Losing Control: Why IMF Article VIII(2)(b) May Nullify the Enforceability of Financing Contracts When Spiraling Oil Prices Prompt the Use of Exchange Controls
FORDHAM JOURNAL OF
CORPORATE & FINANCIAL LAW
Fordham Journal of Corporate & Financial Law
Copyright c 2008 by the authors. Fordham Journal of Corporate & Financial Law is produced
by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/jcfl
* J.D., expected, Fordham University School of Law, 2009; B.B.A. (Finance), magna
cum laude, Hofstra University, 2006. The author would like to thank Professor Harold
Moore, Fordham University School of Law, for introducing him to the subject of
exchange controls. The author would also like to express his gratitude to Christine
Walsh and the entire Fordham Journal of Corporate & Financial Law for their helpful
editing and insightful suggestions. Further appreciation is in order for A. Hill and M.
Pomerantz, who deserve special acknowledgment for their editing prowess and support.
As the price of oil continues its climb, a potential catastrophe looms
on the horizon. While the countless effects of surging oil prices have
been discussed at length, one possibility has received far less attention—
the revival of International Monetary Fund1 (“IMF”) Article VIII(2)(b)
as a defense to financing contracts. If the recent surge in oil price
accelerates, countries may be forced to adopt new monetary policies to
protect their own faltering currencies.
The effects of countries adopting new monetary policies,2
especially currency exchange controls, might call into question the
enforceability of many exchange and financing contracts.3 Exchange
controls can take the form of a limit upon the outflow of local currency,
a limit on the outflow of U.S. dollars, or mandatory rates of exchange.4
The IMF requires member states5 to enforce each others’ exchange
controls when imposed consistently6 with the IMF Articles of
Agreement.7 Specifically, Article VIII(2)(b) declares:
1. “The IMF is an international organization . . . established to promote
international monetary cooperation, exchange stability, and orderly exchange
arrangements; to foster economic growth and high levels of employment; and to
provide temporary financial assistance to countries to help ease balance of payments
adjustment.” IMF, About the IMF, available at http://www.imf.org/external/about.htm
[hereinafter About IMF] (last visited Feb. 1, 2008).
2. Monetary policy refers to actions undertaken by a government, central bank, or
monetary authority to “influence the availability and cost of money and credit to help
promote national economic goals.” Bd. of Governors of the Fed. Reserve Sys.,
Monetary Policy: Federal Open Market Committee, http://www.federalreserve.gov/mon
etarypolicy/fomc.htm (last visited Feb. 1, 2008).
3. These exchange controls can also be defended by the Act of State Doctrine and
the Foreign Sovereign Immunities Act. See generally Stephen Zamora, Recognition of
Foreign Exchange Controls in International Creditors’ Rights Cases: The State of the
Art, 21 INT’L LAW. 1055 (1987) (discussing how Sovereign Immunity and the Act of
State Doctrine can be used as a defense in cases involving the adoption of exchange
controls); see also infra notes 147-148 and accompanying text.
4. See, e.g., Callejo v. Bancomer, S.A., 764 F.2d 1101, 1106 (5th Cir. 1985); see
also note 22 and accompanying text.
5. Currently 185 countries are signatories of this agreement. See About the IMF,
supra note 1.
6. Courts, particularly those less well-versed in the technicalities of foreign
exchange regulations, may call upon the Executive Board of the IMF to assess whether
the exchange control has been validly imposed. See International Monetary Fund,
Articles of Agreement, Second Amendment, Apr. 30, 1978, T.I.A.S. No. 8937, 29
Exchange contracts which involve the currency of a member and
which are contrary to the exchange control regulations of that
member maintained or imposed consistently with this Agreement
shall be unenforceable in the territories of any member.8
This provision applies to both governments and private contracting
parties in IMF member states where exchange controls are imposed.9
Article VIII(2)(b) completely bars the enforcement of an illegal
exchange contract in any IMF member state.10 Although much ink has
been spilled over what precisely comprises an “exchange contract,”
however, there is no international consensus.11 The disagreement
centers upon whether the term “exchange contract” should be viewed
broadly or narrowly.12 A broad interpretation, generally preferred by
developing countries, would encompass any contract that involves
monetary elements; a narrow interpretation, generally preferred by
developed countries, includes only those contracts that contemplate the
U.N.T.S. 2203, art. XXIX, available at http://www.imf.org/external/pubs/ft/aa/aa.pdf
[hereinafter IMF Articles of Agreement]; see also Gerhard Wegen, 2(B) or Not 2(B):
Fifty Years of Questions – The Practical Implications of Article VIII Section 2(B), 62
FORDHAM L. REV. 1931 (1994); Callejo, 764 F.2d at 1119 (noting that a legal opinion
of the IMF is persuasive authority as to whether the exchange control has been imposed
consistently with the Articles of Agreement). The “IMF’s general interpretative view
[is] that currency regulations should be presumed to be in conformity with the Fund
Agreement unless the Fund indicates otherwise.” Id. at 1119 n.25. But see Pan Am. Life
Ins. Co. v. Blanco, 311 F.2d 424, 427-28 (holding that Cuba’s exchange controls were
not imposed consistently with the Fund Agreement, despite a legal opinion by the IMF,
but providing no explanation as to why).
7. IMF Articles of Agreement, supra note 6; see also William W. Park, When the
Borrower and the Banker Are at Odds: The Interaction of Judge and Arbitrator in
Trans-Border Finance, 65 TUL. L. REV. 1323, 1351 (1991).
8. IMF Articles of Agreement, supra note 6, art. VIII(2)(b). The article has been
enacted into U.S. law by 22 U.S.C. § 286(h) (1994) (“[T]he first sentence of article
VIII, section 2(b), of the Articles of Agreement of the Fund . . . shall have full force and
effect in the United States . . . .”).
9. See Philip J. Power, Note, Sovereign Debt: The Rise of the Secondary Market
and its Implications for Future Restructuring, 64 FORDHAM L. REV. 2701, 2743 (1996).
10. Allan T. Marks, Exchange Control Regulations within the Meaning of the
Bretton Woods Agreement: A Comparison of Judicial Interpretation in the United
States and Europe, 8 INT’L TAX & BUS. LAW. 104, 105 (1990).
11. Park, supra note 7, at 1351; see also Wegen, supra note 6 (explaining how
different language translations of the article contributes to the lack of consensus).
12. See, e.g., Park, supra note 7, at 1351-52; Wegen, supra note 6, at 1937-38.
exchange of one currency for another.13 This lack of a precise definition
leads to uncertainty in financing contracts between developed and
developing countries, and can potentially destroy these contracts and
even bankrupt companies.14 In any case, parties on either side of a
financing agreement can take measures to shield themselves from this
Part I of this Note will investigate how a potential surge in the price
of oil might cause developing countries to use more exchange controls.
