The International Monetary Fund (IMF) 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, reports the World Bank press review Thursday.
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 IMFs gold.
The IMFs analysis shows that selling a small portion of the funds gold to pay for the IMFs 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 boards discussion, Wednesday, the US director made clear that the Bush administration did not favor 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 organization 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.
Meanwhile, the US Treasury said on Wednesday there was no need to sell the IMFs gold stocks to fund debt relief for poor countries. Rob Nichols, chief treasury spokesman, said only a small portion of low-income-country debt was owed to the IMF and “therefore the US is not convinced that IMF gold sales are necessary”.
– We instead recommend focusing our energies on improving the effectiveness of IMF engagement in low-income countries, he said.
The gold market shrugged off the renewed debate, not least because Washington has enough power on the IMF board to veto a decision to sell gold. A dozen US lawmakers, in a letter to US Treasury Secretary John Snow last month, told him to oppose proposals for IMF gold sales, indicating that the plan would face powerful congressional opposition.
The 12 senators, from mainly US mining states, said the move would hurt gold sales and cause job losses, including in impoverished countries.
KIlde: www.worldbank.org
