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IMF May Sell Gold to Help It Fund Lending

Published: Friday, 18 Sep 2009 | 6:16 PM ET

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By: AP

The International Monetary Fund's executive board on Friday was discussing selling some of the fund's gold to provide low-interest loans to poor countries and shore up its internal finances.

Gold Bricks
AP
The move, authorized by the G-20 countries at their summit in London in April, has been long expected and discounted by commodity markets, where the price of gold has been rising amid fears of a weakening dollar and a resurgence of inflation.

The key question for the markets is whether the IMF will sell its gold in auction over a set period of time to get the best price or let central banks from member governments buy it. China, India and Russia, eager to reduce their position in dollar-denominated securities, have expressed interest in buying IMF gold.

IMF officials have said repeatedly the sale will be carried out in a way that does not disrupt the market and in coordination with European central banks, who agreed last month on amounts of gold they will sell during the next five years.

The IMF, a 186-nation Washington-based lending institution, is the third-largest official holder of gold in the world after the United States and Germany.

The IMF is planning to sell about one-eighth of its gold, the equivalent of nearly 13 million ounces, worth roughly $13 billion at current market prices.

The IMF decision comes in advance of next week's G-20 summit in Pittsburgh, Pa., and the fund's annual meeting early next month in Istanbul.

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In April, the G-20 agreed on the gold sale 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 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 U.S. 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.

The head of the IMF, Dominique Strauss-Kahn, instituted some belt-tightening measures when he took over in 2007, 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.