PRESS CONFERENCE BY WORLD GOLD COUNCIL

Press Briefing

PRESS CONFERENCE BY WORLD GOLD COUNCIL

A proposal for the International Monetary Fund (IMF) to sell some of its gold holdings to finance debt relief of poor countries was flawed and should be abandoned, George Milling-Stanley of the World Gold Council, said this morning at a Headquarters press conference that was sponsored by the Permanent Mission of Ghana to the United Nations.

Mr. Milling-Stanley, the Council's Manager of Gold Market Analysis, said the mere discussion of gold sales by the IMF had already cost gold-producing States among the Heavily Indebted Poor Countries (HIPCs) in foregone export earnings than they could possibly gain in debt relief. In nine of those countries, gold amounted to at least 5 per cent of export revenues.

Apart from the very real damage IMF gold sales would do to many of the HIPC countries, he said there was also the question of its potential impact on several other countries not receiving assistance under the initiative.

[In 1996, the IMF and the World Bank established the HIPC Initiative under which additional debt relief would potentially be available to the 41 countries concerned. These countries owe an estimated $220 billion. Expanding the scope of the initiative is currently under consideration].

Mr. Milling-Stanley noted that the original version of the HIPC Initiative called for IMF member countries to finance the whole of the Fund's contribution. The Fund had made no secret of the fact that gold sales would finance only a very small proportion of its contribution to debt relief, he stated. The member countries would still have to provide substantial additional bilateral contributions to make up the difference.

He said the IMF should abandon "the ill-conceived notion of gold sales, and declare that it intends to finance the whole of its contribution to debt relief via additional contributions from its members". The Fund could borrow on the international capital markets, or opt to revalue its gold holdings which were significantly undervalued in relation to current market prices.

The price of gold had fallen sharply since 7 May when the British Government had announced its plans to reduce the country's gold reserves by more than half, from the current level of 23 million ounces to a little under 10 million ounces, he said. Although the first auction on Tuesday, 6 July had been more than five times oversubscribed, the gold price had fallen another $5 on that day. That had taken the price down to $256.20, the lowest level for more than 20 years. The British Government must bear "a substantial share of the blame for the current extremely weak state of the gold market" although other factors had been at work in the market, and over a much longer period, he said.

Mr. Milling-Stanley said that a series of public opinion surveys commissioned by the World Gold Council in five countries -- France, Germany, Italy, the United States and the United Kingdom -- showed that people in those countries cared deeply about the role of gold as a monetary asset. The survey also showed that the British public opposed by a margin of five to two the Government's plan to sell more than half of Britain's gold reserves. In the United States, by a margin of more than two to one, the American public disapproved of the proposal that the IMF should sell a portion of its gold reserves. "Public officials who want to sell gold out of official reserves are out of step with the wishes of the people who elected them", he said.

He then drew attention to a publication of the World Gold Council -- A Glittering Future -- an 80-page study of the importance of gold mining in developing nations in Sub-Saharan Africa and other poor developing countries. The study stated that gold mining had helped boost not only their export revenues but had also played an important part in strengthening their legal, financial and economic development.

The World Gold Council was a non-profit trade association of the world's leading gold producers with headquarters in Geneva, he said. The Council provided specialist information on gold, as well as economics services to large holders of the mineral. The Council represented the interests of the gold-mining industry as a whole, and it was not attempting to speak on behalf of the HIPCs, although his comments reflected the views of many of them.

He said representatives of several of the countries included in the debt-relief initiative had expressed their governments' opposition to the proposed sale of gold by the IMF. Notable among them was Ghana.

Responding to questions, Mr. Milling-Stanley said that what the Council was suggesting was that to finance the IMF's contribution to debt relief through selling some of the IMF's gold reserves, when most of the debtor countries were gold producers and would be hurt by the damage that it did to the metal's price, was a flawed proposal. He suggested that the IMF might choose to use its gold as collateral against a currency loan.

He also said that the gold market had already responded to the discussion of the IMF sale. Not an ounce had been sold as yet, he said, adding that the Fund still had to wait for the permission of the United States Congress to do so. The mining companies had already responded: several had cut back on exploration, or had abandoned their rights to start mining developments in those very indebted countries.

Replying to another question, he said that significant numbers of mine workers had already lost their jobs. In the past four or five years, employment in the South African mining industry had been the largest in the world. Now it had fallen from 500,000 workers to a little over

World Gold Council Press Conference - 3 - 8 July 1999

300,000 workers. If the gold price fell further, as it might well do if the IMF gold sales went ahead, there would even be further job losses around the world. The proposal was doing "a major damage to the industry already before we even see an ounce sold", he said. Clearly, it would not be good news if the proposal went ahead.

Mr. Milling-Stanley, responding to another correspondent's question, said that the only other country he was aware of that had any formal plans to sell gold reserves was Switzerland, and that would depend entirely on popular referendum -- the Government did not have permission as yet to do so. He added that four countries -- France, Germany, Italy and the United States -- had been extremely strong in statements of their faith in their gold reserves and in their intention to continue holding on to what they had.

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