This part will also briefly examine the causes of a drastic surge in oil
prices and how enacted exchange controls can destroy aspects of project
financing. Part II will analyze what constitutes an “exchange contract”
within the meaning of Article VIII(2)(b). Finally, Part III suggests
various methods that may reduce the likelihood of Article VIII(2)(b)
reeking havoc upon seemingly ironclad financing contracts. Various
methods proposed include: an interpretation of the article directly from
the IMF, explicit stipulation by the contracting parties regarding the
exact interpretation of the article, and a choice of law provision included
in the contract. In this age of uncertainty and sky-high oil prices, the
best option is for the IMF to adopt an amendment to the Articles of
I. OIL’S POTENTIAL FOR DEVASTATION
The record-high price of oil has countless effects on every facet of
the global economy.16 Higher oil prices lead to inflation and lower
investment in oil-importing countries as the affected government and its
citizens have less money to spend.17 Oil price increases also alter the
balance of trade and exchange rates between countries.18 Oil-importing
countries normally experience deterioration in their balance of
payments,19 which exerts downward pressure on their exchange rates
and leads to higher inflation.20 This combination of higher inflation,
higher unemployment, lower exchange rates, and lower real output
imposes pressure on the government to take appropriate action.21 The
response may take the form of exchange controls,22 which tend to
restrict the outflows of the local currency.23
Although the above-envisioned scenario requires a “perfect storm”
of sorts, its likelihood increases every day as oil prices continue to
climb. On November 6, 2007, oil futures closed at a high of $96.27 per
barrel,24 a 40% surge over the previous three months25 and just short of
17. IEA ARTICLE, supra note 16, at 6.
19. Balance of payments is commonly defined as a measure of payments that flow
between any individual country and all other countries. See JOHN CHARLES POOL &
STEVE STAMOS, THE ABCS OF INTERNATIONAL FINANCE, 25-28 (1987). It is used to
summarize all international economic transactions for a particular country in a fixed
time period. Id.
20. IEA ARTICLE, supra note 16. Many would argue that the United States is
already feeling these three effects. See Dyer, supra note 16; see also Marc Vielle &
Laurent Viguier, On the Climate Change Effects of High Oil Prices, 35 ENERGY POLICY
Oil prices shocks have a stagflationary effect on the macroeconomy of an oil
importing country [as] they slow down the rate of growth (and may even reduce the
level of output—i.e. cause a recession) and they lead to an increase in the price level
and potentially an increase in the inflation rate.
21. IEA ARTICLE, supra note 16. The more sudden and pronounced the oil price
increase, the greater these effects will be. Id.
22. See Hal S. Scott, A Bankruptcy Procedure for Foreign Debtors?, 37 INT’L
LAW. 103, 127 (2003) (explaining that exchange controls are used to stem capital
outflows and the accompanying downward pressure placed on exchange rates and
23. See Callejo v. Bancomer, S.A., 764 F.2d 1101, 1104 (5th Cir. 1985) (stating
that in response to a severe monetary crisis, Mexico imposed exchange controls which
limited the number of pesos that foreigners could remove from the country and
mandated that all deposits in Mexico banks be repaid in Mexican pesos at specific rates
24. Gregory Meyer, Crude Reaches $97 and Ends at a High, WALL ST. J., Nov. 7,
2007, at C5.
the record high of $101.70 per barrel (adjusted for inflation), reached in
April 1980.26 The prospect of $100 per barrel oil seems likely amidst
worldwide geopolitical tensions.27 The U.S. dollar’s devaluation
reinforces these record oil prices.28 The U.S. dollar has recently reached
record lows against the euro,29 the yen,30 and the Canadian dollar.31
Since oil is denominated in U.S. dollars, as the U.S. dollar loses its
value, oil producers must maintain prices at a high enough level to avoid
eroding their own purchasing power.32
A synopsis of the Oil Crisis of 1973 may add some clarity to the
proposition that a huge increase in the price of oil will subsequently lead
to the implementation of exchange controls by many developing
33 In 1973
, the price of oil quadrupled over several months as
the Organization of Petroleum Exporting Countries (“OPEC”) refused to
sell its oil to countries that supported Israel in the Yom Kippur War.34
This rapid price increase resulted in a global economic downturn.35 The
U.S. experienced rampant inflation, increased unemployment, and
finally, a recession.36
These devastating effects felt by one of the wealthiest nations in the
world portray how even a prosperous nation can encounter trouble in the
face of exorbitant oil prices. A sudden increase in the price of oil would
lead to similar effects on all countries that import a substantial quantity
of their oil, albeit to varying degrees depending on the wealth of the
individual country.37 The effects of a spike in oil prices, reminiscent of
the Oil Crisis of 1973, would be overwhelming for developing countries,
as their economies are now far more dependent on oil.38
Countless events could trigger a rapid increase in the price of oil
(e.g., war with Iran, Venezuelan embargo, OPEC embargo,39 terrorism,
natural disasters).40 Further, as the booming economies of India and
China increase their demand for oil, worldwide demand will also
continue to grow.41 Predictions indicate Chinese and Indian energy
consumption will double from 2005 to 2030,42 in part because of
increased demand for automobiles.43 Even a small disruption in the
supply of oil seems to suggest a huge increase in the price of oil.44
Some experts even postulate that oil production has already peaked45
and that the world’s oil supply is already running out.46 If this theory
gains general acceptance and proves true, the price of oil may skyrocket,
as increased demand coupled with a diminishing supply equals sky-high
II. EFFECTS OF OIL PRICE INCREASE
As the price of oil continues to climb, the effects on developing
countries are most severe, since wealthier countries are better positioned
to withstand the shock.48 The term “developing countries” is used
generally, but more precisely refers to “oil-dependent developing
countries” who import more petroleum than they export,49 and typically
use their energy less efficiently.50 For example, oil-importing
44. See King & Davis, supra note 39 (“A security scare, cutoff in supply, or shift in
sentiment could send prices soaring again.”).
45. See, e.g., World at Peak Oil Output, CNN.com, http://edition.cnn.com/2007/
(recounting how the Energy Watch Group
postulates that worldwide oil production peaked in 2006 and will be half of what it is
now by 2030)
; see generally David J. Lynch, Debate Brews: Has Oil Production
Peaked?, USA TODAY, Oct.
(describing how the jury is still out on worldwide
46. See Lynch, supra note 45.
47. See Russell Gold & Ann Davis, Oil Officials See Limit Looming on Production,
WALL ST. J., Nov. 19, 2007, at A1. The article quotes many oil industry chiefs as
acknowledging that the number of barrels of crude oil that can be pumped is nearing, or
at, current limits. Id. An oil production plateau would ensue which would “set the stage
for a period marked by energy shortages, high prices and bare-knuckled competition for
48. See IAE ARTICLE, supra note 16, at 2; see also Keith Johnson, Americans Drive
On, Despite $100 Oil, WALL ST. J., Nov. 7, 2007, available at http://blogs.wsj.com/ener
gy/2007/11/07/americans-drive-on-despite-100-oil (noting how Americans have not cut
back on consumption despite record high gas prices as evidenced by the
“80-cent-pergallon increase at the pumps this year [that] hasn’t really dented consumption”).
