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Evolution of the Governing Law for Loan Agreements of the World Bank and Other Multilateral Development Banks

Published online by Cambridge University Press:  27 February 2017

John W. Head
John W. Head*
Affiliation:
University of Kansas
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Extract

What is the governing law for loan agreements entered into by the World Bank and other multilateral development banks (MDBs) in carrying out their public sector lending? That question was first definitively addressed about thirty-five years ago. This article examines the question anew, against the backdrop of recent developments in practice, especially at the newest of the MDBs, the European Bank for Reconstruction and Development (EBRD).

Type
Research Article
Information
American Journal of International Law , Volume 90 , Issue 2 , April 1996 , pp. 214 - 234
Copyright
Copyright © American Society of International Law 1996

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Footnotes

*

The author wishes to thank friends at the European Bank for Reconstruction and Development, especially Mr. Gerard Sanders, and the World Bank for contributing ideas and suggestions for this article. The author also wishes to thank Mr. Aron Broches for his helpful comments on an earlier draft of the article. Some of the observations in the article draw on the author’s experience as a consultant to the EBRD at various times in the years 1993–1995. All views expressed here, however, are the author’s and not necessarily those of the EBRD or its staff. Research support from the University of Kansas is gratefully acknowledged.

References

1 The World Bank consists of two legally separate, but closely related, institutions: the International Bank for Reconstruction and Development (IBRD), established in 1945 following the Bretton Woods conference, and the International Development Association (IDA), established in 1960 to provide more concessional financing for the less economically developed countries, many of which were at that time gaining political independence. A more encompassing term, “World Bank Group,” refers to the IBRD and IDA, plus the International Finance Corporation, established in 1956 to engage in private sector financing, the Multilateral Investment Guarantee Agency (MIGA), established in 1988 to provide guarantees against various types of noncommercial risks faced by foreign private investors in developing countries, and the International Centre for Settlement of Investment Disputes (ICSID), established in 1966 to provide conciliation and arbitration facilities for the settlement of disputes related to transnational investments. See Ibrahim F. I. Shihata, The World Bank in a Changing World 7–13 (1991); The World Bank, 1992 Annual Report 4 (1992) [hereinafter WB 1992 Report]. For descriptions of the World Bank and the World Bank Group, see generally Shihata, supra. See also John W. Head, Supranational Law: How the Move Toward Multilateral Solutions Is Changing the Character of “International” Law, 42 Kan. L. Rev. 605, 629, 642 (1994) [hereinafter Supranational Law]; John W. Head, Environmental ConditionaHty in the Operations of International Development Finance Institutions, 1 Kan. J. L. & Pub. Pol'y 15, 16–17 (1991) [hereinafter Conditionality].

2 Aron Broches, International Legal Aspects of the Operations of the World Bank, 98 Recueil des Cours 297 (1959 III). See further text at and note 17 infra.

3 The ADB, headquartered in Manila, was established in 1965. See Agreement Establishing The Asian Development Bank, Dec. 4, 1965, 17 UST 1418, 571 UNTS 123 (entered into force Aug. 22, 1966). The ADB started functioning in December 1966. Asian Development Bank, 1994 Annual Report (inside front cover) (1995) [hereinafter ADB 1994 Report]. For general information about the history and operations of the ADB, see Dick Wilson, A Bank for Half the World (1987).

4 The IDB, headquartered in Washington, D.C., was established in 1959. See Agreement Establishing the Inter-American Development Bank, Apr. 8, 1959, 10 UST 3029, 389 UNTS 69 (entered into force Dec. 30, 1959), amended Jan. 28, 1964, 21 UST 1570, amended Mar. 31, 1968, 19 UST 7381, amended Mar. 23, 1972, TIAS No. 7437. For information about the history and operations of the IDB, see generally Inter-American Development Bank, Basic Facts—Inter-American Development Bank (1991); Inter-American Development Bank, 1994 Annual Report (1995) [hereinafter IDB 1994 Report].

5 The AFDB, headquartered in Abidjan, Côte d'Ivoire, was established in 1963. See Agreement Establishing the African Development Bank, Aug. 4, 1963, 510 UNTS 3 (entered into force Sept. 10, 1964). For current information about the operations of the AFDB, see generally African Development Bank, 1993 Annual Report (1994) [hereinafter AFDB 1993 Report].

6 The EBRD, headquartered in London, was established in 1990. See Agreement Establishing the European Bank for Reconstruction and Development, May 29, 1990, 29 ILM 1077 (1990) [hereinafter EBRD Charter] (entered into force Mar. 28, 1991). For general information about the history and operations of the EBRD, see Ibrahim F. I. Shihata, The European Bank for Reconstruction and Development (1990); Head, Supranational Law, supra note 1, at 635–49; European Bank for Reconstruction and Development, 1994 Annual Report (1995) [hereinafter EBRD 1994 Report].

7 See, e.g., Patricia Adams, The World Bank's Finances: An International S&L Crisis, Pol'y Analysis No. 215 (Cato Institute), Oct. 3, 1994, at 1 (claiming that the World Bank “must be shut down” because “its irresponsible lending exposes Western taxpayers to a possible World Bank bailout on a scale comparable to the U.S. savings-and-loan bailout”); Carol Barton, Structural Adjustment: Deadly “Development, “Global Advocates Bull., Oct. 1994, at 1, 2–5, 27, 31, 33–35 (criticizing the World Bank for its structural adjustment lending). For a more comprehensive assessment of the World Bank, see generally Bruce Rich, Mortgaging the Earth— The World Bank, Environmental Impoverishment, and the Crisis of Development (1994). Rich asserts that World Bank lending has caused “profound human and ecological damage,” and expresses the hope that readers will exert political pressure to either “radically reinvent the institution or stop funding it.” Id. at xii–xiii. Many analyses, of course, run in the other direction. See, e.g., Henry Owen, The World Bank: Is 50 Years Enough?, Foreign Aff., Sept.-Oct. 1994, at 97, 108 (concluding that criticisms from both right and left are incorrect and that the World Bank has a good record).

8 Under the weighted voting system that applies in each of the MDBs discussed herein, voting power is concentrated in the Group of Seven (G–7) industrialized states (the United States, Japan, Germany, France, the United Kingdom, Canada, and Italy), closely reflecting the capital subscriptions held by those states. See The World Bank, 1994 Annual Report 183–86, 201 (1994) [hereinafter WB 1994 Report] (showing aggregated voting powers as 44.4% and 47.4% for G–7 member countries of the IBRD and the IDA, respectively); International Finance Corporation, Annual Report 1994, at 114–15 (1994) [hereinafter IFC 1994 Report] (showing aggregated G-7 voting power as 53.1% in the IFC); ADB 1994 Report, supra note 3, at 142–43 (showing aggregated G–7 voting power as 45.4% in the ADB); IDB 1994 Report, supra note 4, at 128–29 (showing aggregated G–7 voting power as 44.1% in the IDB); AFDB 1993 Report, supra note 5, at 106–09 (showing aggregated G–7 voting power as 24.6% in the AFDB); EBRD 1994 Report, supra note 6, at 52 (showing aggregated G–7 voting power as 56.7% in the EBRD).

