Gold Fast Losing Its Shine For Imf

Under a controversial proposal, the IMF was expected to sell $2 billion of its gold reserves to fund a joint World Bank-Fund initiative to help the most heavily indebted poor countries (HIPC).

The United States was a vocal supporter of the idea, the world gold markets began reacting to the possibility of IMF gold sales, and Fund first deputy managing director Stanley Fischer hinted to reporters that an agreement was likely by the annual meetings.

Instead, IMF managing director Michel Camdessus announced Thursday that gold sales would not be discussed during the Interim Committee meetings on Saturday.

It is not necessary to make a decision now, Camdessus told reporters. The problem of financing a continuing ESAF (Enhanced Structural Adjustment Facility) and our own participation in the HIPC initiative is a done deal.

 

Camdessus said generous bilateral contributions from a wide array of members would be sufficient to go ahead with the debt initiative.

In fact, gold sales ran into stiff opposition from a handful of countries . Germany, in particular, was insistent that alternative bilateral financing would be sufficient to help provide debt relief to the poor.

Germany's opposition put the IMF in an awkward position. although there were enough votes in the executive board to push gold sales through, nobody was eager to force a potentially divisive vote.

Any decision will be made with a desirable broad consensus, Camdessus said, reflecting the institution's tendency to seek unanimity on issue.

Last week, the executive board did reach unanimity on the need to establish a self-sustaining ESAF, the Fund's confessional lending arrangement, as the primary vehicle for the debt initiative.

Camdessus estimates that the effort to establish a self-sufficient ESAF between the years 2000 and 2005 (after that the facility automatically becomes self-sustaining) and to finance the HIPC initiative will require $3.5 billion on an as needed basis.

Germany is now suggestion a higher level of debt forgiveness as a possible alternative to the financing needs. Bonn would like to raise debt forgiveness to 80 percent, up from the present 67 percent, but still below the 90 percent level sought by the IMF.

The level of forgiveness is certain to figure in key discussions both at the annual meetings and at the G-7 finance ministers summit which will be held here Saturday.

Still, Camdessus indicated that gold sales are not entirely ruled out. all the directors agreed that if the need arises, we must be prepared to optimise the use of resources to secure full financing, he said pointedly. If the need arises, a decision (on selling gold) will have to be taken.

For the time being, however, gold sales will be put into the freezer. Despite their differences on the issue, both German and US finance officials agreed on one things while talking to reporters: gold sales had been blown out of proportion, overshadowing the debt initiative.

Meanwhile, the HIPC issue apart, both the IMF and the World Bank have a full agenda for the annual meetings.

Camdessus is expected to make a strong pitch for some of his pet themes: increasing the Fund's liquidity with a fresh allocation of quotas (members' subscriptions), and proposal to amend the SDR allocations for members. Fund officials have been warning that record levels of loans, particularly to Russia and Mexico, have been straining IMF's resources.

SDRs, and international reserve asset created by the IMF, have not been allocated to some of the organisation's newest members. Camdessus is now proposing an amendment to ensure that SDRs are allocated in the same ration as are quotas.