Stanley Fisher; 13 August 1999
"Thank you very much for the copies of the interesting study "A Glittering Future? Gold Mining's Importance to Sub-Saharan Africa and Heavily Indebted Poor Countries" which was commissioned by the World Gold Council. The study and your letter raise a number of important issues.
Let me assure you that I share your concerns about the social impact of the long-term decline in the gold price on many low-income countries. This decline has resulted from a variety of factors, including cyclical developments, the diminished attraction of gold as an investment alternative, expansion of mine output, central bank lending of gold, and the declining role of gold as a monetary asset..."
"A pure revaluation of the Fund´s gold would result only in an accounting gain and would not provide the cash resources needed to fund the initiatives. Moreover, a revaluation of gold is inconsisten with the Tund´s Articles of Agreement."
[Mrt: I am having difficulty in understanding this part, any ideas? What inconsistency in particular? Are Articles somehow blocking revaluation? Is it about revaluation of IMF gold in particular or gold price in general?]
"We seek to find a solution for debt relief that will minimize prices on the poorest countries. We seek to find a solution for debt relief that will minimize the impact on the market of the mobilization of the Fund´s gold at the same time while obtaining the needed funding for the ESAF and HIPC initiatives on a timely basis."
[Mrt: The above mentioned study is found here:]
A Glittering Future? Gold mining’s importance to sub-Saharan Africa and Heavily Indebted Poor Countries
• One of the overlooked consequences of the recent gold price fall has been a setback to the development of some of the world’s poorest and most heavily indebted nations.
• Of the world’s 41 Heavily Indebted Poor Countries (HIPCs) more than 30 are gold producers with at least 12 producing in excess of 3 tonnes a year. Production is rising in a number of HIPCs and the group’s total output is likely to be around 200 tonnes, on cautious estimates, in the year 2000, generating, at the price prevailing in mid-May 1999, more than $1.6bn in export revenues.
• In 9 HIPCs, gold accounts for at least 5% of export revenues with around 5 countries likely to join this group in the near future, and possibly more in the medium term. In some countries – Ghana, Guyana and Mali – gold accounts for more than a fifth of export revenue; Guinea and Tanzania are likely to join this group shortly.
• Sub-Saharan Africa, which includes 33 of the 41 HIPCs, currently produces 25.1% of the world’s gold. Three-quarters of this – 18.5% – is produced by South Africa but the share of global output of the remaining countries has doubled since 1990.
• In sub-Saharan Africa, gold comprises 7.8% of total exports of goods; discounting South Africa, 2.5%. In round terms, gold earns sub-Saharan African nations almost $7bn a year in foreign revenue.
• The damaging effect of the gold price fall on these countries goes far beyond the immediate impact on export revenues. Gold-mining’s multiplier effects bring additional jobs, wages and government taxes. Mining facilitates the growth of legal, physical and financial infrastructure.
• Gold mining is sometimes one of the few available channels for diversifying a country’s exports and production, which in turn is often a critical stage in the development process.
• The paradox is that the future growth of these nations is being undermined by precisely those who wish to proffer a helping hand – the International Monetary Fund and the governments of some well-developed countries.
• With the threat of gold sales from the IMF, Switzerland and the UK, the price of gold has fallen sharply. Key members of the IMF have said they wish to see it sell as much as 311 tonnes of its gold to fund debt relief.
• Sales and the threat of sales by central banks and the official sector are the single biggest factor preventing a price recovery. This represents a major obstacle to the expansion of gold mining in underdeveloped nations, and thus diminishes opportunities for genuine, long-lasting and sustainable economic growth in gold-producing HIPCs."