IMF Fails to Agree on Gold Sale for Debt Relief

The International Monetary Fund, facing strong German opposition, failed to agree Wednesday on the sale of a portion of its gold reserves to help finance debt relief for the poorest nations, a source familiar with the IMF’s actions said.

IMF Managing Director Michel Camdessus had proposed to sell about $2 billion of the IMF’s $40 billion in gold reserves to help reduce the debt of up to 20 poor nations, mostly in Africa. Germany opposes the sale on the grounds it could weaken the IMF’s reserves and world financial stability. Western nations agree that the countries are hopelessly in debt but have been unable to find a way to fund a rescue.

Camdessus said in a statement after a meeting of the IMF’s executive board that it had “reached understandings” that “allows the IMF to participate in the joint IMF/World Bank initiative for the highly indebted poor countries.”

However, the statement did not mention the gold sale question. The source familiar with the IMF’s actions said a decision on the gold sale had been postponed, most likely because Camdessus did not want to force a vote of the board--which Germany would lose--and embarrass one of the IMF’s most powerful members.

Though IMF Deputy Managing Director Stanley Fischer predicted last week that a compromise with Germany was in sight, Camdessus’ statement did not explain precisely how the IMF would contribute to the debt initiative, which could cost as much as $7.7 billion over six years.

World Bank officials still hope that the annual meeting of the bank and IMF, which begins next week in Washington, will launch the debt plan. The initiative has been strongly pushed by World Bank President James Wolfensohn.

Another missing component of the debt initiative is agreement from the so-called Paris Club of creditor nations to raise its level of debt forgiveness to 90% of the eligible debt from the current 67%. So far, Paris Club member governments haven’t defined what contribution they will make to the debt plan. With budgetary limits restraining most wealthy Western nations, none are eager to step forward.