9 See, e.g., Jim Lobe, U.S.-Aid: Clinton's 1996 Budget Holds Line on Foreign Aid, Inter Press Service, Feb. 6, 1995, available in LEXIS/NEXIS, MDEAFR Library, CURNWS File (noting efforts by some Republican leaders of Congress in early 1995 to reduce U.S. financing of IDA); Jim Lobe, Finance: World Bank Soft-Loan Facility in Limbo, Inter Press Service, Jan. 5, 1996, available in LEXIS/NEXIS, WORLD Library, ALLNWS File (noting the success of those efforts as of late 1995 and the dim prospects for future U.S. funding for IDA); Rose Umoren, World Bank, NGOs Trade Blame as IDA Slips Away, Inter Press Service, May 30, 1995, available in LEXIS/NEXIS, NEWS Library, INPRES File (quoting a World Bank official as saying that future U.S. support for IDA “will be very minimal” and suggesting that the battle to secure IDA's future has been virtually lost); Patricia Feeney, Fair Shares for the Rich, The Guardian, Mar. 11, 1995, at 24, available in LEXIS/NEXIS, MDEAFR Library, CURNWS File (noting similar pressures in Canada and Britain to reduce aid programs); Nicholas Eberstadt & Clifford M. Lewis, Privatize the World Bank, Wall St. J., June 27, 1995, at A12 (proposing partial elimination of the World Bank and privatization of the remainder). For a description of some past efforts in the U.S. Congress to reduce financial support for the World Bank, see Jonathan Earl Sanford, U.S. Policy Toward the Multilateral Development Banks: The Role of Congress, 22 Geo. Wash. J. Int'l L. & Econ. 1, 42–45 (1988).

10 See, e.g., Bulgarian Refining Board Proposes Plan, Fin. Times E. Eur. Energy Rep. (London), Sept. 1992, available in LEXIS/NEXIS, WORLD Library, ALLNWS File (reporting that Bulgaria's Neftochim refining company proposed suspending payments on a World Bank loan in order to strengthen the company's finances); Raul Ronzoni, Uruguay: Leftists Struggle to Unite Before 1994 Elections, Inter Press Service, Nov. 16, 1993, available in id., CURNWS File (noting that one member party in Uruguay's left-wing coalition espoused “non-payment of the foreign debt”). Perhaps the most public high-level threat in this regard came in 1987, when Romania threatened to suspend repayment of its $1.9 billion debt to the World Bank. See Jan Krcmar, Romania Threatens to Suspend World Bank Debt Repayment, Reuters, Dec. 3, 1987, available in id., ALLNWS File. Several instances of such suspensions have in fact occurred in recent years. See, e.g., Panama Holding Debt Talks in New York—Banker, Reuters, Mar. 21, 1995, available in id. (noting that “Panama halted all foreign debt payments in 1987, but [later] reached restructuring agreements” with lenders); Congo Pays Off World Bank Loan Arrears, Reuters, July 1, 1994, available in id. (noting the Congo's arrears of about $100 million to the World Bank); Zambia: Government Pays 50m Dollars Arrears to World Bank, British Broadcasting Corp., Feb. 11, 1992, available in id. (discussing Zambia's arrears to the World Bank); Nicaraguan Officials to Meet with World Bank, Reuters, July 24, 1991, available in id. (noting Nicaragua's arrears to the World Bank); Peru Craves Big Writedown; Citi to Lend $1 Billion Bridge, Am. Banker-Bond Buyer, Nov. 30, 1992, available in LEXIS/NEXIS, BANKING Library, ALLNWS File (noting Peru's arrears to the World Bank). For a list of World Bank member countries behind in their loan payments to the World Bank as of mid-1994, see WB 1994 Report, supra note 8, at 168.

11 “[A] clause which specifies the applicable law is essential” in drafting an international contract with an eye to resolving any potential disputes between the parties. Jay M. Vogelson, Dispute Resolution, Enforcement and Termination of Agreements, Governing Law, Choice of Forum, and Jurisdiction, in Negotiating and Structuring International Commercial Transactions 109, 110 (Shelly P. Battram & David N. Goldsweig eds., 1991). In case the contract specifies arbitration as the means of settling disputes thereunder, “it is important for the arbitration clause itself to designate the law applicable to the arbitration.” Id. at 117. A choice-of-law clause provides certainty and predictability to the application and construction of the terms of an agreement and to the enforcement of the rights and remedies established thereunder. Raymond M. Auerback, Governing Law Issues in International Financial Transactions, 27 Int'l Law. 303, 308 (1993). Such certainty and predictability are important in the case of loans for the simple reason that, “once the lender has parted with its funds, it will be extremely vulnerable.” Id. at 316. For other references to the importance of including clear provisions on governing law in international commercial and financial agreements, see Michael Gruson, Governing-Law Clauses in International and Interstate Loan Agreements—New York's Approach, 1982 Univ. Ill. L. Rev. 207, 207; Martin Hunter, Jan Paulsson, Nigel Rawding & Alan Redfern, The Freshfields Guide to Arbitration and ADR 31 (1993) [hereinafter Freshfields Guide].

12 Both the IBRD and the IDA may make loans to member states, state-owned enterprises or private entities. If a loan is made directly to a state-owned enterprise or a private entity, the IBRD is required (and the IDA is permitted) to have the loan guaranteed by the government of the member state in which the project is being carried out. See Articles of Agreement of the International Bank for Reconstruction and Development, July 22, 1944, Art. Ill, §4(i), 60 Stat. 1440, 2 UNTS 134, amended Dec. 16, 1965, 16 UST 1942, 606 UNTS 294 [hereinafter IBRD Charter] (entered into force Dec. 27, .1945), reprinted as amended Dec. 17, 1965, in 1 Basic Documents of International Economic Law 427 (Stephen Zamora & Ronald A. Brand eds., 1990) [hereinafter Basic Documents]; Articles of Agreement of the International Development Association, Jan. 26, 1960, Art. V, §2(d), 11 UST 2284, 439 UNTS 249 [hereinafter IDA Charter] (entered into force Sept. 24, 1960). Because the purpose of the IDA is to alleviate the burden of external financing on poorer countries, IDA loans (technically called “credits”) have traditionally been made only to member states, instead of to state-owned enterprises or private entities. Aron Broches, The World Bank, in International Financial Law—Lending, Capital Transfers and Institutions 251, 262 n.72 (Euromoney Publications, 1980); WB 1992 Report, supra note 1, at 4; The World Bank, World Bank Operational Manual, at OP 7.00 ¶2, ¶3 n.4 (loose-leaf, July 1994) [hereinafter WB Oper. Man.]. The ADB, the IDB and the AFDB also make all or nearly all of their loans to states and state-owned enterprises. See John W. Head, International Contracting Opportunities Under Projects Financed by the World Bank and Related Institutions, Int'l Contract Advisor, Spring 1995, at 41, 44 [hereinafter Contracting]. The EBRD is required by its charter to make 60% of its loans to the private sector (that is, to entities that are neither (1) owned or controlled by the state, nor (2) enjoying the benefit of a guarantee by the state or a state-owned entity), although it has had some difficulty in reaching that target because of changed political circumstances in its countries of operation. See Head, Supranational Law, supranote 1, at 647–48. See also Matthew H. Hurlock, New Approaches to Economic Development: The World Bank, the EBRD, and the Negative Pledge Clause, 35 Harv. Int'l L.J. 345, 372 (1994). The IFC lends exclusively to the private sector. See IFC 1994 Report, supra note 8, at 1.

13 World Bank loan agreements typically require that goods and services for a project financed with World Bank funds be purchased in accordance with the bank's procurement guidelines, which generally require that internationally competitive bidding procedures be followed. WB Oper. Man., supra note 12, at OP 7.01, ¶3 (July 1994). For an overview of World Bank procurement guidelines, see The World Bank, Bidding for Contracts in World Bank Financed Projects 10 (n.d.). See also Broches, supra note 12, at 256 n.32. Other MDBs typically impose the same requirements. See Head, Contracting, supra note 12, at 47.

