dangerous
The Reserve Bank has been speaking to the IMF about the fund’s controversial proposal to sell gold for debt relief, reports Mungo Soggot
Reserve Bank Governor Chris Stals said this week the gold price had fallen to “dangerously low” levels as South Africa’s top mining magnate and unionist joined forces to lobby against the International Monetary Fund’s (IMF) proposed gold sale.
Stals also said he expected the IMF to consult the Reserve Bank, the world’s largest gold seller, for advice on how to execute any sale if and when it took place.
The IMF has proposed selling 10% of its gold hoard to fund debt relief for a string of Third World countries, and is expected to vote on the move in September. The threat of sales from the IMF and several central banks – and Britain’s definite sale next month – has precipitated a collapse in the gold price. According to the World Gold Council, the price drop to as low as $258 an ounce in June has wiped about $600-million off South Africa’s foreign exchange earnings this year on an annualised basis.
The chief executive of Anglogold, Bobby Godsell, and the head of the National Union of Mineworkers, James Motlatsi, who were in Washington this week to lobby the United States Congress to use its veto to block the IMF proposal, have warned the sale jeopardises 80 000 of South Africa’s 300 000 gold mining jobs.
Stals said he thought the fact that Britain’s announcement of a gold sell-off next month had triggered a price fall should make the IMF more careful. “After the United Kingdom treasury announced their gold sales programme and the price declined, I am sure that the fund will be very careful about it and they will certainly perhaps consult with us again.”
Stals said the socio-economic implications of the price fall were more important than the macro-economic ones. “It is at a dangerously low level if you start comparing it to the cost of production. So further declines will create even more problems for us. On the other hand, we must remember that gold is less than 15% of total exports in South Africa … unlike 20 years ago it is not a disaster for us.”
Stals said discussions between the Reserve Bank and the IMF would be of a technical nature – such as how to stagger a gold sale so as not to disrupt the market. In previous talks with the fund both he and Minister of Finance Trevor Manuel had supported debt relief, but not the gold sale, Stals said. “Right from the beginning the minister made it clear and I made it clear that we don’t like the idea. We warned that excessive gold sales by the monetary authorities could depress the price in the world markets. We will continue to remain in contact at the more technical level with the IMF.”
Stals also flagged South Africa’s diplomatic dilemma – that it will also want to heed the needs of other African countries that would benefit from the debt write off. “We must remember that South Africa is part of the English-speaking African constituency on the board of the fund. There are quite a number of countries in our own constituency and on the continent that will qualify for assistance from HIPC [the IMF’s debt relief programme for Highly Indebted Poor Countries]. So we can’t say that we are against raising funds for the HIPC operation but we certainly did say please try all other possible sources of funding before you come to the gold sales programme.”
The World Gold Council’s senior researcher, Gary Meade, who was in South Africa this week to spread the word about the dangers of the IMF proposal, said he believed the fund had not thought through the implications of the sale. He said the council had suggested to the IMF alternative ways of funding debt relief. For example, the IMF could revalue its gold stock upwards from its current $42 an ounce, and use the proceeds of the revaluation for a debt write off, Meade said.
Stals said the Reserve Bank would not be actively lobbying against the sale, and did not know whether the South African government would either. He said that while he felt “the fund has an understanding of the problem”, the threat of sales from other central banks still loomed.
“Were it only for IMF sales I would have been much more optimistic, but it is a problem that more and more central banks are selling their gold nowadays. That is the problem – there is still a lot of gold in the vaults of the central banks of the world.”