WPost: IMF to Use Gold for Debt Relief - Critical

[Robert Weissman <rob@essential.org>]

                        IMF Crafts New Plan For Using Its Gold 

                        By Paul Blustein 
                        Washington Post Staff Writer 
                        Wednesday, September 8, 1999; Page E03 

                        The International Monetary Fund, seeking a method
to cover the cost of debt relief for poor
                        countries without dumping some of its vast gold
holdings on the market, has concocted a
                        complicated accounting mechanism to revalue the
gold and create more than $2 billion in
                        profit.

                        The plan was posted for unexplained reasons
yesterday on the World Wide Web site of the
                        Dutch Finance Ministry, causing a stir at the
traditionally secretive IMF, which wasn't
                        planning to disclose the details until its annual
meeting later this month.

                        At issue is how to fund an initiative to ease the
debt burdens encumbering some of the world's
                        most desperately poor lands such as Mozambique,
Vietnam and Nicaragua. The initiative,
                        unveiled amid much fanfare this spring by
President Clinton and other leaders of the Group of
                        Seven major industrial nations, offers
considerably deeper debt reduction than is available
                        under current IMF guidelines to poor countries
that show some promise of putting their
                        economic houses in order.

                        But the initiative ran into a buzz saw of
opposition because of its initial financing mechanism,
                        which included the sale by the IMF of about 10
percent of the 103 million ounces of gold it
                        holds. Because the IMF is prohibited under its
charter from forgiving loans outright, the gold
                        sales were aimed at creating a kitty that would be
used to effectively pay off the debts of the
                        poor countries participating in the initiative.

                        Gold-mining companies and countries that export
gold, including several poor African
                        nations, complained that the proposed gold sale
was helping to drive down the
                        already-depressed price of the metal. Their pleas
won over leading members of Congress,
                        throwing the plan's prospects into serious doubt
because congressional approval is required
                        for any sale of the IMF's gold hoard. The new plan
also would be subject to congressional
                        approval.

                        IMF officials said the new plan hasn't been
formally approved by the fund's board. But the
                        plan, or something very similar to it, is
virtually certain to be adopted at the annual meeting,
                        according to sources familiar with it. The plan
has been worked out in cooperation with the
                        U.S. Treasury, and the United States is the most
influential of the IMF's 182 member nations.

                        The new plan, which is designed to avoid any
disruption to the gold markets, involves even
                        more financial acrobatics than its predecessor,
and it takes advantage of the differential
                        between the market price of gold--about $255 an
ounce--and the $46-an-ounce price at which
                        gold is valued on the IMF's books. Essentially,
the IMF would revalue the gold at the higher
                        price to generate the profit needed to fund the
kitty for paying off poor-country debts. But it
                        would use a complex series of transactions to do
so.

                        According to Reuters, which translated from Dutch
the document posted on the Web site of
                        the Dutch Finance Ministry, the plan works as
follows: A country that is not having trouble
                        making its debt payments would buy gold from the
IMF at the lower price the day before a
                        loan payment is due and then make its payment the
next day with the same gold.

                        The IMF would then have gold it could value at
about $209 an ounce more than the gold it
                        started with (based on current market prices). The
IMF would set aside the "profit" in a special
                        trust fund for poor-country debt relief, as well
as another low-interest loan program for
                        low-income nations.

                        Also posted on the Dutch Web site was the
disclosure that the IMF staff has raised its growth
                        forecast for the world economy, to 2.8 percent
this year. In April, the fund had projected
                        growth of 2.3 percent. Global growth was 2.5
percent in 1998.

                        The new projections were prepared for the IMF's
semiannual World Economic Outlook
                        report, due for release on Sept. 22. IMF spokesman
William Murray said yesterday that the
                        report was still being completed.

                        The IMF forecast growth of 3.7 percent in the
United States this year, slowing comfortably to
                        2.6 percent next year. But the fund, whose staff
has long fretted about a crash of the
                        highflying U.S. stock market, warned that the
nation's economy could be at risk of a "hard
                        landing," or sharp, painful drop in its growth
rate.

                        The document posted on the Web site was a draft
agenda for the IMF's policy-setting Interim
                        Committee. 

                                              1999 The Washington Post
Company