Cite as:  Patrick J. Donovan, Creeping Expropriation and MIGA:  The Need for Tighter Regulation in the Political Risk Insurance Market,  7 Gonz. J. Int'l L. (2003-04), available at http://www.gonzagajil.org/.

Creeping Expropriation and MIGA: The Need for Tighter Regulation in the Political Risk Insurance Market

By Patrick J. Donovan[1]

I.  Introduction

The Multilateral Investment Guarantee Agency ("MIGA") has played an essential role in the provision of political risk insurance during the fifteen years of its existence.  Since its birth in 1988, MIGA matured as an effective institution in assisting the developmental goals of lesser-developed countries by facilitating capital investment by developed nations into emerging economies.  This article examines the history of MIGA and contrasts its operations with those of national investment guarantee programs and private political risk insurance.

Expropriation, specifically indirect expropriation, is one of the primary non-commercial risks faced by investing entities when seeking to invest in developing economies.  The first section of this article examines MIGA's treatment and coverage of the expropriation risk with a critical eye towards its regulatory language.  The second section of this article seeks to provide an historical perspective.  First, it provides an overview of the beginnings of MIGA and its relationship with the World Bank.  It then examines the state of foreign direct investment in developing countries and the utilization of national investment guarantee schemes and private insurance to protect investments.  The section closes out with a description of MIGA membership, its benefits and operational function.

The third section of this article examines the types of coverage provided by MIGA, with a concentration on the expropriation risk coverage.  This is followed by a critical assessment of MIGA's regulatory language as it relates to the expropriation risk, postulating that it is too vague, and leaves wide latitude for interpretation, fostering confusion.  Finally, the paper concludes with a review of the compliments and criticisms of MIGA's regulatory framework and a recommendation for a further strengthening of that framework as MIGA continues to mature as an institution.

II. The Multilateral Investment Guarantee Agency: An Historical Perspective.

A. The Birth of MIGA and the World Bank

The idea of creating an international investment insurance organization was debated in international circles for many years prior to the institution of the Multilateral Investment Guarantee Agency in 1988.[2]  The creation of such an agency was discussed in many international fora, particularly the World Bank.[3]  However, the process encountered many obstacles, not the least of which was the objections of both developed and developing countries.  Lesser developed countries ("LDC") were suspicious of foreign direct investment[4] ("FDI") and there was a wave of nationalism rampant in developing countries, which resulted in the nationalization of a goodly number of corporate operations existent in the LDCs.[5]  During this time period, the World Bank was facing its own problems with LDCs.  Many thought the World Bank a surrogate for the interests of large multinational corporations and that any insurance agency would necessarily favor the concerns of investors.[6]

For developed countries, the concerns were different.  At the time, many developed countries were in the process of creating their own national investment insurance programs and resultant interest in an international scheme was scant.[7]  By the time MIGA was in its first full year of operation, there were twenty-three national investment insurance programs in effect and one regional program.[8]  National programs, while effective at fostering and protecting investment are limited by their very nature.[9]  Most national programs restrict availability of guarantees to corporations who are registered and have their principle place of business in that country.[10]  This inevitably would exclude a wholly owned subsidiary incorporated in that country, but whose parent corporation is registered and has its principle place of business in a foreign nation.  These and other constraints, which will be more fully analyzed in a later section, furthered the argument for a multilateral intergovernmental organization ("IGO") to augment the existing insurance guarantee landscape.[11]

At the time of MIGA's creation, the amount of foreign direct investment flowing to LDCs was approximately twenty-five percent of the total.[12]  At the beginning of the 1980's there was a decrease in investment outflows to developing countries and what did flow was concentrated in a few specific target markets.  For example, Brazil and Mexico accounted for 29.2 percent of total FDI capital flows to developing countries from 1980-1983.[13]  In that same time frame Singapore accounted for a staggering 38.8 percent of the FDI capital flows into developing countries in Asia.[14]  Moreover, these flows were generally concentrated in a few economic sectors such as manufacturing and extractive industries.[15]  The creation of MIGA envisioned expanding this restrictive pool of the beneficiaries of the capital investment flow.  The concern about the loss of FDI flows to developing countries and general declines in private commercial lending caused World Bank management to once again seek the establishment of an investment insurance agency under its sponsorship.[16]

On October 11, 1985, after formal approval by the Executive Directors of the World Bank, the Board of Governors adopted a resolution opening the MIGA Convention for signature.[17]  As previously stated, MIGA began operations in 1988.

In order to understand the necessity of MIGA and its benefits to both developed countries and LDCs it is essential to understand the need for foreign direct investment in developing countries.

B. Foreign Investment in Lesser Developed Countries.

1. The Benefits & Impediments to Investment.

Foreign Direct Investment (FDI) must be beneficial to both the host nation and the investing entity for it to be sustainable.  LDC's can gain much from FDI.  First of all investment in LDC's brings capital influx and new infrastructure and possibly new industries, which in turn expand and diversify the economic base of the host country.  Investments tend to bring in long-term financial commitments, an increase in the knowledge base of the host country, new technologies, job growth, and an increase in the capabilities of the host country's management and marketing efficiencies.[18]  Moreover, the addition of a commercially competitive manufacturer can bring competition to parastatels thereby increasing sector efficiencies.[19]  However, by the time MIGA was constituted, the primary capital flows in terms of FDI were from western industrialized countries to western industrialized countries. [20]  Flows into LDCs were approximately a quarter of those flowing from industrialized to industrialized countries.[21]

Indeed, foreign investment can stimulate developing economies and bring about greater stability.[22]  The investing entity examines the landscape of risk concentrating on both commercial and non-commercial risks.  In addition, the investing entity must weigh the benefits of FDI versus the benefits of trade.[23]  The cost of capital increases proportionally with the increase in risk.[24]  Manufacturing and service sector businesses have the luxury of calculating the risks with a critical eye, while extractive industries are forced to go to the resources.[25]  Nevertheless, investing entities will not risk capital and resources without incentive.  If it can be produced cheaper in the home country and exported there is no reason for the investment.  Many LDCs established incentive programs to attract foreign investment.  Incentives may include tax holidays, access to financing at under market rates and access to land at competitive prices.[26]

One of the primary reasons for foreign investment is the ability to decrease factor costs.[27]  Besides factor prices, a corporation seeks to decrease transaction costs.[28]  Transaction costs are examined in two distinct classes: 1) ex ante; and 2) ex post.  Ex ante are those cost related to the creation of the business enterprise.  This includes the costs of negotiating the undertaking, and those costs linked to obtaining any necessary government licenses or permits required to conduct operations.[29]  The ex post costs associated with FDI are those incurred after the initiation of the business enterprise and include the costs of "policing the original agreement and settling disputes."[30]

A multinational firm, when making an investment decision, will seek to either reduce risk or allocate risk in a manner to ensure the investment's success.  It was earlier noted the majority of FDI moves from western industrialized countries to other western industrialized countries.[31]  One of the primary reasons for this is that those countries have mature systems for the allocation, exchange and protection of property rights.  Mercantile law in industrialized countries provides for a system of rules, which allocate risk and protect and enforce property rights.[32]  Developed economies tend to have mature regulatory systems with institutions that tend to not act in an arbitrary manner.  Gray and Jarosz hypothesize:

An ambiguous or uncertain regime of contract enforcement subjects foreign investors to the risk of counter-party default in any transaction within the host country.  A foreign investor in manufacturing machinery, for example, bears the risk that host country suppliers may default on their agreements to supply basic inputs.  To reduce these transaction costs caused by an uncertain contracting regime, the foreign investor may attempt to organize hierarchically and integrate production backward to include basic inputs.[33]