14 See International Bank for Reconstruction and Development, General Conditions Applicable to Loan and Guarantee Agreements—Dated January 1, 1985, §5.08 [hereinafter IBRD 1985 General Conditions]. The manner in which these General Conditions are incorporated into a particular loan agreement is discussed in text at and notes 27–44 infra.

15 In the relatively rich industrialized states, political support for continued participation in the MDBs turns in part on the fact that contracts under MDB-financed projects can usually be awarded only to persons from member states of that MDB. For a statement of that general criterion, see The World Bank, Guidelines—Procurement Under IBRD Loans and IDA Credits 7 (1985). The EBRD is an exception in this regard. It does not impose any country-eligibility criteria. See European Bank for Reconstruction and Development, Procurement Policies and Rules 3 (1992, rev. Aug. 1994). For an example of how procurement eligibility bears on U.S. political support for MDB participation and funding, see U.S. Department of the Treasury, The Multilateral Development Banks: Increasing U.S. Exports and Creating U.S. Jobs 3 (1994).

16 The threats to refuse repayment of World Bank loans referred to in note 11 supra all seem to have been founded on political and economic grounds, rather than legal grounds. However, as pointed out in text at and notes 102–05 infra, unprecedented legal changes are now under way in many former Soviet republics. In that climate of radical legal change and uncertainty, it seems likely that as World Bank and other MDB loans in those countries increasingly come due for repayment, internal pressure for nonpayment might take the form of legal challenges. For a discussion of some other specific disputes that might arise if an MDB loan agreement were expressly or impliedly made subject to local law, see infra part V of this article.

17 Broches, supra note 2. These 1959 lectures were recendy reprinted in Aron Broches, Selected Essays—World Bank, icsid, and Other Subjects of Public and Private International Law (1995) [hereinafter Essays]. Some of Broches's views also appeared in abbreviated form in a 1956 article that he coauthored with the World Bank's then-current General Counsel and another World Bank attorney. See Davidson Sommers, A. Broches & Georges R. Delaume, Conflict Avoidance in International Loans and Monetary Agreements, 21 Law & Contemp. Probs. 463, 476–78 (1956).

18 Broches's reasoning on this point is discussed in text at notes 55–57, 65–78 infra.

19 Broches's reasoning on this point is discussed in text at notes 58–61, 79–86 infra.

20 In 1959 the IBRD had 68 member states. Broches, supra note 2, at 304. As of June 1994, it had 177 member states. WB 1994 Report, supra note 8, at 15.

21 By 1959 the IBRD had made “more than two hundred loans … for a total equivalent of $4,500 million” ($4.5 billion). Broches, supra note 2, at 301. By June 1994, the IBRD had made 3,660 loans for a total equivalent of about $250 billion, and the IBRD and IDA combined had made 6,105 loans for a total equivalent of about $334 billion. WB 1994 Report, supra note 8, at 233. See also infra note 94.

22 See supra note 1. As explained there, the IBRD is one of the two entities that constitute the “World Bank.” The other one, the IDA, did not exist in 1959.

23 See supra note 1. IFC operations do not require government guarantees. See Articles of Agreement of the International Finance Corporation, May 25, 1955, Art. I(i), 7 UST 2197, 264 UNTS 117 (entered into force July 20, 1956).

24 The IBRD, IDA, IFC, ADB, IDB, AFDB and EBRD. These are defined in text at and notes 1, 3–6 supra.

25 For a description of the political and economic “mandates” of the EBRD, see Head, Supranational Law, supra note 1, at 636–41; Shihata, supra note 6, at 441–42.

26 See text at notes 119, 131–37 infra.

27 See IBRD 1985 General Conditions, supra note 14. In addition to this set of General Conditions, there are others. In 1993, the IBRD issued General Conditions Applicable to Loan and Guarantee Agreements for Single Currency Loans—Dated February 9, 1993 [hereinafter IBRD 1993 General Conditions]. The IDA has its own separate set of General Conditions. See International Development Association, General Conditions Applicable to Development Credit Agreements—Dated January 1, 1985 [hereinafter IDA 1985 General Conditions].

28 See WB Oper. Man., supra note 12, at OP 7.01, ¶¶3–6 (July 1994). Most World Bank loans are project loans rather than balance-of-payments loans. A World Bank project loan is designated for a particular project that is described in detail in the Loan Agreement, reflecting decisions reached through negotiations between World Bank staff and government officials about the specific goods and services to be purchased with the loan proceeds. See id. The World Bank also engages in balance-of-payments support, called adjustment lending. This takes the form of loans conditioned on the making of certain economic and financial policy adjustments by the borrowing member country. See Head, Supranational Law, supra note 1, at 629; Shihata, supra note 1, at 25–27, 58–59.

29 See WB Oper. Man., supra note 12, at OP 7.01, ¶¶ 3–6 (July 1994).

30 See supra note 12 on the need for state guarantees. See also WB Oper. Man., supra note 12, at OP 7.01, 117 (July 1994).

31 IBRD 1985 General Conditions, supra note 14, §1.01.

32 Id.

33 Broches, supra note 2, at 305. See also WB Oper. Man., supra note 12, at OP 7.01, ¶3 (July 1994); Head, Cbnditionality, supra note 1, at 17.

34 IBRD 1985 General Conditions, supra note 14, §1.02.

35 Id., §2.01.

36 Id., §3.02.

37 Id., §3.04.

38 Id., Art. V.

39 Id., Art. IV.

40 Id., Art. VI.

41 Id., §§9.01, 9.02.

42 Id., §10.04.

43 Id., §§12.01, 12.02, 12.03, 12.04.

44 See WB Oper. Man., supra note 12, at OP 7.01, ¶¶3–6 (July 1994). For an example of a World Bank loan agreement including these and other details, see the Loan Agreement for the Shanghai Environment Project, between the People's Republic of China and the International Bank for Reconstruction and Development, Loan No. 3711 CHA (June 2, 1994). This and other World Bank loan agreements are available to the public, for a fee, through the World Bank Public Information Center (1818 H Street, N.W., Washington, DC 20433; fax (202) 477-6391).

45 See IBRD 1985 General Conditions, supranote 14, §10.01; IBRD 1993 General Conditions, supra note 27, §10.01; IDA 1985 General Conditions, supra note 27, §10.01. All portions of Article X of each of these sets of General Conditions are identical in all relevant respects, and henceforth this article refers only to the IBRD 1985 General Conditions.

46 See International Bank for Reconstruction and Development, General Conditions Applicable to Loan and Guarantee Agreements—Dated March 15, 1974, §10.01 [hereinafter IBRD 1974 General Conditions]; International Bank for Reconstruction and Development, Loan Regulations No. 3— Dated June 15, 1956, §7.01 (applying to loans made to member states) [hereinafter WB 1956 Loan Regulations]; International Bank for Reconstruction and Development, Loan Regulations No. 4—Dated June 15, 1956, §7.01 (applying to loans guaranteed by member states). Broches quotes the first sentence of §7.01 of Loan Regulations No. 3 and then states that “[t]his formula was drafted in 1947, when the Bank was about to undertake its first loan transaction.” Broches, supra note 2, at 344. Accord, Hugh N. Scott, The Enforceability of Loan Agreements Between the World Bank and Its Member Countries, 13 Am. U. L. Rev. 185, 190 (1964).

47 IBRD 1985 General Conditions, supra note 14, §10.01. The second sentence of that provision states that none of the parties may claim “that any provision of these General Conditions or of the Loan Agreement or the Guarantee Agreement is invalid or unenforceable because of any provision of the Articles of Agreement of the Bank.” For an analysis of the 1956 version of this sentence (which was somewhat broader in coverage because it included “or for any other reason” at the end), see Broches, supra note 2, at 362–63, 368–69. For a comparison with the corresponding provision in the EBRD's standard terms, see infra text at note 111.

