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IMF ready to sell its gold to central banks

Section: Daily Dispatches

IMF Approves Sale of Some of Its Gold

By Harry Dunphy
Associated Press
via Yahoo News
Friday, September 18, 2009

WASHINGTON -- The International Monetary Fund approved on Friday the sale of a limited amount of its gold to help provide loans to poor countries and shore up its finances.

The fund's executive board said it decided to sell "a volume strictly limited to 403.3 metric tons" -- one-eighth of its holdings -- in a way that does not disrupt the sale of gold in commodity markets, which already were expecting the sale and discounted the IMF decision.

The IMF, a 186-nation Washington-based lending organization, is the third-largest official holder of gold in the world, with 3,217 metric tons, after the United States and Germany.

The board said the IMF could sell its gold directly to its members' central banks if any were interested or it could put the gold on the open market in phases.

China, India, and Russia have indicated interest in such purchases as a way of reducing their position in dollar-denominated securities and increasing their role in IMF operations. These countries and other developing nations have complained that the IMF is dominated by the United States, its largest shareholder, and European nations.

If the gold is sold on the open market, the IMF said, it would inform these markets before any sale begins and report regularly to the public on the progress of gold sales.

The IMF said it also would coordinate its sales with major central banks, who agreed last month on ceilings of gold sales amounting to 400 tons annually and 2,000 tons in total over five years.

"Hence, on-market sales by the fund will not add to the announced volume of official sales," the IMF said.

The head of the IMF, Dominique Strauss-Kahn, expressed satisfaction with the board's decision.

"I am delighted the executive board has given its overwhelming backing to a strictly limited sale of fund gold to put the finances of the IMF on sound, long-term footing and enable us to step up much-needed concessional lending to the poorest countries," he said.

The IMF decision comes in advance of next week's G-20 summit in Pittsburgh, which will review IMF lending, and the fund's annual meeting early next month in Istanbul, Turkey. The G-20 countries decided at their April summit in London to approve the gold sales as part of efforts to provide up to $6 billion in concessional loans to low-income countries.

The IMF is expected to use some of the proceeds from the gold sales to diversify its sources of income by setting up an endowment fund, as recommended by a panel of experts that studied IMF finances, including former Federal Reserve Chairman Alan Greenspan.

In recent years, some countries with thriving economies managed to pay off their IMF loans ahead of time, reducing income the IMF derived from loan interest and putting a strain on its finances. The IMF is expected to be running a deficit of $400 million in 2010.

Strauss-Kahn instituted some belt-tightening measures when he took over in 2007 by reducing staff amid suggestions the organization was becoming increasingly irrelevant because of its shrinking loan portfolio.

As the global financial crisis hit and a severe recession and credit crisis set in, the IMF has come roaring back, providing emergency loans to a dozen countries, ranging from Iceland to Pakistan.

The IMF was founded in 1944 in the aftermath of World War II to monitor the global economy while its sister institution, the World Bank, was established at the same time to provide development aid to member nations.

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For the IMF's official statement:

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