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Transcript of a Conference Call with a Senior IMF Official on the Executive Board’s Approval of Limited Gold Sales
September 21, 2009
SENIOR IMF OFFICIAL: Good afternoon. Let me just say a few words of introduction basically covering the main points in the Press Release you already have.
Today, the Fund’s Board took the formal decision to proceed with the strictly limited sale of 403.3 tons of the Fund’s gold, which, if you’ve been following this process which has been in train for quite a while, you will know by now this is what we call the post-Second Amendment gold, which is gold that the Fund has accepted back from members since the Second Amendment of the Fund’s articles.
This, as you also probably know, has been a core element of the Fund’s new income model, which was agreed in April, 2008, that the Fund would sell this specific amount of gold to generate profits that would go into an endowment that would provide income for the Fund on an ongoing basis to help diversify the Fund source of income. And, as was also agreed recently in July, these gold sales will also contribute to providing subsidy resources for the Fund’s lending to low-income countries. So there are two broad purposes.
The new income model was agreed by the Board, as I said, in April 2008, but the formal decision to sell gold was still pending. It required an 85 percent majority of the total voting power, and that decision has been taken today.
The Press Release gives more details, and the background material gives more details on the decision, but this includes modalities for the sale that are designed to safeguard against the risk of any disruption to markets.
There will be two broad forms of sales that the Board has approved. One is that the Fund would stand ready to purchase gold off-market from any official holders—central banks that may be interested in purchasing gold from the Fund.
The second modality would be on-market sales. These sales would be phased over time and basically would follow the approach that central banks that are participating in the Central Bank Gold Agreement have been following successfully now for basically a decade.
And, you are probably also aware that the participants in the Central Bank Gold Agreement recently announced a new agreement which will cover the five years beginning on September 27, 2009, or later this month. And, noted in that agreement which was maximum sales of 2,000 tons over 5 years, or 400 tons a year, they noted in that agreement the Fund’s intention to sell the 403 tons.
The Fund is not a party to the Central Bank Gold Agreement, but the participants of the agreement have noted that the Fund sales could be accommodated within those limits. So they will not add to the total volume of official sales.
The Board also stressed the need for a transparent approach to the gold sales. This will include regular reporting once the sales commence.
On timing, just to say a word on that, the off-market sales could take place now at any time because the sales are authorized by the Board, again, if there is interest from central banks. In the case of the on-market sales, we don’t expect that they will start immediately, and we will make another announcement to markets before we initiate on-market sales, again, to maintain a transparent approach for the sales.
I think those are the main points, but I’d be happy to respond to any questions.
QUESTIONER: Yes, two questions. One is: Is it likely that you will be selling it off-market? Have you had much interest in that?
Secondly, just to clarify the Central Bank Gold Agreement, it is not accurate to say that you’re going to be doing on-market sales in coordination with the central banks or anything like that? It sounds like you’re doing it completely separately, if you do it, but that you will do it a transparent manner, so everybody knows what’s going on, and you’ll stay within those limits that have been set by that agreement. Is that correct?
SENIOR IMF OFFICIAL: Yes. On the second question, yes. I mean, again, the Fund is not a party to the agreement, but it is clear the participants were aware of the Fund’s intentions and have indicated (that) there is room within those limits for the Fund sales, and also we will conduct the sales in a way that is consistent with the modalities that the participants have followed.
On the first, it’s really too early to say. The decision has only just been taken. So we’ll have to see if there is interest, and, if not, we will proceed with the on-market sales.
QUESTIONER: What are other official sources besides central banks that could be involved in the off-market, just as an example?
SENIOR IMF OFFICIAL: I think it would be primarily central banks. They are the main holders of gold in the official sector. So I’m not sure I would expect anything outside central banks. We tend to refer to official holders, but typically it would be a central bank.
QUESTIONER: Thank you.
QUESTIONER: Yes. Thank you. I have two questions. Maybe on the time line, how long could it take to sell this gold? And on the amount that you hope you could get from it?
SENIOR IMF OFFICIAL: It’s hard to say on how long. If the gold is sold on-market, it would, as I mentioned, be phased. So it would be spread over a period, certainly of years. So it’s only more than one year.
How long in that case would also depend on the intentions of the other participants in the Central Bank Gold Agreement and how much scope there is for Fund sales. But if they’re phased, I would think we would be talking about a period of years—but not a long period.
On the price, well, it depends totally on the price of gold and when we sell. The Fund sales must take place at a price that is based on market prices. So if the Fund is selling on-market, it would be at the price that’s prevailing at the time. And, to the extent that those sales are phased, it would reflect, I guess, the average price over that period.