48 For a sample of a governing law provision, see Ved P. Nanda, Forum Selection and Choice of Law Clauses in Transnational Contracts, in 1 The Law of Transnational Business Transactions, App. 5A (loose-leaf, July 1995) (reading in pertinent part as follows: “This contract … shall be governed by and enforced in accordance with the laws of … .”). On governing law provisions and the various purposes to be served by them in international contracts, see Freshfields Guide, supra note 11, at 31–40. For such a discussion in the context of international project loan agreements involving private sector lenders, see generally Kimmo Mettala, Governing-Law Clauses of Loan Agreements in International Project Financing, 20 Int'l Law. 219 (1986).

49 IBRD 1985 General Conditions, supra note 14, §10.04(a).

50 The instituting party is to notify the responding party of the claim being made, the relief being sought, and the name of the arbitrator it has appointed. Within 30 days after such notification, the responding party is to name the arbitrator it has appointed. Id., §10.04(d). The parties are then expected to agree on a third arbitrator (the “Umpire”), but if they cannot agree within 60 days after the instituting party's notification, the Umpire will be appointed by the President of the International Court of Justice or, failing that, by the Secretary-General of the United Nations. Id., §10.04(c), (e).

51 The arbitral tribunal “shall decide all questions relating to its competence and shall, … except as the parties shall otherwise agree, determine its procedure,” subject to a few other procedural matters covered in §10.04. Id., §10.04(g).

52 Id., §10.04(k). An exception exists in the case of an arbitral award against a member state: the state's sovereign immunity, to the extent it is claimed, is not waived by operation of §10.04. Id. See also Broches, supra note 12, at 259.

53 A third set of provisions in the World Bank's General Conditions bear on the legal status of World Bank loan agreements upon signature—that is, on the legal significance of the act of signing them. Section 12.01 of the General Conditions provides that a Loan Agreement and Guarantee Agreement “shall not become effective until evidence satisfactory to the Bank shall have been furnished to the Bank … that the execution and delivery of [those Agreements] on behalf of the Borrower and the Guarantor have been duly authorized or ratified by all necessary governmental and corporate action.” IBRD 1985 General Conditions, supra note 14, §12.01 (a). This provision suggests that the Loan Agreement and Guarantee Agreement are not legally binding and effective immediately upon signature, a suggestion that is bolstered by §12.03. It provides that the Loan Agreement and Guarantee Agreement “shall enter into effect on the date upon which the Bank dispatches to the Borrower and to the Guarantor notice of its acceptance of the evidence required by Section 12.01.” Id., §12.03(a). In explaining these provisions, Broches has pointed out that “it is clearly not contemplated that the loan agreement [or the guarantee agreement] will come into force upon signature.” Broches, supra note 2, at 392. Between the time of signing and the time of effectiveness, the borrower has the “option” to proceed with the loan or not, id. at 394, and “is under no obligation to bring the agreement into force.” Id. at 397.

54 See supra note 12 on the need for state guarantees.

55 Broches, supra note 2, at 353.

56 Id. at 405.

57 Id. at 353.

58 Id. at 351.

59 Id. at 352.

60 Id.

61 Id. at 354. As Broches noted, id. at 353, Article 102 of the UN Charter provides for the registration of “every treaty and every international agreement.” World Bank loan agreements and guarantee agreements with members are registered with the United Nations pursuant to that provision. Id.

62 For information on Broches's career, see Broches, Essays, supra note 17, at xiii.

63 See Broches, supra note 12, at 254, 258–59. Moreover, as noted in note 17 supra, Broches's 1959 lectures were reprinted in 1995 without any indication that his views on the legal character of World Bank loan agreements had changed over the intervening period.

64 In expressing views about World Bank loan agreements and these underlying legal issues, Broches was largely reflecting the views of the World Bank Legal Department, based on legal provisions that were developed before he became General Counsel. In particular, his 1959 Hague Academy lectures were intended less as an exposition of his own personal views on these matters than as an explanation of World Bank practice, and its legal moorings, as developed institutionally. Telephone conversation between the author and Aron Broches (June 25, 1995).

65 Broches, supra note 2, at 328. See also id. at 326.

66 Id. at 329, 338.

67 Id. at 339.

68 This view was expressed later in the 1969 Vienna Convention on the Law of Treaties, which included in its definition of a treaty the criterion that it is to be “governed by international law,” suggesting that some international agreements between subjects of international law may nonetheless be governed by municipal law. See Vienna Convention on the Law of Treaties, May 23, 1969, Art. 2(l)(o), 1155 UNTS 331, 8 ILM 679 (1969) (entered into force Jan. 27, 1980) [hereinafter 1969 Vienna Convention].

69 Broches, supra note 2, at 343.

70 Id. at 344.

71 See supra text at note 47.

72 Broches, supra note 2, at 344 (quoting WB 1956 Loan Regulations, supra note 46, §7.01).

73 Id.

74 Id. at 345.

75 See supra note 46.

76 Broches, supra note 2, at 344. See also Scott, supra note 46, at 190.

77 As noted above, Broches was at this point in his lectures referring to §7.01 of the Loan Regulations applicable to loan agreements with member states. See supra notes 46, 72.

78 Broches, supra note 2, at 345. Specifically, as another World Bank attorney has explained, “ [t] he interpretation of the agreement will depend on international law, the rights of the parties will be given effect by international law and the remedies available to enforce these rights will be those available under international law.” Scott, supra note 46, at 190. The applicability of international law is pertinent to the arbitration provisions in the General Conditions. Although those provisions “contain no standards or suggestions to guide the arbitrators in making their decision,” it may be assumed that “the arbitrators would, like the International Court of Justice, look to international custom and the general principles of law recognized by civilized nations.” Id. at 191–92.

79 Broches, supra note 2, at 351.

80 Id.

81 Id.

82 Id. at 352.

83 Id.

84 Id. at 344.

85 Id. at 352.

86 Id. Broches also pointed out that it made sense for the pertinent provision in Loan Regulations No. 3 and Loan Regulations No. 4, applying to loan agreements with members and nonmembers, respectively, to be drafted identically (rather than differently to reflect the different types of borrowers in the two cases) because in many circumstances where the World Bank made a loan to a nonmember, “the transaction could as well take the form of a loan to the member government,” id., and that the World Bank's “legal position should be essentially the same in result, regardless of the technique adopted.” Id. at 353.

87 See Mark Augenblick & Delissa A. Ridgway, Dispute Resolution in World Financial Institutions, 10 J. Int'l Arb. 73, 82 (1993) (noting that “there has never been an actual arbitration between any major multilateral development bank and a borrower”). See also Broches, supra note 12, at 259 (noting that as of 1980, the World Bank arbitration provisions “ha[d] never been invoked”).

88 At a conference held in 1968 under the auspices of the American Society of International Law, several legal officers from MDBs and similar entities offered views on certain legal aspects of loan agreements entered into by their institutions. Foreign Development Lending—Legal Aspects 5, 239–57 (Seymour J. Rubin ed., 1971). In the course of those discussions, Broches reiterated a point he had made in his 1959 lectures: that a World Bank loan agreement typically does not come into force upon signature. Id. at 248. As pointed out in note 53 supra, provisions on this issue appear in §12.01 of the World Bank's General Conditions. For a related discussion about effectiveness of World Bank loan agreements, see Georges R. Delaume, Legal Aspects of International Lending and Economic Development Financing 33 (1967) (noting that under the IBRD loan regulations, a loan agreement normally becomes “effective at some time after the date of signature, since conditions of effectiveness” take time to be fulfilled). For other scholarship appearing in the 1960s about legal aspects of World Bank loan agreements, see generally Scott, supra note 46; and Cecil J. Olmstead, Public Economic Development Loan Agreements; Choice of Law and Remedy, 48 Cal. L. Rev. 424 (1960).

