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May-June 2011

Vol. 36, No. 3


Debt: IMF gold sales should be used for relief

Many international and national organizations, including the Maryknoll Office for Global Concerns and the Jubilee USA Network, have advocated energetically for the IMF to use some of the windfall profits from gold sales for debt cancellation to benefit some of the world's poorest countries - or for grants rather than for new loans. The current financial crisis has had a disproportionate impact on the most vulnerable people in impoverished countries and it would be unconscionable to saddle poor nations with crushing new debt to pay for a crisis they did not create.

On December 22, 2010, the IMF sold 403.3 tons of gold. Given the historically high price of gold, the IMF realized at least $3.5 billion more than it had projected on the sale. In advance of the recent World Bank and IMF spring meetings, more than 50 faith-based and civil society groups called on the IMF to "use all excess windfall profits from gold sales to fund debt cancellation and/or non-debt creating assistance for poor countries."

The organizations wrote, "In 2009, the Fund agreed to use $900 million of the windfall profits from gold sales to increase the amount of low interest lending to poor countries, and since then the price of gold has continued to climb. Even after creating the endowment for its new income model and subsidizing its low interest lending program, the Fund will conservatively realize an additional $2.5 billion in excess windfall profits…

"Too many poor countries find themselves taking on new debt in the wake of natural disasters or other external shocks such as the global financial crisis. The IMF does not need these funds for its administrative budget or for increased lending capacity, but the poorest countries now face mounting debt burdens due to the financial crisis through no fault of their own. The two year interest-relief on IMF loans that was partially funded by gold sales may have reduced interest payments for poor countries but did not provide these countries with the non-debt creating assistance that they need. The reduction in interest payments from the subsidy was marginal - an average of less than $1 million per year for countries that qualified. The $2.5 billion in excess windfall from gold sales represents another opportunity to provide debt cancellation and non-debt creating assistance that is so desperately needed by poor countries.

"We urge the IMF Executive Board to expand the criteria for the Fund's new Post-Catastrophe Debt Relief Trust Fund to provide debt relief without harmful conditions to countries in crisis, and use the gold sales proceeds to fund it. In June 2010, the IMF launched its Post-Catastrophe Debt Relief Trust Fund, which provides a two-year moratorium on debt service payments on IMF debt and considers cancellation of full debt stock for poor countries that face catastrophic disasters. The trust fund was initially funded through internal IMF resources, and was used to cancel all of Haiti's debt stock to the Fund in the wake of its January 2010 earthquake. Currently the Trust Fund has a mere $154 million, and has such narrow criteria that only a very small country facing a catastrophe on the scale of Haiti's earthquake can qualify. The Executive Board should expand the criteria for the Debt Relief Trust Fund to include crises created by other external economic shocks, to be able to provide debt cancellation and grant equivalent assistance in response to such crises. The Board should then commit its excess windfall profits from gold sales to capitalize the Trust Fund and/or other non-debt creating, unconditional assistance for poor countries."

At the spring meetings of the World Bank and IMF, decision-makers failed to reach an agreement on using some of the windfall profits to provide this desperately needed debt relief. Instead the IMF re-affirmed the commitment made by the G20 to double new lending to poor countries and laid out three broad options: 1) to use resources linked to the gold sale to narrow, if not close, the large projected gap in the Fund's capacity to assist low income countries (LICs) beyond 2014; 2) to use the profits to augment precautionary balances held to protect the Fund against financial risks, including increased credit risks; and 3) to make the profits a permanent part of the Fund's financing structure to help ensure a sustainable and diversified income base.

Several other options considered include providing alternative forms of support to LICs through additional interest relief on Poverty Reduction and Growth Trust credits, augmenting the Post-Catastrophe Debt Relief Trust, or using the windfall profits to fund further debt relief, grants, or technical assistance. The discussions will continue prior to the IMF and World Bank annual meetings in the fall.

Faith in action:

The U.S. Congress will consider whether or not to approve new funds for the IMF. Write to your Congressional representative and senators to ensure that U.S. support for IMF money is conditioned on using the money from gold sales for debt relief and the removal of harmful economic policy conditions on IMF loans.

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