The World Bank As An International Financial Institution International Law Essay

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The main role of IFI is to provide funds so as to liberalize trade as far as possible and in so doing they believe that this approach will be beneficial for sustainable development and improving their conditions of poor people. The WB is one such institution set up under the Bretton Woods System after the Second World War.

The aim of this chapter is to analyse the approach of World Bank on one hand, to the era of the liberalization of investment and on the other hand, to IP (section 4.1). The nexus between WB, states and MNCs for development will afterwards be focused on (section 4.2) followed by the WB's obligations under international law (section 4.3).

4.1 Approach of the World Bank

The World Bank is made up of two institutions namely the IBRD and the IDA. It has to balance the interests of states to that of IP. It has undergone many critics mainly by NGOs such as indigenous rights group Survival International.

To begin with, the main concept adopted by WB (sub-section 4.1.1) and its policies put into place (sub-section 4.1.2) will be pointed out.

The adoption of the concept of neoliberalism

Financial institutions are driven mainly by the concept of neoliberalism. Definition of the term neoliberalism

According to a civil rights activist [1] , there are 5 points which describe the term. Firstly, it is all about the liberalization of international trade or investment. In order not to impede this, government has no more control on enterprises, and as a result there is a restriction on the intervention of state in the economy. Without such control, the policies that were designed to secure rights are being eliminated as well.

Secondly, it means that government is being relieved of its responsibility to provide social services to its citizens. Thirdly, state does not have a say in regulation of the market and so as there is the maximization of profits. Forth, goods, services and enterprises which are owned by the state are sold to private investors. Lastly, everyone has the obligation to find solutions to their own problems instead of the community at large.

The World Bank, while adopting the neoliberalism concept, believes that this will help the disadvantaged people in rich countries and to expand the economy in developing countries, thus benefiting the poor. For the opponents, they believe that this dogma has brought more harm than good.

It is interesting to note that developing countries which followed the neoliberal agenda from the year 1980 to 2000 had experienced a severe drop in their economic growth to 0.7% when compared to 3.2% from the years 1960 to 1980 when no such models were practiced [2] . The beneficiaries mainly MNCs are only a small portion when compared to the vast number of people who are suffering from this movement. The reasons for these are diverse.

Implication of using the neoliberalism model

The deregulation of MNCs has raised critics. Indeed, governmental regulation on MNCs acts as a form of restriction and barrier to them. Business is more profitable if corporations are free from the burden of respecting human rights as these can cost a lot of money, for example, finding ways to reduce as far as possible environmental pollution. Also in the absence of policies, MNCs find their way easier to land and natural resources of IP. Inevitably, they exert their influence and power in the host states; they are given privilege that the citizens themselves are not in a position to do for example access to natural resources.

IP who are the most marginalized people, need constant protection from the state for their betterment and when governments are leaving free ground for corporations to work, their situation has reached an alarming and critical point. An example to illustrate this is in the case of Manyangna Awas Tingi Community v. Nicaragua. Here the Nicaraguan government has permitted a Korean MNC to work on the land of IP. The Inter- American Court of Human rights has held the government to be in violation of the American Convention on Human Rights. Indeed it went on by saying that the state has the obligation to protect its IP's occupation on land both internationally and under national laws.

It can be deduced that the WB is moving against the tide of the international mobilization and effort in recognizing and propagating human rights. It has only given MNCs an over power on democratic governments and sometimes they even go to the extent of practicing corruptions. As is described in a report [3] , "International conventions have not stopped multinational corporations from trying to secure valuable contracts by bribing government officials in the world's emerging economies…".

Policy reform

The World Bank has since a long time financed various MNCs in the extractive sector. The impacts that this movement has caused has pushed NGOs, which struggle to make IP's voices to be heard, to raise concern and criticism across the globe. What is expected from WB is that it adopts a rights-based approach to development, that is, development should be carried on whilst respecting international human rights standards. The UNDRD has stressed on this.

For fear that these criticisms will have on its reputation, the World Bank was the first multilateral financial institution to have launched guidelines called the "Tribal Peoples in Bank Financed Projects" in 1982. According to these guidelines, measures had to be put into place to respect the cultural, health and land rights of IP but nevertheless, numerous projects were still routinely causing harm to IP.

