- News Release by the
WGC in London
IMF gold sales a flawed
proposal
Poorest countries hit
by official gold sales
LONDON: 17 June 1999 - Proposals for the International
Monetary Fund to sell 10 per cent of its gold to assist debt relief among
the world's poorest countries are flawed, according to a newly-published
analysis by the World Gold Council. 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 jewellery).
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."
- Ends –
A Glittering
Future? Gold mining’s importance to sub-Saharan Africa and Heavily
Indebted Poor Countries.
Published
17 June 1999 by the World Gold Council,
10 Haymarket, London, SW1Y 4BP
Contacts at the
WGC:
London headquarters:
0171 930 5171
Gary Mead, Head of Research.
New York office: 001 212 317 3848
George Milling-Stanley, Manager, Gold Market
Analysis
| 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) |
| Burkina Faso ($41m) |
Mauritania ($8m) |
| Burundi |
Mozambique |
| Cameroon |
Niger |
| Central African Republic |
Nigeria |
| Chad |
Rwanda |
| Congo |
São Tomé and Principe |
| Côte 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 |
| Bolivia ($100m) |
|
| Guyana ($120m) |
|
| Honduras |
|
| Nicaragua ($36m) |
|
|