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Nothing comes of proposal to use gold to relieve poor nations' debt

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  • GATAComm@aol.com
    By Gilbert Le Gras Reuters Saturday, October 2, 2004 http://www.reuters.com/newsArticle.jhtml? type=reutersEdge&storyID=6396190 WASHINGTON -- Many Group of
    Message 1 of 1 , Oct 2, 2004
      By Gilbert Le Gras
      Reuters
      Saturday, October 2, 2004

      http://www.reuters.com/newsArticle.jhtml?
      type=reutersEdge&storyID=6396190

      WASHINGTON -- Many Group of Seven rich nations
      and gold-mining powerhouse South Africa are
      concerned about a proposal to revalue some IMF
      gold to fund debt relief for poor nations,
      officials said on Saturday.

      However, the proposal's author, British Chancellor
      of the Exchequer Gordon Brown, said most nations
      did not object to the principle of revaluing
      International Monetary Fund gold.

      "We're in no doubt that this is possible. ... I
      don't think in most countries there is an
      ideological problem with this," Brown said. "I
      didn't ask the G7 to approve my gold proposals
      yesterday. What I asked and had agreed is that
      further work should be done on them."

      But officials from other countries raised concerns on
      how this would be implemented and on the implied
      reduction of the IMF's working capital -- an amount
      Brown said could equal up to the remaining balance
      of debts of Highly Indebted Poor Countries (HIPC)
      that have yet to be forgiven.

      "Are you picking apples off the tree or cutting down
      the apple tree to use it as firewood," one official
      offered as an analogy for the uncertainty expressed
      among policymakers.

      "Ideologically yes, but from a technical point of view
      we have to have a look in depth at the matter,"
      Luxembourg Prime Minister Jean-Claude Juncker
      said.

      Brown's proposal ran into resistance on three grounds:
      some national treasuries of IMF shareholder countries
      would have to book the entire write-down in the year
      of sale; the likely bearish impact on precious metals
      markets; and the permanent reduction of IMF assets.

      "What about the financial integrity of the fund? ... Do
      we want to use IMF assets this way now and then that's it,
      we can never use it again?" a G7 source said, adding
      that a majority of G7 countries had come to this view.

      Brown said various off-market transaction proposals
      would be examined to release proceeds from the fund's
      vast bullion holding.

      The IMF holds 103 million ounces of gold that is valued
      at a fraction of its current market price under a 1971
      deal, and Brown said they were valued at one eighth of
      current market rates, or about $50 per ounce.

      Britain wants the reserves revalued to release billions
      of dollars for poor country debt relief.

      Gold prices rallied to their highest levels in 5-1/2
      months by Friday's close, extending their gains over
      the past three weeks to 6 percent as traders said they
      were waiting for the final outcome of the G7 debt
      relief proposal.

      On COMEX in New York, December gold ended 80 cents
      higher at $421.20. It peaked at $421.90 overnight,
      bullion's highest price since April 13 when it was
      near 16-year highs.

      "Revaluation is one thing but there is also the
      methodology," South African Finance Minister Trevor
      Manuel told Reuters. "What we've asked for is a process
      that involves both gold consumers and gold producers."

      Between December 1999 and April 2000, the IMF
      conducted separate but closely linked gold transactions
      with Brazil and Mexico.

      The complex process involved the IMF selling a total of
      12.9 million ounces of gold to Mexico and Brazil, both
      of which had financial obligations coming due to the
      fund.

      The fund immediately bought back the gold at the same
      market price, revaluing the metal and settling the two
      countries' financial obligations. The net effect of these
      transactions was to leave the balance of the IMF's
      holdings of physical gold unchanged.

      ----------------------------------------------------

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