If there are sales off-market which could, if there’s interest, obviously could take place more quickly, they would be by definition off-market. So they would not be on the market, but they would be based on the market price prevailing at that time.
QUESTIONER: Thank you.
QUESTIONER: I was wondering when the Fund initially decided that it was going to sell gold, which—I believe I covered this—was about last year when gold prices were very low. Could you maybe just talk broadly about how—I mean right now gold is really high, how that has affected the Fund’s establishment of the new income model as well as funding for poor countries?
I mean does the Fund think that it can get more from this gold now than it would have a year ago, obviously?
SENIOR IMF OFFICIAL: Yes. Well, the prices are higher now, but we’ll have to see how high they are when we complete the sales. But, obviously, we’ve actually been talking about this for longer than just a year. This goes all the way back to the committee that was headed by Andrew Crockett that recommended this approach. So, actually, what we’re doing is exactly what was recommended by that committee. So this has been a process I think the committee reported it in January, 2007, and recommended a new income model for the Fund, and this was a central element of it.
So, at the time of the committee, the price was significantly lower. At the time that the Fund’s Board agreed on the new income model, which was April of 2008, the price assumption that we were using then, which was broadly the then current price, was about $850 an ounce. Now, obviously, it is significantly higher than that, now just over $1,000 an ounce. So, if it stays in that range, this would generate more income than we were anticipating at that point.
The other thing that has happened since then, of course, is that the Fund has increased lending significantly, which only started in the latter part of 2008, and so it also has significantly more income in the short term from the lending.
What was decided, and this is really I think the basis for the decision that was taken in July, that some of the resources from the gold sales could be used to support the Fund’s lending to low income countries, which was a new element that obviously wasn’t discussed at the time of the Crockett committee or when the Board initially agreed on the new income model.
So (it is) not just because the gold price is higher. I think I would have as a secondary issue, because the gold price fluctuates quite a bit. So, while it’s fine now, we don’t know where it will be over the course of the gold sales.
So we’re not counting on a substantially higher price, but clearly now there could be a higher price. That would provide more income. And then, also because the Fund’s overall income position has, at least for a period, strengthened, the Board considered there was scope to use some of these resources for low income lending.
QUESTIONER: I was wondering if you’ve had any interest yet from any official holders or central banks.
SENIOR IMF OFFICIAL: Not yet. I mean the decision was only taken about an hour ago.
QUESTIONER: Yes, but I’m sure they’ve been thinking about it.
SENIOR IMF OFFICIAL: We haven’t had any phone calls yet, but we’ll see.
QUESTIONER: Okay. Thank you.
QUESTIONER: Yes, I have just a quick follow-up as well on the funding for poor countries. You guys are planning to lend out $17 billion through 2014. But going through the little fact sheet, it looks like you’re only looking to use the gold sales possibly to help subsidize the concessional lending at 0 percent, and, of that, you only need about $2.2 billion in resources from some source including, possibly, gold sales. Is that correct?
SENIOR IMF OFFICIAL: Yes. The total lending that we had projected was $17 billion over I think it was 4 or 5 years. That included something like $8 billion for this year and next year, a much higher amount in light of the crisis.
For that, we actually need two things. We need loan resources, which we’re currently seeking to raise from our members, and we also need resources to subsidize that lending, as you say, for an initial period down to 0 percent and thereafter to the Fund’s normal concessional lending rate.
And, it was agreed in July that most of these resources would come from the Fund’s own resources, for the subsidy resources—not all. So the Fund is still seeking to raise some bilateral subsidy contributions as well. It will be a mix of the two, but predominantly it would come from the Fund’s own resources, and the resources linked to the gold sale would be a significant part of that.
QUESTIONER: Thanks.
QUESTIONER: Yes, I just wanted some clarification on things you’ve already said. You said you would issue another statement to the market when you would be about to sell on the market. Does that mean your preference is for central banks, or just will you wait to see if you have offers from central banks before you go on the market?
Again, I’m quite new to this. So, when you agreed last year, I know you were waiting on the U.S. to authorize the sale, but was there any reason you voted, that the Board voted again on this?
SENIOR IMF OFFICIAL: Yes, on the second question first, they hadn’t voted before. So they could not vote until the U.S. Executive Director could vote for the sale and the U.S. Executive Director could not vote for the sale until she was authorized to do so by Congress. So the vote, the formal vote, did not happen, although the Board had agreed back in April last year on the approach.
