U.S. backs plan for IMF to sell some gold

Section:

By John Brinsley
Bloomberg News Service
Monday, February 25, 2008

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSBpoKjIItWc&refer=h...

WASHINGTON -- The U.S. Treasury, in a policy reversal, backed an International Monetary Fund plan to sell some of the lender's $98 billion in gold reserves to help make up for a decline in revenue.

"We have a very credible plan for cost reduction that's in the process of being implemented" at the IMF, David McCormick, Treasury's undersecretary for international affairs, told reporters in Washington. "For that reason, Treasury supports limited gold sales."

The Bush administration supported sales of as much as 12.9 million ounces recommended by Andrew Crockett, former head of the Bank of International Settlements, to set up an investment fund to cover anticipated losses at the IMF, McCormick said.

The price of gold fell after the announcement that the U.S., the largest IMF shareholder, will go along with plans by IMF Managing Director Dominique Strauss-Kahn. Strauss-Kahn has proposed eliminating 15 percent of its 2,600 staff and saving $100 million of its $922.3 billion budget to offset dwindling revenue from lending.

"There is a leader there that is really building momentum and pushing in all the right directions," McCormick said.

The IMF holds 103.4 million ounces of gold, trailing only the U.S. and Germany, according to the World Gold Council. Gold futures for April delivery fell $6.2, or 0.7 percent, to $941.60 an ounce at 10:43 a.m. on the Comex division of the New York Mercantile Exchange.

... Congressional Support

The U.S. Congress can block any sale of the reserves, since approval requires an 85 percent majority from the 185 countries that are members of the IMF. Congress blocked IMF attempts to sell gold in 2005 and 1999.

Treasury has had "a number of quiet discussions on the Hill, and I think have some confidence that there will be some support for this," McCormick said.

Strauss-Kahn is seeking approval from the U.S. and other major IMF shareholders for plans to cut costs and shore up revenue. Without the changes, the IMF may post annual losses of $400 million by 2010, the lender said in a Dec. 7 statement.

The IMF's finances have come under pressure as economic growth and government revenue accelerated in emerging markets, reducing their need for emergency loans.

"Obviously, the fund has budget problems and this is one way to deal with them," said Edwin Truman, a former Federal Reserve and Treasury official now at the Peterson Institute for International Economics in Washington. "Treasury is saying, 'You do your part and we'll do ours.' Selling gold is better than closing the fund. I'm sure it will be closely circumscribed."

* * *

Join GATA here:

GATA Goes to Washington -- Anybody Seen Our Gold?
Thursday-Saturday, April 17-19, 2008
Hyatt Regency Crystal City, Arlington, Virginia
http://www.gata.org/washington

* * *

Help Keep GATA Going

GATA is a civil rights and educational organization
based in the United States and tax-exempt under the
U.S. Internal Revenue Code. Its e-mail dispatches are
free, and you can subscribe at http://www.gata.org/.

GATA is grateful for financial contributions, which
are federally tax-deductible in the United States.