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Transcript of a Background Briefing on Gold Profits Distribution for Low-Income Lending by the International Monetary Fund
September 28, 2012
MODERATOR: Good afternoon to all the reporters who dialed in. Thank you. Sorry, we're starting a few minutes later than planned just because we've also been talking to some of the other interested parties, but we'll obviously not take up too much of your time.
I'm joined today by a number of representatives from the Finance Department and the Strategy, Policy and Review Department. The basis of this call will be on the record but attributable to “IMF officials”. Before we start, you should all have received the press release issued this afternoon announcing that the Executive Board had approved the distribution of the remaining windfall gold sales profits as part of a strategy to make low-income lending sustainable. So we'll be able to answer your questions on that. But just before we go into that, my colleague will give you a quick resume of how we got here and then we'll go into a question-and-answer session where you can ask for any clarification.
IMF OFFICIAL 1: Thank you. To provide the background here, the IMF has [188] member countries; of those around 70 of the poorest countries are eligible for subsidized financial support from the Fund under the Poverty Reduction and Growth Trust. Back in 2009, on the brink of the crisis, we significantly expanded our capacity to provide support under this concessional window to low-income countries for the period of the crisis and aftermath, for roughly a five-year period. Some of the additional resources needed to provide that additional support were provided using excess profits from gold sales that the IMF was undertaking at the time to bolster our income endowment. That package, as I said, provides resources approximately through 2014 to meet higher demands that we've seen since the crisis broke. The problem we were facing is that after 2014, without additional resources on top of the 2009 package, we would see our capacity to provide concessional lending drop dramatically, by about 60 percent, which would be well below what we see as demand for these resources in our projections for the medium- and longer-term. So we had a big funding gap in the Poverty Reduction and Growth Trust (PRGT), and the debate over the last couple of years has been how to fill that gap.
What we have today is a landmark decision by the Executive Board after a two-year debate in which the board was very divided. Some felt that the remaining profits that we had from gold that had not already been earmarked should be used for other purposes like adding further to our endowment or keeping in reserve to address credit risks. But over the last couple of months we've seen the membership come together and agree that the best use of the resources at the present time would be to fill the funding gap in our concessional lending trust and so that's what they agreed to move forward on today. The use of the gold is part of a strategic framework for putting our concessional trust on a self-sustaining basis, which has three elements. One is a base envelope of resources that will meet the demand in normal times and the gold will help basically establish that base envelope. We also have agreement that if we get exceptionally high demand for a protracted period, there are various measures that the Board is willing to take, including possible raising of donor resources to supplement the trust if needed. And the third principle is that the facilities that we use to lend this money will now be designed to fit basically within the resource envelope that we have.
This is the content of the agreement today. We now begin a second-stage of the process that has to take place. Having agreed to use the gold for this purpose, we now have to wait until we have commitments from all the members individually that they are willing to provide their share of the gold for this purpose. Once they've done that, we will be able to distribute the gold and have it be applied to the resources of the trust. This exercise may take time, but the key decision was the one that was taken today, which was the decision in principle, and so now we can work on implementation.
MODERATOR: Thank you. I think we can go to questions if we have any from the participants.
QUESTIONER: Thanks for taking my question. Bit of a basic question, but why can't you just put the money into the trust for the low-income countries? It's almost like you have to give it to the countries and then get most of it back. Is that some kind of agreement from them? A procedural question, and I just wanted to make sure I understand it.
IMF OFFICIAL 2: It is a very important question and there is a simple answer. The resources within the general resources account belong to the entire membership, particularly the gold profit. That means that we can't simply transfer them from this pool of resources, which are available to the entire membership, into the trust, which is only available for low-income countries. They individually have to agree that their share of the distribution can be transferred to the trust, which means we have to go through this distribution. It is cumbersome, but it's a requirement that is legally binding.
QUESTIONER: Then just a follow-up question. When did you agree to the first part, the distribution of the first part of it, like US$1.1 billion? And do you expect it to take as long to kind of get those commitments, because it seems like you haven't fully gotten there.
IMF OFFICIAL 2: The original board endorsement of the strategy to use the SDR 0.7 billion dates back to 2009. However, the actual decision, equivalent to the decision that was taken today for the distribution of the remaining windfall profits, was actually back in February of this year. Since then we have been working hard to get the assurances we need from the membership that will receive their share of the SDR 0.7 billion--I'm using SDRs, I don’t mean to confuse you: US$1.1 billion--their share of that, so that it or equivalent amounts can be transferred to the PRGT.
SPEAKER: That's pretty fast that you got the 87.4 percent.
IMF OFFICIAL 2: Yes, it’s good.
QUESTIONER: I wanted to clarify a couple of things. The resources, the windfall profits, or at least the 90 percent, will they go to be lent as resources, or will they be used to subsidize the zero percent interest rate? Because I remember in 2009 some countries had pledged to help -- some were for subsidizing the zero percent interest rate, and I just wanted to clarify where we stand on the role of lending.
IMF OFFICIAL 2: These resources are needed to subsidize the lending rates. Right now we use those resources to charge a zero rate of interest. We have to use these resources to meet the difference between the normal unsubsidized interest rate at which we are effectively borrowing from the membership and then the much lower interest rate, currently zero, that the PRGT borrowers pay. So these resources are not lent -- the gold windfall profit will go into a separate account where they will earn income, and it is that income that pays the subsidy needs of the Poverty Reduction and Growth Trust as we lend at subsidized interest rates.
QUESTIONER: You say “for now” --is it going to change?
IMF OFFICIAL 2: The board decided in 2009 to give interest relief during the crisis. That was extended through to the end of this year. Under the current set-up, the new framework that was established, with interest rates currently very low the default position would be that on most of our lending under the PRGT the interest rate would stay at zero. The Board could revisit this issue and decide that they want to extend the zero interest rate to all low-income countries facilities but, in any case, the bulk of it will stay at zero. The question is whether, as this was a response to the crisis, should there be a continuation of this response. This is something the Board would have to come back to.
MODERATOR: Thanks. If there are no more questions from the participants, then thank you very much for participating this afternoon.
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