In 1991, a reform to the 'Operational Directive on Indigenous peoples' was made. It dealt more precisely with IP's territories. It also described which category of person should be treated as IP. This was important so as to know which group fell under the bank policy. It thus said that they are those "social groups with a social and cultural identity distinct from the dominant society, which makes them vulnerable to being disadvantaged in the development process".

The next major effort that was made is that the World Bank decided not to finance projects which do not make an effort to reduce their devastative impacts. The major gap which still existed till that time was that no provisions were made to consolidate the rights of IP to participate in project until in 2005 when the "Operational Policy/Bank Policy on Indigenous People" came into force. Its aim was to make "the development process fully respects the dignity, human rights, economies, and cultures of indigenous people" [4] .

It is to be noted that in spite of those positive steps to guard IP's rights, the policies sometimes cannot be accorded due reliance because of the masquerade behind. An example dates from 1991, when both IMF and WB took the initiative to create the GEF, which was meant to give 'green loans' to developing countries for sustainable development. The problem was that the budget was relatively small when compared to other bank loans. The policy was merely a response to discontinue criticisms; the development has been fruitful for all with the exclusion of the environment.

Another argument which supports this point of view is that the WB has never done any assessment on the impacts of its activities on IP's human rights. This is mainly because WB only accepts that human rights are crucial to development but nowhere does it mentions that it has the obligation to protect human rights in general.


The WB, MNCs and states have started to develop ties in the era of liberalization of investment. This section analyses how this link has surfaced.

First, the relationship which exists between WB and states will be seen (sub-section 4.2.1), followed by that between the WB and MNCs (sub-section 4.2.2)

Relationship between WB and states

The link between the WB and the state is explained by describing the internal systems of IFIs in general (sub?) and the interference of WB in states through their influence on domestic laws (part B).

Internal System of IFIs

MNCs and IFIs form alliances and together with industrialized countries, they exert a considerable amount of control on developing countries. This power of control can be explained to have its source from the inequality in the distribution of votes. The US, UK, France, Germany and Japan are members which own the largest of votes [5] .

The U.S has a veto power for taking major decisions which normally needs 85 percent of the majority due to the 'controlling share of over 16 per cent of the total votes in both institutions that it has' [6] . The decisions reached are not transparent. This, together with the fact that it is the countries with the most of votes which represent the IFIs render developing countries under-represented and incapable of constructing the policies of IFIs which directly affect them. These policies structured by the UN are disastrous for the developing countries as they reflect mostly the needs of the industrialized countries. Such over-power also allows them to take decisions by consensus, instead of voting.

Another reason explaining the power of control exerted is the amount of funds which are contributed to the financial institutions. Usually the donors are powerful countries which account for most of the funds. As a result, they dictate the institutions. In any case, countries with the most power use the WB as a means to generate their economic influence in the world. They indirectly do so by imposing the establishment or expansion of an extractive industry.

Influence on the domestic laws

The IFIs can also influence states on the drafting of their domestic laws on extraction. The extent of its participation depends on the latters' institutional capacity. Indeed, if the latter has poor capacity to implement laws, IFIs do play an important role. An example, in the mining law of Mexico in 1992, the WB "provided input at the initiation of the process regarding the objectives and central characteristics of the new instrument" [7] . In so doing, the IFIs interfere with the internal organisation of the countries.

Sometimes, due to the oppositions which exist within the institutions concerning the extraction process, the laws thereby created tend to conflict with each other. An example is the Philippine which had its Indigenous Peoples' Right Act in force due partly to the large efforts gathered by the WB and the ADB. The same institutions however also encouraged the Mining Act. The reason that accounts for such a disparity in laws is the fact that IFIs may not see their policies as being disadvantageous to IP as they believe that extraction processes do generate their rights, by reducing poverty for example.

4.2.2 Relationship between WB and MNCs

With the poor internal system of WB and it active role it plays in establishing domestic laws, MNCs have found their way easier into countries. But what has triggered this trend even more is the neoliberal policy that WB has adopted.

Such policy is backed by the countries competitiveness to attract these foreign investors. In such an attempt, they are adopting the least trade restrictive standards and have eliminated tax as well. Thereby, MNCs are gaining grounds. They have more access to the extractive sector of the host country while driving off the latter's competitors due to the large amount of money that they invest. The 3.7 billion dollar Chad-Cameroon pipeline project in Africa is an example where the WB voted to participate in [8] . The involved MNC was ExxonMobil. For the bank, the project was to reduce poverty but it refused to consider its impacts on IP.

