2.1. Defining MDB conditionality
7. The term “conditionality” is used here in the context of international development cooperation, although it could refer to any condition destined to ensure the execution of any contract.7 As the term originated in the context of World Bank Group and International Monetary Fund (hereinafter IMF) structural adjustment programs in the 1980s,8 conditionality has been particularly discussed within these institutions. However, conditionality is also applied by most other multilateral and bilateral Donors and in a multitude of different types of projects.9 In this context, the term can still have different meanings. Conditionality is sometimes understood in a wide sense, not confining itself to aid but extending also to international cooperation through commercial or political agreements.10 Conversely, conditionality is sometimes defined more narrowly, only relating to certain politically sensitive conditions in loan agreements.11
7 See for instance on conditionality in the World Bank, Philipp Dann, The Law of Development Cooperation, A Comparative Analysis of the World Bank, the EU and Germany (Cambridge, UK and New York, USA:
Cambridge University Press, 2013), pp. 263-283; Paul Mosley, Jane Harrigan and John Toye, Aid and Power, the World Bank and Policy-based Lending, Volume 1, Analysis and policy proposals (2nd Ed., London and New York: Routledge, 1995), p. 65.
8 See on that topic Celine Tan, “Regulation and Resource Dependency: The Legal and Political Aspects of Structural Adjustment programmes”, in D.D. Bradlow and D.B. Hunter (eds.), International Financial Institutions and International Law (The Netherlands: Kluwer Law International, 2010), pp. 168-197.
9 Sarah L. Babb, Bruce G. Carruthers, “Conditionality: Forms, Function, and History”, 4 Annual Review of Law and Social Science (2008), pp. 14-15.
10 Elena Fierro, The EU's Approach to Human Rights Conditionality in Practice (The Hague: Martinus Nijhoff Publishers, 2003) p. 95.
11 Dann, The Law of Development Cooperation, op. cit., p. 360; Rumu Sarkar, International Development Law: Rule of Law, Human Rights and Global Finance (Oxford: Oxford University Press, 2009), p. 444. Even the Bank has not provided a general definition of conditionality.However, it has defined its conditionality, for the purpose of selected instruments; for instance, for its Operational Policy on Development Policy Lending:
“The Bank determines which of the policy and institutional actions the country has agreed to take are critical for the implementation and expected results of the program supported by the development policy operation.
8. MDBs are international or regional organizations12 that provide financial and professional support, generally through loans, grants and technical cooperation for economic and social development activities in developing countries.13 Nowadays, there is little dispute about the fact that international organizations, such as the MDBs, possess international personality.
Indeed, international organizations are recognized as capable of having international rights and duties at least since the International Court of Justice14 (hereinafter ICJ) declared that the United Nations possessed objective international personality.15
9. The term “MDB” includes here three institutions of the five institutions of the World Bank Group, as well as five regional development banks. The former entails the International Bank for Reconstruction and Development (hereinafter IBRD), the International Development Association (hereinafter IDA) – together also referred to here as the World Bank – and the IFC. The latter encompasses the Asian Development Bank (hereinafter ADB), the African Development Bank (hereinafter AfDB), the European Bank for Reconstruction and Development (hereinafter EBRD), the European Investment Bank (hereinafter EIB) and the Inter-American Development Bank (hereinafter IADB).16 The MDBs play a critical role worldwide in international development cooperation, not only because they channel large amounts of official assistance but also because they are
The Bank makes the funds available to the borrower upon maintenance of an adequate macroeconomic policy framework, implementation of the overall program in a manner satisfactory to the Bank, and compliance with these critical program conditions”. World Bank, “Operational Manual – OP. 8.60 – Development Policy
Lending”, para. 13, available at:
https://policies.worldbank.org/sites/ppf3/PPFDocuments/090224b0822f7256.pdf. Elena McLean, Christina Schneider, “Limits of Informal Governance, The Scope of Conditionality in the World Bank”, Annual Meeting on the Political Economy of International Organizations, Princeton (2014), p. 3.
