MercoPress. South Atlantic News Agency

IMF tightens budget and decides to sell 403 tons of gold

The International Monetary Fund's executive board approved Monday a broad financial overhaul plan that includes the sale of 403 tons of its gold holdings as part of a radical plan to shore up its finances.

The sale over several years cannot occur without United States congressional approval as well as legislative action in many of the 184 other member countries. The operation involves 12% of the IMF total gold, 12.97 million ounces with a market value in the range of 11 billion US dollars. IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision to propose a new framework for the fund, designed to close a projected 400 million US dollars budget deficit over the next few years. It is "a landmark agreement that will put the institution on a solid financial footing and modernize the IMF structure and operations" he said in an official statement. The budget proposal includes sharp spending cuts of 100 million US dollars over the next three years that will include up to 100 staff dismissals. "We have made difficult but necessary choices to close the projected income shortfall and put the fund's finances on a sustainable basis, but in the end it will make the fund more focused, efficient and cost-effective in serving our members" said Strauss-Kahn, a former French finance minister. The IMF said the board agreed to revamp the fund's income model from one that primarily relies on lending to one that generates money from various sources. During the nineties the IMF lent billions to countries in Asia and Latin America that were facing financial crises and financed its operations on interest from those loans. In recent years, IMF lending has dried up as many of those countries have built up reserves to prevent them from having to borrow again from the IMF, which often puts severe restrictions and conditions on its loans. The declining interest payments led to the IMF budget gap. Under the proposed plan, of the 11 billion US dollars generated from the gold sale IMF would keep 4.4 billion on its books and the remaining 6.6 billion would go into an investment account. IMF which has sold gold before said it would coordinate the sales with central banks in an effort to prevent market disruptions. "Gold sales would be conducted in a transparent manner with strong safeguards to ensure that they do not add to official sales and avoid any risk of market disruption" IMF said in a statement. Gold prices reached an all-time record above 1.000 US dollars an ounce in March, but have been volatile since then. Gold futures for June delivery added 13.60 to 926.80 US dollars an ounce in New York trade. IMF holds 103.4 million ounces of gold. As of 20 February, they were worth 95.2 billion US dollars. Strauss-Khan, who took over last November as head of the IMF, said the financial overhaul was another major step in the organization's reform process. The move "will enable the institution to remain an independent, astute, and dynamic international organization that facilitates global cooperation and action to ensure financial stability and prosperity for all" said Mr. Strauss-Kahn. It follows a decision last month to slightly increase the voting power of rapidly developing countries such as China, India and Brazil, who are playing a growing role in the world economy. Since its founding in 1944 the United States and European nations have dominated IMF decision-making.