IMF gold revaluation for debt relief to begin (fwd)

[Robert Weissman <rob@essential.org>]

FINANCE: IMF to Sell Gold for Debt Relief

By Abid Aslam WASHINGTON, Dec 12 (IPS) - The International Monetary Fund
(IMF) will begin off-market sales of gold from its reserves this week, to
finance debt relief for some of the world's poorest countries.

 The gold transactions and the debt question itself, however, remain
contentious.

 At issue is financing of the IMF's share of the Heavily Indebted Poor
Country (HIPC) initiative, the first comprehensive effort to reduce Third
World debt owed to all creditors - bilateral, multilateral and commercial.

 IMF officials say they expect to 'sell' some of the agency's gold to
Brazil and Mexico in a series of transfers starting Dec. 15 and running
through the Spring of 2000.

 These countries have payments falling due to the IMF and have agreed to
'buy' gold from the lender's reserves at the prevailing market price.

 In turn, the IMF will take back the same amount of gold, at the same
price, in lieu of cash settlement of the countries' debt repayments.

 Thus, explains an IMF source, the countries will cover their debts to the
Fund while allowing the agency to revalue the gold, which otherwise would
continue to sit on its books at values of 50 years ago, when the bullion
first was deposited by member states.

 Under terms imposed by the US Congress, however, the IMF can only
transfer nine million ounces of gold, not the 14 million ounces it had
originally planned to revalue.

 Lawmakers here say they will entertain the agency's request for the
remaining five million ounces around May next year, by which time they
expect to see improvements in the IMF's book-keeping and transparency.

 The revaluation process could yield up to 3.1 billion dollars, depending
on price levels and the amount of gold transferred. This profit then will
be invested and the resulting interest used to finance the agency's share
of the HIPC programme.

 Decisions have yet to be taken on how to invest the proceeds, says an IMF
official, but it is understood that the money will be sunk in government
securities of leading member countries, whose currencies comprise 'special
drawing rights' (SDR) - the IMF's multi-currency unit of accounting.

 Potential investments therefore include US, Japanese and German
treasuries, according to the IMF source.

 Most importantly for gold producers, the transfers are designed to have
no effect on market prices as the bullion itself will never leave the
IMF's repositories.

 South Africa and other gold-producing nations, taking their cue from the
business-led World Gold Council, had protested any arrangement that would
affect national earnings from the gold industry.

 Of paramount importance to debt-relief activists, however, the proceeds
must be deposited in a separate account to be used exclusively to write
off old debt - and none of it may be offered in the form of new loans.

 The US Congress insisted on these stipulations as part of a foreign aid
funding deal last month.

 ''This is a victory for debt relief campaigners,'' says Lydia Williams,
policy adviser to the relief group Oxfam America.

 Activists had feared that the IMF otherwise would use as much as
two-thirds of the proceeds to fund its Enhanced Structural Adjustment
Facility (ESAF), which last month was re-named the Poverty Reduction and
Growth Facility (PRGF).

 The IMF needs 2.3 billion dollars for the HIPC programme and 1.3 billion
dollars for its PRGF, according to an agency source.

 The IMF uses this window to dispense low-interest loans to help finance
structural adjustment programmes in its poorest member countries. Debt
activists remain adamant that none of the proceeds of the gold transfer be
used to strengthen the soft-loan facility.

 The Fund's policy prescriptions have led borrowers deeper into debt and
made them more vulnerable to shifts in global trade and investment, says
Doug Hellinger, executive director of the Washington-based Development
Group for Alternative Policies.

 Yet, the IMF remains in position as HIPC gate keeper, deciding which
countries qualify for benefits by limiting eligibility to those toeing its
line on structural adjustment, Hellinger notes.

 The HIPC initiative, launched in 1996, so far has benefited only three
countries - Uganda, Bolivia and Guyana. Mozambique also has been cleared
to receive relief.

 Even supporters of the programme concede that Uganda's benefits have been
wiped out by weak prices for coffee, the country's chief export. Officials
and observers alike say this highlights a basic problem with the debt
plan: the amount of relief provided was trimmed because creditors had
unrealistic expectations of what Uganda could earn from its exports.

 That revelation, along with the slow pace of implementation and
projections that other debtors actually would see an increase in
debt-service requirements under the programme, has led critics to push for
deeper and faster debt relief.

 Campaigners, including the international Jubilee 2000 coalition, also
demand that debt-relief financing be ploughed into health and education
programmes in destitute countries.

 Leaders of the 'Group of Seven' (G7) industrial powers acquiesced this
past June and laid the framework of an 'enhanced' programme of benefits
for up to 36 of the 41 HIPCs. Their new formula goes further than previous
proposals but critics remain disappointed.

 Jubilee 2000 notes that the programme still offers forgiveness only of
debts that already have become unpayable. Thus, according to the activist
coalition, creditors continue to define 'debt sustainability' - which is
the HIPC scheme's end goal - as the level of debt repayments that the
poorest countries can be forced to meet.

 ''It's a step in the right direction but even after this, countries will
still be paying too much,'' says Williams, of Oxfam America.
(END/IPS/aa/mk/99)
 
(c) Inter Press Service