11 Fierro, The EU's Approach to Human Rights Conditionality in Practice, op. cit., p. 95.
12 The essential characteristics of an international organization are that it has permanent organs and a certain autonomy, so that it can be distinguished from its Members States, see Ingrid Detter, Law Making by International Organizations (Stockholm: P.A. Norstedt & Söners Förlag, 1965), pp. 19-23. See also José E.
Alvarez, International Organizations as Law-makers (New York: Oxford University Press, 2005), pp. 4-17.
13 World Bank, A Guide to the World Bank (3rd Ed., Washington DC: The International Bank for Reconstruction and Development / The World Bank, 2011), p. 99.
14 Reparation for the Injuries Suffered in the Service of the United Nations, Advisory Opinion, ICJ Rep. (1949), 179; the ICJ also specifies that the Members of the United Nations have created an entity possessing objective international personality and not merely personality recognized by them alone, Ibid., 185.
15 José E. Alvarez, “Governing the World: International Organizations as law-makers”, 31 Suffolk Transnational Law Review no. 3 (2007-2008), pp. 591, 592. The criteria of the international personality are:
the possession of international rights and duties, the capacity to create international rights and obligations and the capacity to bring an international claim, see Aron Broches, “International Legal Aspects of the Operations of the World Bank”, Recueil des cours 98 (1959), p. 305. See also Boisson de Chazournes, “Policy Guidance and Compliance”, op. cit., pp. 281-303, 323.
16 These are the institutions to which the term “MDBs” typically refers, see World Bank, A Guide to the World Bank, op. cit., p. 99. For the purpose of this research paper, the EIB has been added to this list due to its interesting construction as the European Union Bank and because it is the world’s largest multilateral lender, see European Investment Bank, “The EU Bank”, available at: http://www.eib.org/about/index.htm.
intimately involved in the assessment, planning, design and implementation of development cooperation.17 The dissertation focuses on the three abovementioned institutions of the World Bank Group’s conditionality.
10. In this dissertation, conditionality is defined as the regulations of each specific development cooperation relationship channeling Official Development Assistance18 (hereinafter ODA) or Other Official Flows,19 between Donors and Recipients, in internal documents of the Donors or legal documents defining the Recipient’s obligations but also the Donor’s obligations. Generally, these conditions are created and attached by the Donor.20 In this context, one can distinguish between legally binding conditions and non-binding conditions, arguing that only non-binding conditionality has direct financial implications, in the sense that a breach might lead to the interruption of disbursement and the repayment of funds.21 Conversely, when a condition is not in any way linked to disbursement, it is not legally binding. For instance, the Bank’s conditions on desirable actions with indicative benchmarks are not legally binding.22 However, one should note that the division between binding and non-binding conditions is in fact far from evident. First, conditions are sometimes considered binding by the Recipient although not by the Donor.
For example, benchmarks are often perceived by a Recipient’s policy makers as requirements for obtaining finance.23 Conditionality cannot be considered legally binding for the Recipient when it is only part of a Donor’s operational policies and not part of any
17 Sarkar, International Development Law, op. cit., p. 87.
18 ODA refers to grants or loans to Recipients on the OECD’s Development Assistance Committee’s list of ODA Recipients - see OECD, “DAC List of ODA Recipients”, available at:
http://www.oecd.org/development/aidstatistics/daclistofodarecipients.htm - and to multilateral agencies, which are: “(a) undertaken by the official sector; (b) with promotion of economic development and welfare as the main objective; (c) at concessional financial terms (if a loan, having a grant element of at least 25 percent)”, - see OECD, “DAC Glossary of Key Terms and Concepts”, available at:
http://www.oecd.org/dac/dac-glossary.htm -. For a detailed explanation, see Dann, The Law of Development Cooperation, op. cit., pp. 14-17 - including technical cooperation. Grants and loans for military purposes are excluded, as well as in general transfer payments to private individuals - see OECD “What is ODA?” (April 2018), available at: https://www.oecd.org/dac/stats/34086975.pdf.
