Source:
Jubilee USA
Tue May 19 2009
Just over two years ago, the IMF was facing an institutional crisis, with few countries interested in the institution’s loans. In January 2007, a group of experts led by Andrew Crockett released a report recommending that the IMF address its tenuous financial position by selling 1/8th of its gold reserves, investing the proceeds, and creating an ongoing income stream to ensure the IMF had adequate resources to meet its ongoing administrative expenses. In May 2008, the IMF Board ratified a new income model with gold sales at its core.
Executive Summary
More than two years after the Crockett report and release, the global environment has changed dramatically. Gripped by the most significant financial crisis since the Great Depression, developing countries are turning to the IMF for massive loans to fill gaping holes in their budgets. The social and political implications of the economic crisis are so severe that US National Intelligence Director Dennis Blair warns that the global economic crisis has supplanted terrorism as the #1 threat to US national security.
At the April G-20 summit in London, world leaders committed hundreds of billions of dollars to the IMF for crisis response –the overwhelming majority of which was for middle income countries. Summit participants also partially responded to the urgent need for additional resources for the poorest countries by broadly agreeing that some proceeds from gold sales and/or related sources of IMF income – about $1-1.5 billion - could in turn leverage up to $6 billion in new loans for low-income countries over the next to years. But significant additional funds on more beneficial terms and without harmful conditions should be made available to the poorest in light of urgent development needs and to help avoid destabilization.
In late April, Low-Income Country Finance Ministers meeting during the spring meetings of the IMF and World Bank indicated their support for a proposal that a portion of the money from IMF gold sales be used to provide debt service relief for the duration of the financial crisis.
Meanwhile, US Representative Barney Frank has called for raising $4-5 billion in additional funds from IMF gold sales to be used for grants or debt relief for the poorest countries. As Chairman of the US House Financial Services Committee, Mr. Frank’s support is essential to securing Congressional approval of IMF gold sales and additional funding for the IMF.
The proposed sale of gold held by the IMF could yield in total upwards of $10 billion at current market prices. The IMF Board has already agreed to devote the overwhelming majority of this money to its own administrative budget, but Jubilee USA argues that the IMF should devote more of this to low-income countries. The institution has multiple “pots of gold” from which it could draw to assure its income model and provide additional resources for the poorest countries.
These additional resources are available due to the increased gold price, the significant increase in IMF income from large loan packages to an expanding number of countries, and the resources from the Trust Fund for the two primary facilities from which low-income countries are financed – the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF).
In addition, there is the potential for increasing resources available to low-income countries by investing countries’ quotas and delaying or ceasing the repayment of PRGF administrative expenses to the IMF’s General Reserve Account (GRA). In short, by using some proceeds of gold sales, together with other IMF pots of gold, the IMF can afford at least $5 billion in debt relief or grants for the poorest countries.
Recommendations:
• The IMF should mobilize proceeds for gold sales and other sources listed above to provide at least $5 billion in debt relief or grants for low-income countries. These funds must be in addition to the pledges made for additional low-income country leverage as part of the agreement reached at the G-20 summit last April.
• The most efficient and practical way to deliver these resources is by providing IMF and multilateral debt service relief for eligible HIPCs and other low-income countries that have effective and transparent public financial management practices. We estimate that proceeds from IMF “pots of gold” could cover the debt service payments for up to 43 of the poorest and hardest hit countries over the next 3 ½ years – a time in which the crisis’ effects are likely to persist in low-income countries.
o The IMF could use proceeds from gold sales and other sources to finance $1.41 billion in debt service relief for 43 low-income countries on IMF debt for the duration of the global financial crisis.
o The IMF could transfer proceeds from gold sales to the HIPC Trust fund to finance $3.09 billion in debt service relief for 43 low-income countries on their World Bank, African Development Bank, and Inter American Development Bank debts.
• While debt relief is Jubilee USA’ preferred approach to delivery of funds, if this is not possible and funds are to be used for long-term development assistance on grant terms, the IMF should consider transferring proceeds from the sale of IMF gold to another institution. The IMF does not have a mandate for long-term development assistance, and its track record under PRGF has been unsatisfactory, with poor countries borrowing at non-concessional rates with significant conditionality.
• While the IMF does not have a mandate for long-term development lending, it does have a clearer mandate for short term balance of payments support. If funds are channeled to provide short term balance of payments support through the IMF they should not be linked to requirements that countries pursue anti-poor or contractionary economic policies and should be provided on as close to full grant terms as possible. The IMF could also explore a “Flexible Credit Line” type facility for low-income countries.
-> See full document (pdf format)
Related Information:
-> Read a letter from 70 organizations sent to US Congress on May 1st supporting a more democratic process for IMF money and significant reform (pdf format)
-> Shielding the poorest from the global crisis: How IMF gold sales could generate $10 billion for poor country debt relief (pdf format), by Jubilee USA
-> IMF gold sales: how much for low-income countries?, by Eurodad
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