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World: IMF Executive Board May Approve Gold Sales

  • Robert Lyle

Washington, 12 September 1996 (RFE/RL) -- International Monetary Fund sources say the fund's board of executive directors may give preliminary approval at its meeting Friday to a plan to sell some of the IMF's gold and invest the proceeds to raise money to help heavily indebted countries.

The plan, advanced by IMF Managing Director Michel Camdessus more than a year ago, ran into immediate strong opposition from a number of countries, particularly Germany and Switzerland.

They argued that the 103 million ounces of gold the Fund holds as a central element of its reserves has not been touched since the IMF's founding in the late 1940s and is a reason for its stability.

But Camdessus argued that gold earns no interest -- it simply sits in a vault -- and that it would be prudent for the fund to sell up to five percent of its gold reserves -- between four and five million ounces -- and put the proceeds into diversified investments.

The earnings from those investments -- $100 million or more per year -- would be used to underwrite a five-year transition to self-sufficiency for the IMF's special facility known as the ESAF (Enhanced Structural Adjustment Facility) to help poorer nations.

The ESAF is the IMF's primary mechanism to help poor countries, making loans at below market interest rates. Albania, Armenia, Georgia, Kyrgyzstan and Mongolia are among nations which have received credits totaling almost $660 million from the facility over the past three years.

The vast majority of the fund's members have already said they want to see the ESAF program continued and have agreed with the IMF management's plan to make the program self-sufficient in half a decade. But to get to self-sufficiency, Germany proposed that instead of selling gold, the Fund ask members to make donations. The United States and others reject that idea out of hand, so it has been a process of delicate diplomatic negotiation by IMF leaders over the past year.

Five countries are believed to be the strongest holdouts against gold sales -- Germany, Switzerland and Italy, which together hold 12.32 percent of the votes on the board of executive directors -- and Austria and Finland, each of which hold less than a fifth of the votes within their multi-country constituencies that must vote as a bloc on the board.

Austria's constituency, which includes Belarus, the Czech Republic, Hungary, Kazakstan, the Slovak Republic and Slovenia, has 5.09 percent of the votes on the board, while Finland's constituency, which includes Estonia, Latvia and Lithuania, has 3.47 percent of the vote. Russia, with a 2.9 percent vote, is understood to be a strong supporter of the gold sale plan.

Major decisions like this require an 85 percent approval of the fund's member countries. But first, the board of 24 executive directors must approve a resolution proposing the change before the membership can vote on the question.

Since the votes of 16 of the executive directors are on behalf of constituencies, it would be easier to block the move there. So if either Austria or Finland could persuade most of the other members of their constituencies to join in opposition, the proposal would have been blocked at the Executive Board and never gone to a vote.

But sources at the IMF say that a "consensus" approach has emerged which would avoid an up-or-down vote by the executive directors. It entails having the board adopt a resolution by a non-recorded vote, such as a show of hands or voice vote.

Then the proposal would be sent out to all 181 member nations of the IMF for a formal vote. That could be completed even as each nation's Governor for the Fund arrives in Washington later this month for the IMF and World Bank annual meetings.

Whether this approach works at Friday's Executive Board meeting remains to be seen. But the fund is under pressure to get its program to aid the poor, most debt-ridden nations, into position. The World Bank has already set up its own program and put aside $500 million from last year's profits as its first annual contribution.