49. The line demarcating developing countries as net-importers is extremely blurry,
as some countries lack adequate refining capabilities, whereby they export oil, only to
subsequently import that same oil in a more refined state. Other countries
import/export different types of petroleum (e.g., light crude, heavy crude, natural gas).
See, e.g., Nazila Fathi, N.Y. TIMES, June
(“Iran is OPECs second-largest
exporter of oil. But it needs to import half of its gasoline—at a cost of $5 billion a
year—because of high consumption and low refining capabilities.”).
50. Id.; see IAE ARTICLE, supra note 16, at 2.
developing countries use more than double the oil that a developed
country uses to produce one unit of economic output.51 Rapid increases
in the price of oil are highly likely to cause recessions in these
An illustrative situation occurred in Costa Rica in the late 1970s.53
Increased oil prices forced Costa Rica down a path of hyperinflation,
increased unemployment, and soaring debt.54 The events culminated
with an imposition of exchange controls by Costa Rica, which declared a
moratorium on foreign debt payments as the country could no longer
afford to pay.55
Currently, oil prices contribute to reduced economic growth rates,
imbalanced trade, and increased inflation in African countries.56
According to the African Development Bank,57 higher oil prices will
exert an even heavier toll on the finances of many oil-importing African
nations.58 High oil prices in Africa lead to higher unemployment, as
companies in Africa attempt to reduce their expenses by dismissing
workers.59 The situation further hurts the governments of these nations
as their tax base erodes.60 Lower employment, together with higher
inflation rates, lowers the purchasing power of the aggregate workers,
which ripples throughout the nation’s entire economy.61 The high
inflation, together with growing trade imbalances, leads to currency
Burgeoning oil prices and its corresponding effects on the nation
place incredible pressure on central banks to act.63 Recession and
subsequent collapses of local currencies exert additional pressure on
governmental authorities to use monetary policy in an attempt to
alleviate the problems.64 These actions may take the form of exchange
controls65 that would protect the developing nation’s faltering currency.
Almost every international exchange of goods or services requires
the exchange of one currency for another.66 In the context of project
finance agreements, entities take preventative measures to meet the
currency risk that flows from foreign exchange.67 Denominating all
aspects of a project in the same currency provides a natural hedge
against adverse exchange rate fluctuations.68 Many times, a deal is
structured so that revenues, costs, and debt facilities are denominated in
U.S. dollars. These measures, however, may not adequately protect
against all adverse effects from a rapidly depreciating local currency.
The developing country (the “Host Country”) simply might not have
enough (or permit the exchange of) local currency and/or U.S. dollars,69
or might institute exchange controls to restrict the outflow of U.S.
dollars beyond its borders. A simplified example may prove beneficial.
A financier sponsors a project in a Host Country for the construction of
a coal-powered energy plant, owned and run by an operator. The
project’s debt, denominated in U.S. dollars, is to be repaid by the
revenue stream collected by the operator from the end-users of the
electricity. This requires the operator to exchange the local currency
collected for U.S. dollars in order to service the debt to the financier.
The time horizon on the project’s repayment is fifteen years after
completion of the project, at the current exchange rates (the financier has
various hedging positions to effectively eliminate its currency risk).
However, five years after the completion of the project, an event occurs
that sends the price of oil skyrocketing.70 The Host Country’s economy
declines and soon slips into a recession. Pressure mounts on the Host
Country’s government to maintain the integrity of its depreciating
currency and combat currency outflow. Accordingly, the government
institutes various exchange controls, including a restriction on the
outflow of its local currency and its U.S. dollar reserves.71 Therefore,
the operator will be stuck with local currency that he cannot exchange
with the Host Country, nor exchange on the foreign exchange market.
The original contract required exchange of the local currency for
U.S. dollars, which now would violate an exchange control. Thus, the
underlying contract may be rendered unenforceable per Article
VIII(2)(b),72 depending on the statutory interpretation of an exchange
contract in the relevant jurisdiction.73 The financier benefits if the
contract is not viewed as an exchange contract (narrow interpretation),
thus placing the contract out of the purview of Article VIII(2)(b) (which
would view said contract unenforceable). Conversely, the Host Country
and the operator, hoping to avoid liability, wants a broad interpretation
of an exchange contract. Because the contract is “contrary to the
exchange control regulations”74 of a member state, it would be
unenforceable.75 Vagueness in the IMF article will inevitably lead to
disagreement concerning interpretation.
III. AN INTERPRETATION OF EXCHANGE CONTRACT MEANING
When a country implements exchange controls after a sudden
political change, drastic economic change, or the nationalization of
financial institutions, Article VIII(2)(b) frequently is invoked to
invalidate private international contracts.76 More often than not, the
party defending against contract enforcement is located in a developing
country or is the government of the developing country itself.77 Courts
have struggled with whether to construe an “exchange contract” within
Article VIII(2)(b) narrowly or broadly.78
U.S. federal case law supports the narrow view that only contracts
which entail the exchange of one currency for another constitute
exchange contracts for purposes of Article VIII(2)(b).79 Libra Bank v.
Banco Nacional de Costa Rica is one of the most renowned cases to
discuss the issue.80 Banco Nacional, a bank wholly owned by the Costa
Rican government, defaulted on $40 million in loans made by the
plaintiffs.81 Banco Nacional argued it could no longer honor the loan
agreement as the Costa Rican government had passed exchange
controls,82 which prevented the repayment of a dollar-denominated loan
to foreigners.83 Banco Nacional further contended that the loan
agreement was an “exchange contract” and therefore the newly
instituted exchange controls, validly imposed by an IMF country,84
rendered the pertinent contract unenforceable under Article VIII(2)(b).85
The court rejected this argument, finding that the loans in question
were not “exchange contracts” and displaying unwillingness to expand
the definition to include international loans.86 The court viewed
exchange contracts narrowly, expressing that an exchange contract is a
“contract for the exchange of one currency against another or on means
of payment against another.”87 The court refused to adopt an
interpretation of the article which would “sweep in all contracts
affecting any members’ exchange resources” and render “considerable
violence to the text of the section.”88
The court ultimately held that a contract to borrow U.S. currency,
which requires repayment in U.S. currency in the U.S., is not an
exchange contract within the meaning of Article VIII(2)(b).89 The
broader view of an “exchange contract” as any contract that involves
monetary elements and, thus subject to the IMF agreement,90 has also
been rejected by New York state court, in accord with the view taken by
the Southern District.91
Based on the rationale of Banco, courts in the U.S. today would
probably continue to narrowly view “exchange contracts” as only those
contracts that stipulate the exchange of one currency for another
currency.92 This may account for why the use of Article VIII(2)(b) as a
defense in the United States has all but disappeared since the Banco
Policy could also influence how U.S. courts define exchange
contracts.93 A wealthy, developed country who lends billions of dollars
per year would be at the mercy of developing, debtor nations who could
abuse the system simply by using exchange control legislation to avoid
otherwise valid financing commitments.94 A narrow view of Article
VIII(2)(b) favors lenders such as the U.S. and European Union
Although comprised of developed countries, historically E.U.
