IMF sell-off - good as gold?
Back in April, the G20 summit in London agreed that the IMF should use some of the money from gold sales (which had itself already been agreed to) to increase funding for poor countries struggling in the wake of the financial crisis. Jubilee Debt Campaign, with Jubilee USA and others, urged the IMF to use money from gold sales and other income to provide at least $5 billion for expanded poor country debt relief and grants.
On 18 September the IMF Board met to pass the formal decision about gold sales. This was widely reported as providing a large amount of funds for low income countries. Unfortunately that was not the case. Despite heralding this decision as enabling the Fund to “step up much-needed concessional lending to the poorest countries,” it was a far cry from what civil society groups had been calling for.
Poor countries urgently need help to meet a huge shortfall brought about by the economic downturn, which has caused the collapse of their export markets and sharp reductions in private capital flows. The World Bank has just released new figures that estimate a $11.6 billion gap in core spending on education, health, social safety nets and infrastructure in 2009 for the poorest 43 countries alone. As the Bank acknowledges, for those countries already struggling with high debt burdens, what’s really needed to fill this gap is funding that doesn’t add even further to their debts.
The proceeds of the IMF gold sales could have offered such a solution – paying for a freeze on debt payments for the poorest countries for example, or increased grant finance rather than loans. But what the Board announced on Friday is more loans, which will further exacerbate the debt problems of many poor countries, and have harsh strings attached that could harm their economies even further. Just $785 million of a gold sale worth in total around $10 billion will be devoted to the poorest countries. More than 90% of the sale will go to IMF administrative costs, paying for staff salaries and the like.
The only non-debt creating aspect to the IMF’s package is that they have lowered interest payments on their loans to poor countries to 0% for the next two years. But this will only amount to $55-70 million, far short of the $5 billion we asked for and nowhere near the $11.6 billion the World Bank now says is needed this year.
When the IMF and World Bank boards come together in Istanbul in a couple of weeks for their Annual Meetings they will need to agree on much more finance, and on much better terms, for the world's poorest if they are going to be protected from the worst effects of this crisis.
See Jubilee USA’s just released G-20 report for more detailed analysis.