In addition, developed economies tend to be devoid of widespread corruption, thereby lessening the risks faced in the business climate.[34]

The multinational firm must navigate both commercial and non-commercial risks when seeking to invest in LDCs.[35]  Non-commercial risks are commonly classified as political risks.[36]  The commercial risks faced primarily arise out of the local business environment and can include such things as "[t]he level of infrastructure development and the availability of capital, raw materials, skilled labor, local managerial talent all determine the type and levels of risk that investors will face."[37]  The investor will face commercial risks inherent in any economy, though they may be exacerbated by the lack of mature infrastructure found in developing economies.[38]  In mitigating commercial risk a firm will seek to rationalize factor prices in the hiring and discharge of its workforce, obtaining rights to real property, the protection of its intellectual property, and the repatriation of its profits.[39]

Political risks evolve out of government action and affect investment decisions in the target country.  These risks may include "vague lines of authority" in bureaucratic agencies that tend to delay or obfuscate the process of obtaining necessary licenses and permits.[40]  The legal institutions within the LDC may not be mature[41] and legal and regulatory schemes may lack transparency, and their application may be arbitrary.[42]  Another factor for consideration in the political environment is corruption.[43]  Laurentiis notes:

There are many forms of corruption but they all occur during the interaction between public officials and the private sector.  Clearly, corruption thrives whenever this interaction is subject to convoluted or obscure rules, and where substantial discretionary power is vested in individual officials, there is little accountability, no "checks and balances" are built into the system, and an inefficient or corrupt judiciary prevents enforcement of existing anti-bribery provisions.[44]

Beyond corruption, immature and arbitrary institutions, and other aforementioned political risks, one of the primary risks associated with overseas investment from the 1950s through the early 1980s was expropriation.[45]  Expropriation can be outright, such as in the nationalization of a factory or enterprise, or it can be "creeping."[46]  Creeping expropriation occurs when a governmental regulatory body changes property rights in the attempt to disrupt the enterprise to the point of non-functionality.  This may be accomplished through the raising of taxes or fees charged the enterprise, the stiffening of regulation, or the institution of non-tariff barriers.[47]

Both commercial and political risks affect investment decisions.  Economic and political instability may increase costs to the investors and resultantly reduce project revenues, which in turn could destroy a prospective investment.  MIGA was primarily set up to provide insurance to address political risks.  The four major areas of risk MIGA mitigates concern currency transfer (repatriation of profits), expropriation, war and civil strife, and breach of contract.[48]

2. National Investment Guarantee Schemes & Private Insurance

Since World War II, most major capital-exporting countries, the majority of which are western industrialized liberal democracies developed some sort of national investment insurance scheme.[49]  The Overseas Private Investment Corporation (OPIC), established in 1969, is the national insurance investment guarantee scheme of the United States.[50]  OPIC is a U.S. government agency, created as a self-sustaining entity, providing political risk insurance, project financing, and investor services to U.S. entities seeking to invest capital in foreign markets.[51]  The primary mission of OPIC is to:

[f]oster economic development in new and emerging markets; support U.S. foreign policy and create U.S. jobs by helping U.S. businesses to invest overseas; complement the private sector by managing risk with political risk insurance, providing financing through direct loans and loan guaranties, [and] working with private capital through OPIC-supported funds.[52]

By fulfilling its mission through its operations, OPIC serves its constituency well.  OPIC provides its services to U.S. entities in over 139 LDCs.[53]  Those services are in direct support of American investments and benefit American investors.  It was previously noted OPIC in conjunction with the Japanese Export Insurance Division, Ministry of International Trade and Industry, and Germany's Treuarbeit, account for in excess of eighty percent of national risk coverage in the market.[54]  Much like OPIC these institutions promote the foreign policy mandates of their respective governments.  While the investment guarantee schemes and the promotion of foreign direct investment may be different in structure they essentially provide similar types of services to national entities.[55]  In the United States, FDI promotion agencies tend to combine all functions of trade support in each institution while separating concentration on business activities by type.[56]  Conversely, their German counterparts tend to separate the financing functions such as insurance, loans, and loan guarantees, but not business functional activity.[57]

Most national programs are restricted and limited in what they can accomplish.  The restrictions are imposed by their sponsoring governments and may change as political parties hand over the reigns of power in elected democracies.[58]  Additionally, the coverage provided may differ from national scheme to national scheme.[59]  OPIC, for instance insures both new ventures and expansion of existing enterprises.[60]

The primary restriction of national investment insurance programs is the requirement that the entity seeking the insurance have a legal relationship with the home country.[61]  The eligibility of the investor is the first hurdle.  Rowat noted:

OPIC has imposed the most restrictive conditions.  It requires that U.S. citizens or corporations be the beneficial owners of a substantial share of "domestic" corporations, and that ninety-five percent of "foreign" corporations, defined as those incorporated or having principal offices outside the United States, be owned by U.S. nationals.  The German program (Treuarbeit) includes a German-domicile requirement.  As a result, an investment by a U.S. subsidiary of a German company may not be eligible for coverage under either the U.S. or German programs.  Similarly, Japanese companies incorporated in the United States are not eligible for Japanese coverage and U.S. companies that have been acquired by Japanese buyers are no longer eligible for OPIC coverage.[62]

It was previously stated over eighty percent of FDI political risk insurance from national programs emanate from Japan, Germany and the United States.  This statistic in and of itself connotes many corporations and business entities are effectively locked out of a large portion of the investment guarantee market.  Furthermore, as Rowat noted, eligibility requirements are based on nationality and are rather stringent.[63]  How then does this take into consideration modern realities of international business?  One need only look at trade press and national and international business periodicals and journals to see there are more and more partnering and joint venture considerations in the application of FDI internationally.  The national insurance arrangements would necessarily preclude a joint venture between Ford Motor Company and Volkswagen GmbH for the installation of an automobile manufacturing plant in South Africa from obtaining political risk insurance from their respective national programs.

Another factor to consider is the political aspect of national risk insurance programs.  OPIC has requirements concerning eligible host countries, which take into consideration that country's human rights record and protections accorded workers in the marketplace.[64]  OPIC states plainly on its website part of its mission is to support U.S. foreign policy and increase the competitiveness of U.S. businesses.[65]  The assistance in economic development the host country receives is a byproduct of the investment itself and not the primary function of the guarantee.  Governments utilize their agencies to promote and project their national and international policies.  Just recently there was speculation in the press concerning the delay in the finalization of the U.S.-Chile free trade agreement was due to Chile's general lack of support for the U.S. led coalition in the toppling of the totalitarian regime of Saddam Hussein in Iraq.[66]  By contrast, the same press reports noted Singapore's free trade agreement with the U.S. was right on track in part because of its support of the U.S. led coalition's efforts.[67]  While this example is not entirely on point, it does illustrate the possibility and perception that countries do use their economic power to further their foreign policy goals.

Besides national schemes, a business can venture into the marketplace to purchase private political risk insurance.[68]  By the early 1990s the market for private political risk insurance grew to somewhere between $200-350 million in annual premiums.[69]  The majority of this market was concentrated in the United States and the United Kingdom.[70]  The private political risk insurance market is only about thirty years old, finding its beginnings in the early 1970s when the United States Congress required the privatization of OPIC's underwriting activity.[71]

Private political risk insurance had many growing pains in its early years as the reality of the true marketplace revealed itself.[72]  During this period of contraction, the private insurance market shrank by close to forty percent as insurers began to realize the true nature of the market.[73]  It must be acknowledged the primary concern of private insurance is profit.  Private insurers utilize their business savvy and experience in deciding where to place their policies in guaranteeing political risk.[74]  They do not have their hands tied like the national programs where the investor only has to meet a certain mandated criteria to qualify for the guarantee.[75]  In essence, private insurance companies chose their customers with discretion toward profit.  Private insurers are more likely to provide political risk insurance to blue chip companies, better able to take and afford the risk, than small to mid-sized firms entering the international arena for the first time.