members have counter-intuitively viewed the article broadly.96 Courts
in France and the Netherlands, for instance, have analyzed exchange
contracts under a broad interpretation.97 This interpretation defines
exchange contracts as contracts that have as their essential nature an
exchange of goods or services that impacts foreign exchange reserves
available in that country.98 Thus, any contract for the sale of goods or
services involving a currency which would also lead to a decrease or
increase in the foreign exchange reserves of the member state is
considered an exchange contract.99 In this broad notion of exchange
contracts, virtually all contracts between parties residing in IMF member
states could potentially have such an impact and be considered exchange
This broad interpretation seems to further the IMF’s goals by
including more contracts in the scope of Article VIII(2)(b). Joseph
Gold,101 former General Counsel and Senior Consultant of the IMF, was
convinced that only a broad interpretation of Article VIII(2)(b) would
help accomplish the IMF’s “macro objectives and improve the stability
of the volatile international monetary system.”102 Furthermore, he has
argued that the narrow construction, adopted by the United States and
England, has without exception unfairly favored domestic lenders over
More recently, however, many of these European courts which
historically adopted a broad view of Article VIII(2)(b) are changing their
thinking.104 In 1993 and 1994, the German Supreme Court held in three
decisions105 that international capital transfers, such as loan agreements,
are not governed by Article VIII(2)(b).106 As a result, it seems that now
the article will only be applied to current transactions,107 and not to
international capital transfers (including international loan
agreements).108 This philosophical change can be attributed to a desire
to improve domestic financial markets and to increase protection for
local creditors against exchange controls.109 Another possible reason for
this change might be that Germany, because of increased international
lending, would benefit from a narrow interpretation.110
A broad interpretation would likely put the vast majority of
financing contracts at risk in times of a national crisis and call into
question the validity of many project finance agreements. While
American courts are quite unlikely to expand their definition,111 all
countries have discretion to interpret the article independently, and local
incentives and biases can influence their interpretation.
IV. MINIMIZING RISK OF AN UNCLEAR DEFINITION
A. What Can the IMF Do?
The IMF can, and should, adopt a clear definition of an exchange
contract as it applies to Article VIII(2)(b) of the agreement.112 In the
absence of a clear definition from the IMF, courts in IMF member states
have reached conflicting decisions in determining the enforceability of
contracts challenged pursuant to the article.113 Courts rely upon their
own methods of construction to determine if the article applies to certain
contracts.114 An amendment of Article VIII(2)(b), or at the very least an
interpretation of the article, would help to alleviate the lack of
108. See Ebke, Exchange Controls, supra note 101, at 1484.
109. See id.
110. Id. at 1484 (“[Germany] followed the view expressed by the court of other
major capital exporting countries . . . .”).
111. For the very hopeful and optimistic it should be noted that the high court of this
country has not given a definition of an “exchange contract” and from my research it
seems that there is one U.S. opinion (albeit a dissenting one) that endorses the broader
view of an exchange contract. See Weston Banking Corp. v. Turkiye Garanti Bankasi,
442 N.E.2d 1195, 1204 (N.Y. 1982) (Meyer, J., dissenting).
112. But see Ebke, Article VIII, supra note 93, at 706-09 (providing an alternative
view that an amendment is not necessary).
113. See id. at 700-03.
The IMF must define this severely ambiguous article to bring
certainty to financing agreements. An amendment to the IMF’s Articles
of Agreement would achieve this. Such an amendment requires
threefifths of the membership, holding eighty-five percent of the vote, to vote
in favor of any potential amendment.115 Any such amendment would
automatically become binding upon all member states of the IMF.116
This procedure, although arduous, is not unattainable. The United
States, with approximately 16.79% of the IMF’s voting power,117 could
take the lead and propose an amendment which would, based on its bias,
emphasize the narrow interpretation.118 The United States would need at
least 107 additional countries to vote in favor of such an amendment.119
As IMF voting power is distributed on the basis of economic factors,
including members’ GDP, current account transactions (trade volume),
and official reserves, almost all of the wealthier countries would have to
vote in favor of such an amendment.120 The seven countries with the
largest number of votes by percentage, as of November 8, 2007, are the
United States (16.79), Japan (6.02), Germany (5.88), France (4.86),
United Kingdom (4.86), Italy (3.20), and Saudi Arabia (3.17).121 In
total, these countries control about 45% of the vote.122
A proposition to construe the definition narrowly is certain to face
ardent opposition by the (developing) country most likely to utilize the
article as a defense.123 Developing countries, especially those sensitive
to oil price fluctuations, will be opposed to this type of amendment,
since they may be the most in need of the article in the future.124 These
countries would certainly prefer no amendment at all, leaving the parties
to their own devices. Additionally, the IMF itself would probably object
to an amendment that emphasizes the narrow view.125 Nonetheless,
consent from many countries with unstable currencies, who collectively
hold very little voting power, is not essential.126
Based on voting power, however, it is highly unlikely an
amendment would be passed which construes the article broadly.127
Therefore, to realistically achieve the broad definition, the article must
be left undefined. This scenario would leave the status quo intact and
courts would have no binding precedent. Developing countries would
certainly argue that the IMF intentionally left Article VIII(2)(b) vague
and malleable in order to help developing countries in crisis.128 On the
other hand, wealthier countries would welcome an amendment
interpreting exchange contracts narrowly, as it would add more certainty
to contracts, while simultaneously favoring their interests.
The following amendment would conclusively bring uniformity in
the application of Article VIII(2)(b).129 Although famed IMF scholar Sir
Joseph Gold would certainly disagree with the narrowness of the
121. IMF Voting Power, supra note 117.
123. See Marks, supra note 10, at 105.
124. See supra Part II.
125. See Ebke, Exchange Controls, supra note 101, at 1479 (noting how a narrow
interpretation would be “contrary to the Fund’s goals and, at least in the long run,
opposed to the interests of every single IMF member state”).
126. See Scott, supra note 22, at 135. For instance, not one African country holds
even 1% of the total voting power, and Mexico only holds 1.43% voting power. IMF
Voting Power, supra note 117.
127. See supra notes 117-19 and accompanying text.
128. See supra note 101 and accompanying text.
129. But see Ebke, Exchange Controls, supra note 101, at 1486-87. Ebke argues
that complete uniformity is impossible “given numerous textual and contextual
difficulties inherent in Article VIII, section 2(b)” and that the goal of the article should
be a “functional equivalence.” Id.
following amendment,130 he would applaud the uniform interpretation it
would produce.131 Developed countries, who are influenced by their
huge lending communities, would welcome this amendment and likely
vote for its acceptance.
