IMF gold sales criticised

A proposal by the International Monetary Fund (IMF) to sell off its gold reserves to assist debt relief has come in for sharp criticism from the World Gold Council (WGC). According to the WGC, the proposal by the IMF to sell 10 percent of its gold stocks is flawed, and the recent fall in the price of gold is a direct consequence of those plans. The price collapse has already lost developing nations more than US $150 million in annual export earnings, more than they stand to gain from the IMF’s proposed sale, the WGC said. At the IMF’s April meeting in Washington, South Africa’s minister of finance said: “Despite the adverse impact on South Africa and a wide number of Southern African and other gold producers on the African continent, we are prepared to go along with a sale of a modest portion of the Fund’s gold reserves - up to five million ounces - provided the disposal programme is orderly, is spread over a number of years and takes account of the market’s ability to absorb the additional supply.” However, at this weekend’s meeting in Cologne, Germany, the G-8 nations agreed to sales of up to 10 million ounces, which is expected to generate an estimated US $2.3 billion. One regional analyst told IRIN: “One cannot say for sure what exactly the effects would be. But high on the lists of possibilities is that the gold price could drop even further.” He added: “It is really very simple. If there is too much of something then naturally the price comes down.” Sub-Saharan Africa, which includes 33 of the 41 Highly Indebted Poor Country’s (HIPC), produces about 25 percent of the world’s gold. The metal comprises about 7.8 percent of total exports, earning the region an estimated US $6.8 billion in 1997. South Africa is one of the world’s leading gold producers accounting for nearly 18 percent of all the newly-mined gold in 1998, and generating close to US $5 billion in revenue in 1996. For smaller countries, the few tonnes of gold produced each year still represents an important slice of foreign earnings. In southern Africa, South Africa’s gold mines are an important source of regional employment. An estimated 45 percent of the male labour force in Lesotho and Swaziland work in the mines, and if the mining industry were to shrink, the first to be retrenched would likely to be those men, the analyst said. “We could also see a drastic rise in household poverty in Lesotho and Swaziland, where a huge percentage of families depend on money from the South African gold mines. You have to understand that these economies are so tightly linked to South Africa,” he added. Among the continent’s other major gold producers are: Burkina Faso, Cote d’Ivoire, Democratic Republic of Congo, Ethiopia, Ghana, Guinea, Mali, Namibia, Sudan, Tanzania, Uganda, and Zimbabwe.