You are on page 1of 2

The Articles of Agreement of the IMF vis--vis prohibition on Repatriation of Capital Investment by a member state: The gambit of the

Articles to the investors rights By Birhanu Tadesse1 The issues revolving around the case and to be elucidated are determining the nature of repatriation of capital investment and the dichotomy, the turning point or demarcation and the nexus between capital transaction and current transaction, and the interlink between multilateral system of payment and capital transaction. Hence, in this analytical paper, I have examined rticles of greement of the I!" in general and rticles #I, #II, #III, $I#, $$I$ and $$$ of the greement in particular to sketch out the issues and to propound what the investors should tend to do or recogni%e as a firm stand pertaining to the rticles of greements of the I!" on measures taken by any member state. s one can discern from the given case, repatriation of capital investment is a return of capital &including the profits accrued therefrom' invested in India to another country &country of residence of the investors or somewhere else outside India'( so, it is typically related with capital outflows generally known as capital transfer or movement. )nder rticle #I &*' of rticles of the greement of I!" &I!"' members may exercise controls as are necessary to regulate international capital movements, so long as the controls will not restrict payments for current transactions or which will not unduly delay transfers of funds in settlement of commitments, except as provided in rticle #II &*'&b'+ and in rticle $I#&+'*.The exceptions under rticles #II&*'&b' and $I#&+' are exceptions for the spillover&restriction' on payments of current transactions and never to be for controls on capital movements. ,ven though the rticles of greement of the I!" does not expressly define what capital transfer or movement is about, article $$$ &d' I!" illustrates -ayments for current transactions accentuating as payments which are not for the purpose of transferring capital, and which includes but not limited to (1) all payments due in connection with foreign trade, other current business, including services, and normal short term banking and credit facilities; (2) payments due as interest on loans and as net income from other investments; (3) payments of moderate amount for amortization of loans or for depreciation of direct investments; and ( ) moderate remittances for family living e!penses" Be that as it may, there is no expressive indication about the exact features of transferring capital .capital movement other than the possible corollary we could grasp. The notion of article $$$ &d' &+' reveals that repatriation of return investment could be considered as payment for current transaction but not for repatriation of capital investment which is the initial account of the investment per se. To underpin the

-rospective /raduate of 00! in international 0aw from ,thiopian 1ivil 2ervice )niversity&+31*.14' 5here there is currencies scarcity in the I!"6s holdings, any member state, after consultation with I!", maybe authori%ed to temporarily impose limitations on the freedom of exchange operations in the scarce currency and the member shall have complete 7urisdiction in determining the nature of such limitations, but they shall be no more restrictive than is necessary to limit the demand for the scarce currency to the supply held by, or accruing to, the member in 8uestion, and they shall be relaxed and removed as rapidly as conditions permit. 3 member that has notified the I!" that it intends to avail itself of transitional arrangements under the provision of transitional arrangements may maintain and adapt to changing circumstances the restrictions on payments and transfers for current international transactions that were in effect on the date on which it became a member.

above notion, a contrario reading of $$$ &d'&4' tells that ma7or remittance, i.e. repatriation of capital investment, cannot be considered as payment for current transaction. However, the last paragraph of article $$$ &d' is bewildering as it states that #$% may, after consultation with the members concerned, determine whether certain specific transactions are to be considered current transactions or capital transactions. The implication of this clause is that a single transaction &of capital or current' can either be current transaction or capital transaction, not merely because of its content rather based on the agreement of the members concerned. Thus, with the dearth of a crystal clear definition for capital transaction and an open ended nature of the lists of current transactions, putting demarcation between the two transactions or conspicuously determining the turning point would sometimes be uncertain. However, as I tried to sketch from the outset, as the name per se indicates and from contextual understanding as well as from the cumulative reading of the rticles of greement of the I!", we can appreciate that repatriation of capital investment is preferably affiliated with capital transaction.transfer than with current transaction. Indeed, in the strictest sense of transaction, remittance or repatriation is a unilateral transfer unlike current transactions &i.e. trade on goods and services among sellers and buyers'( but capital transfer can be launch pad of current transition as the former is a principal to the latter. 9ne of the general obligations of members, within multilateral system of payment, is to avoid restrictions on current payments. Thus as per article #III &+'&a' I!" no member shall, e!cept for the provisions of &rticle '## 3(b) and &rticle (#'(2), without the approval of #$%, impose restrictions on the making of payments and transfers for current international transactions" 5hilst there is no obligation on members4 which prohibits them from restricting capital transactions.transferring of capitals &inflow.outflow' so long as it has not restricted the payments of current transactions as articulated in article #I&*' and underpinned by the ,xecutive Board6s decision :o ;41<&;=.*>' of ?uly +;,1>;= which expounds that $embers are free to adopt a policy of regulating capital movements for any reason, due regard being paid to the general purposes of the %und and without pre)udice to the provisions of &rticle '#, *ection 1; and +hey may, for that purpose, e!ercise such controls as are necessary, including making such arrangements as may be reasonably needed with other countries, without approval of the %und" To encapsulate, firstly the main mandate of I!" is promoting international monetary system &i.e. exchange rate stability and transfer of payments'( secondly the rticles of greement of the I!" does not prohibit, other things remain constant, restriction of transferring of capital and by the same token the I!" has no mandate to make surveillance on the restrictions of capital movements, save for the conditions set under article #I&1'&a' pertaining to use of the I!"6s general resources for capital transfers( thirdly, there is no dispute settlement mechanism envisaged under I!" except the interpretation decisions, under article $$I$, to be given by the ,xecutive Board and Board of /overnors, only between members and the I!" and as between members. Therefore, the investors cannot use international monetary law and the I!" mechanism to stop the member states measure of prohibiting the outflow of capital investment.

However, as per article #I &1'&a' I!" a member may not, save for reserve tranche purchases, use the I!"6s general resources to meet a large or sustained outflow of capital unless, as the I!" may re8uest, a member to exercises controls on capital movement particularly of capital outflow<like the case at hand.
International La !rogram " #$C% &IFL$ International #conomic La 'ovember ()*+