[Proposed] Addendum to Article VIII(2)(b) to be Codified as
This Article shall only apply to exchange contracts, as defined
herein, made between members, their citizens, or any combination
thereof. Exchange contracts are contracts or agreements, in which
one currency is exchanged for, or one means of payment against,
[Proposed] Article VIII(2)(b)(1).
This article will be published in five major languages to avoid any
inconsistencies in its exact interpretation.132
In addition to the powers to amend, the Executive Board of the IMF
also has the power to interpret the Articles of Agreement.133 At first
glance, this solution, rather than an amendment, seems like a more
obtainable goal, as an official interpretation does not require a vote by
member states.134 On the contrary, evidence suggests that the Board is
quite wary to use this power.135 The issuance of an interpretation is a
political step, which, given the conflicting politics of member states, is
only utilized for an extraordinary reason.136 Coincidentally, however,
130. See id. at 1479.
131. See id. at 1483. Sir Joseph believed that international monetary cooperation
and collaboration should not be left to the whims of national forces, but instead the IMF
should work to close the gap between the micro motives of each State for the benefit of
all Member States. See id. at 1486.
132. Normally, international agreements are drafted in at least five languages to
permit comparison between the texts to discern the precise meaning. See Wegen, supra
note 6, at 1933.
133. See IMF Articles of Agreement, supra note 6, art. XXIX.
134. See id.
135. See Ebke, Article VIII, supra note 93, at 697.
136. Id. Another possible reason for the lack of interpretations issued by the IMF is
the make-up of the Executive Board. The Board is comprised largely of bankers and
one of the few interpretations issued by the IMF has concerned Article
VIII(2)(b).137 The interpretation, nevertheless, does nothing to explain
what exactly an “exchange contract” is in the context of Article
VIII(2)(b).138 A new interpretation could shed some light on the precise
definition of an exchange contract and encourage uniformity amongst
member state’s courts when analyzing Article VIII(2)(b).
Unfortunately, even this solution is not infallible.139 The
interpretation would only command persuasive authority, as the
Executive Board’s interpretations are not binding on the courts of the
member states.140 Since the goal is uniform application of the definition
of an exchange contract, an amendment would be a better solution than
an official interpretation by the IMF.
B. What Can the Parties Do?
1. Explicit Stipulation (Uniformity Agreement)
In light of the current lack of clarity on the definition, parties can
explicitly stipulate what constitutes an exchange contract in their
contract. For instance, where a developing country is a participant to a
financing contract and the risk for exchange controls exists, the lender
may wish that their contract be deemed not an exchange contract, under
any circumstances. Such a clause can be negotiated. Furthermore, the
parties may desire to adopt a definition of what exactly constitutes an
Although some commentary indicates that two parties cannot
contract out of the purview of exchange control regulations,141 parties
economists, not lawyers. Thus, they do not see themselves as charged with the duty of
creating or applying international monetary law. Id. at 697-98.
137. See International Monetary Fund, Selected Decisions and Selected Documents
of the International Monetary Fund, Thirtieth Issue, available at
“Unenforceability of Exchange Contracts: Fund’s Interpretation of Article VIII, Section 2(b),
Document No. 446-4” hyperlink) (last visited Feb.1, 2008).
138. See id. The interpretation says that the IMF will advise as to whether a
particular exchange control regulation is imposed consistently with the Fund
Agreement, but does not define an exchange contract. Id.
139. See Marks, supra note 10, at 106 n.12.
140. See Ebke, Article VIII, supra note 93, at 698.
141. See Otto Sandrock, Are Disputes Over the Application of Article VIII, Section
2(b) of the IMF Treaty Arbitrable?, 23 INT’L LAW. 933, 936 (1989) (“[E]xchange
control regulations are not only mandatory on the level of substantive law, they are also
could still agree to a precise definition of what constitutes an “exchange
contract.” This would not be contracting out of exchange control
regulations. Instead, the two parties are just agreeing to an
interpretation, and it would be up to the courts to apply this mutually
agreed upon definition to the contract at hand. Even so, there are
obvious limits. If a contract involves the exchange of U.S. dollars for
Mexican pesos and that contract contains a clause that reads, “This
contract is not an exchange contract,” it is clear this clause would be
unenforceable or void. However, in less obvious cases, such as
international loan agreements, courts should give deference to parties
agreeing to certain clauses in a contract, especially when the clauses are
intended to clarify the definition of an unclear term. It is not certain,
however, that courts will apply what the parties want, so this option is
less reliable than an IMF amendment.
2. Choice of Law Provision
The parties in the contract could also stipulate the governing law
that applies to the contract.142 Lenders want to keep the contract out of
jurisdictions where a broad view of Article VIII(2)(b) is recognized by
the courts. To do this, lenders would choose a jurisdiction that
recognizes Article VIII(2)(b) very narrowly and insert the relevant
choice of law provision into the contract. Although this choice of law
would not extinguish all potential ramifications of Article VIII(2)(b), it
would limit its use as a defense.143 Since regulatory laws (such as
exchange control regulations) apply regardless of the choice of the
parties,144 choosing a jurisdiction that characterizes “exchange
contracts” very narrowly would benefit lenders. The United States, and
more specifically, New York,145 seems like the natural choice.
However, lenders and borrowers would almost certainly disagree upon
beyond the conflict of laws autonomy of the parties who cannot derogate from them by
choosing a foreign law as the proper law of the their contract.”).
142. These stipulations are never foolproof for, in the event of any dispute, one party
will certainly fight vigorously against its validity.
143. For instance, if a contract governed by New York law was simply an agreement
to exchange one currency for another, this contract would fall within the purview of the
IMF article even under the narrowest of interpretations. Thus, the contract would be at
the mercy of any exchange control regulations imposed by the contracting parties’
countries, despite the New York choice of law.
144. See Mettala, supra note 71, at 228.
145. See infra notes 153-55 and accompanying text.
the specific choice of law considering their conflicting motives.
Nevertheless, since the lender usually has greater bargaining power, the
borrower may be at the mercy of the lender’s choice of law
These choice of law provisions are never fail-safe, subject to
various defenses such as the Act of State Doctrine,147 (except in the case
of arbitration),148 and other public policy considerations. In selecting a
certain jurisdiction, a lender also runs the risk that it cannot satisfy a
favorable judgment if the defendant has insufficient assets in that
jurisdiction.149 Furthermore, most jurisdictions impose at least a
minimal public-policy type limitation on the autonomy of parties in
selecting the choice of law jurisdiction.150 A court may decline to
enforce a choice of law provision if it flouts a public policy of the
jurisdiction whose law would otherwise apply, if not for the
146. This lack of bargaining power could be used as a springboard by the borrower
to argue that the choice of law provision should not be upheld because of duress, undue
influence, or unilateral mistake.