I think all directors at that point supported it. The U.S. Executive Director was not in a position to vote for it, and so we obviously had to wait until the U.S. Congress authorized her to do so. So this is the first vote, the only vote that has happened on this sale. On the reason for waiting, I think there are a couple of issues. One, whether there’s a preference: I think if there was interest from central banks, and, as I said, we don’t have any indications of that, but if there was this would enable us to sell the gold, I guess, more quickly.
If the sales are on-market, we are committed to doing it, as I said earlier, in a phased way so as not to disturb markets. So it would take more time. If there’s interest, we could do it faster. So I think that’s one issue.
But the other sort of more practical issue: We need to make the arrangements for an on-market sale. The Fund would do this through an agent. We would not do this ourselves, and we need to make those arrangements. That will also take a little time.
So, and the reason for the subsequent announcement is just to be fully transparent, not to have any surprises for the markets. I think they are now very familiar with this process, and this decision today shouldn’t come as any surprise.
But we want to continue that strategy which we’ve followed from the beginning, of being very up-front with markets on what’s going on. So, before we initiate the sale, the Board felt it would be useful to just inform markets we’re about to do it.
QUESTIONER: But you did say you would issue another statement if you, when you plan to do it on the market, didn’t you?
SENIOR IMF OFFICIAL: Yes. So this is just really to be transparent when we are starting. So there will not be any on-market sales initially because it will take a little time for us to make the arrangements for those sales.
So there could be a period where nothing is happening, and we, or at least the Board felt that it would be consistent with the strategy we’ve followed of being very clear to markets about what we are doing, and that every step we are taking is consistent with what we previously announced. They felt we should make another announcement, which would be, I would imagine at that point, very short, that we would be initiating on-market sales.
Does that answer your question?
QUESTIONER: Yes.
QUESTIONER: When the U.S. Congress authorized this, one of the conditions was that $4 billion at least of the proceeds go toward grants or debt relief to low income countries. President Obama, I guess, did a signing statement saying he wasn’t bound by that.
I just wanted to know, just for the record, regardless of the signing statement, how much would you estimate, what percentage and also dollar value if you could put on it, will actually be directed toward lower income countries, concessional lending?
SENIOR IMF OFFICIAL: I’m not sure I understand.
QUESTIONER: There was a whole thing in the Congress where various conditions were voted on by Congress, and then there was a signing statement which means that I guess the U.S. isn’t bound by them.
But how much, I guess just based on your press release, how much of the money that will be raised by the sale will actually be for programs for lower income countries?
SENIOR IMF OFFICIAL: Again, the total lending will be $17 billion. The subsidy resources that will be required to support that is $4 billion. That is the $4 billion.
QUESTIONER: Okay.
SENIOR IMF OFFICIAL: Most of that will come from the Fund’s own resources in different forms, one of which will be, indirectly, the proceeds from these gold sales. There are also resources the Fund already has, but most of this will come from the Fund’s resources. So this is consistent with that announcement. There’s been no change in the plans that were agreed in July.
QUESTIONER: Thanks.
QUESTIONER: Yes. I wonder if you have any idea, when you actually conduct on-market sales, how large each sale would be. Do you have any sort of idea, at a time, or is that dependent on anything going on in the future?
SENIOR IMF OFFICIAL: Well, I mean typically the details we would still need to work out, but typically an on-market sale, we would phase it. As I said, it might be over a period, two or three years or something. So … we would do it on a fairly even basis. We wouldn’t do it in large amounts. It would likely to be relatively small amounts being sold either on a daily basis or a weekly basis. But, obviously, if you’re selling 100 or 110, 150 tons a year, and you spread over a year, it’s less than a ton a day, or something in that range, if you just did it totally evenly. So the actual amounts going onto the market at any one time would be relatively small compared to the size of the market.
The whole objective of the strategy, which a number of central banks have followed and it seems to have worked very well, is exactly this—to have a sale that’s spread over time, relatively small amounts that the market can easily absorb.
QUESTIONER: Right. Okay. Thanks.
QUESTIONER: Yes. Hi. I just wanted to clarify the last item. On the $17 billion that’s supposed to be available for the poor countries from now through I think it’s 2014, and you said $4 billion will be needed for subsidies. So most of that will come from the IMF, including whatever you get from the gold, correct?
SENIOR IMF OFFICIAL: That’s correct.
QUESTIONER: Okay. But it’s $4 billion just to make that money, the $17 billion available in a concessional way. Am I hearing you correctly?
SENIOR IMF OFFICIAL: Yes, exactly.
QUESTIONER: Right. It’s not $4 billion of the $17 billion, right?
SENIOR IMF OFFICIAL: No, $17 billion is the amount of the loan, and to subsidize that we need $4 billion.
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