WASHINGTON (AP) — The International Monetary Fund's executive board has approved a broad financial overhaul plan that could lead to the eventual sale of a little over 400 tons of its substantial gold supplies.
The sale cannot occur without congressional approval as well as legislative action in many of the 184 other nations that are members of the Washington-based lending institution.
IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision Monday to propose a new framework for the fund, designed to close a projected $400 million 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's structure and operations," he said in a statement.
The budget proposal includes sharp spending cuts of $100 million 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 1990s, 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's budget gap.
Actual sale of the gold cannot start immediately because the U.S. member on the IMF board cannot vote for it until Congress approves. Congress has made approval conditional on a broad range of operational changes that Strauss-Khan has pledged to carry out to preserve the relevancy of the 64-year-old organization, whose mission is to promote global financial stability.
Under the plan, the IMF would sell the 403 tons, or nearly 13 million ounces, of gold for about $11 billion over several years. The IMF would keep $4.4 billion on its books, and the remaining $6.6 billion would go into an investment account.
The 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," the IMF said in a statement.
The Bush administration said in February it could support selling a limited amount of IMF gold as away to ensure the agency's long-term financial stability, but Treasury officials realized this would be a hard sell. In 1999 Congress rejected a previous proposal to sell IMF gold, and the current majority leader of the Senate, Democrat Harry Reid, comes from the gold-mining state of Nevada.
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. It followed 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, the United States and European nations have dominated IMF decision-making.
Besides using the gold sales to produce an income stream, the fund's narrow investment authority will be broadened.
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