Beyond the national schemes and private political risk insurance, an investing entity may look to MIGA to obtain guarantees.  MIGA is an agency of the World Bank, with just over fifteen years of experience in the political risk insurance market.[76]  At its commencement, individuals such as Ibrahim Shihata, former World Bank General Counsel, and Srilal Perera, current Chief Counsel Operations at MIGA, argued in published works there was a market to serve, and in so serving, the developmental goals of LDCs could be fostered in a non-political environment.[77]  A few years later Malcolm Rowat stipulated there was a role to play for MIGA alongside national programs and the private insurance market.[78]  Since its inception, MIGA has grown and complemented both the private market and the national systems.[79]  MIGA provides its membership benefits through its operational functions; nevertheless there are portions of its Convention that lack the clarity they need to better serve its membership community.

3. MIGA Membership and Benefits: Operational Function.

MIGA membership is open to all standing members of the World Bank and Switzerland.[80] There are two categories of membership within MIGA and member countries are listed in Schedule A of the Convention Establishing the Multilateral Investment Guarantee Agency ("The Convention") and Commentary on the Convention.[81]  The benefits of membership stem from MIGA's objective to foster the influx of investments of industrious intention in developing countries and among its constituent states.[82]  Eligibility for MIGA coverage is determined by whether or not the investor is from a member state and thereby entitled to seek MIGA guarantees and whether the project and the host country meet guarantee requirements.[83]  The primary host country requirement is membership.[84]  Investment eligibility is outlined in Article 12 of The Convention.  The investment must be new and medium to long-term in duration.[85]  Additionally, the proposed investment must be adjudged by MIGA to be sound and contributory to the development prospects of the host nation.[86]  T. M. Ocran stipulated, "[t]he MIGA Convention provides a refreshing contrast by focusing exclusively on the developmental aspect of the projects in the appraisal process.  There is no attempt to combine the developmental aspects with the economic interests of the capital exporting country, such as export promotion and procurement of raw material."[87] 

Investor eligibility is delineated under Article 13.  The potential investor must be a natural or a juridical person of a member other than the host country.[88]  Nevertheless, there are rare cases outlined in The Convention where the investor may be from the host country as a measure of protecting the host country from capital flight.[89]  The pivotal portion of the provision controlling host country guarantee eligibility is that the host country investor must transfer the assets to be invested into the host country from abroad.[90]

Article 15 of The Convention provides the host country the opportunity to approve the investment prior to the issuance of any guarantee by MIGA.  This stipulation was placed in The Convention in recognition of the host country's sovereignty over the decision to allow FDI into its economic framework.[91]

The primary advantage MIGA has over either the private risk insurance market or the national political risk insurance systems is its mandate to be non-political.[92]  Moreover, MIGA reduces the chances of political confrontation between the investor's home country and the host country by being the guarantor of the investment.[93]  Within The Convention it directly states MIGA shall, "encourage the amicable settlement between investors and host countries."[94]  Furthermore, in describing the origins of MIGA, Shihata postulates that:

[f]rom the beginning, the MIGA initiative aimed at the creation of a synergism of cooperation between capital-exporting and capital-importing countries.  MIGA's operations, much as the discussions which led to agreement on the text of its Convention, are generally based on the consensus of both groups of countries.  As every conflict with a member country might weaken this consensus, it is natural that MIGA should try to avoid conflict and, when it arises, to facilitate its amicable settlement.  In fact, the MIGA Convention (Article 23(b)(i)) goes a step further and directs MIGA to encourage the amicable settlement of disputes between investors and host countries, as such disputes constitute the seeds of conflict between the agency and its capital importing members.[95]

MIGA has a unique position in that it is an Inter-Governmental Organization ("IGO") and may deal with problems or disputes outside the realm of disputes among nations.  Normally, a conflict between an investor and a host nation would be a dispute between two parties, expected to be settled under the rubric of the host nation's laws.  However, as previously discussed many of the host nations do not have mature and non-arbitrary legal infrastructures.[96]  If the home nation becomes involved, it becomes a diplomatic dispute.  Where MIGA has a clear advantage over national programs and private risk insurance in the settlement of disputes is the implication that it is working on behalf of its member states.[97]  This puts the persuasive power of the international community behind MIGA's efforts to quell and settle disputes between and among its membership.

Nobody would impugn the contention MIGA performs its mandated functions well in the developing world.  In 2002 alone, MIGA issued 58 guarantees worth between $1.2 and $1.3 billion facilitating an estimated total of FDI at $4.7 billion dollars.[98]  One need only take a cursory look at the business press to see MIGA's impact and reach.  Just this year, one can see reports of the effects of MIGA's efforts in Ethiopia in conjunction with a Coca-Cola investment in that country.[99]  Beyond the basic investment, any investing entity must look to political risk insurance as a means of arbitrage against an uncertain geo-political and global economic environment.  The dual threats of international terrorism and international economic instability make political risk insurance more attractive than ever to the international investing entity.[100]  The new international economic reality augurs for hedging against unforeseen risk.

III. MIGA Functions and the New Expropriation Problem.

A.   MIGA Coverage.

MIGA is entrusted with not only providing investment coverage, it is also tasked with promoting investments in developing countries and providing assistance to LDCs.  In its promotional role, MIGA is tasked to ". . . carry out research, undertake activities to promote investment flows and disseminate information on investment opportunities in developing member countries, with a view to improving the environment for foreign investment flows to such countries."[101]  These activities are important and enhance MIGA's currency among its constituency.  However, its guarantee program is the stimulus, which funnels new investment capital into LDCs.

This section will outline, briefly, the risk coverages in MIGA's offering, then present a more in-depth examination of the coverage provided specifically for expropriation.  Article 11 of The Convention provides the types of risks MIGA may guarantee to eligible investors against loss.  The first risk type articulated is currency transfer:

Any introduction attributable to the host government of restrictions on the transfer outside the host country of its currency into a freely usable currency or another currency acceptable to the holder of the guarantee, including a failure of the host government to act within a reasonable period of time on an application by such holder for such transfer.[102]

The language in The Convention is broad and intended to address both direct and indirect restrictions.[103]  Generally, the type of risk covered deals with the investing entity's ability to repatriate profits or the proceeds from the liquidation or sale of the investment's assets.[104]  The key here is the action against the investing entity must be taken by the host country or one of its institutional organs.[105]

The second risk type covered under the MIGA guarantee scheme is expropriation and similar measures.  It is defined as

[A]ny legislative action or administrative action or omission attributable to the host government which has the effect of depriving the holder of a guarantee of his ownership or control of, or a substantial benefit from, his investment, with the exception of non-discriminatory measures of general application which governments normally take for the purpose of regulating economic activity in their territories."[106]

The Convention covers both direct and indirect, or "creeping," expropriation.[107]  Those actions taken by the host government such as "nationalization, confiscation, sequestration, seizure, attachment and freezing of assets" are all covered under the expropriation risk. [108]  In addition, MIGA does not seek, in the Convention, "to prejudice the rights of a member country or of investors under bilateral treaties, other treaties and international law."[109]  For coverage from loss, MIGA pays net book value of the investment insured in the case of a total expropriation, pays the net book value of expropriated assets or the insured portion of funds taken where the expropriation is partial and concerns assets or funds, and insures remaining principal and accumulated and unpaid interest for loans and loan guarantees.[110]

The third type of risk covered under The Convention deals with breach of contract:

