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IMF Presses Case for Gold Sales
to Help Relieve Debt Burden
By Andrew Balls
Financial Times, London
Wednesday, March 30, 2005
http://news.ft.com/cms/s/64d0dcee-a146-11d9-95e5-00000e2511c8.html
WASHINGTON -- 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
percent 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 percent 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.
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