The International Monetary Fund should sell gold worth $6.6bn (£3.4bn) and invest the proceeds in higher-yielding assets as part of a strategy to put its finances on a sound, long-term footing, an expert panel recommended on Wednesday.
The experts also advised that the IMF should charge for the bilateral technical assistance it provides to countries, although they said arrangements should be made to ensure poor countries continued to benefit from IMF help.
The panel included Alan Greenspan, former chairman of the US Federal Reserve, and Jean-Claude Trichet, president of the European Central Bank. It estimated that the sale of 400 tonnes of gold would create an endowment fund that would earn the IMF $195m a year in additional revenues after inflation.
The IMF holds 3,217 tonnes of gold in total. The panel recommended that the world’s central banks reduce their planned gold sales – set out in an international accord – by an equivalent amount so as to offset the effect of the IMF sale on the world gold market.
The IMF faces long-term financial problems because its traditional source of revenue – profits on lending – has dried up as countries have paid back giant loans extended during financial crises.
The extra money is needed to help plug an estimated shortfall of $400m a year in the IMF’s current income and expenses by 2010. The IMF is funding current activities in part by drawing on its reserves – not sustainable in the long run.
The panel recommends that the IMF put some of the quota money subscribed by IMF shareholder governments to work in capital markets.
This could involve very large sums, with the panel floating the idea of investing $30bn. It estimates that this could earn the IMF about $300m a year after paying interest on the quota money to the governments providing it.
It suggests loosening the rules governing how the IMF invests its existing $9bn reserves in an attempt to boost its income.
Andrew Crockett, president of JPMorgan Chase International and chairman of the panel, said it was no longer appropriate for the IMF to rely on profits from crisis lending to fund all its activities and said the proposed new financing model was better suited to what the IMF actually did today.
Some outside experts say the IMF should deal with its financial problems by cutting staff costs more aggressively rather than by raising revenues.
Agreement on IMF gold sales will need to be approved by an 85 per cent majority of the IMF’s shareholders and by the US Congress.
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