147. Although beyond the scope of this article, a brief description may be useful.
The Act of State Doctrine generally holds that a court in one country will not examine
the validity of an act of a foreign state, when the act purports to give effect to the public
interests of that state. Mettala, supra note 71, at 233; see also Underhill v. Hernandez,
168 U.S. 250 (1897).
148. The United States has eliminated the Act of State defense in actions to enforce
arbitration agreements. See 9 U.S.C. § 15 (1994) (Federal Arbitration Act). Whether or
not arbitrators even have the power to decide if a contract is an exchange contract under
Article VIII(2)(b) is debatable. Compare Wegen, supra note 6, at 1937 (“there [is] . . .
debate on this issue”), and William Park, Arbitration in Banking and Finance, 17 ANN.
REV. BANKING L. 213, 254 (“National courts might refuse to enforce arbitration
agreements implicating exchange controls, on the ground that the subject matter is ‘not
capable of settlement by arbitration’ under the New York Convention.”), with
Sandrock, supra note 141, at 939 (“It is clear, therefore, from the purposes of article
VIII, section 2(b), that the rules enshrined in it not only have to be followed by the state
courts of Member States, but also by arbitral tribunals sitting within their territories.”).
149. Mettala, supra note 71, at 242.
150. Id. at 243-45; see Allen v. Lloyd’s of London, 94 F.3d 923, 928 (4th Cir. 1996).
Choice of forum and law provisions may be found unreasonable if (1) their formation
was induced by fraud or overreaching; (2) the complaining party ‘will for all practical
purposes be deprived of his day in court’ because of the grave inconvenience or
unfairness of the selected forum; (3) the fundamental unfairness of the chosen law
may deprive the plaintiff of a remedy; or (4) their enforcement would contravene a
strong public policy of the forum state.
provision.151 The court may require a reasonable nexus between the
contract’s subject and the jurisdiction chosen.152 For this reason, New
York is again the jurisdiction of choice.
New York law allows parties to a contract to agree that its laws will
govern their rights and duties, whether or not the contract bears any
reasonable relationship to New York.153 Since New York jurisprudence
is highly developed, choosing New York law provides greater
predictability in litigation outcomes.154 New York’s narrow
interpretation of exchange contracts is of great importance.155 Parties to
a contract, where New York law has been chosen, would be more certain
of what constitutes an exchange contract.
Parties should also expressly decide upon the forum where disputes
shall be heard. The interplay between governing law and choice of
forum should not be underestimated. The choice of governing law made
by the parties may very well be affected by the choice of forum.156
Procedural rules are determined by the lex fori.157 Accordingly, a
foreign court could forseeably view Article VIII(2)(b) as a procedural
rule and decline to apply New York’s substantive rule concerning the
article. As courts prefer applying domestic laws, instead of foreign
laws, it is highly recommended for parties to chosen a forum that
matches their governing law choice.158
Courts also may restrict the scope of a forum selection clause by
viewing it as a nonexclusive consent to jurisdiction,159 which would
allow the court to impose its jurisdiction even in light of a contractual
provision.160 Parties should explicitly state in the contract that the forum
selected is the exclusive, mandatory forum for all disputed matters
concerning the contract. Since this choice of law provision still cannot
151. See generally Allen, 94 F.3d 923; Lipcon v. Underwriters at Lloyd’s, London,
148 F.3d 1285 (11th Cir. 1998).
152. Mettala, supra note 71, at 243-45.
153. See N.Y. GEN. OBLIG. LAW. § 5-1401 (McKinney 2001).
154. Mettala, supra note 71, at 242.
155. See supra note 91 and accompanying text.
156. Mettala, supra note 71, at 237.
157. “The law of the forum.” Id.
158. Id. at 238. Sometimes, however, a lender is given no choice in the matter, as
legislation in the borrower’s country requires the choice of law to be the borrower’s
country. Id. at 243.
159. See Park, supra note 7, at 229.
Article VIII(2)(b) is often overlooked in financing arrangements.
This Note attempts to show how this diminutive IMF article, if not
treated with its deserved respect, has the potential to destroy financing
contracts, especially in these times of global economic uncertainty. The
prospect of a massive surge in the price of oil, and its corresponding
effects on developing countries, is all the more reason why the IMF and
individual contracting parties must take heed of this article.
An IMF amendment to clarify Article VIII(2)(b) is clearly the best
option, and would eliminate all ambiguity (not to mention saving time,
money, opportunity costs, and judicial resources), although this seems
unlikely in the near future. Similarly, an interpretation by the IMF,
although non-binding, would also serve to clarify. Alternatively, parties
should cautiously insert choice of law and uniformity provisions into
their financing contracts to remove some degree of uncertainty.
Although this option does not guarantee success, it is certainly better
than nothing at all. Article VIII(2)(b) should never be overlooked, but
rather given the attention it rightfully deserves.
13. See Libra Bank v. Banco Nacional de Costa Rica, 570 F. Supp . 870 , 897 (S.D.N .Y. 1983 ) (“The narrow view of 'exchange contracts' . . . is that they are contracts for the exchange of one currency against another or on means of payment against another. The broad view is that they are contracts involving monetary elements .”). It has been argued that any contract which, in any way, affects a country's exchange resources would fall into the “monetary elements” described in the broad interpretation . Id.
14. See infra Part II.
15. See infra Part IV.
16. See generally INTERNATIONAL ENERGY AGENCY , ANALYSIS OF THE IMPACT OF HIGH OIL PRICES ON THE GLOBAL ECONOMY ( 2005 ), available at http://www.iea.org/textbase/papers/2004/high_oil_prices.pdf [hereinafter IEA ARTICLE] ; Gwynne Dyer, The Oil Price, GLOBAL BUS . NETWORK, May 14 , 2004 , http://www.gbn.com/ArticleDisplayServlet.srv?aid= 27640 (“[I] t was soaring oil prices that triggered three of the past four global recessions . . . .”).
26. Neil King , Jr., Soaring Oil Prices Could Hit a Speed Bump, WALL ST . J., Nov . 13 , 2007 , at A1.
27. Id .
28. See Riva Froymovich, Dollar Fall Is Seen Continuing, WALL ST . J., Nov. 5 , 2007 , at C7 (euro rises to its lifetime high) . It should be noted that while the falling dollar has countless negative effects, it can also have various positive effects . See, e.g., Timothy Aeppel , Dollar Lifts Exporters, Blunting Housing Bust, WALL ST . J., Oct. 1 , 2007 , at A1; Tyler Cowen, The Dollar is Falling and That's Good News , N.Y. TIMES , Dec. 2 , 2007 (“ The low value of the dollar has proved more a benefit than a cost .”).
