You thought you understood women better. Try figuring out this bizzare IMF maneuver, you bean counter!
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Tuesday September 7, 2:55 pm Eastern Time
IMF to revalue gold, avoiding open-market sales
(Incorporates Amsterdam item IMF-GOLD-REVALUATION)
By Mark Egan
WASHINGTON, Sept 8 (Reuters) - The International Monetary Fund will revalue some of its gold to fund debt relief thereby avoiding open-market gold sales, a politically difficult proposition that spooked gold markets, documents posted on the Internet revealed on Tuesday.
An agenda for the fund's upcoming annual meeting, to take place later this month, revealed that it would revalue 10 million ounces of its 103 million ounce gold stockpile to market values, yielding ''$1.1 billion in net cash value.''
''This proposal replaces the previously agreed sale of a maximum 10 million ounces from the IMF's gold reserves,'' according to a draft agenda, a copy of which was obtained by Reuters from the Dutch finance ministry's Web site.
The IMF had originally planned to sell the gold to finance its obligations under the Highly Indebted Poor Countries Initiative, which aims to reduce the debts of 41 of the world's poorest nations. The sales were also pegged to fund its Enhanced Structural Adjustment Facility low-interest loan program.
The proposal had received strong political opposition from U.S. lawmakers and others who had claimed open-market gold sales would harm poor gold-producing countries and hurt gold prices.
The new plan should calm gold markets which were nervous about the effect on prices from a gold sale from the world's second largest holder of bullion. The IMF's open-market sales plan suffered a blow when gold hit a 20-year low in July after the Bank of England sold 25 tonnes of gold as part of its plan to cut its reserves by 415 tonnes.
The document said the new proposal has two advantages over the previous plan -- it would not disturb gold markets and was politically achievable.
It said the proposal was still being discussed.
The documents released on the Internet provided few details on the new plan but sources told Reuters the latest plan had already been approved by the Group of Seven nations.
Under the plan, countries which owe the IMF money from past loans, such as Mexico, would buy IMF gold the day before loan payments are due and then repay the installment the next day with the same gold, sources familiar with the scheme told Reuters.
The plan raises cash for the IMF because the fund values the gold on its balance sheet at about $46 an ounce. Since gold is actually worth about $255 an ounce, the transaction would net the IMF profits of about $209 an ounce, or about $2.1 billion.
After selling the gold, the fund would return $46 per ounce back to its General Resource Account and then transfer the $2.1 billion in profits to a trust fund. The trust would invest the $2.1 billion and use the proceeds to fund both the HIPC debt relief initiative and ESAF.
The new plan will likely appease the gold industry and lawmakers from U.S. gold producing states since the IMF's gold would probably never leave its vaults.
But the plan would require approval from the U.S. Congress since gold sales are still involved. Even though the plan may be less contentious than the original proposal, some in Congress may still cry foul.
Many U.S. lawmakers are strongly opposed to the ESAF program which they claim foists overly restrictive fiscal policies on poor countries.
Those opponents could argue that the revaluation plan is a convoluted solution for a simple problem and that the IMF might be better off writing off its failing ESAF loans rather than jumping through hoops to save the program.
The debt relief plan, which builds on an earlier framework, was agreed by the G7 this summer in Cologne. The IMF's obligation under the expanded Highly Indebted Poor Countries Initiative debt relief plan is $2.3 billion.
The $2.1 billion in profits from the gold revaluation plan would generate profits over time which would allow the IMF to fund both its HIPC obligations and make up the funding shortfall in its ESAF loan program, sources said.
The overall HIPC plan agreed to in Cologne calls for debt relief of $23.7 billion.
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