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US opposes IMF golf selloff for debt relief { February 6 2005 } Original Source Link: (May no longer be active)
http://news.ft.com/cms/s/8c757556-787a-11d9-9961-00000e2511c8.htmlhttp://news.ft.com/cms/s/8c757556-787a-11d9-9961-00000e2511c8.html
IMF looks at gold sale options for debt relief
By Andrew Balls, Chris Giles and Scheherazade Daneshkhu in London
Published: February 6 2005 20:13 | Last updated: February 6 2005 20:13
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 $8.5bn (€6.6bn) about a fifth of market value. Poor countries owe about $11bn 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,” said the insider.
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 communiqué 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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