19 Other Official Flows are transactions by the official sector to Recipients on the DAC list of ODA Recipients, see OECD “DAC List of ODA Recipients”, which do not meet the abovementioned conditions for eligibility as ODA - OECD, “DAC Glossary of Key Terms and Concepts”.
20 Dann, The Law of Development Cooperation, op. cit., p. 360.
21 Stefan Koeberle, Harold Bedoya, Peter Silarsky, and Gero Verheyen (eds.), Conditionality Revisited:
Concepts, Experiences and Lessons (Washington DC: World Bank, 2005), p. 97.
22 World Bank, Operations Policy and Country Services, Review of World Bank Conditionality, Background Paper 7: Summary of External Consultations (Washington DC: World Bank, 2005), p. 13.
23 World Bank, Operations Policy and Country Services, Conditionality in Development Policy Lending (Washington DC: World Bank, 2005), pp. 92-93; see Andrew Mold, Policy Ownership and Aid Conditionality in the Light of the Financial Crisis: A Critical Review (OECD Development Centre, 2009), p. 36.
legal agreement signed by the Recipient; however, operational policies are often binding on the Donors. Secondly, some conditionality applies only post completion, as maintenance conditions. It is therefore impossible to directly link this post completion conditionality to disbursement, but its breach could lead to an obligation of reimbursement by the Recipient.
Furthermore, in an interesting twist, some conditions are not regarded as enforceable according to the Donor’s policies;24 however, the Donor may still retain the option to decide whether to exercise remedies in case of failure to comply, such as cancelling disbursements.25 Then, some conditions leave room for interpretation, for instance when phrased in generic terms. In this case, it is difficult to determine what constitutes a breach of conditions.26 Generally, the wording allows the Donor to interpret a contract, decide what constitutes a breach of conditionality and which measures to take. Finally, some conditions are simply not carried out, and with no impact on disbursements; therefore, they are non-binding in practice.27 In sum, in addition to the criteria of disbursement, there is a veritable
“spectrum” of conditions ranging between a binding and non-binding character, depending on a case-by-case basis on the understanding of the Donor, the understanding of the Recipient, the link to possible legal remedies of the Donor and reimbursement by the Recipient, as well as the interpretation of the wording of the condition and the actual practice.
11. Whether legally binding or not, conditionality is studied in this dissertation only if noncompliance can entail a consequence. These consequences in case of noncompliance by the Recipient will range from the Donor’s decision not to sign a loan agreement to a request that the Recipient reimburses the funds. In case of noncompliance by the Donor, the consequence can simply be a finding of noncompliance by the Donor’s accountability mechanisms.
2.2. Mapping conditionality in development assistance
24 See for instance World Bank, Operations Policy and Country Services, Legal Vice-Presidency, Review of World Bank Conditionality, Background Paper 2: Legal Aspects of Conditionality in Policy-Based Lending (Washington DC: World Bank, 2005), p. 12.
25 Ibid., pp. 14-15.
26 Christopher S. Adam, Jan Willem Gunning, “Redesigning the Aid Contract: Donor’s Use of Performance Indicators in Uganda”, 30 World Development no. 12 (2002), pp. 2047, 2054-2055.
27 Mosley, Harrigan, Toye, Aid and Power, op. cit., p. 67.
12. Conditionality is used in most types of development assistance, from specific project funding to general program assistance.28 It can have different subject matter such as repayment, procurement, politics, governance, economics, environmental or social matters, etc.29 Many conditions are written specifically for one contract, constituting tailor-made conditions. Other conditions are reused more or less verbatim in all contracts of one Donor (“boilerplate”30 conditions). For example, some Donors always include a condition that prohibits the Recipient from participating in certain activities, such as the tobacco trade.
The dissertation concentrates on the Bank’s conditionality for environmental and social matters.
