IMF May Not Need to Sell Gold as Loan Demand Rises

By Nicholas Larkin

Feb. 11 (Bloomberg) — The International Monetary Fund may not need to sell part of its gold reserves because the global economic crisis has renewed demand for the organization’s loans, London-based researcher VM Group said.

The IMF’s board approved a proposal in April to sell 403.3 metric tons of bullion as part of a plan to close the Washington- based lender’s annual deficit. The gap had widened because of diminished income from loans to emerging markets, where economic growth had reduced funding needs. The IMF also planned “sharp spending cuts” at the time.

Loan demand has since strengthened because of the world slowdown, potentially removing any need for the organization to sell gold, VM said yesterday in a report. The IMF has agreed to lend $47.9 billion to Iceland, Ukraine, Pakistan and other countries affected by the crisis.

“The increase in loans means the fund’s income will be rising too,” VM said. “Given the state of the world’s economy and credit markets, it is likely that outstanding loans will rise, further boosting the fund’s annual income.”

A decision to sell any gold requires an 85 percent majority of the IMF’s executive board, and the board representative from the U.S. needs the approval of Congress to vote in favor of any sales, according to the organization’s Web site.

IMF Reserves

“The package of IMF governance reforms, including gold sales, was submitted to the U.S. Congress last November, but will need to be reintroduced as a formality,” Conny Lotze, an IMF spokeswoman, said today in an e-mail. “The timeline will depend on the Congress’s schedule. There are no plans to change the proposal for a new income model.”

The IMF has the third-largest gold reserves, totaling about 3,217 tons, according to December figures from the World Gold Council. Bullion for immediate delivery traded at $946.59 an ounce as of 3:43 p.m. in London. At that price, 403.3 tons would be worth $12.27 billion.

An advisory group headed by Andrew Crockett, former head of the Bank of International Settlements, has recommended that any IMF gold sales should be phased over time to avoid disrupting the market.

The issue of gold sales “could be put on the back burner,” VM said. “At the very least, the IMF’s renewed relevance has strengthened the case of those who oppose such sales.”

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