[A]ny repudiation or breach by the host government of a contract with the holder of a guarantee, when (a) the holder of a guarantee does not have recourse to a judicial or arbitral forum to determine the claim of repudiation or breach, or (b) a decision by such forum is not rendered within such reasonable period of time as shall be prescribed in the contracts of the guarantee pursuant to the Agency's regulations, or (c) such a decision cannot be enforced.[111]

Under this provision of the Convention, MIGA indemnifies the holder of the guarantee where no forum exists to pursue a claim for contract breach.[112]  This also covers unreasonable delay in access to an acceptable forum or the lack of enforceability of a judgment in favor of the investing entity.[113]

The final risk covered under the MIGA guarantee program concerns loss suffered due to war and civil disturbance, which includes "any military action or civil disturbance in any territory of the host country to which this Convention shall be applicable as provided in Article 66."[114]  This provision covers all nature of military conflict to include, "revolutions, insurrections, coups d'etat,"[115] however, acts of terrorism directed at the holder of the guarantee are covered elsewhere.[116]

B. The Problems with Expropriation Coverage in the MIGA Context.

Expropriation has been a major problem afflicting capital outflows from western industrialized democracies into LDCs.  Prior to 1985, U.S. firms experienced in excess of 2,000 expropriative acts resulting in a loss of almost twenty percent of all U.S. foreign direct investment.[117]  In the intervening years most forms of direct expropriation declined in rate of recurrence and changed to a large extent in character.[118]  Chifor notes, "[i]n the past two decades, indirect expropriation has supplanted direct takings as the dominant form of state interference with foreign investment, as host countries have learned that more value can be extracted from foreign enterprises through the more subtle instrument of regulatory control rather than outright seizures."[119]

In order to see how MIGA guarantees protect against both direct and indirect expropriation, one must first examine The Convention.  When examining The Convention one needs to first look at The Convention itself, then at the Commentary on the Convention to grasp the full measure of the provisions through the explanatory language.  Nonetheless, one must go beyond The Convention to its implementing regulations to obtain a clear understanding of the guarantees available to protect against the expropriation risk.[120]  In the Operational Regulations, the eligible risks existent under Article 11(a) provide for the covered causes of loss, additional criteria for covered causes of loss, takings by governmental regulation, and the scope of coverage provided for takings.[121]  Additionally, the section on risk assessment in the Operational Regulations defines the factors assessed relating to the project and the specific risks covered such as expropriation.[122]

The language of The Convention was iterated earlier thereby not necessitating further clarification.  On the other hand, the Commentary on the Convention provides clarification of the specific provisions of The Convention.  Section 14 of the Commentary comprises the explanatory notes on the expropriation risk.[123]  It first provides examples of actions considered to be expropriation such as, "nationalization, confiscation, sequestration, seizure, attachment and freezing of assets."[124]  It next analyzes the phrase in Article 11(a)(ii) "any legislative or administrative action" and stipulates it "includes measures by the executive, but not measures taken by judicial bodies in the exercise of their functions."[125]  This is further iterated in the Operational Regulations, Section 1.32, where it is noted "decisions of independent courts or arbitral tribunals" are not available for coverage in the case of expropriation risk.[126]  The language utilized in the Commentary and the Operational Regulations makes the assumption that the judiciary in any host country is a coequal branch of government along with the executive.  However, this may not always be the case in LDCs.[127]

The exclusion of judicial action in the Commentary does not take into consideration that in the governmental structure of certain LDCs, the judiciary may not be a coequal branch of government.  In instances where the judiciary is subservient to the executive, many times it would act on the executive's behalf through judicial function in a manner prejudicial to a single actor, which in-turn could be an investing entity.[128]  One cannot for a minute believe in Saddam Hussein's Iraq, or Robert Mugabe's Zimbabwe for that matter, the judiciary acted with any semblance of independence from the executive.  In Iran, the government is not even the final word in public policy, legislation, and judicial pronouncement.  That is left to hard-line clerics arbitrarily making pronouncements based on their interpretations of the Koran as it relates to law.  Under any of these examples there would be myriad possibilities for the use of the judiciary "in the exercise of their function" to engage in a taking, either directly or indirectly, in furtherance of the executive or an extra-governmental body.[129]

In moving on to an assessment of the Operational Regulations, one must first examine the section on "Covered Causes of Loss" for the risk of expropriation and similar measures.[130]  In Section 1.29 it is explicitly stated that the loss must stem from "measures attributable to the Host Government which have the effect of depriving the Guarantee Holder of his ownership or control of, or a substantial benefit from, his investment."[131]  A basic reading of this provision of the Regulations finds there are three elements in a taking: 1) an act attributable to the Host Government; 2) which results in a deprivation to the investor; 3) of the ownership, control, or substantial benefit of his investment.[132]  With these elements as the primary basis for determining a taking, an inspection of the additional criteria is fitting.

Section 1.32 of the Operational Regulations discusses both legislative and administrative actions.  The section states "[l]egislative actions by themselves may be covered only if the expropriatory or similar legislation requires no further legislation or regulation for its implementation."[133]  This language is somewhat confusing.  It seems the regulation intimates legislative action will only be covered when it is a sole expropriatory event devoid of further action by the legislature or a regulatory body in furtherance of the implementation of the expropriation.  Conversely, it could be read to indicate a legislative action may be covered when accomplished in consort with other actions, so long as those actions are neither secondary legislative or regulatory actions necessary for implementation of the expropriation.

When defining coverage relative to creeping expropriation,[134] the Operational Regulations stipulate "[c]overage may also be provided against a series of measures by the Host Government which in their combined effect are expropriatory even if each individual measure, taken alone, would appear to fall within the exception set forth in [Section] 1.36."[135]  The Operational Regulations of MIGA do not further define what constitutes an indirect taking.  Dolzer notes in his review of the general principles of the law surrounding expropriation:

[M]ethods and criteria . . . will often be needed for the decision of an individual case.  A review of justifications given in individual cases in the past reveals a certain resistance to explaining the reasoning which has led to the result; broad formulae and statements may appear in place of the more specific elaborations on the substance and contours of the takings doctrine than one might expect.[136]

It seems the Operational Regulations do not provide a set of methods or objective criteria for the determination of an indirect expropriation.  Such criteria are not found in the Convention, Commentary, Operational Regulations, or the General Conditions of Guarantee for Equity Investments.[137]  Two points should be defined in the regulations: 1) at what point does the expropriation begin; and 2) what is the definition of the "Host Government."  For the first point one must look to Section 1.29 of the Operating Regulations; however, the commencement of the deprivation is never clearly defined.[138]  Does the taking begin at the period where an investing entity receives notice of the taking, or would it be better classified where the first governmental action took place in the taking, such as the passage of legislation?  The time between the passing of legislation and the actual taking could be a long period.  Should that period be counted?  Also, in the period between the "official act" and the actual taking, the investing entity could be hemorrhaging cash flow due to the fact its suppliers and customers know its commercial viability is gravely in question.

The definition of "Host Government," is laid out in the "Definitions" portion of the Operational Regulations to mean "a member [of MIGA], its government, or any public authority of a member in whose territories, as defined in Article 66 of the Convention, an investment which has been guaranteed or reinsured, or is considered for guarantee or reinsurance, by the Agency is to be located."[139]  This would, of course include federal, provincial level and local level governmental entities, yet it does not seem clear if it would include parastatels.  While Section 1.34 does make the "Host Government" inclusive of "where it approves, authorizes, ratifies or directs the action or omission,"[140] the regulations still do not delineate the point where an entity is not considered governmental in nature.  In essence, the regulations concerning creeping expropriation do not provide an objective criterion by which MIGA judges when a series of events rises to the level of an indirect taking.  While it is understood an objective criteria is not a panacea for determination, it is a basic framework from which to provide a "case-by-case" analysis of an indirect taking to determine if it indeed warrants restitution since it meets the coverage requirements.[141]

Beyond the lack of specificity in outlining criteria and methodology in the Operational Regulations, where MIGA falls short is its general lack of definitions of terms-of-art used within its governing documents.  The Convention only has five definitions located in Article 3.[142]  In the Operational Guidelines, the definitions section comprises two pages and does not treat such terms as "expropriation, nationalization, confiscation, sequestration, seizure, attachment and freezing of assets."[143]  A detailed definition laying out criteria to judge the term by which MIGA could objectively make a determination if the event is covered would better serve the Agency, the investing entities seeking its products and services, and the host countries seeking the capital inflow.

