IMF plan to sell gold enrages producers

by Gumisai Mutume

Mexico City, Jul 8 (IPS) -- A proposal to sell off the International Monetary Fund's gold surpluses to finance a debt relief programme sounds more like robbing Peter to pay Paul. At least that is how gold producing developing nations see it.

One of the biggest steps the world's richest nations have taken will see about $70 billion in debt written off from the books of 41 poor countries but the gains of the proposals are threatened by a possible subsequent sale of 10% of IMF gold reserves to fund the initiative.

If the IMF sells its reserves, it is likely to force down already depressed gold prices and pinch even deeper into the economic wounds of many developing countries.

This week, an auction of gold reserves by the Bank of England saw the gold price at $260, slightly better than the $250 an ounce the mineral has been attracting of late but much lower than the $385 it was fetching last year.

The ore hit a high in 1980 when it sold for $875 an ounce.

The Bank of England aims to rid itself of about half of its 715 tonnes of gold opting instead to increase the share of its reserves held in currency. Switzerland also intends to get rid of its excess gold and together with the UK and the IMF are considered the biggest threat to the minerals price recovery.

This year, gold hit a 20 year low although demand continues to outstrip supply. Already the weak gold price has seen South Africa, the world's biggest producer shed 5,000 jobs this week.

Many of its mines are failing to break even and one of them, East Rand Proprietary Mines, is to be liquidated this week.

While gold is no longer the pillar supporting South Africa's economy it remains the country's biggest foreign exchange earner and one of the country's largest, single employers. The mineral is also important to 30 of the 41 poorest countries targeted by the IMF's Highly Indebted Poor Countries initiative (HIPC).

Numerous organisations, including the World Gold Council, have warned that the sale will hit HIPC nations hard and will outweigh the benefits of debt relief announced at the June Group of 8 (G- 8) meeting in Cologne, Germany.

South African president Thabo Mbeki this week re-iterated the call of developing nations to halt the wholesale disposal of gold at the Southern Africa World Economic Forum held in Durban, South Africa.

"We do not believe that it can be correct that we seek to solve one problem by creating another focused on undermining our efforts at strengthening our growth and development capacities," he said.

"A number of the countries in our region are gold producers. As we have all seen, the mere announcement by Great Britain that it will reduce its gold reserves over time immediately produced a very negative effect on the price of gold," Mbeki said. "This has threatened the viability of various gold mines and created a potentially disastrous effect on our economies."

The gold price may still pick up if predictions by consultants Pricewaterhouse Coopers are anything to go by.

The group forecasts that the price of the ore will recover by about 10% within the next two years and by a further 10% in the following three years. But by then, the economies of the world's poorest nations may have already crumbled.

In a study carried out for the G-8 meeting, the World Gold Council said that, while the sale of IMF reserves would yield $120 million annually (at mid-May prices), export earnings of affected HIPC countries would fall by $60 million annually if the gold price fell by just $10.

Revenue for non-HIPC countries such as South Africa will exceed $150 million annually.

Gold exports of the 30 gold producing HIPC countries were projected at $1.66 billion next year at the price of $280 an ounce.

The ore contributes a substantial amount to the debt servicing obligations of poor countries - 97% of Ghana's, 48% in Uganda and 45% in Zimbabwe.

Estimates of the male labour force from impoverished Lesotho and Swaziland working on the mines of South Africa are as high as 50% and their countries economies largely depend on their wage remittances.

Burkina Faso and Ethiopia also earn revenue from the ore that has lost its glitter.

While IMF director general Michel Camdessus has been at pains to divert world attention from the proposed IMF sales by saying there is nothing to fear, he remains committed to the sale.

"The South African gold mining industry supports the concept of providing relief to poor countries under the Highly Indebted Poorest Country (HIPC) initiative but is strongly opposed to this being achieved through the proposed sale of International Monetary Fund (IMF) gold reserves," says South Africa Chamber of Mines chief executive, Mzolisi Diliza.

"IMF gold sales will almost certainly undermine the current fragile gold market and place further downward pressure on the gold price. Many of the HIPC countries as well as other developing countries have gold mining industries that serve as the foundation for economic growth, development, employment and exports.

"In many cases it is their gold mining industries that have provided these countries with the foundation for improved economic performance which has allowed them to qualify for the HIPC initiative debt relief in the first place," he says.

About a quarter of the world's gold is used as part of the international reserves of governments, central banks and other financial institutions.

It accounts for about 16% of all reserves held by countries and institutions.

Gold has provided the impetus for growth in many a nation. Suriname, in the Caribbeans was hoping to solve some of its balance of payments by opening another gold mine this year.

In Mexico, gold mining giant Industrias Luismin will bear good end-of-year results for 1999 because of futures contracts secured last year. But this may be the last time that happens.

It is in the U.S., however, where the developing world's cry may find a partner. The US is a major gold producer and it, too, is worried by the implications of the sales so much that lawmakers are seeking ways to block the IMF sales.

U.S. approval is required before the IMF can go ahead with the sale of the mineral.

The above article by the Inter Press Service appeared in the South-North Development Monitor (SUNS).