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Nothing comes of proposal to use gold to relieve poor nations'' debt
By Lesley Wroughton and Sumeet Desai
Reuters
Saturday, October 2, 2004
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=6396321
WASHINGTON -- The International Monetary Fund's
top policy-making group on Saturday failed to close
divisions over debt relief for the world's poorest
countries.
"The committee has decided that further work on this
must be done so that we have a proper framework for
debt sustainability," said Gordon Brown, Britain's
finance minister, who chairs the International
Monetary and Financial Committee.
Seated beside IMF Managing Director Rodrigo Rato,
Brown told reporters new ways had to be found to
cancel the debt owed by poor nations to multilateral
lenders.
While the United States has also called for 100
percent debt relief in some countries, its plan
depends on juggling existing funds rather than
providing new money.
"It was generally agreed that we would have to find
additional funding to finance the next stage of debt
relief, and that it therefore has to be funded by some
new mechanism and not by some form of
substitution," Brown said.
Debt relief for poor countries is currently dealt with
under the Heavily Indebted Poor Countries (HIPC)
initiative, managed by the IMF and World Bank.
Currently 27 countries, the bulk of them in Africa,
have qualified for some form of HIPC debt relief.
The IMF this week extended the initiative by two
years to 2006.
Brown said he recently committed 100 million
pounds a year to pay off 10 percent of the debt
about 30 impoverished countries owe to the African
Development Bank and World Bank.
He said he hoped other countries would follow his
lead.
The British minister has proposed a revaluation of
the IMF's massive gold stocks, which would not
involve sales, as a way of raising additional cash
for debt relief. The IMF's 103 million ounces of gold
is one of the biggest bullion caches in the world.
Brown denied his proposal to revalue IMF gold had
run into opposition. He said the Group of Seven had
agreed on Friday to examine the idea and voiced
optimism it would succeed.
"I don't think in most countries there is an ideological
problem with this," Brown said, pointing out that
around $2.6 billion of cash for debt relief had been
realized through off-market gold transactions in
1999.
He said various off-market transaction proposals
would be examined to release proceeds from the
gold holdings which Brown said was valued at
one-eighth of current market rates or about $50
per ounce.
South African Finance Minister Trevor Manuel said
on Saturday the proposal to revalue the gold holdings
should involve both producers and buyers. Canadian
Finance Minister Ralph Goodale on Friday dismissed
the idea as a "non-starter."
Donald Kaberuka, Rwanda's Minister of Finance and
Economic Planning, told a separate press briefing that
developing countries were wary of differing G7
positions on debt relief.
"People are skeptical about the ability and the
willingness of the international community to
respond," Kaberuka said.
He said Rwanda pays about $20 million in debt
servicing every year, the same amount as the country's
health budget.
He said "predictable long-term financing" commitments
were needed for developing nations seeking higher
growth.
An official communique from Saturday's IMFC meeting
made no mention of Brown's gold revaluation plan nor
of a 100 percent debt writeoff.
The communique said the global economy was poised
for continued growth, although high oil prices were a risk.
"The committee notes that downside risks to the
recovery have recently increased, stemming in part from
the increase and volatility in oil prices," the communique
said.
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