29. See , e.g., Jonathan Cheng, Flood of Money Strains Hong Kong's Dollar Peg, WALL ST . J., Nov. 1 , 2007 , at C1 (U.S. dollar has decreased nearly 20% against the euro in the past two years); Mark Gongloff, Unloved Dollar Might Just Win Favor Again, WALL ST . J., Nov . 14 , 2007 , at C1 (U.S. dollar has tumbled 44% against the euro since 2002 ) ; Riva Froymovich, Dollar Drops Further vs. Euro on Rate Cut, WALL ST . J., Nov. 1 , 2007 , at C6 (U.S. dollar dropped to its seventh straight low against the euro and the Canadian dollar is trading at its modern-day high against the U.S. dollar ).
30. See Joanna Slater & Riva Froymovich, Dollar Hits Two-Year Low vs. Yen, WALL ST . J., Nov . 13 , 2007 , at C2 (noting that one U.S. dollar buys 109.67 yen, a 7.2% decline from a year ago).
31. See Joanna Slater & Douglas Belkin, Loonie's Rise Yields Splitting Pain for Canada, WALL ST . J., Nov . 12 , 2007 , at C1 (noting that one Canadian dollar buys more than $1.10 in U.S. currency, a 24% decline since the start of 2007 ).
32. See Joanna Slater & Craig Karmin, Markets Tumble as Dollar's Fall Adds to Anxiety, WALL ST . J., Nov. 8 , 2007 , at C20.
33. The relative lack of new exchange controls implemented as a result of the 1973 crisis can be explained by the fact developing countries' economies now depend on oil far more than they did in 1973 . See IAE ARTICLE, supra note 16 , at 2.
34. See CBC News , The Price of Oil: Marching to $ 100 ?, July 18, 2007 , http://www.cbc.ca/news/background/oil.
35. See id. Another possible reason for the increase in the price of oil and the subsequent recession was the decision by the United States (and Britain) to pull out of the Bretton Woods Accord, which took the U.S. off the Gold Standard . See David Hammes & Douglas Wills , Black Gold: The End of Bretton Woods and the Oil-Price Shocks of the 1970s , available at http://ssrn.com/abstract=388283. The result was a depreciation of the U.S. dollar as the U.S. increased its dollar reserves . Id.
36. See id.
37. See infra Part II.
38. See IAE ARTICLE , supra note 16, at 2.
39. OPEC countries supply about 40% of the world's oil demand . Neil King , Jr. & Ann Davis, Oil Falls to $ 91 as Data Suggest Demand Shift, WALL ST . J., Nov . 14 , 2007 , at A1.
40. For the sake of breadth and clarity, this Note only elaborates on a few of the many potential causes of a sudden spike in the price of oil.
41. See Jad Mouawad & Julia Werdigier, Warning on Impact of China and India Oil Demand , N.Y. TIMES , Nov. 7 , 2007 .
[The] International Energy Agency warn[s] that [the] demand for oil imports by China and India will almost quadruple by 2030 and could create a supply 'crunch' as soon as 2015 if oil producers do not step up production, energy efficiency fails to improve and demand from the two countries is not dampened . Id.
42. See id.
43. See Gordon Fairclough, In China, Chery Automobile Drives an Industry Shift, WALL ST . J., Dec. 4 , 2007 , at A1 (revealing that the number of automobiles in China has roughly doubled since 2004 ).
51. IAE ARTICLE , supra note 16, at 11.
52. See High Oil Prices Disastrous for Developing Countries , BIOPACT , Sept. 12 , 2007 [hereinafter High Oil Prices] (“High oil prices are outright disastrous for developing countries and [the effects] are already hitting them .”).
53. See Gilbert Brenes Camacho, Left Behind in the Economic Crisis: Poverty Among the Elderly in Costa Rica (Cal . Ctr. for Population Research, 2005 ), available at http://repositories.cdlib.org/ccpr/olcp/ccpr-cp- 003 -05/.
54. Id .
55. See id.; see also Libra Bank v . Banco Nacional de Costa Rica, 570 F. Supp . 870 , 897 (S.D.N .Y. 1983 ) (explaining how Costa Rica imposed exchange controls).
56. See High Oil Prices, supra note 52.
57. “ The African Development Bank (ADB) is a regional multilateral development finance institution established in 1964 and engaged in mobilizing resources towards the economic and social progress of its Regional Countries (RMCs). It is headquartered in Abidjan (Cote d'Ivoire) . ” African Development Bank , http://www.afdb.org/portal/page ?_pageid= 473 , 968615 & _dad=portal&_schema=PORTAL (last visited Jan . 27 , 2008 ).
58. See African Development Bank Group, Can Struggling African Economies Survive Escalating Oil Prices?, available at http://www.afdb.org/portal/page?_pageid= 473 , 1036251 & _dad=portal&_schema= PORTAL [hereinafter Struggling African Economies] .
59. See id. The effects of rising oil prices are by no means restricted to Africa . See, e.g., Oil Prices Hit Hard Asia's Poor, United Nations Development Programme (Oct. 25 , 2007 ), available at http://content.undp.org/go/newsroom/2007/october/soaring-oilprices -asia-20071025.en (Asian countries most vulnerable to high oil prices are Maldives, Cambodia, Sri Lanka, and to a lesser extent, Malaysia and Thailand).
60. See Struggling African Economies, supra note 58.
61. See id.
62. See , e.g., IAE ARTICLE, supra note 16 , at 12.
63. See S. Africa's Mboweni Frets on Oil as Fuel Costs Jump , REUTERS AFRICA, Dec. 1 , 2007 , available at http://africa.reuters.com/business/news/usnBAN131280.html (“High international oil prices are a major concern for central banks .”). South African Reserve Bank Governor Tito Mboweni is quoted as saying, “The key global challenge [Africa] face[s] is oil prices .” Id.
64. See id. ; Struggling African Economies, supra note 58.
65. See supra note 4 and accompanying text .
66. Keith Feiler , Strong Dollar, Weak Dollar, On Reserve: Federal Reserve Bank of Chicago, http://www.chicagofed.org/consumer_information/strong_dollar_weak_doll ar. cfm (last visited May 10 , 2008 ).
67. See Katharin C. Baragon , Project Finance, 18 TRANSNAT' L LAW 139 , 157 ( 2004 ).
68. Id . (“Fluctuations in the exchange rate of currencies in which project is trading and/or borrows . . . may negatively affect the cash flow of the project .”).
69. Cf . id. (“ Other interference[s] . . . may prevent the project from servicing its debt in the currency . . . .”).
70. See supra Part I.
71. See , e.g., Libra Bank v . Banco Nacional de Costa Rica, 570 F. Supp . 870 , 897 (S.D.N .Y. 1983 ) (providing a similar example where Costa Rica's central bank refused to let foreigners be paid in U.S. dollars pursuant to the newly enacted exchange controls) . In addition, the project agreement probably includes a concessionary agreement with the central bank of the Host Country whereby the foreign exchange goes directly through them, so the exchange would be impossible . See Peter K. Nevitt & Frank J. Fabozzi , PROJECT FINANCING 22-23 (7th ed. 2000 ); Kimmo Mettala, Governing-Law Clauses of Loan Agreements in International Project Financing, 20 INT'L LAW . 219 , 221 - 22 ( 1986 ).