13. Conditionality applies to different periods of the life of the contract (before the first disbursement, between disbursements, after the completion of the project). On the one hand, selectivity conditionality (or “ex post” conditionality)31 defines the eligibility of a Recipient for funding: it sets a prerequisite of performance in terms, for instance, of growth, poverty reduction, control of corruption,32 public spending or human rights33 that shall be achieved by the Recipient before being considered eligible. A selectivity condition can constitute a
“condition precedent” in general contract law, defined as “one that is to be performed before the agreement becomes effective, and which calls for the happening of some event or the performance of some act after the terms of the contract have been arrested on, before the
28 See, on the rise of conditionality in World Bank lending, see Axel Dreher, A public choice perspective of IMF and World Bank lending and conditionality, 119 Public Choice (2004), pp. 445-446, 449-452. One reason for the increase of conditionality in the Bank may be that influential shareholders do not receive loans themselves anymore since 1976, thus they are less likely to fight the increase of conditionality (Ibid., p. 450).
On its subsequent decrease since the beginning of the last decade, see Diego Hernandez, Are “New” Donors Challenging World Bank Conditionality, AidData Working Paper no. 19 (January 2016), pp. 6, 17-18.
29 See for instance Babb, Carruthers, “Conditionality: Forms, Function, and History”, op. cit., pp. 15-16; on political conditionality, see Nadia Molenaers, Sebastian Dellepiane, Jorg Faust, “Political Conditionality and Foreign Aid”, 75 World Development (2015), pp. 2-12; on a case study of why certain Donors choose certain types of conditionality, see Damiano de Felice, “Diverging Visions on Political Conditionality: The Role of Domestic Politics and International Socialization in French and British Aid”, 75 World Development (2015), pp. 26-45.
30 Joseph E. Stiglitz, Globalization and its discontents (New York, London: W.W. Norton, 2003), p. 47.
31 Stefan Koeberle, “Conditionality: Under what Conditions”, in S. Koeberle, H. Bedoya, P. Silarsky, and G.
Verheyen (eds.), Conditionality Revisited: Concepts, Experiences and Lessons (Washington DC: World Bank, 2005), pp. 67-78; Paul Collier, “Is Aid Oil? An analysis of whether Africa can absorb more aid”, World 34 Development no. 9 (2006), pp. 1489-1492. Some authors use the terms ex post / ex ante differently, see Dann, The Law of Development Cooperation, op. cit., pp. 358, 360-361, 375. The terms vary in the literature. The wording “selectivity conditionality” and “performance conditionality” are chosen in this dissertation for the sake of clarity.
32 Mohammad In’airat, “Aid allocation, selectivity, and the quality of governance”, 19 Journal of Economics, Finance and Administrative Science (2014), p. 67.
33 Mold, Policy Ownership, op. cit., p. 20.
contract shall be binding on the parties”.34 On the other hand, performance conditionality (or “ex ante” conditionality) determines what the Recipient is to do in exchange for the Donor’s funding: the condition has to be performed before, at the same time or after the Recipient receives funding, but, in any case, after the Recipient is considered eligible and the loan agreement signed. Therefore, performance conditionality is sometimes called
“ultimatum” conditionality,35 because of the threat of freezing the funding if the condition is not met. Performance conditionality can qualify under general contract law as a
“condition subsequent”, defined as “a provision giving one party the right to divest himself of liability and obligation to perform further if the other party fails to meet the condition”.36 14. Conditionality can be found in different documents; selectivity conditionality generally figures in the Donor’s internal documents, while, once the Recipient is deemed eligible and selected, conditions related to inter alia disbursements or post-completion are usually defined in a legal agreement between the Donor and the Recipient. For instance, the terms according to which any given grant or loan is granted by an MDB are respectively set forth in a grant or loan agreement between the Donor and the Recipient. The dissertation examines the World Bank Group’s environmental and social conditionality, both ex-post and ex-ante, originating from its internal policies, respectively the Operations Manual (IBRD and IDA) and the Performance Standards (IFC), and inserted then in its loan or grant agreements (collectively referred to here as loan agreements).
3. Methodology and strands of research