6/30/99 - Plans for gold sale show more expediency than philanthropy
<Picture>
Johannesburg (Business Day, June 30, 1999) - The management of the International Monetary Fund (IMF) wants to sell 10-million ounces of gold, or 10% of its holdings, to help finance debt relief for highly indebted poor countries.
The Clinton administration and its rich country partners in the Group of Seven have endorsed the sale, brushing aside the concerns of gold producers, including SA and now Ghana, who worry about the impact of further official disposals on already depressed prices.
US treasury officials have asked Congress, the last hope for blocking the plan, to believe that the sales will be carefully phased to minimise the effect on the market which, in any event, they say, should be negligible given that "the amount under discussion represents a small part of the 100-million or so ounces that come to the market every year".
That, National Union of Mineworkers president James Motlatsi told US legislators last week, "does not hold water". Since March the price has dropped $30/oz on expectation of official sales to the point where another 82000 SA miners may face retrenchment.
Last month"s announcement by the Bank of England that it intends to sell 14- million ounces, with the first instalment on the block next week, drove the price down 8%.
The IMF itself recognises, in a background paper on its financial operations, that "official activity" is now a major cause of "relatively large price fluctuations" especially given that the stock of gold above ground "is currently estimated at about 50 years of new gold from mines".
Anglogold CE Bobby Godsell, who joined Motlatsi in lobbying Congress, calls the proposed IMF gold sale perverse. The description fits.
Cynically expedient is another epithet that comes to mind. This is about protecting well-padded bureaucratic and political behinds, not rescuing the poor.
The fund, which books its gold at about $42/oz, will take the capital gains it stands to make from sales at market prices, lend them to the World Bank and other worthy borrowers, then use the interest, perhaps $120m a year, to buy back or service loans it has made to highly indebted countries.
The World Gold Council has made much of the fact that the contribution this will make to debt relief will likely be more than offset by foreign exchange earnings which developing country gold producers, including many highly indebted countries, stand to forego if the gold sales have a predicted deadening effect on prices.
Yet this grasps only a part of the issue. The IMF started out, essentially, as a credit union which deployed the contributions of its membership to assist those who ran into temporary balance of payments problems and needed injections of hard currency. It then became a concessional lender as well, borrowing money from rich members to help poor ones, whose balance of payment troubles were not temporary, start "structural adjustment programmes" devised for them.
A good deal of highly indebted nations" debt comprises concessional structural-adjustment loans that have not had the desired effect. The programmes did not work. For that, the IMF itself must take a good share of the blame. It lent unwisely, as lenders often do with others" money. The loans went sour, helping to further impoverish the economies they were supposed to turn around.
The fund"s major shareholders, who themselves are not blameless, are loath to provide new capital to clean up the mess. They made similarly awful loans, as did the World Bank, in many ways the biggest sinner of all, which they now need to forgive.
So the question arose: whose pockets could the fund pick to clean up its books most painlessly?
The gold, originally amassed as member dues, was all too tempting. There it sat, wasting as an immobile asset, expensive to warehouse, representing a huge opportunity cost- and whose disposal would impose no distress on most rich countries" taxpayers and their representatives.
The IMF proposes to use gold to pick up the tab for loans it made, which might otherwise probably never be repaid. Yet, here is the really sick joke.
Highly indebted countries which want debt relief, and thus to become eligible for new loans, must subscribe to adjustment programmes devised by the very same set of geniuses that helped get them in trouble in the first place. And where will the money be found for the next tidying of the books? More gold sales? Once IMF gold becomes established as a reserve against stupidity, it will be flooding the market until its exhaustion.
Responsible people need to ask whether dumping - in the strict economic sense, that is selling below production cost - a commodity that has attracted hundreds of millions of dollars of investment to the developing world in recent years is really a logical approach to promoting development.
What are all the laid-off miners in southern Africa and elsewhere supposed to do? Become internet entrepreneurs? Yeah, right.
If the IMF wants a painless way to tidy up its balance sheet, Godsell suggests, let it revalue its gold holdings closer to market value and transfer the notional gains to the relevant reserve accounts.
Fine, so it will not look quite as financially sound. It will have to make up for that in other ways. By not making bad loans, for example, and firing the people who were responsible for them. Of course, the responsibility is rather collective. So perhaps it is time for a replacement institution.
Copyright 1999 Business Day. Distributed via Africa News Online. |