89 See Georges R. Delaume, Issues of Applicable Law in the Context of the World Bank's Operations [hereinafter Applicable Law], in 2 The Transnational Law of International Commercial Transactions 317 (Norbert Horn & Clive M. Schmitthoff eds., 1982) [hereinafter Commercial Transactions]. Although other references to the traditional World Bank view as expressed by Broches have appeared occasionally, they generally have offered no criticism or analysis of it. See, e.g., 2 Philip Wood, Law and Practice of International Finance §1.07[2][b] (loose-leaf, Apr. 1983); 1 Georges R. Delaume, Transnational Contracts—Applicable Law and Settlement of Disputes §1.14 (loose-leaf, Dec. 1989) [hereinafter Contracts].

90 Delaume, Applicable Law, supra note 89, at 323. Delaume's reasoning, in pertinent part, was as follows:

The practice of many international organisations reveals … that contracts between them and domestic law persons are no longer necessarily rooted in municipal law … [but can be governed by] international law.

[Therefore] the question arises whether it might be advisable for the [World] Bank to take a second look at Section 10.01 and to clarify its meaning. Admittedly the negative formulation of that old provision is awkward. Admittedly also, to give, as Mr. Broches did, a dual meaning to a single provision which should govern both the relationship between the Bank and one of its members and that between the Bank and a borrower other than a member is an invitation to criticism. Rather than approaching the basic issue in this timid fashion, the Bank might be better advised to … provide, firmly and in a positive way, that its loan/guarantee agreements, whether concluded with a member country or not, are always subject to international law …. Such a reformulation of Section 10.01 would be in line with modern trends of legal thinking and would dispel the ambiguities of Section 10.01 in its present form.

Id. Delaume went on to say, however, that redrafting §10.01 was not likely to “entail dramatic practical consequences” because it “has never been put to the test of international adjudication.” He therefore saw no “urgency” to redraft the section. Id. at 323–24.

91 See text at and notes 20–25 supra.

92 See supra notes 3, 4, 5 and 6.

93 See, e.g., Asian Development Bank, Ordinary Operations Loan Regulations—Dated 1 July 1986 [hereinafter ADB 1986 Loan Regulations]. Although presented in a slightly different order, the ADB's standard terms are virtually identical in substance to the World Bank's standard terms, including in particular those on enforceability and arbitration. Compare IBRD 1985 General Conditions, supra note 14, §§10.01, 10.04 with ADB 1986 Loan Regulations, supra, §§10.01,10.04, respectively. The same similarity is found with the standard terms used by the AFDB. Compare IBRD 1985 General Conditions, supra, §§10.01, 10.04 with African Development Bank, General Conditions Applicable to Loan Agreements and Guarantee Agreements §§13.01, 13.04 (Nov. 23, 1989) [hereinafter AFDB 1989 General Conditions]. The standard terms used by the Inter-American Development Bank are silent on the governing law (they do not even include an exclusion-of-local-law provision like the one in §10.01 of the World Bank's General Conditions), but they do contain arbitration provisions closely similar to those of §10.04 of the World Bank's General Conditions. See Inter-American Development Bank, General Conditions (Ordinary Capital), §§9.01–9.06 (1994) [hereinafter IDB 1994 General Conditions].

94 See supra note 21. As noted there, cumulative lending by the World Bank in 1959 totaled about $4.5 billion. By 1994, cumulative public sector lending by all the MDBs except the EBRD (which in fact also largely followed World Bank practice on governing law in its public sector loan agreements until 1994) had exceeded $470 billion. See WB 1994 Report, supra note 8, at 229; ADB 1994 Report, supra note 3, at 10; IDB 1994 Report, supra note 4, at 39; AFDB 1993 Report, supra note 5, at 45.

95 On why the EBRD can be considered a “third generation international financial institution,” see Head, Supranational Law, supra note 1, at 641–44.

96 EBRD Charter, supra note 6, Art. 2(1). See also id., Art. 1 (same), and Art. 11(3) (requiring that loans to the state sector not exceed 40% of the EBRD's total loans, guarantees, and equity investments). On the EBRD's “economic mandate,” see Head, Supranational Law, supra note 1, at 640–41 and sources cited there.

97 EBRD Charter, supra note 6, Art. 11(1)(ii)(b). Various other types of investments are also authorized. See generally id., Art. 1.

98 See supra notes 1, 23.

99 See supra notes 1, 12.

100 As further evidence of the EBRD's aim of making its public sector loans subject, as much as possible, to the rigors of private sector terms, the explanatory notes to Article 14 of the EBRD Charter (which provides that the EBRD “may” require a state guarantee in lending to a state-owned enterprise) emphasize the importance of weaning state-owned enterprises away from government dependence. See Chairman's Report on the Agreement Establishing the European Bank for Reconstruction and Development, reprinted in Shihata, supra note 6, at 166, 174 (pointing out “that a state-owned enterprise would be more likely to respond quickly to market forces, and to make the transition to market-oriented economies, if that enterprise could not rely on a government guarantee to discharge its responsibilities under a Bank loan”). See also Hurlock, supra note 12, at 380.

101 The differences between private sector and public sector operations in the EBRD appear in various forms. For example, the EBRD's procurement guidelines distinguish clearly between diose applicable to public sector operations and those applicable to private sector operations. See European Bank for Reconstruction and Development, Procurement Policies and Rules 8, 21 (1993); European Bank for Reconstruction and Development, Financing with the EBRD 12 (1994). The same distinction appears in the EBRD's disbursement procedures. See European Bank for Reconstruction and Development, Disbursement Handbook for public sector loans 4–5 (1994). Indeed, in the EBRD's first couple of years of operations, a sharp organizational division between public sector and private sector operations existed. See European Bank for Reconstruction and Dscevelopment, 1992 Annual Report 79–80 (1993).

102 When the EBRD's charter was drafted, Uiere were to be 8 countries of operations (that is, member countries eligible to borrow); by early 1993 (less than two years after it commenced operations), the breakup of the Soviet Union and Yugoslavia had resulted in an increase from those 8 to 25 countries of operation. See Head, Supranational Law, supra note 1, at 645–46.

103 EBRD Charter, supra note 6, Art. 1. For a description of the EBRD's “political mandate” and how it distinguishes that institution from the other MDBs, see Head, Supranational Law, supra note 1, at 636–38.

104 For a partial survey of legal and constitutional changes in the countries of Central and Eastern Europe and central Asia, see A.B.A., CEELI Update, Fall 1995, at 3–32 (reporting on recent work of the ABA's Central and East European Law Initiative in legal and constitutional reform in 20 states in Eastern and Central Europe and central Asia). For assessments of the constitutional changes in some of those countries, see Eric Stein, International Law in Internal Law: Toward Internationalization of Central-Eastern European Constitutions?, 88 AJIL 427 (1994) (focusing on the Czech Republic and the Slovak Republic); Gennady M. Danilenko, The New Russian Constitution and International Law, id. at 451 (focusing on Russia).