IV. Conclusion

MIGA is an institutional entity in the younger stages of its existence.  No one would dispute the good works it accomplished to date, or will continue to accomplish in the coming years.  MIGA provides non-discriminatory access to both investor and host countries as long as they meet the eligibility criterion.  The products and services MIGA provides are non-political, which allows it to better service its developmental objective.

The expropriation regulations examined herein are only a microcosm of the totality of the implementing regulations of The Convention.  However the analysis of that portion can be expanded to the entirety of The Convention and the Operating Regulations.  The necessary specificity in the regulatory language of MIGA is not present to allow objective determinations to be made through the use of defined criterion with respect to the expropriation risks covered.  The regulatory framework with respect to indirect expropriation should be enhanced to provide more definitive procedures for the scope and coverage of the expropriation risk.  That being said, MIGA has been an excellent addition to the political risk insurance market.  As the institution continues to mature, moving beyond its initial fifteen years, it should seek to better define and expound on its regulatory process, and be willing to change regulations to meet the changing tide of the international economic and geo-political reality.

[1] Patrick J. Donovan is the Director, Import/Export Controls at Intelsat Global Service Corporation, Washington, D.C.  The author wishes to sincerely thank Mr. Srilal Perera for his encouragement and tutelage in the writing of this article.  Prior to joining Intelsat, Mr. Donovan served in a variety of international trade related positions at Lockheed Martin, Honeywell, and NASA.  In 1994, he was appointed by the Assistant Secretary of State for Political-Military Affairs to serve on the Defense Trade Advisory Group, a statutory advisory body to the Department of State, which advises on matters of international trade with an emphasis on national security.  Mr. Donovan received his Juris Doctor from the Washington College of Law at The American University and is licensed and admitted to practice in the State of New York.  The opinions expressed in this article are solely those of the author and do not represent the views of the Intelsat Global Service Corporation.

[2] See Malcolm D. Rowat, Multilateral Approaches to Improving the Investment Climate of Developing Countries: The Cases of ICSID and MIGA, 33 Harv. Int'l L.J. 103, 126-27 (1992)(noting MIGA came into existence with the ratifications of its convention by the United States and the United Kingdom on April 12, 1988).

[3] See Ibrahim F. I. Shihata, The World Bank in a Changing World: Selected Essays (Franziska Tschofen & Antonio R. Parra, eds., 1991) p.271-73 (stating discussions began in earnest in the late 1950's and continued on through the 1970's and outlining the hurdles encountered getting to the point of commencing MIGA).

[4] See Todd S. Shenkin, Trade Related Investment Measures in Bilateral Investment Treaties and The GATT: Moving Toward a Multilateral Investment Treaty, 55 U. Pitt. L. Rev. 541, 567 (1994)(defining foreign direct investments as "the flow of capital, technology and personnel abroad into ventures or joint ventures that mutually benefit the foreign investor and the host country").

[5] See id., at 574, n. 194 (citing the example of the nationalization of United States investments in Mexico in the 1930's which gave rise to the "Hull formula" of just compensation.); see also Srilal Mohan Perera, Techniques in Protecting Foreign Investments Against Political Risk (University Microfilms International, 1986)(arguing in his doctoral dissertation that nationalism was a primary consideration for why the World Bank was not able to get MIGA instituted sooner).  (Mr. Perera's dissertation is available at the Library of Congress and the main campus library of Georgetown University).  Perera goes on to note:

Proposals for multilateral investments came at a time when the call for nationalism was at its zenith.  Newly independent countries sought increasingly to control their own natural resources and at a minimum sought to shift the bargaining power away from large oil and ore producing corporations that were dominating the natural resource areas.

See generally Don Wallace, Jr. & David B. Bailey, Exceptions and Conditions: The Inevitability of the National Treatment of Foreign Direct Investment with Increasingly Few and Narrow Exceptions, 31 Cornell Int'l L.J. 615, 616 (1998).  Wallace and Bailey note historically that:

[I]n the post World War II era, the initial concern was investment protection against expropriation, followed later by the desire of lesser-developed countries (LDCs) to create a "new international economic order" to replace the Brentton Woods System.  LDCs wanted this new international economic order to include codes (the negotiation of which some thought would give rise to "soft law") that would control multinational corporations (MNCs) and their practices and have a general redistributive effect.

[6] See Perera supra note 5, at 351-52 (describing the international political environment surrounding the two decades leading up to the creation of MIGA).

[7] See Shihata supra note 3, at 272.  The United States adopted a national scheme in 1948 in its efforts to help rebuild Western Europe after the devastation of World War II.  In addition to Overseas Private Investment Corporation ("OPIC"), two of the larger national investment insurance agencies are the Export Insurance Division, Ministry of International Trade and Industry (EID/MITI) of Japan, and Treuarbeit of Germany.  In the early 1990's these three organizations represented in excess of eighty (80) percent all outstanding national insurance coverage.  See Rowat supra note 1, at 119.

[8] See Shihata supra note 3, at 279 (examining existing programs of investment guarantee during MIGA's gestation period).  The regional program mentioned is the Inter-Arab Investment Guarantee Program.  See id.

[9] See Rowat supra note 2, at 120.

[10] See Rowat supra note 2, at 119-26 (discussing national guarantee insurance schemes).

[11] See Paul E. Comeaux and N. Stephen Kinsella, Reducing Political Risk in Developing Countries: Bilateral Investment Treaties, Stabilization Clauses, and MIGA & OPIC Investment Insurance, 15 N.Y.L. Sch. J. Int'l & Comp. L. 1, 40 (1994)(discussing the fact that national insurance schemes, due to their national purpose, are extremely restrictive in their eligibility requirements, and in many cases have limited funding).

[12] See Shihata supra note 3, at 274-75 (discussing the economic landscape surrounding FDI outflows).

[13] See id. at 274-75, n.11.

[14] See id.

[15] See Shihata supra note 3, at 274-74, n.12.

[16] See Ibrahim F. I. Shihata, The Settlement of Disputes Regarding Foreign Investment: The Role of the World Bank, with Particular Reference to ICSID and MIGA, 1 Am. U. J. Int'l L. & Pol'y 97, 107-08, n.47 (describing the incubation of MIGA through the auspices of the World Bank's management and with the assistance of experts from member governments); see also World Bank, 1985 World Development Report ch 9 (1985).

[17] See id., at 107.  Shihata further iterates, "[t]he MIGA Convention will enter into force upon its ratification by five capital-exporting and fifteen capital-importing countries, provided that the total subscriptions of these countries amount to at least one-third of MIGA's authorized capital, or approximately $360 million."  See id. 

[18] See Perera supra note 5, at 316 quoting Organization for Economic Cooperation and Development, Investing in Developing Countries, OECD, Paris, 1983, at 7 (describing the trends in foreign direct investment with an emphasis on the benefits garnered by developing nations).  Perera postulates that in realizing the benefits of FDI and further encouraging it, LDCs ". . . are able to explore and exploit profitably their natural and human resource bases." Id.

