International Monetary Fund Told To Use Gold Sale Profits To Cancel Debts Of Poorest Nations

WASHINGTON (IPS/GIN) - Nearly 60 international civil society organizations recently urged the executive board of the International Monetary Fund to earmark some $2.8 billion in profits from the agency's gold sales for cancelling the debts of the world's poorest nations.


In a joint statement, the groups, which included ActionAid International, Oxfam International, the International Trade Union Confederation, and the global Jubilee networks, said April 4 the profits should be used to help poor indebted countries weather external shocks, including the 2008-2009 financial crisis and, more recently, the sharp rise in global food and fuel prices.


“We urge the IMF Executive Board to expand the criteria for the Fund's new Post-Catastrophe Debt Relief Trust Fund to provide debt relief without harmful conditions to countries in crisis, and use the gold sales proceeds to fund it,” according to the statement, which was also signed by the African Forum and Network on Debt and Development, the Bretton Woods Project, and the Latin American Network on Debt and Development.


The Trust Fund, which was launched last June to help Haiti recover from its devastating earthquake in January 2010, provides for a two-year moratorium on debt service payments owed to the IMF. It also authorizes the cancellation of all IMF debt stock for poor countries that face catastrophic disasters.


The groups called for the IMF's governing board to broaden the eligibility for countries to tap the Trust Fund's resources to include crises created by other external shocks, such as the financial crisis, over which poor countries have very little or no control.


The appeal, which came as the IMF's executive board was due to take up the disposition of the gold sales profits, came just 10 days before the annual spring meetings of the IMF's and World Bank's governing boards.


Speaking in advance of the meeting, IMF Managing Director Dominique Strauss-Kahn said policymakers must pay more attention to inequality and social cohesion and that the so-called “Washington consensus” that favored free-market principles was “now behind us.”


“The benefits of growth must be broadly shared, not just captured by a privileged few,” he told an audience at nearby George Washington University. “While the market must stay centre-stage, the invisible hand must not become the invisible fist,” he added.


Despite his key role in promoting the creation of the Debt Relief Trust Fund, Strauss-Kahn did not address the civil society organizations' (CSOs) appeal to use the proceeds from the gold sales to increase its resources and broaden the ability of poor countries to use it.


Due to the historically high price of gold, the IMF has realized at least 3.5 billion dollars more than it had projected in 2008 when it began selling 403.3 tons of gold.


In 2009, the IMF agreed to use 900 million dollars of those profits to increase the amount of low-interest lending to poor countries.


Since then, the price of gold has continued to climb. The CSOs now estimate that the IMF will eventually gain an additional 2.5 billion dollars at least in windfall profits from the sales.


The executive board will consider several options for using the profits, according to both the CSOs and IMF officials.


The first would be to use the profits to help cover the IMF's operating expenses, which have historically relied on income from its lending operations. Three years ago, the IMF created an endowment for that purpose out of the initial gold sales of some seven billion dollars.


The other main options include adding the excess profits to precautionary reserves for potential future use, such as dealing with a new crisis similar to the 2008 meltdown that was particularly damaging to middle-income countries, or using it to help low-income countries recover from multiple crises and reduce or eliminate their debt.


The activist groups favor the last option, noting that, with projected profits from its lending operations projected to reach 500 million dollars this year, the IMF finds itself in a particularly strong financial position.


“The IMF's finances are in much better shape than when they agreed to sell this gold, with their profits from lending and the price of gold now both sky-high,” said Melinda St. Louis, the deputy director of Jubilee USA.


“Yet the world's poorest countries aren't faring quite so well. They face potential starvation with food prices spiking again, plus mounting debts due to natural disasters or financial crises caused by Western banks,” she added.


Jubilee USA is part of a global network that has campaigned for comprehensive debt relief for the world's poorest countries for more than a decade.