105 Another legal issue—jurisdiction—also points in favor of carefully setting forth the legal nature of EBRD loan agreements. The EBRD Charter, like the IBRD Charter, provides Uiat legal actions may be brought against the institution, by parties other than member countries, “in a court of competent jurisdiction in the territory of a country in which the [EBRD] has an office.” EBRD Charter, supra note 6, Art. 46; see also IBRD Charter, supra note 12, Art. VII, §3. The EBRD has offices in more than a dozen of its countries of operation. See EBRD 1994 Report, supra note 6, back cover. If, in suing the EBRD in a local court, an individual or group in one of those countries of operations makes reference to an EBRD loan agreement, the court would need to understand the nature of that agreement.

106 See supra note 93.

107 See generally European Bank for Reconstruction and Development, Standard Terms and Conditions (Mar. 1994) [hereinafter EBRD March 1994 STCs]. Section 1.01 of the STCs provides that “[a]ny loan agreement or guarantee agreement of the Bank for an operation made to, or guaranteed by, a member of the Bank may provide that the parties to that agreement accept the provisions of these Standard Terms and Conditions.” Id. §1.01. As other provisions in the STCs confirm, this opening section makes the STCs generally applicable (subject to modification in particular transactions) to every agreement with a party having a financial obligation to the EBRD under a public sector loan; that is, applicable (1) to the loan agreement where the loan is made to the member state, and (2) to both the loan agreement and the guarantee agreement where the loan is made to an entity other than the member state (for example, a state-owned enterprise) and is guaranteed by the member state. See, e.g., id. §§4.01, 6.01(a)(ii), 7.01(a), 7.04, 8.01, 8.04(a), 9.01–9.05, and 10.03 (either imposing obligations simultaneously on both the borrower and the guarantor, as in §8.01, quoted in text at note 111 infra, or referring to both the loan agreement and the guarantee agreement as being instruments governed by the STCs). In this respect, §1.01 of the EBRD's STCs uses the same general formulation as those in the corresponding sets of standard terms of most of the other MDBs. Compare id. §1.01 with IBRD 1985 General Conditions, supra note 14, §1.01, ADB 1986 Loan Regulations, supra note 93, §1.02, and AFDB 1989 General Conditions, supra note 93, §1.01.

108 The EBRD approved its first loan in June 1991. See European Bank for Reconstruction and Development, 1991 Annual Report 20 (1992).

109 See generally European Bank for Reconstruction and Development, Standard Terms and Conditions (Sept. 1994) [hereinafter EBRD September 1994 STCs]. The changes included, inter alia, a minor revision to the method of calculating the commitment charge. Compare id. with EBRD March 1994 STCs, supra note 107.

110 See IBRD 1985 General Conditions, supra note 14, §10.01.

111 EBRD September 1994 STCs, supranotz 109, §8.01. The second sentence of the STC provision is somewhat broader in coverage than the second sentence of the corresponding World Bank provision, quoted in note 47 supra.

112 See supra text at notes 49–52.

113 EBRD September 1994 STCs, supra note 109, §8.04(a), which reads as follows:

The parties to the Loan Agreement and the Guarantee Agreement shall endeavour to setde amicably any dispute or controversy between them arising out of such agreements or in connection therewith. To this end, at the initiative of any party to either such agreement, the other party or parties shall meet prompdy with the initiating party to discuss the dispute or controversy and, if requested by the initiating party in writing, shall reply in writing to any written submission made by the initiating party concerning the dispute or controversy.

In contrast, the World Bank provisions make only passing reference to the possibility that a dispute might be “setded by agreement of the parties.” See IBRD 1985 General Conditions, supra note 14, §10.04(a).

114 For the UNCITRAL Arbitration Rules, Apr. 28, 1976, see 2 Basic Documents, supra note 12, at 1019, and 15 ILM 701 (1976). For an overview of the rules and dieir status, see 2 Basic Documents, supra, at 1015–18.

115 EBRD SEPTEMBER 1994 STCs, supra note 109, §8.04(b)(i).

116 Id., §8.04(b)(iii). The specification of a place of arbitration is important for (among other things) the enforcement of an arbitral award. For example, the New York Convention requires each contracting state to enforce arbitral awards made in the territory of other contracting states. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, Arts. I, III, 21 UST 2517, 330 UNTS 3 (entered into force June 7, 1959).

117 EBRD September 1994 STCs, supra note 109, §8.04(b) (iv).

118 Id., §8.04(b)(v).

119 Id.

120 International Court of Justice, Statute Art. 38(1) [hereinafter ICJ Statute]. The enumeration of “sources” of international law in Article 38 can be traced back to at least about 1919, as the language of that article is virtually identical to the wording of Article 38 of the governing Statute of the ICJ's predecessor, the Permanent Court of International Justice, reprinted in Antonio S. de Bustamante, The World Court 353 (Elizabedi F. Read trans., 1925). See also Ian Brownlie, Principles of Public International Law 714–16 (4th ed. 1990).

121 ICJ Statute Art. 38(1)(a)–(c). A fourth clause lists judicial decisions and the teachings of publicists, as “subsidiary means for the determination of rules of law.”

122 EBRD September 1994 STCs, supra note 109, §8.04(b) (v) (B), (C).

123 For the Charter provision establishing the legal personality of the EBRD, see EBRD Charter, supra note 6, Art. 45. Section 8.04(b) (v) of the STCs also reflects some other developments that have occurred since the time that Article 38 of the ICJ Statute was first drafted. For example, §8.04(b) (v) (B) reflects the fact that international conventions can give rise to rules of customary international law, a proposition confirmed by the ICJ in the North Sea Continental Shelf Cases (FRG v. Den.; FRG v. Neth.), 1969 ICJ Rep. 3, 42 (Feb. 20).

124 Another feature of the EBRD's new dispute resolution provisions that is directly related to the applicable law provision is its adoption of the UNCITRAL Arbitration Rules. See text at and note 114 supra. Although beyond the scope of this article, several aspects of that topic warrant analysis and evaluation—for example, the merits of selecting the UNCITRAL Arbitration Rules, the significance of specifying The Hague as the place of arbitration, and the relationship between the provisions of §8.04 and pertinent EBRD Charter provisions.

125 See text at and notes 82–83 supra.

126 As noted above, it is clear from various provisions of the EBRD's STCs that they apply to all “public sector” loan and guarantee agreements; that is, to all loan and guarantee agreements relating to loans made to or guaranteed by a member. See supra note 107. That the STCs' governing law provisions in particular are applicable to all such agreements, including those made with nonstates, is evident from the wording of §8.04. Section 8.04(a), quoted in full in note 113 supra, provides that “[t]he parties to the Loan Agreement and the Guarantee Agreement shall endeavour to settle any dispute or controversy between them arising out of such agreements or in connection therewith.” Section 8.04(b) then makes “any such dispute or controversy”—whether arising out of the loan agreement or the guarantee agreement—subject to arbitration and directs the arbitral tribunal to apply public international law as defined therein.

127 As noted in text at note 80 supra, the view most widely held in 1959 was that an agreement with a nonstate entity as a party could not have international law as its governing law. For the same view expressed in 1956, see Sommers, Broches & Delaume, supra note 17, at 470 (noting that national and international tribunals had not supported the view that loans involving both a private sector entity and a state should be governed by international law rather than municipal law). Indeed, it was not entirely beyond dispute in the 1950s that any agreement involving an international organization such as the World Bank—even an agreement with a state— could be governed by international law. Broches devoted quite a few pages in his 1959 lectures to proving that international organizations, including the World Bank, can (and often are) authorized to enter into agreements governed by international law. See Broches, supra note 2, at 316–38. For a summary of current views on treaty-making powers of international organizations, see Brownlie, supra note 120, at 683–84. See also Delaume, Contracts, supra note 89, §1.11.

