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FINANCE: Gold Industry, Activists Face Off Over Debt Relief

Emad Mekay

WASHINGTON, Jun 2 2005 (IPS) - Anti-poverty groups are accusing the U.S. gold industry of seeking to block a sale of the precious metal from International Monetary Fund (IMF) reserves as part of an effort to cancel wealthy nations’ claims against the world’s poorest and most heavily-indebted countries.

But an industry group counters the plan could harm poor nations rather than help them.

The face-off between anti-debt campaigners and gold miners and market players comes in advance of next month’s summit in Scotland of the Group of Eight (G8), made up of seven industrialised powers plus Russia. Third World debt forgiveness is expected to feature prominently at the talks.

Officials attending the spring meetings in April of the IMF and its sister lending agency, the World Bank, said they expected a major G8 leaders’ announcement on a gold sale during the summit, scheduled for July 6-8 in the remote Scottish resort of Gleneagles.

But the idea of using the IMF’s huge gold reserves to fund the debt forgiveness plan has met stiff opposition from some U.S. lawmakers, whose approval is essential for the deal.

Any sale would require the approval of 85 percent of the IMF members’ votes. The United States holds 17 percent of the votes, which makes Washington’s consent key to the plan.

The United States is the second-largest gold producing nation in the world after South Africa. Most of its gold is produced in western states such as Nevada.

In February, a dozen U.S. senators wrote to U.S. Treasury Secretary John Snow urging him to turn his back on the deal.

There is no consensus, so far, in favour of gold sales within the industrialised nations either.

Anti-debt campaigners said lobbying by U.S. and international gold companies seriously threatened to take the plan completely off the table.

The groups singled out Denver-based Newmont Mining Co., the world’s largest gold producing corporation, of leading the opposition for fear that IMF gold sales will lower world market prices for the metal.

Newmont declined to comment for this story.

The groups, which include Africa Action, Essential Action, Global AIDS Alliance, Global Exchange, and Jubilee USA, say the company and the industry are ignoring a proposal from the IMF itself that said limited sales from its reserves would ensure that the deal would have no net impact on the world gold market.

”Newmont’s misguided opposition is on the brink of sabotaging IMF debt cancellation – thus ensuring millions of poor people will be deprived of the benefit of IMF debt cancellation,” the groups said in a statement Wednesday. ”This is a life-and-death matter.”

But a gold industry association said the proposal would prove ineffective: it was too limited and would not bring relief to poor nations.

”We have recommended against the sales of IMF gold to fund debt relief for poor nations. We think it’s a counterproductive proposal,” said Carol Raulston, a spokesperson for the Washington-based National Mining Association (NMA).

The NMA said that many of the nations that the IMF programme is supposed to help are in fact large gold producing nations themselves and could be hurt by the news of the sale when prices fall.

The organisation said it had not engaged in intensive lobbying against the IMF proposal, however, adding that U.S. legislators opposed to the deal understood on their own that the IMF gold sales would have a negative impact on their own gold producing states as well as on poor countries.

”You really do not have to try to exert much influence,” Raulston said. ”They understand the issue and the consequences that this proposal could have.”

The debt issue has energised activists, industry, and experts alike for many years. Debt servicing has sapped money from poor countries’ treasuries and transferred it to the coffers of public and private lenders in wealthy nations. In the process, activists and academics have said, poor governments have been left with less cash for domestic priorities including health, education, and social services.

Countries like Ghana, Kenya and Bolivia, among others, are heavily indebted to rich nations and to multinational players like the IMF and the World Bank.

The IMF had originally opposed the gold-sale proposal first floated by the anti-debt campaigners but eventually came out in favour of it.

The fund’s technical researchers have said that it is in fact possible to sell its vastly undervalued and idle gold reserves to finance further debt relief for some of the world’s poorest countries.

The IMF’s board discussed the fund’s finance department paper, requested by major creditor nations last year, at a meeting on Apr. 30.

Research by the Washington-based think tanks Centre for Global Development and Institute for International Economics also has showed that by selling just 15 percent of its gold reserves, the IMF could raise as much as seven billion dollars.

This would be enough to write off 100 percent of the IMF’s outstanding claims against poor countries that have qualified for debt relief.

The IMF values this gold on its balance sheet at roughly nine billion dollars, on the basis of historical cost – well below its current market price of 45 billion dollars, according to the two economic think tanks.

In addition, activist groups and think tanks alike have said that new market changes have further lowered the risks of a large sell-off.

The price of gold has risen by about 50 percent since 1999, easing concerns of gold producing countries and making it easier for the IMF to generate sufficient revenues from a sale involving a fairly small portion of its reserves.

Even so, according to the NMA’s Raulston, ”historically when such proposals have even been made, the rumours of sales have depressed the sale of gold, hurting those economies and causing job losses.”

”Similar effects have been felt in the United States,” she said.

”I think you have to look at the size of the problem,” she added. ”We should find a solution that really works rather than one that pretends to provide relief and really doesn’t match the size of the problem.”

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