The IMF and its shifting mandate towards capital movements and capital controls: a legal perspective

Abstract:

The International Monetary Fund (IMF) in 2012 cautiously accepted that certain forms of capital controls might be ‘useful’ for ensuring financial stability and thus a legitimate tool to prevent or forestall crisis. Most commentary on the IMF’s new ‘Institutional View’ has focused on the extent to which the IMF shifted position on capital controls but left unaddressed the more systemic issue involving the IMF’s authority in overseeing, regulating and controlling capital movements. The IMF, however, is not specifically tasked with monitoring, regulating or interfering in capital movements. Despite the legal vacuum, the Fund has managed to slowly but steadily seize authority over capital movements in what can only be regarded as an expansion in mandate.

While academic commentary on the IMF’s role over capital movements is plentiful, legal literature on the Fund’s competence on these matters and the expansion in mandate is surprisingly scarce. This article adds a legal element to the literature by assessing to what extent the Fund’s unilateral and autonomous decision to expand its scope of operations is compatible with its constitutive instrument – the Articles of Agreement – and whether the Fund’s actions are in line with international legal doctrine applicable to international organizations.

The article concludes that while the current activities of the Fund go beyond its original operational framework, its decision to expand authority and scope of action is in line with the legal theory on the evolution of an international organization’s mandate and necessary in order to fulfil its role in the international financial system.