128 For discussions indicating that international law can be chosen as the governing law in contracts involving at least one party that is not a subject of international law (i.e., at least one party that is not a state or an international organization), see Mettälä, supra note 48, at 240–41 (noting that even “a private lender and a private borrower could also choose public international law to govern their loan agreement,” although certain obstacles present as of 1986 would probably dictate against widespread use of that option). For many years, certain types of contracts between states and private parties, including oil concession contracts, have often included provisions designating international law as the governing law. See Fernando R. Tesón, State Contracts and Oil Expropriations: The Aminoil-Kuwait Arbitration, 24 Va. J. Int'l L. 323, 324 (1984). See also Delaume, Applicable Law, supra note 89, at 322. Delaume points out that the availability of international law as the governing law for an agreement involving one party lacking personality in international law was influenced by Article 42 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Mar. 18, 1965, 17 UST 1270, 575 UNTS 159 (entered into force Oct. 14, 1966). Delaume, supra, at 322 (noting that while Article 42 of the ICSID Convention applies only to foreign investments, it illustrates the wider principle that any “international person in its relations with domestic law persons [has] the authority to contract under [international law]”).

129 See Mettälä, supra note 48, at 228–29 (noting that, although some limitations do exist, “[t]he autonomy of the parties to choose the law governing their agreement is … accepted as the basic rule in almost all jurisdictions.”). See also Delaume, Contracts, supra note 89, §1.01 (noting that in general “the parties to transnational contracts enjoy a large degree of autonomy in selecting the [governing law]”); NANDA, supra note 48, §5.03[1], at 5-101, 5-102, §5.03[3][a], at 5-126, 5-127, §5.03[3][b], at 5-131 (noting the acceptance of party autonomy in selecting governing law under U.S. law, under the EC Convention on the Law Applicable to Contractual Obligations, and under the laws of certain other countries). The UNCITRAL Arbitration Rules, supra note 114, expressly uphold the principle of party autonomy. Article 33 provides that “[t]he arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute.”

130 For the sources of public international law enumerated in §8.04(b) of the EBRD's STCs, see text at note 119 supra.

131 See, e.g., 1969 Vienna Convention, supra note 68, Arts. 31, 32; Vienna Convention on the Law of Treaties between States and International Organizations or between International Organizations, Mar. 21, 1986, Arts. 31, 32, UN Doc. A/CONF.129/15, 25 ILM 543 (1986) (not yet entered into force) [hereinafter 1986 Vienna Convention]. A loan agreement between an MDB and an entity other than a state is not a treaty, if the usual definition of “treaty” is used. See, e.g., id., Art. 2(1) (a) (defining “treaty” as requiring that all parties thereto are either states or international organizations). However, a loan agreement between an MDB and a state is a treaty, and therefore is subject to the rules on treaty interpretation appearing in the two Vienna Conventions on. treaties, which are generally considered to codify custom in most respects. See Michael Akehurst, A Modern Introduction to International Law 123 (6th ed. 1987) (noting that most provisions in the 1969 Vienna Convention codify customary international law). Accord, Brownlie, supra note 120, at 604. It seems logical to interpret the terms as they appear in an MDB loan agreement with a state the same when they appear in identical form in an MDB loan agreement with an entity other than a state.

132 See, e.g., 1969 Vienna Convention, supra note 68, Arts. 7–18, 26–27, 42–62; 1986 Vienna Convention, supra note 131, Arts. 7–18, 26–27, 42–62.

133 See, e.g., International Institute for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts, Arts. 1.3, 2.1-2.22, 3.1-3.20, 6.1.1-6.2.3 (1994) [hereinafter UNIDROIT Principles], reprinted in Michael Joachim Bonell, An International Restatement of Contract Law 157 (1994). As Bonell points out, it is anticipated that the UNIDROIT Principles “may – play a role in interpreting and supplementing international instruments.” See id. at 110. Rules governing international contracts also appear in the United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, UN Doc. A/CONF.97/18, 19 ILM 668, 671 (1980) (entered into force Jan. 1, 1988) [hereinafter CISG]. The unidroit Principles, supra, Arts. 4.1–4.8, include rules on contract interpretation similar to those of treaty interpretation given in the 1969 and 1986 Vienna Conventions. For the less comprehensive, but generally similar, rules of contract interpretation appearing in the CISG, supra, see Arts. 8, 9.

134 See, e.g., International Chamber of Commerce, Pub. No. 500, Uniform Customs and Practice for Documentary Credits (rev. 1994); International Chamber of Commerce, Incoterms 1990 (1990) (a set of internationally consistent commercial terms setting forth allocation of costs, risks and functions to be undertaken by parties to international sales transactions). Some general principles applicable to contracts for civil works projects, a mainstay of MDB lending, appear in the FIDIC conditions of contract. See Fédération Internationale des Ingénieurs-Conseils, Conditions of Contract (International) for Works of Civil Engineering Construction (3d ed. 1977), reprinted in 2 Commercial Transactions, supra note 89, at 421.

135 See, e.g., The World Bank, Guidelines—Procurement under IBRD Loans and IDA Credits (1995); Asian Development Bank, Guidelines for Procurement under Asian Development Bank Loans (1981); European Bank for Reconstruction and Development, Procurement Policies and Rules (1992); African Development Bank, Rules of Procedure for Procurement of Goods and Services (1991). For other references to World Bank procurement policies, see supra note 13. Other international organizations have also developed formal rules on procurement. See, e.g., United Nations, Common Principles and Practices Governing Procurement of Goods and Services by the United Nations System of Organizations, reprinted in United Nations Development Programme, General Business Guide for Potential Suppliers of Goods and Services to the United Nations System 73–86 (11th ed. 1991).

136 Most MDBs have published extensive sets of rules in the form of operational manuals that explain, among other things, various policies reflected in loan and guarantee agreements. Some of these sets of rules and explanations, including the entire World Bank operational manual, are publicly available. See, e.g., WB Oper. Man., supra note 12, at OP 7.01 (July 1994) (explaining use of covenants in World Bank loan agreements, including covenants on procurement), OP 7.20 (July 1994) (explaining security arrangements, including the use of negative pledge clauses).

137 For an example of how such customary practice might bear on the interpretation of various provisions of MDB loan agreements, including those governing suspension of loan disbursements in “extraordinary” circumstances, see infra part V.

138 See, e.g., WB 1994 Report, supra note 8, at 74, 75 (noting the establishment of an independent Inspection Panel to investigate complaints that the World Bank has not followed its own policies and procedures on design or implementation of projects, and noting the establishment of a Public Information Center to provide public access to World Bank documents, including appraisal reports and evaluation reports).

139 Further support for this view of the status of such agreements might come from registering them with the United Nations. That subject is beyond the scope of this article but does warrant consideration. An obvious starting point for such consideration would be the World Bank practice and Broches's explanation of it. See text at and notes 57, 61 supra.

140 For examples of such standard provisions, see IBRD 1985 General Conditions, supra note 14, §8.01 (a); ADB 1986 Loan Regulations, supra note 93, §7.01 (a) (i); EBRD September 1994 STCs, supra note 109, §6.01(a)(i); AFDB 1989 General Conditions, supra note 93, §11.02(a).

141 For examples of such standard provisions, see IBRD 1985 General Conditions, supra note 14, §9.01 (c); ADB 1986 Loan Regulations, supra note 93, §6.04; EBRD September 1994 STCs, supra note 109, §5.02 (b); AFDB 1989 General Conditions, supra note 93, §12.08(e).

142 For examples of such standard provisions, see IBRD 1985 General Conditions, supra note 14, §6.02(e); ADB 1986 Loan Regulations, supra note 93, §8.02(f); EBRD September 1994 STCs, supra note 109, §7.01 (a) (vi); AFDB 1989 General Conditions, supra note 93, §8.01 (d).

