Development agencies ask IMF to sell gold

Three major development agencies have asked the International Monetary Fund (IMF) to sell or revalue some of its gold reserves to raise funds for a total debt write-off for the world's poorest countries. In a paper entitled, 'Fool's Gold: The Case for 100 Percent Multilateral Debt Cancellation for the Poorest Countries', the Catholic Agency for Overseas Development (CAFOD), ActionAid and Oxfam International said a total debt write-off for all low-income countries was necessary to help them meet their poverty reduction targets and Millennium Development Goals (MDGs). IMF Managing Director Rodrigo de Rato responded earlier this month to a similar call made by the British Chancellor of the Exchequer, Gordon Brown, and pointed out that "it depends on the willingness of the members of the Fund, of the Executive Board. For the time being, the Executive Board has not discussed this issue. Of course, management and staff, we stand ready to analyse the possible outcome if we get the mandate by the Board to do it." According to the agencies, the IMF was currently sitting on reserves of 100 million ounces of gold, which the financial institution values at US $8.1 billion - well below the current market price. Under a 1971 agreement, most of the IMF's gold is valued at $40 an ounce, but the reserves are now actually worth around $45 billion, the development agencies claimed. Revaluation of the gold reserves could potentially raise more than $30 billion to fund debt relief, the paper said. IMF spokeswoman Frances Anne Hardin told IRIN the IMF had revalued some of its gold to raise funds for debt relief in the past. The IMF sold up to 14 million troy ounces of gold to Brazil and Mexico in 1999/2000, "in a sale authorised by the Executive Board to generate about US $3 billion to help finance the Fund's contribution to debt relief and financial support for the world's poorest nations". The HIPC Initiative is a comprehensive approach to debt reduction for poor countries pursuing adjustment and reform programmes supported by the IMF and World Bank. To date, debt reduction packages have been approved for 27 countries, 23 of them in Africa. According to the paper, at the end of 2002, poor countries owed the developed world a total of US $523 billion, or "roughly half their combined Gross National Income. Of this total, $154 billion, or a little under a third, was owed to multilateral creditors, including the World Bank and IMF." The HIPC had failed to help countries reduce debt to sustainable levels, argued the paper. In 2000 the international community committed itself to halving world poverty by 2015 and meeting 15 MDGs. "However, debt service payments from heavily indebted countries continue to undermine their ability to meet those internationally agreed targets. In 10 out of the 14 African HIPC countries where data is available, debt service payments still take up a larger share of the budget than do health services," said the paper. The Zambian government, for example, spent more on servicing its debt than it did on education. The agencies said NGOs in the UK had maintained that any calculation of debt sustainability should be linked to the poverty needs of a country, which necessitated a 100 percent debt cancellation. The agencies argued that, despite having fallen short of needs, debt relief had been well used by the African HIPC countries. Malawi was using the resources saved under HIPC to train 3,600 teachers a year. While making a case for 100 percent debt write-off, the agencies suggested that donor countries should continue to provide aid. The UK recently promised up to £100 million per year to cover 50 percent of the debts owed to the World Bank and the African Development Bank by around 30 poor countries. The paper asked other industrialised countries to follow suit. Report available at: www.eldis.org