"Open for Business": International Financial Institutions, Postconflict Economic Reform, and Rule of Law

By Boon, Kristen E. | Proceedings of the Annual Meeting-American Society of International Law, Annual 2006 | Go to article overview

"Open for Business": International Financial Institutions, Postconflict Economic Reform, and Rule of Law


Boon, Kristen E., Proceedings of the Annual Meeting-American Society of International Law


International institutions are using the concept of the rule of law to encompass overlapping world visions of good governance, economic development, and international peace and stability. Two of its most important new promoters in postconflict zones are the International Monetary Fund (IMF) and the World Bank. Through their technical assistance programs, judicial reform projects, and postconflict policies generally, these international financial institutions (IFIs) illustrate the deepening involvement of international organizations in postconflict legal reform. In particular, the growing cooperation between IFIs and UN administrations in territories such as Kosovo, East Timor, and Iraq demonstrates the convergence of peace, economic development, and law in contemporary peace-building operations.

Legal reform has become a first-order priority for these IFIs. An IMF policy paper, for example, states that "creat[ing] a proper legal framework for fiscal policy" is the first step in a three step response to conflict. (1) The World Bank has stated that the rule of law is now a sine qua non of development. (2) In the postconflict context, this is thought to be justified by the relationship between good laws and economic development and by findings that postconflict countries face a 44 percent chance of reverting to conflict during the first five years after the onset of peace. (3) Good laws and a functioning economy are therefore thought to be a means to prevent war. (4) In functioning states, IFI powers are advisory and based on member consent. In postconflict societies, the involvement of the IFIs verges on the legislative because of: (i) the absence of representative and functioning governmental counterparts that can bargain over proposed policy and legislative changes, (ii)the typically poor repair of the preconflict legal system, and (iii) the implementation of standardized "model" laws.

The 2003-4 occupation of Iraq presents a recent example of bow IFIs are becoming new lawmakers. Although the hypermarket approach instigated by the occupying powers in Iraq was somewhat unusual, Iraq is indicative of a number of important developments. First, Security Council Resolutions 1483 and 1511 were novel in that they assigned IFIs direct roles in the reconstruction process, bringing IFIs under the Chapter VII mandate. (5) Second, the Coalitional Provisional Authority (CPA) interpreted Resolution 1483 as requiring consultation with both the World Bank and the IMF on matters relating to economic reconstruction. As a formal matter, the CPA even provided the World Bank and the IMF draft regulations for its comments and consideration. (6) In some instances, the IFIs acted as primary advisors on laws within their areas of expertise: the IMF, for example, was the principal drafter of the Financial Management Law, and it provided written standards and significant drafting assistance on the Banking Laws adopted by the CPA in Iraq. (7) The IFIs have played similar roles in other postconflict areas, with the IMF providing substantive policy and technical advice and the World Bank funding projects to strengthen judicial institutions and promote economic development. (8)

A number of implications flow from this engagement of IFIs into postconflict reconstruction. First, postconflict programs highlight expanding IFI mandates. The IMF & Bank's postconflict activities (and the underlying operational policies that support them) are not based on any explicit textual provisions in their Articles of Agreement. Instead, they are derived from "constitutional" interpretations of the founding institutional charters, prompting inquiry into how binding the IFI charters really are and whether are there any constraints in practice. A second implication of IFI involvement in postconflict reconstruction is the prioritization of free market principles in postconflict economic development. Because IFI projects are meant to further their institutional purposes (as set out in their Articles of Agreement), economic policies are prioritized. …

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"Open for Business": International Financial Institutions, Postconflict Economic Reform, and Rule of Law
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