Thursday June 17, 6:03 am Eastern Time
Company Press Release
IMF Gold Sales a Flawed Proposal
Poorest Countries Hit by Official Gold Sales
NEW YORK--(BUSINESS WIRE)--June 17, 1999--Proposals
for the International Monetary Fund to sell 10 per cent of its
gold(1) to assist debt relief among the world's poorest countries
are flawed, according to a newly-published analysis by the World
Gold Council(2).
The recent fall in the price of gold as a direct consequence of the plans of the IMF, Switzerland and
the UK to sell gold, has already lost these developing nations more than $150m in annual export
earnings. This is more than they stand to gain from the IMF's proposed sale of 10 percent of its gold
reserves.
The impact of these potential sales has raised concerns world-wide and led the World Gold Council
to commission a study by independent economists (formerly of the Economist Intelligence Unit) into
the effect of such sales on the economies of gold-producing countries.
A Glittering Future? is an 80-page study of the importance of gold mining to developing nations in
sub-Saharan Africa and elsewhere. This study for the first time sets out the role gold plays in the
macro-economic life of many of the world's poorest nations. The report says that these countries are
just beginning to broaden their export base, away from dependency upon one or two agricultural
commodities and towards industrial growth, assisted by their embryonic gold mining industries. Gold
mining has helped boost not only their export revenues but also played an important part in
strengthening their legal, financial and economic development. This process is now threatened by the
falling gold price.
Of the 41 Heavily Indebted Poor Countries or HIPCs, more than 30 are gold producers or potential
producers. In 9 of them, gold amounts to at least 5 per cent of export revenues and for two of them
accounts for more than 30 per cent.
''Annual gold production in the HIPCs is set to be 200 tonnes in the year 2000. In global terms this
may not sound much, slightly less than 10 per cent of annual global production, but for the countries
concerned this is an important contribution to export and tax revenues,'' said Gary Mead, Head of
Research at the WGC. ''At $280 an ounce, projected export earnings for these countries from gold
would total $1.66bn by the end of 2000. Compared with 10 years ago, there is now a large gap
between supply (mine production) and demand (mostly jewelry). In order to help fill this gap, gold
mining would provide solid and viable export growth for these countries if it were not for the
damaging impact of major threats from official sales,'' he said.
In 1996 the International Monetary Fund and the World Bank established the HIPC initiative under
which additional debt relief would be potentially available to the 41 countries concerned. Expanding
the scope of this initiative is currently under consideration and is supported by a number of
governments. The 41 HIPCs collectively owe about $220bn to a variety of agencies and institutions;
some $9bn is directly owed by them to the IMF.
Michel Camdessus, managing director of the IMF, has failed to persuade the IMF's rich member
states to contribute enough of their own funds to ensure that the IMF can make its pro rata
contribution. Stimulated by calls from some of the world's leading political figures, the IMF is now
contemplating selling as much as 10 per cent of its gold reserves - 10m ounces (311 tonnes) - to
help fund the empty coffers of the HIPC initiative. At Cologne on Friday 18 June, leaders of the G-7
are due to meet to consider ratifying this proposal, and to discuss ways of alleviating debt burdens
generally.
The World Gold Council argues that the G-7 should re-consider this proposal, for two essential
reasons:
the IMF's proposed sale of 10 million ounces (311 tonnes) has already (in conjunction with
other official sector sales) adversely affected the international price of gold, and thus has
inadvertently damaged the economic development of many of those countries the HIPC
initiative aims to assist.
the IMF proposes to invest the proceeds (about $2.3bn) from the gold sale, and use a
proportion of the yield on that to help fund debt relief. If invested in US government bonds the
interest may amount to some 5 per cent a year, about $110m. Thus the benefit of the sale
($110m a year) has already been more than offset by the economic cost - a loss of more than
$150m annually as a result of the fall in the gold price.
There are alternative methods of financing the IMF's contribution to international debt relief, other
than by selling the gold:
- by asking IMF members for direct budgetary contributions,
by borrowing on the world's private markets, which the IMF already has the powers to do,
- by revaluing the gold closer to market prices,
by obtaining an SDR allocation under which developed countries agreed voluntarily to recycle their
SDRs to the IMF, which could use these funds for debt relief.
''Without careful reconsideration of the damage which has already been done to the fledgling gold
mining industry of many of the world's poorest countries by the threat of gold sales, their glittering
future may be still-born,'' says the WGC. ''The World Gold Council calls upon all official gold
holders, including the UK, to consider the consequences for the poorest gold producing countries
when planning any sales.''
A Glittering Future? Gold mining's importance to sub-Saharan Africa and Heavily Indebted Poor
Countries. Published June 17, 1999 by the World Gold Council, 10 Haymarket, London, SW1Y
4BP
(1) The IMF has 3,217 tonnes of gold reserves.
(2) The WGC is an association formed by the world's leading gold mining companies with the aim
of promoting global demand for gold.
List of HIPC countries
- those listed in bold are current or potential gold producers, and
in those countries where gold is, or is likely to become, at
least 5 per cent of exports in the near future, annual estimated
export revenues from gold in the year 2000 are given, based on a
price of $280 per oz and cautious assumptions as regards
production. Allowing for revenues to be earned by minor producers
($41m), total potential earnings from gold in that year for all
HIPCs is estimated at $1,665m.
Africa
Angola Madagascar
Benin Mali $181m
BurkinaFaso $41m Mauritania $8m
Burundi Mozambique
Cameroon Niger
Central African Republic Nigeria
Chad Rwanda
Congo Sao Tome and Principe
Cote d'Ivoire $25m Senegal
Dem Rep of Congo $12m Sierra Leone
Equatorial Guinea Somalia
Ethiopia $41m Sudan $50m
Ghana $660m Tanzania $170m
Guinea $160m Togo
Guinea-Bissau Uganda $20m
Kenya Zambia
Liberia
Asia / Middle East
Laos PDR
Myanmar
Vietnam
Yemen
Americas
Export earnings from gold in 1997 are shown
Bolivia $111m
Guyana $140m
Honduras
Nicaragua
Contact:
At The WGC:
London headquarters:
Gary Mead, Head of Research
or
Dick Ware, Manager, Regulatory Affairs
011-44171-930-5171
or
New York office:
George Milling-Stanley, Manager, Market Analysis.
212/317 3800
Related News Categories: banking, government, mining/metals
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