IMF gold sale under new central bank pact only

The International Monetary Fund (IMF) has stepped up lending to low-income countries to combat the impact of the global recession.

According to an announcement on its website, IMF said it has declared a new framework for loans to the world’s poorest nations, including increased resources, a doubling of borrowing limits, zero interest rates until the end of 2011, and more flexible terms.

The IMF’s executive board approved the package of measures that will sharply increase the loan resources available to low-income countries. The resources — including from the planned sale of IMF gold — are expected to boost the IMF’s concessional lending to up to $17 billion through 2014, including up to $8 billion over the next two years.

And, the planned sale of 403 tonnes of IMF gold will take place within a new European central bank gold pact currently being negotiated.

The IMF has provisionally agreed to sell the gold to raise resources for increased lending to poor countries.

A deciding vote by the fund’s 186 member countries is expected before IMF meetings in Istanbul in October, and requires the support of 85 per cent of the membership.

The sales would probably occur all the time within the central bank agreement and could take two to three years before sales are completed.

Negotiations on the new Central Bank Gold Sales Agreement will also be finalized by October. The current 5-year agreement expires in September.

The IMF holds 103.4 million ounces (3,217 tonnes) of gold, which had a market value of about $12 billion as of March 31.

In order to meet the financing needs of the low-income countries during the global crisis, some of the proceeds of those sales will be used to help provide new subsidy resources for the concessional lending to those countries.

Resources linked to the gold sales will be used to help fund concessional lending to low-income countries in the following ways. First, windfall profits when the gold sales take place can be used for the subsidy resources.

Windfall profits would derive from gold sales at an average price in excess of $850 per ounce — that is the price assumed in the new income model as necessary to fund the model. Second, to the extent that the realized windfall profits fall short of the required contribution, the remaining amount will be generated through investment income from the endowment funded by the gold sales.

In addition, the IMF announced zero interest payments up to the end of 2011 for all concessional loans to low-income members and lower interest rates on a permanent basis thereafter. A new set of lending instruments will underpin this increased support.