Stanley Fischer, the IMF's deputy managing director, conceded that the falling gold price could have an "adverse economic and social impact" on some of the countries supposed to be helped by the proceeds from its planned gold sales.
The Fund's backtracking comes in response to accusations that its sale would contribute further to the declining price. The admission that lower gold prices are harming poor gold-producing countries such as Ghana and Mali was welcomed by the World Gold Council. The WGC published a recent correspondence between Haruko Fukuda, its chief executive, and Mr Fischer.
Mr Fischer's letter argued that the announcement of the planned sale of 10 million ounces of the IMF's gold reserves had not had a big impact on the market price of the metal. Other factors such as the expansion of mine output and the declining role of gold as an investment asset were to blame, he said.
But the Fund has been forced to rethink its earlier proposal because of lobbying by producing countries and hostility in the United States' Congress, which will have to approve the sale. The new plan is due to be approved at the IMF's annual meeting in Washington later this month.
The IMF would not comment in detail yesterday, but indications are that it will sell 10 million ounces at market value to the central banks of member countries. The proceeds would be invested in interest-bearing assets in order to finance the IMF's debt relief contributions. Member countries would be able to use the gold they had bought to pay their contributions to the IMF, according to one version. The sale of the part of the IMF's 103 million ounce gold reserves was agreed at the Group of Seven summit in June to finance an improved package of debt relief for 40 highly indebted poor countries. The Fund is to contribute about $2.3bn of a debt relief package worth up to $50bn.
Officials said there was no threat to the financing of the debt relief package. Some of the very poor indebted countries, along with middle-income nations such as South Africa, depend heavily on gold mining revenues. The World Gold Council estimates the drop in prices since March has cost the highly indebted poor countries $150-$200m in lost export earnings.
The gold price rose $1.10 to $254.95 a troy ounce in London yesterday afternoon, and later climbed to $256.30 in New York.
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