Ibrahim F.I. Shihata

Senior Vice President and General Counsel of the World Bank, 1983-1998

Ibrahim F.I. Shihata served as Senior Vice President and General Counsel of the World Bank from 1983 to 1998 and as Secretary General of the International Center for Settlement of Investment Disputes (ICSID) from 1983 to 2000. During his tenure, he led the initiative to create the Multilateral Investment Guarantee Agency (MIGA) and played a major role in the establishment of the World Bank Inspection Panel.  He also chaired the task force that prepared the World Bank Guidelines on the Treatment of Foreign Direct Investment and helped establish the Global Environment Facility (GEF)

As the General Counsel of the World Bank, Mr. Shihata was actively involved in policy discussion and formulation, helping the institution respond to a host of development needs not envisaged when the World Bank’s Articles of Agreement were written. He had a major impact on the institutions he served, and many saw him as personifying the “rule of law” in the world of international finance and development.

Joining the World Bank 

Mr. Shihata became the General Counsel for the World Bank and Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID) in 1983, an eventful era for the World Bank and the world at large.

The 1980s marked the early days of the global debt crisis, and the Multilateral Investment Guarantee Agency (MIGA) did not yet exist. At that time, environmental concerns still did not receive adequate attention, and the subject of governance was not yet integral to international discourse on development. Mr. Shihata’s pioneering thoughts and visions in these topics helped shape the organization’s course of action and the path forward for the World Bank.

As General Counsel, he authored more legal opinions than ever before. With his broad knowledge of history, Mr. Shihata’s legal opinions enabled the World Bank to respond to the rapidly-changing needs of its membership.  Thanks to the framework laid out in those opinions, the World Bank became actively involved in legal and judicial reform issues.

Creating the Multilateral Investment Guarantee Agency

One of Mr. Shihata’s major contributions to international development was the creation of the Multilateral Investment Guarantee Agency (MIGA). During his first week at the World Bank, the Managing Committee’s meeting agenda included a discussion on putting an end to the initiative that would become MIGA, given the little support it received from the Board. Developed countries were opposed to the proposal as they had their own agencies to guarantee and insure private investors, while developing countries perceived it as another international organization standing with foreign investors against them. Mr. Shihata sought to undertake this initiative as he had been involved in the creation of the first agency of this type, the Inter Arab Investment Guarantee Corporation, in 1974. 

At the time, foreign investment was concentrated in only a number of countries and its volume was in historical decline. An agency supported by the World Bank and receiving the full confidence of both capital exporting and importing countries could, in Mr. Shihata’s view, reverse that trend to the benefit of both sides. In his view, MIGA could play a significant role by rebuilding confidence among investors in developing countries by breaking the psychological barrier that magnified political risks.

Two years after Mr. Shihata’s initial Managing Committee meeting, the Board of Governors unanimously approved the Convention establishing MIGA. The Convention entered into force on April 12, 1988.

In his book MIGA and Foreign InvestmentMr. Shihata shared his efforts to create MIGA and his vision for its future. The publication has been a valuable resource for experts in foreign investment, and a source of legal interpretation for matters concerning MIGA.

Guidelines for the Legal Treatment of Foreign Direct Investment 

Mr. Shihata played a major role in preparing the Bank’s Guidelines for the Legal Treatment of Foreign Direct Investment.  At the urging of the Development Committee, a Committee of the General Counsels of the World Bank, the International Finance Corporation and MIGA was established to prepare the guidelines. The Committee was chaired by Mr. Shihata, where he took lead in drafting the guidelines which were later issued in 1992 with the support of the Development Committee.  These guidelines were decisive in the preparation of investment laws and treaties and were often cited in the awards in investment arbitration.

Creating of the Global Environmental Facility (GEF) 

The idea for a Global Environment Facility was first proposed in a 1989 meeting of the Development Committee. A great majority of the work on the establishment and reconstitution of the GEF was accomplished by the World Bank Legal Vice Presidency, and more specifically by Mr. Shihata. The GEF was established in 1991 as a pilot program within the World Bank, and many observers saw it as the beginning of an important shift in multilateral policy toward incorporating environmental concerns into development assistance.

Creating the Inspection Panel

During Mr. Shihata’s tenure, there was pressure both within the World Bank and from Washington-based NGOs to establish an independent mechanism of inspection for the preparation, implementation and approval stages of World Bank projects. In the eyes of NGOs, it was important for the panel to be independent, whereby it would issue decisions binding on the World Bank, and with the institution’s role limited to financing the panel. World Bank management, on the other hand, sought a mechanism that would remain internal and respond to senior management. Mr. Shihata developed a proposal that could balance the NGOs’ position with that of the World Bank, in creating a unit independent from management yet not too detached from the World Bank. In 1993, the Board approved the final draft resolution, written by Mr. Shihata, establishing an independent Inspection Panel. According to the resolution, the Panel was set to investigate the World Bank’s compliance with its own policies and procedures. This was the first of such initiatives for an international organization.

His first book on the subject The World Bank Inspection Panel, published in 1994 shortly after the resolution establishing the panel was adopted, recorded the developments and deliberations that led to the creation of the panel. It analyzed its origin, functions, and objectives. In the year 2000, Mr. Shihata published The World Bank Inspection Panel in Practice where he shared how the resolution has been applied in relation to increased demand for transparency and accountability.