[19] See Michael A. Geist, Toward a General Agreement on the Regulation of Foreign Direct Investment, 26 Law & Pol'y Int'l Bus. 673, 679 (analyzing the benefits brought to the host state through FDI and postulating that the competition created by bringing in a multinational can "raise the overall performance of competing firms within a domestic market").

[20] See Perera supra note 5, at 317 (describing the ". . . flows of direct foreign investment from DAC countries to developing countries").

[21] See id.

[22] See Cheryl W. Gray and William W. Jarosz, Law and the Regulation of Foreign Direct Investment: The Experience from Central and Eastern Europe, 33 Colum. J. Transnat'l L. 1 (1995)(noting legal rules play an important role in the decision of investors to place their money in a developing state, and further examining the effects of regulatory schemes that influence the business climate on an investors decision to commit capital and resources for the long term).

[23] See Geist supra note 19, at 673 (stating "FDI growth far outpaced trade growth throughout the 1980s, with trade increasing at a compound rate of five percent annually compared to twenty percent annually for FDI").

[24] See David Blumental, Sources of Funds and Risk Management for International Energy Projects, 16 Berkeley J. Int'l L. 267, 271-72 (1998)(probing the relationship between risk and funding as it relates to a lender's adversity for risk and the need to mitigate such risk).

[25] See Perera supra note 5, at 330 (arguing certain industries are predisposed to foreign investment due to the fact it may be indispensable for the continued viability of the corporation).

[26] See Geist supra note 19, at 679 (arguing conversely ". . . recent studies have cast doubt on the effectiveness of such incentives, particularly where disincentives, such as complex regulatory frameworks, are also in place").  Geist quotes from an OECD publication, which states disincentives more greatly affect the investment decision due to the ability of a disincentive to color the investor's perception of the overall business climate.  Consequently, the purging of disincentives has the greater affect on the investment decision because it lessens the transaction cost associated with the investment.)  See id. at 679-80.

[27] See Gray & Jarosz supra note 22, at 11-12 (defining factor prices as ". . . the price of capital, labor, or technology and can be positively or negatively affected by the background rules embedded in the legal system").

[28] See id. (defining transaction costs as the costs of doing the deal and the costs of enforcing the deal).

[29] See Gray & Jarosz supra note 22, at 12 (explaining transaction cost as they relate to FDI and extrapolating where the host country's "legal system requires a procedure of registration and licensing for foreign investment, the costs of shepherding an investment through a tangle of government bureaucracy can be significant and can discourage firms from entering the market").

[30] Id. (elucidating the fact that countries with established legal systems with mechanisms for the enforcement of contracts and discouraging "opportunistic behavior" will necessarily lower ex post transaction costs).

[31] See generally Geist supra note 19; see also Andrew T. Guzman, Why LDCs Sign Treaties that Hurt Them: Explaining the Popularity of Bilateral Investment Treaties, 38 Va. J. Int'l L. 639, 640, (stating foreign investment flows are increasing).  Furthermore:

[b]etween 1986 and 1990, total world FDI flows increased from $88 billion dollars to $234 billion, representing an average rate of increase of twenty-six percent in nominal terms and eighteen percent in real terms.  From 1980 to 1993, the stock of foreign investment increased at an average annual rate of eleven percent in real terms, reaching a total of $2.1 trillion in 1993.  A significant portion of FDI flows has been directed at developing countries: FDI flows to these countries grew from $13 billion in 1987 to $22.5 billion in 1989 to $90.3 billion in 1995.

See id. at 640-41.

[32] See Gray & Jarosz supra note 22, at 13 (relaying the portions of a legal structure seek to allocate risk in developed economies such as the creation of limited liability joint-stock corporations, and many areas of law to include contract, anti-trust, sales and secured transactions, bankruptcy, and torts).

[33] Id.

[34] See generally Ibrahim F.I. Shihata, Corruption - A General Review with an Emphasis on the Role of the World Bank, 15 Dick. J. Int'l L. 451 (providing a good primer on corruption and its effects on institutions and economies).

[35] See Blumental supra note 24, at 271 (explaining that the two major types of risks faced by a project in developing countries are commercial risk and political risk).

[36] See id.at 272.

[37] See id. at 271-72 (amplifying the challenges and risks a corporation faces when investing in an emerging economy).  The local business environment is where the majority of the commercial risk arises.  These risks inevitably generate difficulties for the investor, which in turn may increase project costs.  See id.

[38] See Blumental supra note 24, at 272 (defining commercial risks as being "those risks inherent in any business, distinct from the prevailing political climate").  Those risks may include factors, normally found in the business cycle, such as a drop in demand for the product or service, swings in prices for inputs, and loss of reliable suppliers, which all could lead to cost overruns.  See id.

[39] See Gray & Jarosz supra note 22, 11-25 (discussing the effect of legal rules on an investor's decision to place money in an emerging or developing economy).

[40] See Blumental supra note 22, at 272 (defining and providing examples of political risks faced by international energy projects when investing on LDCs).

[41] See Guzman supra note 31, at 660 (suggesting in order "[t]o understand foreign investment in developing countries, one must consider how the lack of a credible contracting mechanism affects the incentives of a government in its dealings with a particular investor").

[42] See id.

[43] See Enzo de Laurentiis, Institutional Strengthening of Public Sector Procurement, in Legal Aspects of Foreign Direct Investment 241, 244-48 (Daniel D. Bradlow & Alfred Excher, eds., 1999) (explaining the economic effects of public corruption in both developed countries and LDCs and how it weakens the reliability of state institutions and dissuades FDI); see also 3 Ibrahim F.I. Shihata, The World Bank in a Changing World, p. 277-95 (1999)(examining the possible role of the judiciary in stemming the tide of corruption in both developed and developing countries).  Shihata further extrapolates on the central role of the judiciary in providing a check and balance on the persons of the executive and other public officers, and fair and consistent application of the rule of law.  In this way the judiciary, if effective, becomes the vanguard in the "prevention and control of corruption," which includes placing a check on nepotism, addressing conflicts of interest and reducing abuses of power and violations of public trust.  See id. at 278-79.

[44] See de Laurentiis supra note 43, at 244 (internal citations omitted).

[45] See generally Perera supra note 5 at 14, and Blumental supra note 24 at 289 (defining expropriation as "the risk that the host government will seize and nationalize the project's property rights").

[46] See Wallace & Bailey supra note 5, at 626 (quoting Justice Holmes, in Pennsylvania Coal v. Mahon, 260 U.S. 393, 415 (1922), defining a regulatory taking or creeping expropriation as "the general rule at least is that while property may be regulated to a certain extent, if the regulation goes too far it will be recognized as a taking").

[47] See Sabine Schlemmer-Schulte, The World Bank Guidelines on the Treatment of Foreign Direct Investment, in Legal Aspects of Foreign Direct Investment (Daniel D. Bradlow & Alfred Escher, eds., 1999), 87, 99-100 (characterizing creeping expropriation as "such measures as excessive and repetitive tax or regulatory measures that have a de facto confiscatory effect in that their combined results deprive the investor in fact of his ownership, control or interests in the investment . . .").

[48] See Convention Establishing the Multilateral Investment Guarantee Agency and Commentary on the Convention, Washington DC, Oct. 11, 1985, art. 11, T.I.A.S. 12089, 1508 U.N.T.S. 99, 24 I.L.M. 1605 (hereinafter "The Convention") (denoting the risks covered by the convention), also available at http://www.miga.org/screens/about/convent/convent.htm.

[49] See Rowat supra note 1, at 119 (looking at national investment insurance schema predating MIGA).

[50] See Comeaux & Kinsella supra note 11, at 33 (providing the background for the establishment of OPIC).