72. See IMF Articles of Agreement, supra note 6, art. VIII(2)(b ).
73. See infra Part III.
74. See IMF Articles of Agreement, supra note 6, art. VIII(2)(b ).
75. Article VIII ( 2)(b) completely bars the enforcement of an illegal exchange contract in any IMF member state . Marks, supra note 10.
76. Marks , supra note 10, at 105.
77. Id .
78. Id . at 106.
79. See , e.g., Libra Bank v . Banco Nacional de Costa Rica, 570 F. Supp . 870 , 897 (S.D.N .Y. 1983 ).
80. Id .
81. Id . at 875. Previous high oil prices that led to a recession in the Costa Rican economy also contributed to the defaut . See Camacho, supra note 53.
82. Libra Bank, 570 F. Supp . at 875; see also Callejo v. Bancomer , 764 F.2d 1101 ( 5th Cir . 1985 ) (providing another common example of an exchange control) . In 1982 , Mexico, in response to a severe monetary crisis triggered by a decline in the worldwide price of oil, imposed an exchange control that limited the number of pesos that foreigners could remove from the country, and further mandated that all deposits in Mexican banks, regardless of denominations, were to be repaid in Mexican pesos at specified rates of exchange . Id. at 1106 . This had the effect of severely devaluing American investors' deposits . Id.
83. Libra Bank, 570 F. Supp . at 875.
84. See id. Some disagreement existed as to whether newly enacted exchange controls should be applied retroactively to executory contracts, or if the article should only apply to contracts which are unenforceable at their start . Id . at 900; see also supra note 6 and accompanying text .
85. Libra Bank, 570 F. Supp . at 896-97. “ Defendant contends that both the Untied States and Costa Rica are signatories of the Agreements, that each element of Article VIII, section 2(b) is present in this case, and that the loan agreement is unenforceable .” Id. at 897.
86. Libra Bank, 570 F. Supp . at 896-97.
87. Id .
88. Id . at 898 (quoting Banco Do Brasil , S.A. v. A.C. Israel Commodity Co. Inc., 190 N.E.2d 235 , 236 (N.Y . 1963 )).
89. Id . at 900.
90. See id.
91. See , e.g., Banco Do Brasil, S.A. v. A.C. Israel Commodity Co. Inc., 190 N.E. 2d 235 (N.Y . 1963 ) (endorsing a narrow view of an exchange contract); J. Zeevi & Sons, Ltd. v. Grindlays Bank (Uganda), Ltd., 333 N.E. 2d 168 (N.Y . 1975 ) (letter of credit is not an exchange contract ).
92. See Wegen, supra note 6 , at 1937- 38 .
93. See generally Werner F. Ebke , Article VIII , Section 2(b ): International Monetary Cooperation, and the Courts, 23 INT'L LAW 677 , 691 - 92 ( 1989 ) [hereinafter Ebke , Article VIII ].
94. Ralph Folsom , Exchange Contracts under Article VIII, 2(b ), 2 INTBUSTRAN § 31 .27 (2d ed. 2007 ).
95. Id .; see also Marks, supra note 10 , at 107 (“[L] ocal bias in favor of creditors in the United States and the United Kingdom . . . may better explain the international divergence in judicial interpretations . . . .”).
96. See , e.g., Lessinger v . Mirau, I.L.R. 725 ( 1975 ) (German court decision adopting a broad view of an exchange contract which includes loan agreements). Courts in the United Kingdom have traditionally viewed Article VIII(2)(b) similarly to U.S. courts-narrowly . See Marks, supra note 10 , at 107.
97. See Marks, supra note 10 , at 107.
98. Wegen , supra note 6, at 1937- 38 .
99. Id .
100. Id .
101. See Werner F. Ebke , Sir Joseph Gold and the International Law of Exchange Controls, 35 INT'L LAW . 1475 , 1479 ( 2001 ) [hereinafter Ebke, Exchange Controls]. He postulates that since the intent of the article was to assist poorer nations, it follows that a broad interpretation should be recognized . Id.; see also J. Gold, The Fund Agreement in the Courts: Volume II 425 ( 1982 ).
102. Ebke , Exchange Controls, supra note 101 , at 1479.
103. See id. at 1484.
104. Id .
105. See Bundesgerichtshof [BGH] [ Federal Court of Justice] Nov. 8 , 1993 , 39 Recht Der Internationalen Wirtschaft [RIW] 151 (F.R.G) ( 1994 ); Bundesgerichtshof [BGH] [Federal Court of Justice] Feb. 22 , 1994 , 39 Recht Der Internationalen Wirtschaft [RIW] 327 (F.R.G) ( 1994 ); Bundesgerichtshof [BGH] [Federal Court of Justice] Jan. 28 , 1997 , 42 Recht Der Internationalen Wirtschaft [RIW] 426 (F.R.G) ( 1997 ). For a further analysis of two of these decisions see Werner Ebke , Article VIII , Section 2(b) of the IMF Articles of Agreement and International Capital Transfers: Perspectives from the German Supreme Court, 28 INT'L LAW . 761 ( 1994 ).
106. See Ebke , Exchange Controls, supra note 101 , at 1484.
107. Current transactions are defined by IMF Article XXX(d): Payments for current transactions means payments which are not for the purpose of transferring capital, and includes, without limitation: (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 (4) moderate remittances for family expenses . IMF Articles of Agreement, supra note 6 , art. XXX(d).
115. IMF Articles of Agreement, supra note 6, art. XXVIII(a) (“When three-fifths of the members, having eighty-five percent of the total voting power, have accepted the proposed amendment, the Fund shall certify the fact by a formal communication addressed to all members.”). Currently the United States, which has over fifteen percent of the vote, wields a de facto veto . See Richard Euliss, Note, The Feasiblity of the IMF's Sovereign Debt Restructuring Mechanism: An Alternative Statutory Approach to Mollify American Reservation, 19 AM. U. INT'L L. REV . 107 ( 2003 ).
116. See Sean Hagain, Designing a Legal Framework to Restructure Sovereign Debt, 36 GEO . J. INT'L L . 299 , 344 ( 2005 ).
117. International Monetary Fund, IMF Members' Quotas and Voting Power, and IMF Board of Governors, http://www.imf.org/external/np/sec/memdir/members.htm [hereinafter IMF Voting Power].
118. While I do not express a personal opinion on which interpretation of the article should be adopted, it seems more likely that a majority of IMF Member States would support the narrow interpretation. Hence, I support the narrow interpretation solely based on the greater likelihood that it would be officially adopted by the IMF .
119. Since there are 185 Member States, and three-fifths need to vote in favor of such an amendment, 108 Member States is the minimum number needed to pass an amendment . See IMF Voting Power, supra note 117.
120. Scott , supra note 22, at 135.