143 See EBRD September 1994 STCs, supra note 109, §4.02(a). For a reference to how the increased concern over environmental effects of MDB-financed projects has been reflected in the loan agreements of the World Bank and the ADB, see Asian Development Bank, Environment Paper No. 10, Environmental Loan Covenants: Helping Ensure the Environmental Soundness of Projects Supported by the Asian Development Bank 9–27 (1992).

144 See supra note 13.

145 For examples of such standard provisions, see text at note 47 supra (quoting the pertinent World Bank provision); text at note 111 supra (quoting the corresponding but slightly broader EBRD provision); ADB 1986 Loan Regulations, supra note 93, §10.01; AFDB 1989 General Conditions, supra note 93, §13.01(a).

146 See, e.g., Edward Slavko Yambrisic, Treaty Interpretation—Theory and Reality 9–10 (1987) (explaining the “clear sense” approach, under which it is often not permissible to look beyond the word being interpreted in order to examine its context or the intention behind its use).

147 See generally Myres S. McDougal, Harold D. Lasswell & James C. Miller, The Interpretation of Agreements and World Public Order (1967).

148 See 1969 Vienna Convention, supra note 68, Arts. 31, 32. See also text at and notes 131, 133 supra. For a comparison of these three competing approaches to treaty interpretation, see Burns H. Weston, Richard A. Falk & Anthony D'amato, International Law and World Order 59–63 (1990).

149 For examples of the quickly growing body of international environmental law, see generally United Nations Environment Programme, Multilateral Treaties in the Field of the Environment (Iwona Rummel-Bulska & Seth Osafo eds., 1991); Basic Documents of International Environmental Law (Harald Hohmanned., 1992).

150 As noted in text at note 119 supra, the EBRD's STCs do that by referring to custom arising from “the practice of … international financial institutions.”

151 The preventive role of a provision specifying public international law as the governing law could be important also when a borrower or guarantor is contemplating more hostile action than those posited in the foregoing example. For instance, state A might consider declaring that the loan and guarantee agreements are null and void—and that state A and company X are relieved of all their financial obligations thereunder— on grounds that those agreements were entered into under a predecessor government and hence are no longer binding. Without a clear provision on governing law, there is little to prevent the government (or an arbitral tribunal or court, if the case were to proceed that far) from choosing any one of a range of theories regarding state succession. On the other hand, with a clear prescription of public international law as the governing law, the likelihood of such an outcome is reduced. See, e.g., 2 Wood, supra note 89, §4.10[2] (Feb. 1984) (noting the divergence of opinions among states on succession to debt claims; then pointing out the gradual development of rules of public international law on the subject as a result of the International Law Commission's work on treaties governing state succession).

152 Another factor—a member state's desire for a continuing flow of MDB loans—serves as a powerful incentive to prevent disputes or to dissolve them informally. For references to this important practical consideration, see W. Paatii Ofosu-Amaah, The World Bank—Legal Aspects of Its Recent Lending Activities, in 2 Commercial Transactions, supra note 89, at 305, 309 (noting that “ [t]he main sanction that the [World] Bank maintains [to prevent the borrower from acting contrary to the bank's expectations under a loan agreement] is the ability not to extend further loans or credits to such a borrower.”); Asian Development Bank, supra note 143, at 57–58 (explaining in the context of ADB operations the practice of “quasi-conditionality,” which is “the practice by which the Bank requires covenants associated with one loan to be honored [to the satisfaction of the ADB] before the processing of another loan can be advanced or completed”). However, the existence of this practical consideration, stemming from the usually superior bargaining position of an MDB, does not diminish the importance of establishing legal certainty as a means of preventing disputes from arising between the MDB and its borrowers.

153 See text at notes 7–10 supra. For a recent example of scrutiny of the AFDB, see Development Banking: Double Trouble, Economist, May 14, 1994, at 81 (referring to an external report criticizing the AFDB for having a top-heavy bureaucracy riddled with political intrigue, and for haphazard monitoring of loans).

154 For information on cumulative lending volumes of the MDBs, see text at and note 94 supra. Annual lending by the MDBs recentiy amounted to about $35 billion. See Head, Contracting, supra note 12, at 43–44.

155 On the capital subscriptions of G–7 states, as reflected in voting rights, see supra note 8.

156 For an illustration of the importance placed by the U.S. Congress on environmental sustainability of MDB-financed projects, see the International Development and Finance Act of 1989, Pub. L. No. 101-240, tit. V, §521 (a) (codified at 22 U.S.C. §262m-7(a) (Supp. V 1993)) (prohibiting U.S. support for MDB loans unless an environmental impact assessment of the project is undertaken first and submitted to the MDB's governing board).

157 See supra note 15. The significance of procurement is illustrated also by the fact that the EBRD's STCs, like the World Bank's General Conditions, expressly authorize the institution to publish information on the contracts awarded under loans it makes, including the nationality of the party to whom the contract was awarded. See EBRD September 1994 STCs, supra note 109, §4.04(b); IBRD 1985 General Conditions, supra note 14, §9.07 (b). Such information, broken down by nationality of winning contractors, typically appears in the MDBs' annual reports. See, e.g., WB 1994 Report, supra note 8, at 60-63 (showing, e.g., that as of mid-1994, U.S. suppliers had been awarded a cumulative total of about $23 billion in World Bank contracts).

158 For an overview of the ideological foundations of the IMF, see Richard W. Edwards, Jr., International Monetary Collaboration 4–8 (1985). For an overview of the ideological foundations of the International Trade Organization, the General Agreement on Tariffs and Trade, and the World Trade Organization, see John H. Jackson, William J. Davey & Alan O. Sykes, Jr., Legal Problems of International Economic Relations 293–98 (1995).

159 This principle appears in the charters of these institutions. See, e.g., Articles of Agreement of the International Monetary Fund, July 22, 1944, Art. I(ii), 60 Stat. 1401, 2 UNTS 39 (entered into force Dec. 27, 1945); Agreement Establishing the World Trade Organization, opened for signature Apr. 15, 1994, Preamble, 33 ILM 1144 (1994) (entered into force Jan. 1, 1995); IBRD Charter, supra note 12, Art. I(iii).

160 See John W. Head, Suspension of Debtor Countries' Voting Rights in the IMF: An Assessment ofthe Third Amendment to the IMF Charter, 33 Va. J. Int'l L. 591, 598–601 (1993).

161 See WB 1994 Report, supra note 8, at 230–33 (showing total IBRD and IDA lending as of mid-1994 for the four largest borrowers among the former Soviet republics—Belarus, Kazakhstan, Kyrgyzstan and Russia—as nearly $3.5 billion, with Russia alone accounting for almost $2.9 billion of that total). Although the EBRD's annual report does not distinguish clearly between private sector and public sector loans in reporting on EBRD operations, it can be inferred that the EBRD has made a total of at least ECU 2.19 billion ($2.70 billion) in public sector loans, since total private sector operations (which are often for smaller amounts than public sector loans) account for 62% of all projects and the total of all EBRD financings is ECU 5.77 billion ($7.10 billion). See EBRD 1994 Report, supra note 6, at 14–15.

162 Typically, public sector loans made by the MDBs have “grace periods” of several years during which no repayment of principal is required, so that repayments under such loans made by those institutions in 1994 are not required until around 1999. See, e.g., WB 1994 Report, supra note 8, at 234–38. See also WB Oper. Man., supra note 12, at OP 3.10, Ann. D (Sept. 1994) (showing 3–5-year grace periods under most IBRD loans and 10-year grace periods under IDA loans).