Another issue which has reached critical milestones is that MNCs do conspire with the superiors of states to accede the natural resources. By way of example, MNC Vedanta which operates in India did finance the politicians and in return firms which are owned by states have formed joint ventures with the corporation. When forming alliance with governments, the latter are less prone to bring forward the reconstruction of IP's deplorable situation. (reference)

Sometimes the act of funding is merely to influence the politicians in their decisions. The result has been that the representatives of the government have been able to exert their control on IFIs, thereby pressuring the latter to confer contracts to MNCs. This is a means for corporations to direct policies and projects which are favorable to them. As such, the relationship between IFIs, MNCs and states are reinforced. (reference)

Obligations of WB under international law

Since the WB is the source of funding of most MNCs, and having seen the impacts that the latter are causing to IP, it is important to analyse whether the financial institution has obligations to respect their rights.

First, the AOA of WB (sub-section 4.3.1) will be seen followed by legal obligations and responsibility incumbent on it (sub-section 4.3.2).

4.3.1 World Bank's Articles of Agreement

It is important to specify what WB's AOA says before analyzing whether WB has a legal obligation on the international plane to protect human rights.

The AOA is the constitution of the organisation, that is, the internal law which regulates it. It dictates the obligations of the member states and also sets out the purposes for which it is compelled to follow on a daily basis. However, the WB's relationship with human rights is not in full harmony. It prohibits its interference with the 'political affairs' of the country [9] but does not define the term 'political affairs' itself.

Another major discrepancy [10] is that it grants loans regardless to the impacts that it can have on the "political and other non-economic influences or considerations" [11] . An example to illustrate this is the financial support given to Chad/Cameroon pipeline project along with the involved MNCs like ExxonMobil, Chevron, and Petronas. The result of such a huge investment is the political instability it has caused and will continue to cause in the poor countries.

The bank's justification to its lack of intervention is that this approach minimises its interference in sovereign states [12] . However, contrary to its indifference to political rights, the bank has not backed off to economic, social and cultural rights, though it has maintained that it does not have any prime role and obligation in enforcing human rights [13] . It renders these rights cognizable through the development projects, for example, the alleviation of poverty and the participation of IP in decision making.

4.3.2 Legal obligation and responsibility

The question which follows is whether the WB has the legal obligation to protect human rights of indigenous people when it is promoting large MNCs given the fact that its AOA relieves it from such responsibility. It is to be noted first of all that the bank's AOA has been founded in 1944, well before the UN Charter and UDHR. Does it however mean that because of this fact the bank can operate without any consideration to the law? To assume this would mean that the bank will not be accountable for its wrongful acts.

International legal personality derives from the fact that a subject of international law has rights and duties and can consequently bring claims [14] and as in the case of international organizations like the WB, this is determined as per the readings of its instrument. The latter either expressly states so or it can be deduced from the functions or powers that it confers. As for the WB's instrument, it is the second option that prevails. Thus it is a subject of international law and has a legal personality as well. However, those rights and duties that it possesses are confined to what it has recognized in its article of agreement.

In spite of the fact that the AOA does not recognize human rights, bearing international personality also means that the WB is bound by obligations arising under international law. It takes the form of international conventions and custom or the general principal of law [15] . Thus WB must not interfere with the obligations of states or act as complicit in the violations of rights. Putting it in another way, the WB bears the obligation to devise measures which are in concordance with its state members' obligations in promoting human rights. The reasons are twofold.

Firstly, article 103 of the UNC allows the upholding of obligations under the Charter to that of others. This provision does not make mention specifically to the WB but it falls under it because it is bound by the Relationship Agreement [16] with the UN which makes it a specialized agency. Secondly, states members to the bank have committed themselves to conventions which promote human rights. Thus through the bank, they can respect their commitment in a collective manner. For these reasons, it can be said that the WB are tied indirectly by conventions.

Having seen the WB's legal obligation on the international plane, it is important to state whether it has responsibility. To date, there exist no legal instruments which make the WB directly accountable for its wrongdoings through its financed projects. The legal framework addresses only states, thus, the WB cannot be held accountable before international tribunals. However, what is the purpose of having legal obligations if not to be accountable for their non- respect? Whenever the issue of human rights violation has arisen, despite the fact that the WB is the root cause, it is only the states which will have to pay the consequences.