, para 1.a.

  35. 35.

    See Article I (i) of the IBRD Articles of Agreement.

  36. 36.

    See Article I of the IDA Articles of Agreement.

  37. 37.

    As already mentioned, access to IBRD and IDA’s resources conforms to a graduation process, based on per capita gross national income. See Operational policy 3.10, Annex D, IBRD/IDA and Blend Countries: Per Capita Incomes, Lending Eligibility and Repayment Terms, July 2010. Another criteria followed by the two institutions in defining their credit-eligible members refers to the lack of access to international capital markets (IBRD Articles of Agreement, Article III.4 (ii) and IDA Articles of Agreement, Article V.1.c).

  38. 38.

    See reference n. 35 above and the introductory article of the IDA Articles of Agreement.

  39. 39.

    See Operational policy 10.00, Investment Lending: Identification to Board Presentation, June 2004 (hereinafter OP 10.00). See n. 40 below.

  40. 40.

    See Operational policy 8.60, Development Policy Lending, August 2004 (hereinafter OP 8.60), para 2. Investment and development policy operations are carried out on the basis of an agreement concluded by the Bank with the borrower, be it a State or a private legal person within one of its members (see IBRD’s Articles of Agreement, Article III.4 and IDA’s establishing instrument, Article V.2.c; see also Operational policy 7.00, Lending Operations: Choice of Borrowers and Contractual Agreements, February 2001). They are named loan or credit agreements in the case of the IBRD and IDA respectively, to which the financial terms and conditions provided by the Operational policy no. 3.10, approved in June 2003, are applied. The main difference between IBRD loans and IDA credits pertains to the rate of interest (next to value markets in the case of the IBRD, and at zero per cent for IDA) and the repayment terms (respectively an average 18 years and up to a maximum 40 years). In the eventuality of a Bank’s loan to a private person, a guarantee agreement is concluded with the member in whose territory the funded project is located (IBRD Articles of Agreement, Article III.4 (i) and IDA Articles of Agreement, Article V.2.d), whereby the member State guarantees as primary obligor the payment of the principal of, and of the interests on, the loan. The two institutions may also conclude ‘grants agreements’, with no obligation for the beneficiary to reimburse the resources it has received. For an extensive legal analysis of the content of these agreements and their legal nature, see Vezzani 2011, 53 ff and 112 ff.

  41. 41.

    See Sihihata 1995, 33 ff.

  42. 42.

    See Operational policy 1.00, Poverty Reduction, August 2004, para 1.

  43. 43.

    See OP 8.00, para 12.

  44. 44.

    See Bank procedure 2.11, Country Assistance Strategy, November 2010. Assistance strategies are implemented through the Bank’s lending operations: for both investment operations and policy-based loans, it is expressly established that they are to be coherent with the strategy adopted for each member (see OP 8.60, para 3 and OP 10.00, para 3.a).

  45. 45.

    See Bank procedure 2.11, para 1 (‘[the Country Strategy Paper] is prepared in consultation with country authorities’) and 6 (‘[t]he CAS … are developed in close consultation with the government, usually through several ministries and agencies and at various level’). As for PRSP, usually the Bank provides technical and financial assistance to support their design.

  46. 46.

    See OP 8.00, para 12.

  47. 47.

    OP 8.50, para 2 and footnote 4.

  48. 48.

    See World Bank 2007, 11 ff.

  49. 49.

    See OP 8.00, para 1.b.

  50. 50.

    See OP 8.00, para 5.

  51. 51.

    See n. 59 below and the accompanying text.

  52. 52.

    See OP 8.00, para 4.

  53. 53.

    See OP 8.00, para 6. For the distinction between investment operations and development policy operations, see n. 40 above and the accompanying text.

  54. 54.

    See OP 8.00, para 7.e.

  55. 55.

    For our purposes, the expression ‘loan’ also includes IDA’s emergency assistance credits.

  56. 56.

    For more details, see the Bank’s Secretariat document in World Bank 2010, complementing the Bank procedure no. 8.00 of March 2007.

  57. 57.

    See OP 8.00, para 7.c. It is not to be excluded that Bank financing can be used to cover the expenses made by the borrower before the loan/credit or grant arrangements are signed (para 7.d).

  58. 58.

    See Vezzani 2011, 56.

  59. 59.

    For example, a grant agreement was made in September 2011 between the World Bank and the United Nations High Commissioner for Refugees (UNHCR). Its adoption has been promoted by Ethiopia and Kenya, requesting an alternative agreement whereby the UNHCR would be the recipient of an IDA grant necessary for health and nutrition interventions in the camps situated in the two countries, receiving Somali refugees leaving their territories because of heavy and extensive famine. See the emergency project paper in the World Bank document Report No: 63642-AFR, August 31, 2011 and the Agreement for Grant H735 Conformed, September 19, 2011.

  60. 60.

    See OP 8.00, para 9.

  61. 61.

    See OP 8.60, para 21 ff.

  62. 62.

    See OP 8.00, para 13.

  63. 63.

    See Operational policy 14.00, Trust Funds and the related Bank procedure 14.00 of July 2008.

  64. 64.

    See World Bank 2011, 46 ff and 94.

  65. 65.

    The text of the Fiduciary Principles Accord may be found on the website www.undg.org. Accessed 9 January 2012.

  66. 66.

    World Bank 2007, para 20.

  67. 67.

    Ibidem, para 23.

  68. 68.

    However, through a derogation adopted by the Executive Board, the limits of the 2008 Accord have been overcome in the IDA decision to finance the UNHCR through grants in the delivery of assistance in the refugees' camps in Ethiopia and Kenya (n. 59 above).

  69. 69.

    See ADB 2004, para 70 (for support by the Asian Development Bank of relief actions by the WFP, UNICEF, the IFRC and UNHCR); ADB 2009, para 12 (whereby assistance through the ADB Disaster Response Fund is granted in strict co-ordination with the UN humanitarian/resident coordinator); IDB doc. 2354-3, cit., directive B-3 and IDB 2007, 26 (for the co-ordination of the Inter-American Development Bank with aid organizations to finance their immediate humanitarian assistance); AfDB 2008, para 3.1 (whereby support under the African Development Bank Special Relief Fund may be approved after having received an appeal from the United Nations).

  70. 70.

    See Chap. 26 by Palandri in this volume.

  71. 71.

    UN General Assembly doc. A/RES/54/291, December 22, 1999.

  72. 72.

    See Legality of the Use by a State of Nuclear Weapons in Armed Conflict, Advisory Opinion, ICJ Rep1996, 66 f. para 26. For a comment, see Klabbers 2009.

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  1. Università degli Studi di Milano, 20122, Milan, Italy

    Giovanna Adinolfi

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  1. , DIRPOLIS Institute, Scuola Superiore Sant’Anna, Piazza Martiri della Libertà 33, Pisa, 56127, Italy

    Andrea de Guttry

  2. , Dipartimento di Scienze Giuridiche, Università di Modena e Reggio Emilia, via San Geminiano 3, Modena, 41121, Italy

    Marco Gestri

  3. , Department of International Studies, University of Milan, Via Conservatorio 7, Milan, 20122, Italy

    Gabriella Venturini

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Adinolfi, G. (2012). The Role of International Financial Institutions. In: de Guttry, A., Gestri, M., Venturini, G. (eds) International Disaster Response Law. T.M.C. Asser Press, The Hague, The Netherlands. https://doi.org/10.1007/978-90-6704-882-8_25

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