Monetary gold wikileaks - 1974ROME15912_b

OSSOLA IDEAS ON: (A) DEFERRED OIL PAYMENTS: (B) SALE OF IMF GOLD BONDS

1. SUMMARY. IN MEETING WITH TREASATT NOVEMBER 14, BANK OF ITALY VICE DIRECTOR GENERAL OSSOLA EXPLAINED BASIC CONCEPT OF TWO IDEAS FOR DEFERMENT OF OIL PAYMENTS AND FOR ISSUANCE OF GOLD BONDS BY IMF WHICH HE HAD FLOATED ON NOVEMBER 11 AT KILLARNEY SEMINAR SPONSORED BY IRISH INSTITUTE OF CHARTERED ACCOUNTANTS. END SUMMARY.

2. OSSOLA FIRST DESCRIBED DIFFERENCES IN POSITINS OF US AND EC ON FUTURE OF IMF GOLD. HE SAID THAT US THOUGHT THAT IMF SHOULD EVENTUALLY SELL ITS GOLD IN FREE MARKET. THIS CONTRASTED WITH VIEWS OF SOME EC COUNTRIES (E.G., FRENTH) WHO WISHED TO RECOUP FROM IMF THEIR GOLD CONTRIBUTIONS. INTENT BEHIND OSSOLA'S IDEA OF SALE OF GOLD BONDS BY IMF WAS BOTH TO PROVIDE NEW FORM OF RECYCLING OF PETRODOLLARS AND TO REACH COMPROMISE SOLUTION RE EVENTUAL DISPOSITION OF IMF GOLD. HE STRESSED THAT HIS IDEAS WERE ENTIRELY PERSONAL, BUT IF THERE WERE SUFFICIENT INTEREST HE MIGHT PREPARE BACKGROUND PAPER FOR SUBMISSION TO EC MONETARY COMMITTEE, G-10 DEPUTIES, OR OTHER APPROPRIATE GROUP. OSSOLA'S PLAN WOULD INVOLVE SALE "ON TAP" OF MEDIUM- TERM BONDS (7-10 YEARS) TO OIL PRODUCERS OR OTHER INTERESTED INVESTORS. BONDS WOULD BE DENOMINATED AND REDEEMABLE IN GOLD AND WOULD PAY LOW RATE OF INTEREST, E.G., 2-1/2 TO 3 PERCENT. ALTHOUGH OIL PRODUCERS AT PRESENT SEEM HESITANT TO BUY GOLD AT PRESENT MARKET PRICE, OSSOLA THOUGHT THAT GOLD-DENOMINATED SECURITIES MIGHT BE MORE ATTRACTIVE TO THEM. AT SAME TIME, AMORTIZATION OF BONDS WITH IMF GOLD WOULD CONFORM TO US PREFERENCE FOR EVENTUAL DISPOSITION OF IMF GOLD IN FREE MARKET. PROCEEDS FROM GOLD BOND ISSUES WOULD BE RE-LENT TO OIL CONSUMERS BY IMF THROUGH NEW CREDIT "WINDOW." INTEREST CHARGED ON SUC LOANS MIGHT BE SIMILAR TO THAT OF IMF OIL FACILITY.

3. ON SUBJECT OF DEFERRED PAYMENT SCHEME (SEE "FINANCIAL TIMES" ARTICLE OF NOVEMBER 12,) OSSOLA SAID THAT THIS IDEA GREW OUT OF HIS CONVICTION, AND THAT OF OTHER ITALIAN AUTHORITIES, THAT MERE RECYCLING OF CONFIDENTIAL ENORMOUS PAYMENTS FOR OIL IMPORTS WOULD NOT SOLVE PROBLEM. REDUCE AT SOURCE AMOUNTS OF CASH INCOME OF OIL PRODUCERS WHICH MUST BE RECYCLED. UNDER OSSOLA PLAN, OIL CONSUMERS WOULD RECEIVE FROM SOME INTRNATIONAL AGENCY NON-REDEEMABLE BONDS DENOMINATED IN SDR'S TO COVER SOME PERCENTAGE OF THEIR IMPORTS OF OIL. THEY WOULD USE THESE BONDS FOR PARTIAL PAYMENT OF THEIR OIL IMPORTS FROM PRODUCING COUNTRIES. (ACCORDING TO "FINANCIAL TIMES" ARTICLE, PERCENTAGE OF OIL IMPORT PAYMENTS MADE IN FORM OF BONDS WOULD BE GRADUALLY REDUCED OVER TIME AND INTEREST PAYMENTS ON BONDS ISSUED TO OIL IMPORTERS WOULD BE TRANSFERRED TOPRODUCER NATIONS.)

4. OSSOLA COMMENTED THAT HE HAD STATED QUITE CLEARLY AT KILLARNEY SEMINAR THAT PROESENT OIL PRICE WAS CREATING IMPOSSIBLE SITUATION. BASIC PROBLEM WAS NOT INABILITY OF IMPORTING COUNTRIES TO PAY FOR OIL, BUT INABILITY OF OIL PRODUCERS TO UTILIZE THEIR CURRENT INCOME FOR PURCHASE OF GOODS AND SERVICES. DEFERRED PAYMENT PLAN WOULD DEAL DIRECTLY WITH THIS PROBLEM, WHILE IMF GOLD BOND SALES WOULD HELP RESOLVE INTERIM FINANCING PROBLEMS.

 5. COMMENT: THESE RATHER COMPLEX SCHEMES ARE TYPICAL OF OSSOLA'S EVER-IMAGINATIVE ATTEMPTS TO SOLVE PROBLEMS AND SEEK COMPROMISES. THEY WOULD, OF COURSE, ALSO CONFORM TO CURRENT PERCEPTIONS OF ITALY'S OWN BEST INTERESTS. VOLPE

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