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IMF presses case for gold sales to help relieve debt burden

IMF presses case for gold sales to help relieve debt burden
By Andrew Balls in Washington
Published: March 30 2005 22:02 / Last updated: March 30 2005 22:02

The International Monetary Fund believes the best way to provide more debt relief for the world's poorest countries is for rich countries to come up with new resources to pay for up to 100 per cent relief on the sums owed to the IMF and World Bank.

Given the political difficulties in coming up with those funds, the IMF says the next best alternative might be carefully planned sales of a small portion of the IMF's gold.

The IMF's analysis shows that selling a small portion of the fund's gold to pay for the IMF's share of debt relief need not cause disruption to the market, if the sale is well managed.

The gold market, the IMF says, is much stronger than in 1999 when the institution last considered gold sales despite the fact that some central banks have been selling gold.

By sticking to the terms of the 1999 Central Bank Gold Agreement, which governs future sales of gold by central banks, the IMF could raise the required resources without causing market volatility or hurting gold producing countries.

The problem with this approach is that it would require near-universal support of the fund's shareholders. And at the board's discussion, on Wednesday, the US director made clear that the Bush administration did not favour gold sales.

At a time when the US administration is trying to negotiate a tough budget, obtaining congressional approval for IMF gold sales might be no easy matter. The fund and its sister organisation the World Bank have no shortage of critics on Capitol Hill.

However, the preferred US approach, making use of the sums at the IMF available for lending to poor countries to pay for debt relief, has no greater chance of approval.

As with gold sales, it would require an 85 per cent majority at the board. The US has the votes to block gold sales; Europe has the votes to block diverting funds from the Poverty Reduction and Growth Facility, which provides concessional financing to poor countries.

Rodrigo Rato, the IMF's managing director, in an interview with the Financial Times, said the amounts that could potentially be diverted from the PRGF were too small to make a difference. “There are some spare resources in revolving credit,” he said, “but we are talking about a very small amount. It's peanuts.”

To the great frustration of debt relief campaigners, while the US and the UK are pushing their partners among the Group of Seven leading countries to agree on generous debt relief, there is not agreement among those countries on how to press ahead.

Apart from the controversy over the IMF's gold, the US is in favour of writing off the far larger stock of multilateral debt owed to the World Bank. The UK and other European countries focus on reducing the burden of debt service paid to the institution.

The G7 has agreed to set up a “work programme” to examine the range of schemes favoured by different countries.

Few observers see any agreement as likely at the spring meetings of the fund and the bank in two weeks' time.


LINK: http://news.ft.com/cms/s/64d0dcee-a146-11d9-95e5-00000e2511c8.html


*Personal comments: Here we go again, more b.s! All it needs to fail is for the U.S. to not support it, and as clearly stated in the article, the U.S. has made their stance clear in this manner... remember last time the IMF scare came around was right when $GOLD bottomed!...