[51] See id.

[52] See What is OPIC? available at http://www.opic.gov (explaining the basic mission and operation of OPIC providing a basic overview of OPIC projects and private investment overseas).

[53] See Comeaux & Kinsella supra note 11 (clarifying OPIC's goal as furthering "American overseas private investment in sound business projects, thereby improving U.S. global competitiveness, creating American jobs, and increasing U.S. exports").

[54] See Rowat supra note 1, at 119.

[55] See Winfried A. Adam, Germany, in Legal Aspects of Foreign Direct Investment 583, 594-95 (Daniel D. Bradlow & Alfred Escher, eds., 1999)(comparing German and American institutions for the promotion of FDI).

[56] See id.

[57] See id.

[58] See Rowat supra note 2, at 120 (noting that the inherent limitations of national political risk insurance programs "fostered the growth of a private insurance sector . . .").

[59] See id.

[60] See Comeaux & Kinsella supra note 11, at 34 (outlining the risks covered under OPIC sponsored insurance and the types of investments covered such as "equity investments, loans, technical assistance agreements, leases and other investment structures which subject the investor to long term exposure").

[61] See Rowat supra note 2, at 120.

[62] Rowat supra note 2, at 120-21.  See generally Comeaux & Kinsella supra note 11, at 36 (commenting on investor eligibility for OPIC coverage to be: "a U.S. citizen; a corporation, partnership, or other association created under the laws of the U.S., its states, or territories beneficially owned by U.S. citizens . . .").

[63] See Rowat supra note 2, at 120-21.

[64] See Rowat supra note 2, at 136 and accompanying footnote 71 (noting that OPIC, since 1987, had suspended its program in more than half-a-dozen countries due to shoddy human rights records).

[65] See What is OPIC? available at http://www.opic.gov (relating OPIC's mission); see generally Richard C. Schneider, Jr., Tax, Investment and Financing Issues in Projects in the U.S.S.R. and Eastern Europe, 549 PLI/Comm 235, 237-38 (1990) (describing the transition in the ExIm Bank at the time of the fall of communism in Eastern Europe, where the bank's enacting legislation prohibited "extending or issuing credit to any ‘Marxist-Leninist' country except in those cases when the President has made a determination that transactions between the ExImbank and any such ‘Marxist-Leninist' country were in the national interest").  Schnieder's article goes on to describe, in the wake of the communist fall in Eastern Europe, the setting up of programs through OPIC to encourage investment in the region's newly emerging democracies.  See id. at 239.

[66] See Roger Minton, U.S. Draws Sword of Trade Retribution, Straits Times (Sing.) Apr. 26, 2003 (arguing that U.S. foreign policy will differentiate between those who supported the coalition's efforts and those who obstructed them).

[67] See id.

[68] See Schneider supra note 65, at 242 (illustrating the types of coverage provided by private insurers to include "expropriatory acts, trade restrictions, deprivation of assets, terrorism, ethnic violence, loss of income and business interruption and interruptions or embargoes on the transfer of hard currency").

[69] See Rowat supra note 2, at 125.

[70] See id.

[71] See Maura B. Perry, A Model for Efficient Foreign Aid: The Case for Political Risk Insurance Activities of the Overseas Private Investment Corporation, 36 Va. J. Int'l L. 511, 532 (discussing the origins of the private market for political risk insurance and how it emerged out of Congresses mandate and the need to purchase reinsurance to protect the guarantees let); see also Rowat supra note 2, at 125 (describing the beginnings of the private political risk insurance market and noting the initial commercial concentration was a failure and more concentration needed to be given to OPIC's "developmental orientation" so as not to undermine its primary objective).

[72] See Perry supra note 71, at 532-33 (explaining the "shake-out" in the private political risk insurance market in its early days attributing it to the emerging debt crisis in the 1980s which highlighted the economic instability existent in LDCs).

[73] See id. (showing the example where "CIGNA was obliged to cancel a $900 million inconvertibility policy covering the bank's loan exposures in five developing countries when CIGNA engaged in a dispute with its treaty reinsurers").

[74] See Rowat supra note 2, at 125 (intimating private insurance providers ". . . apply only business judgments, these organizations have much greater freedom than national programs to choose what they will cover, particularly with respect to eligible investors and countries").

[75] See id.

[76] See The Convention supra  note 48, at arts. 1 & 2 (establishing MIGA and outlining its objective and purposes).

[77] See Shihata supra note 3, at 271-286 (republishing "a slightly edited version of a lecture delivered by the author at the Symposium on International Business 1985 - Problems and Solutions of Private Investors Abroad" where Shihata was discussing the creation of MIGA and defining what MIGA's role and relationship would be with respect to both the World Bank and established political risk insurance schema); see also Perera supra note 5, at 314-407 (postulating on the need for MIGA and noting its creation would complement and enhance the existing political risk insurance market of private and national program insurers).

[78] See Rowat supra note 2, at 120.

[79] See Multilateral Investment Guarantee Agency: World Bank Group, 2002 Annual Report, available at http://www-wds.worldbank.org/servlet (hereinafter "2002 Annual Report") at 29-56 (providing general descriptions of investment guarantees let in the past fiscal year by region).

[80] See The Convention supra  note 48, at art. 4(a) (outlining the requirements for membership in MIGA).

[81] See The Convention supra note 48, at art 39 (describing the two categories of states listed in schedule A of The Convention).

[82] See Shihata supra note 3, at 299-301 (clarifying the operational aspects of MIGA); Comeaux & Kinsella supra note 11, at 40 (describing MIGA's entry in to the political risk insurance market in 1988, noting one of its objectives was to encourage capital and technology inflows into LDCs and that MIGA was a good supplement to national insurance schema due to broader eligibility requirements).

[83] See Rowat supra note 2, at 128 (discussing the eligibility of investors and investments under the operation provisions of the Convention).

[84] See The Convention supra note 48, at art. 14 (defining eligible host countries as those states, and their territories which are ". . . of a developing member country").

[85] See The Convention supra note 48, at art. 12.  A reading of the Commentary on the Convention shows "[i]t is envisaged that the Agency will focus on guaranteeing investments eligible under Article 12(a), i.e., equity investment, different forms of direct investment, and medium-or long-term loans made or guaranteed by owners of equity in the enterprise concerned (so-called equity-type or sponsored loans)."  See The Multilateral Investment Guarantee Agency, Commentary on the Convention Establishing the Multilateral Investment Guarantee Agency, point 19 (1985) (hereinafter "Commentary").

[86] Article 12 of The Convention notes that beyond satisfying itself of the investment's soundness and contribution to the host country's development, MIGA must ensure the investment is not in violation of the host country's investment laws, consistent with the host country's "declared development objectives and priorities," and there are favorable investment conditions in the host country to include "fair and equitable treatment and legal protection for the investment."  See The Convention supra  note 48, at art. 12(d).

[87] See T.M. Ocran, International Investment Guarantee Agreements and Related Administrative Schemes, 10 U. Pa. J. Int'l Bus. L. 341, 368 (1988).

[88] See The Convention supra note 48, at art. 13(a).  Where the applicant is a juridical person it must be incorporated or have its principle place of business in a member country other than the host.  However, the investing party may have the situation where, "the majority of its capital is owned by a member or members or nationals thereof, provided that such member is not the host country . . . ."  See id.

[89] See The Convention supra note 48, at art. 13(c) (outlining the provisions for capital flight protection); Shihata supra note 16, at 108-10 (discussing the operational features of MIGA and noting the uniqueness of the capital flight provision in assisting host countries' efforts to reverse capital flight).

[90] See Shihata supra note 16, at 108-10.

[91] See id.

