Globalization and Conditionality: Two Sides of the Sovereignty Coin
Tsai, Mary C., Law and Policy in International Business
From the ruins of World War II, the international community created the International Monetary Fund (IMF) and World Bank, acknowledging the growing interdependence of international economic markets. In recent years, the globalization of international financial markets has been accelerating rapidly, resulting in the potential for massive capital withdrawals from a country's financial markets and infrastructure. In an attempt to battle this contagion, IMF and World Bank (or the Bank) financing have been conditioned on promises by the recipients to change their domestic economic policies. This Note explores the implications of globalization and conditionality on state sovereignty through the prism of the Asian financial crisis. Part I explores the concept of sovereignty and its relevance to international law. Part II discusses the role of the IMF and World Bank and the methods of financing used by each. Part III recounts the recent Thai and Russian monetary crises to illustrate the phenomena of globalization and conditionality. Lastly, Part IV returns to the subject of defensive and affirmative sovereignty and argues that globalization and conditionality represent a threat to state sovereignty.
II. Sovereignty: "The Sovereign Commands and Is Uncommanded."(1)
State sovereignty lies at the core of international law. According to classical definitions, sovereignty involves three characteristics: (1) the State's supremacy over domestic matters; (2) the State's exclusive right to regulate its territory and citizens; and (3) the State's right to guide its internal and external affairs without foreign interference.(2) A state has unlimited control over its policies and its citizens both within and outside its jurisdiction. Sovereignty, therefore, "is the power which ... enables an entire body politic to exercise some control over its destiny,"(3) implying two distinct but related aspects of sovereignty: defensive and affirmative sovereignty.(4) Defensive sovereignty encompasses a state's inalienable right to avoid being adversely affected by decisions and events happening outside its jurisdiction, while affirmative sovereignty is a state's right to determine its own policies and developmental course. Thus, throughout history, sovereign states have enjoyed, at least in theory, absolute power.
The challenge to modern theorists and practitioners is to reconcile this rigid formulation of sovereignty with the realities of today's world. Recent developments in international law, ranging from the rise of jus cogens(5) to the recent Kosovo conflict, have made the notion of absolute sovereignty obsolete. Even the International Court of Justice (ICJ) has declared that sovereignty can no longer realistically be defined as absolutely and rigidly as it once was. Judge Alveraz of the ICJ stated: "We can no longer regard sovereignty as an absolute and individual right of every State, as used to be done under the old law founded on the individualist regime, according to which, States were only bound by the rules they had accepted."(6) Globalization(7) and conditionality(8) are but two more distinct, yet intertwined, challenges to sovereignty today. Globalization represents a challenge to defensive sovereignty, while conditionality threatens a state's affirmative sovereignty.(9)
Although an absolute notion of state sovereignty is increasingly at odds with the realities of the modern international stage, sovereignty still retains a fundamental place in international law. After all, the world is still organized according to nations, and sovereign nations remain the primary players in the international arena. Moreover, the importance of sovereignty is also codified in international conventions. As early as 1933, the Convention on Rights and Duties of States,(10) otherwise known as the Montivideo Convention, codified the customary law of nonintervention. Article 3 of the Convention provides that "the State has the right to . …