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FINANCE: Groups Defend Plan to Swap IMF Gold for Third World Debt

Paul Weinberg

TORONTO, Oct 8 2004 (IPS) - Objections by Canada, a major gold producer, may have played a part in the failure of the world’s richest countries to adopt a British proposal to use the proceeds from a revaluing of the gold reserves of the International Monetary Fund (IMF) to relieve the debts of the poorest countries.

Canadian civil society groups say that Finance Minister Ralph Goodale should have been “more cautious” in his response to the informal proposal floated by the British Chancellor of the Exchequer, Gordon Brown.

“In responding negatively, what (Canada) was trying to do was reassure Canadian producers that the signals they got were that the Canadian government would not support this,” says Derek MacCuish, coordinator of the Social Justice Committee, based in Montreal.

Attending the annual meetings of the IMF in Washington in early October, Goodale stated that the Canadian government wanted guarantees that any revaluing of IMF reserves would not harm the gold mining companies

“We need absolute assurances (that revaluing the gold) should not be disruptive to the international gold industry or international markets for gold,” the Canadian finance minister told the Toronto Globe and Mail on Oct. 4. “It must be handled in a way that does not cause disruption to the gold mining industry.”

Brown’s proposal did not appear to go anywhere at a gathering where debt cancellation was also on the table in very different plans outlined by Britain and the U.S., although no action was taken.

George Milling Stanley, a representative of the New York-based World Gold Council, an industry group, told IPS that what had been floated with little detail by Brown “has been discussed in a very minor way during the recent meetings. But there is no particular proposal on the table that anybody has shown any interest in following.”

Gold producers have indicated that the revaluing of any of the substantial gold that the IMF holds in reserve, now valued at a fraction of the current market price of 415 dollars an ounce, would depress the market price for the metal and hurt their bottom line.

However, Michael Bassett, the coordinator of the Ottawa-based Halifax Initiative Coalition, an umbrella grouping of Canadian civil society organisations, believes “the concerns around the gold market are overblown”.

When the IMF revalued about 12.9 million ounces of its gold in 1999 and 2000 – a process that technically involved the sale of the gold to Mexico, which was then sold back to the IMF – “there was no negative impact on the world gold prices”, Bassett told IPS.

At today’s gold prices, he added, any revaluation of a slightly higher amount, 14 million ounces, would yield a net gain of about 5.3 billion dollars, which is enough to write off the debts owed to the IMF by countries covered by the Heavily Indebted Poor Countries (HIPC) programme of the IMF and World Bank.

The Halifax Initiative takes the position that revaluing a portion of the IMF’s total reserves of 103 million ounces of gold is an important first step towards the overall goal of debt cancellation.

Regarding other debts owed to the World Bank and other multilateral institutions by these same countries, the Halifax Initiative urged in an open letter to the Canadian government that World Bank resources, including loan loss provisions and its retained earnings, could be used to cover the additional amount owed.

Bassett says that the indebted countries are stuck on a “treadmill” where they have already paid more than the original amount borrowed from the international financial institutions and the burden of annual debt servicing payments are compromising any serious development efforts.

An industry analyst with the Washington-based Earthworks, which focuses on the impact of mining on communities and the environment, says that the unloading and sale of gold by various central banks in certain rich countries, chiefly Britain, Holland and Australia, had a greater dampening affect on world gold prices than the revaluing done by the IMF.

Payal Sampat says the gold lobby won an agreement with the central banks in 1999 “not to unload more than a certain amount of gold”. She notes that this arrangement is likely to continue following renegotiations this year among the same parties.

But Sampat says that gold is a “relic” from the post-war period when the gold standard determined the value of national currencies – a formulation that ended in 1971.

And she wonders how long public institutions like the central banks can avoid gaining access to the enormous cash that could be generated through the sales of the huge amounts of gold now stored in vaults.

At a time when gold is valued at an historic high of 415 dollars an ounce, Sampat told IPS: “There is more gold, whether it is held by banks or private investors, or families than has been identified underground.”

With the extraction of one ounce of gold generating an average of 79 tonnes of waste, including toxins like sulpheric acid and cyanide, gold mining also has had a devastating impact on the health and environment of communities around the world, Sampat adds.

“Gold is possibly the most polluting industry in the world, and 80 percent of all gold is used to make jewelry,” she noted.