[92] See The Convention supra note 48, at arts. 1-4 (outlining the requirements for membership, which do not allow for discrimination from states as long they are members of the World Bank and Switzerland and the ability to receive guarantees is dependent not on any political agenda, rather on meeting the requirements for guarantee).

[93] See Shihata supra note 3, at 337-38 (noting MIGA has every incentive to avoid conflict and seek agreeable solutions to disputes among investors and host countries).

[94] The Convention supra note 48, at art 23(b)(i).

[95] Id. at 338.

[96] See Section II(B)(1) of this article (discussing the nature and maturity of institutions in LDCs).

[97] See Perera supra note 5, at 341-42 (following on a discussion of subrogation and the ability of an international institution to better handle the claim legally he states, "[w]hat is perhaps fundamental to this debate is that if the country fails to recognize subrogated claims, it runs not only the risk of negative reactions . . . from the world community including commercial banks").

[98] See 2002 Annual Report supra note 79, at "Fiscal Year 2002 Highlights", p. i, also available at http://www.miga.org/screens/pubs/annrep02/overview.htm, see also id. at 57-83 (providing the financial overview and statements for the preceding fiscal year).

[99] See Bottling Company Inaugurates Expansion Project, Addis Trib., Mar. 8, 2003 (recounting the efforts of MIGA and OPIC in relation to an investment effort by Coca-Cola SABCO).

[100] See John Minor, Mapping the New Political Risk, 50 Risk Mgmt 16, Mar. 2003, also available at http://www.rmmag.com (portraying the changing nature of political risk over the last twenty years and the volatility of the economic climate today with such threats as, "the economic meltdown in Argentina, ongoing political crisis in Venezuela, rising tensions between nuclear powers in South Asia, escalating violence in the Middle East and terrorist threats in South East Asia").

[101] The Convention supra note 48, at art. 23(a).

[102] The Convention supra note 48, at art. 11(a)(i).

[103] See Commentary supra note 85, at point 13 (describing the risks covered and generally laying out those elements that constitute a reasonable claim for currency inconvertibility).

[104] See Comeaux & Kinsella supra note 11, at 41 (defining currency inconvertibility and the types of actions covered under a MIGA guarantee).

[105] See Commentary supra note 85, at point 13 (delineating that any restriction "imposed by law or in fact" are obliged to be "attributable to the host government").  Inconvertibility claims saw a sharp increase in the decade of the 1980s due to "[w]idespread sovereign debt defaults on bank loans (principally in Latin America) . . . OPIC, for instance, processed 124 different inconvertibility claims during the 1980s - more than three times the amount from the 1970s."  See Minor supra note 100.

[106] The Convention supra note 48, at art. 11(a)(ii).

[107] See Comeaux & Kinsella supra note 11, at 41 (defining creeping expropriation as "a series of acts which, over time, have an expropriatory effect" and differentiating MIGA from OPIC in that it does not cover "non-discriminatory measures of general application which" may, from the investor's viewpoint, amount to a regulatory taking).

[108] See Commentary supra note 85, at point 14.

[109] Id.

[110] See Comeaux & Kinsella supra note 11, at 41 (describing payments available for the respective types of expropriation coverage).  MIGA has inserted economic principles for the calculation of valuation of the expropriated assets.  See generally Elihu Lauterpacht, The Inaugural Earl A. Snyder Lecture in International Law: International Law and Private Foreign Investment, 4 Ind. J. Global Leg. Stud. 259, 268-69 (noting that the valuation of assets in calculating the damages wrought by an expropriation is outside the field of law and in the realm of economics).

[111] The Convention supra note 48, at art. 11(a)(iii).

[112] See Commentary supra note 85, at point 15.

[113] Id.

[114] The Convention supra  note 48, at art. 11(a)(iii).

[115] See Commentary supra note 85, at point 16.

[116] See id. (noting acts of terrorism directed at the guarantee holder may be covered under Article 11(b).  The interesting thing here is under this provision both the host country and investor must make a joint application for an extension of coverage).

[117] See John Minor supra note 100 (describing the historical climate in the pre-1985 era as that of "post-colonial declarations of independence, civil wars and left-wing takeovers . . . newly formed nations would confiscate or nationalize any foreign investors' properties, declaring an end to exploitation and the start of national sovereignty).

[118] See George Chifor, Caveat Emptor: Developing International Disciplines for Deterring Third Party Investment in Unlawfully Expropriated Property, 33 Law & Pol'y Int'l Bus. 179, 183-84 (illustrating the change in the climate of expropriation over the last twenty-five years from one of outright expropriation to one of creeping expropriation); Rudolf Dolzer, Indirect Expropriations: New Developments?, 11 N.Y.U. Envtl. L.J. 64, 65 (maintaining, "the single most important development in state practice has become the issue of indirect expropriation, or, as referred to in U.S. domestic law, the takings issue").  The past two decades have seen Aon Corporation pay out in excess of $3 billion in political risk insurance claims, while OPIC paid out a little more than $1 billion over the same time period.  See John Minor supra note 100.

[119] See Chifor supra note 118,. at 185.

[120] See Multilateral Investment Guarantee Agency: Operational Regulations,  27 I.L.M. 1228 (1998) (As amended by the Board of Directors through Aug. 27, 2002) (hereinafter "Operational Regulations") (outlining the regulations implementing The Convention).

[121] See Operational Regulations supra note 120, at §§ 1.29 - 1.41 (2002).

[122] See Operational Regulations supra note 120, at §§ 3.11 - 3.18 (2002).

[123] See Commentary supra note 85, at point 14.

[124] See id.

[125] See id.

[126] Operational Regulations, supra note 120, at § 1.32 (2002).

[127]  See Jackson Diehl, Jordan's Democracy Option, Wash. Post, Sep. 21, 2003, at B7 (discussing a speech Jordan's King Abdullah gave where he ". . . conceded his judiciary ‘was at square one' for professionalism and independence, that he was ‘ashamed' of the killings of women and that his first steps toward a freer media had been ineffective").

[128] See John Minor supra note 100 (describing an expropriation where the governor of a Brazilian state persuaded the local judiciary to take away $1.056 billion in shareholder rights from AES Corp. and Mirant Corp., which have spent millions in legal fees to try and recover those rights to no avail); see generally Rudolph Dolzer supra note 118, at 65-66 (examining the state of development with regards to state organs).  Dolzer further postulates:

[i]t is no accident that the current development paradigm has underlined the primary role of institutional soundness rather than of specific public policies or individual projects: functioning governmental institutions form the practical prerequisite for governmental change and for the shaping of new policies into a framework in which the private sector can operate successfully in the interest of access to opportunities for all segments of society.

[129] See John Minor supra note 100 (specifying that "[g]overnments also engage in selective protectionism - the unfair use of political influence {most often in court-rooms or local legislatures} against foreign investors").

[130] See Operational Regulations, supra note 120, at §§ 1.29 - 1.41 (2002).

[131] See Operational Regulations, supra note 120, at § 1.29 (2002).

[132] See generally Operational Regulations supra note 120.

[133] See Operational Regulations, supra note 120, at § 1.32 (2002).

[134] See Operational Regulations, supra note 120, at § 1.37 (2002).

[135] Id.

[136] Dolzer supra note 118, at 76.

[137] Multilateral Investment Guarantee Agency, General Conditions of Guarantee for Equity Investments, (Fifth Revision) (Jan. 25, 1989).

[138] See Operational Regulations supra note 120, at § 1.29 (2002).

[139] Id. at (Definitions Section), pp.xiv-xv (2002).

[140] Id. at § 1.34 (2002).

[141] See generally Dolzer supra note 118, at 79-93 (discussing the two primary means of judging whether an exprop