Michel Camdessus, managing director of the International Monetary Fund (IMF), is the latest to show his support for a plan to sell nearly 10 million oz. of gold to help debt-ridden poor countries.
The sale would help finance the IMF’s Heavily Indebted Poor Countries (HIPC) initiative, which aims to help countries that have exhausted traditional methods of rescheduling or reducing debt and are still labouring under crushing debt loads.
The HIPC initiative targets 41 countries, 75% of which are in Africa.
Originally, the proposal was to sell 5 million oz., but in recent weeks U.S. President Bill Clinton, Vice-President Al Gore and Treasury Secretary Robert Rubin have suggested doubling the amount to 10 million oz., ostensibly to accelerate the global program. Clinton included the proposal in the fiscal budget presented to Congress.
Camdessus is the second high-ranking official outside the U.S., and the first within the IMF, to voice his approval of the sale, after French President Jacques Chirac endorsed it mid-March.
The proposed sale has serious implications for the gold industry.
In July 1997, Australia sold two-thirds of its gold reserves, amounting to 167 tonnes (or 5.4 million oz.), which caused the price of the yellow metal to fall to US$317 from US$332 per oz. By December of that year, Argentina unloaded 124 tonnes (4 million oz.), knocking the price to US$283 from just below US$300 per oz.
The proposed sale could have serious consequences for countries such as Ghana. In 1998,
Guyana is in the same boat. Gold represents 25% of the South American country’s gross domestic product. A dip in the price of gold could have a dire effect on the national economy, regardless of whatever aid is provided by the IMF.
The Omai mine, operated by
Guyana was the first country to qualify for assistance under HIPC in December 1997. This year, it is expected to begin receiving debt relief totalling US$500 million, which is designed to reduce external debt by 25%.
If, as expected, the price of gold weakens as a result of the sale, nations with underdeveloped gold industries stand to lose as well. Burkina Faso, for example, has only one producer now, but a fall in the gold price could hurt the economics of projects now at the development stage, cutting short any plans the country may have for expanding its gold mining industry. Through HIPC, the West African nation stands to receive assistance from the IMF and the World Bank totalling US$200 million, which would reduce its external debt by 14% in terms of net present value. The assistance is targeted for delivery in April 2000.
In all, the IMF has given priority to seven countries: Uganda, Bolivia, Burkina Faso, Guyana, Ivory Coast, Mozambique and Mali.
Several other HIPC nations have significant gold industries that could be affected.
In 1998, Mali cranked out 506,000 oz. from the Sadiola Hill, jointly owned by
In Tanzania, Ashanti Goldfields is constructing the Geita property, which is capable of producing 400,000 oz. annually. Meanwhile,
A major fall in the price of gold could hurt wealthy nations as well, including South Africa, which traditionally operates labour-intensive mines. In 1997, cash costs for South African mines averaged US$301 per oz. (Figures for 1998 are not yet available, though costs are expected to be lower.)
The impact on smaller producers will likely be greater than on larger companies, which tend to have lower overall costs.
Mark Keatley, chief financial officer of Ashanti Goldfields, says he expects the IMF to spread out the gold sale over as many as five years to minimize the effect on the gold price.
For the sale to be approved, 85% of the executive committee of the IMF must vote in its favour. Currently, the U.S. holds 18% of the vote, with continental European countries representing nearly 25%. Other large voting blocs include Japan with 6%, the U.K. with 5% and Canada with 3%.
The IMF has not yet indicated when it will decide on the proposed gold sale.
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