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Gold market wary of big IMF sales but demand remains strong
IMF Looks at Gold Sale Options for Debt Relief
By Andrew Balls, Chris Giles,
and Scheherazade Daneshkhu
Financial Times, London
Sunday, February 6, 2005
http://news.ft.com/cms/s/8c757556-787a-11d9-9961-00000e2511c8.html
The International Monetary Fund is preparing a report on the
potential sale of a portion of its gold reserves in a move that would
help fund debt relief for poor countries but could unsettle the
markets by threatening a drop in the price of gold.
Finance ministers from the Group of Seven countries, meeting in
London at the weekend, asked Rodrigo Rato, IMF managing director, to
make proposals to the fund's shareholders at its April meeting.
The IMF values its store of 3,217 tonnes of gold at about $8.5
billion (6.6 billion) about a fifth of market value. Poor
countries owe about $11 billion to the IMF. If the IMF sold large
quantities of gold, it could finance the debts owed to it by poor
countries. An alternative option to be studied would be to revalue
the gold in the IMF's accounts. This would strengthen its balance
sheet, against which it could then write off lending to poor
countries.
But this is seen as an accounting gimmick that would do nothing to
free up real resources within the fund. Gordon Brown, UK chancellor,
who has long supported making better use of the IMF's gold, said the
agreed move was an important step towards debt relief for poor
countries, following a G7 meeting that focused on development aid and
on Africa.
Gold producing countries sensitive to its price have traditionally
opposed sales by the IMF, or by central banks. But Trevor Manuel,
South Africa's finance minister, told reporters that South Africa
would not necessarily oppose sales, as long as the process was
carefully managed. Opposition to gold sales still exists within the
G7, however. John Taylor, US Treasury under-secretary for
international affairs, said the US was "not convinced that gold sales
is a necessary way" to do debt relief.
Canada also opposed gold sales. Ralph Goodale, finance minister, said
Canada would instead be prepared to fund its share of the poor
countries' debt. An IMF official who declined to be named said the
fund would not make recommendations on the use of its gold for debt
relief but present the pros and cons of various options. "This is the
kind of thing the G7 has to find a consensus on and it is a political
decision that will require the backing of all the IMF's
shareholders," the insider said.
US scepticism in part reflects concerns that gold sales would require
congressional approval.
This might be tricky at a time when the administration is attempting
to squeeze domestic programmes. The White House will unveil its
budget for the 2006 fiscal year today, the official start of
negotiations with Congress.
The G7 communiqu repeated its statement on currencies, calling
for "more flexibility in exchange rates" where this was lacking
notably in China.
China was a guest at the meeting. Zhou Xiaochan, central bank
governor, said the renminbi was not substantially overvalued and
China would follow its own timetable for moving to a more flexible
regime, rather than being rushed by the G7.
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