Globalization and Conditionality: Two Sides of the Sovereignty Coin

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