Secretary-General of International Centre for Settlement of Investment Disputes (ICSID)

In his role as Secretary-General of ICSID from 1983-2000, Mr. Shihata oversaw a 60% growth in membership, with 132 countries along with an extensive increase in the Centre’s caseload. Mr. Shihata also helped strengthen ICSID’s research and publications activities, notably by founding the ICSID ReviewForeign Investment Law Journal.

Mr. Shihata reviewed the rules of ICSID and provided amendments to these, which were approved in 1984. He also brought the meetings of the Administrative Council from behind closed doors to the front stage during World Bank-International Monetary Fund Annual Meetings. This brought more visibility to ICSID and helped it become better known and seen as an institution of the larger World Bank Group.

Law and Development 

In 1969, when Mr. Shihata was a legal advisor to the Kuwait Fund for Arab Economic Development, he published a seminal paper entitled “Role of Law in Economic Development: The Legal Problems of International Public Ventures.” Among others, he observed in the article that economic development creates “a great challenge for the legal profession, a challenge which is yet to be fully answered.” Addressing the issue of “why law in development?” rather than capacity building per se, Mr. Shihata concluded that law is not a negative tool which merely reflects society in a given stage, but rather a dynamic mechanism that can positively respond to and influence society’s growing needs for organization and development. Mr. Shihata’s proactive approach to using law as an instrument of change ultimately enhanced the role of law in the policy making and the overall framework of the World Bank.

Due to his prolific writings on the subject of law and development and the role of lawyers in the development process, the co-initiators of the International Development Law Institute (IDLI), later International Development Law Organization (IDLO), approached Mr. Shihata in 1981 during the time he was the Director-General of the OPEC Fund in Vienna. The Institute was eventually established in 1983 as a non-governmental organization. Mr. Shihata was an informal advisor to the organizers, helping assemble a distinguished Board of Directors. Later, during the first meeting of the Board of IDLI, Mr. Shihata served as the Chairman of the Board.

Today IDLO offers an invaluable training and technical assistance for legal professionals in developing and transition economy countries. The success of the organization is in great part due to the role played by its first Chairman of its Board of Directors, Mr. Shihata.

Legal Opinions as a Means of Change 

Mr. Shihata understood the challenges that could arise from a modern institution required to operate under a charter written in the past. He believed the establishing documents could no longer be applied literally, given that the world, the people, and the nature of relationships were in constant change. Mr. Shihata was aware of the need for revisions, as the rules needed to adapt to these changes through means of what he called “purposive interpretations.” The principle behind purposive interpretation is one that calls for the retention of the purpose or objective of the Articles without violating the explicit words of the text. It is under this approach that many new development concepts could be introduced to the World Bank. Mr. Shihata’s legal opinions helped transform how the World Bank carried its mandate.

Political activities Prohibited

One of Mr. Shihata’s famous legal opinion is the “Prohibition of Political Activities in the Bank’s Work.” Through this legal opinion, Mr. Shihata set the appropriate boundaries of what separates the World Bank mandate from political affairs. He believed that the Bank is an intergovernmental and financial institution that relies on borrowing from the market and should not be subject to the vagaries and the double standards of politics which are inevitable. According to Mr. Shihata, insulating the Bank from partisan politics and from the short-term interests of its members was a very important pillar on which the institution was founded. He strongly considered it part of his job to maintain that distance for the best interests of the institution.

Stabilization Loans

During the Asian Financial Crisis in 1997, Mr. Shihata raised the possibility for providing affected countries “stabilization loans”, a never-seen-before initiative which had no legal prohibitions. Mr. Shihata’s legal opinion drew on an early interpretation of the Articles, made clear that the World Bank could lend for purposes other than the restrictive and narrow understanding of the concept of projects (that mainly associated with engineering projects) when special circumstances existed, provided that the operations would fall within the purposes of the World Bank as envisioned in the Articles of Agreement.

Debt Reduction Operations 

Another of Mr. Shihata’s legal opinions underpinned the debt reduction operations of the World Bank. In 1982, Mexico was facing a debt crisis and it became clear that it could not be solved unless the debt burden was reduced. The World Bank’s Articles however would not allow it to be a debt refinancing channel. Mr. Shihata put forth an explanation that served to place World Bank support for debt and debt service reduction operations within the Articles’ framework: a debt reduction operation would only be permissible if it would assist the country in receiving or making investments for productive purposes which would not otherwise take place. As a result, the World Bank could support such operations under the overall financing plan and appropriate adjustment policies which not only reduced the debt service obligations to a manageable size, but would also allow for economic development and put a heavily indebted country back on the path of sustainable development.

To this day Mr. Shihata’s views of the World Bank’s Articles of Agreement continue to serve the institution and keep the World Bank relevant in a world dramatically different than the one envisioned by the drafters of the Articles.

Meeting of Executive Directors of World Bank, Washington DC, June 13, 1995

Legal Scholar

Apart from his professional occupation, Mr. Shihata was a prolific writer with three honorary doctorates in law. Mr. Shihata’s Harvard Law School doctoral dissertation “The Power of the International Court to Determine Its Own Jurisdiction” has been observed as an “exhaustive work” that until now remains a leading treatise on the International Court of Justice.

Mr. Shihata published close to 30 books and over 200 essays. His eleven books on matters related to the World Bank’s work made him a much-quoted legal writer on the institution he served.His last book “The World Bank Legal Papers” compiled the legal opinions he rendered as General Counsel.  Mr. Shihata was an exceptional lawyer who laid many foundations of international finance and development law.

Photo: Shihata Family Photo Album