Many of the proposals for debt relief currently being tabled by G-7 leaders -- including President Clinton -- rely on the sale of part of the IMF's hoard of gold for financing. In itself, using the IMF's gold to benefit the poorest countries through debt relief is a very good idea. Indeed, NGOs have long proposed precisely this move.

Extreme caution is required, however, and a close examination of these proposals may reveal ulterior motives that have grave consequences for the poorest sectors of society. The IMF has been trying for several years to finance its Enhanced Structural Adjustment Facility (ESAF), its low interest loan program for the poorest countries. ESAF is an unpopular program, however, that has been opposed by NGOs around the world because of the harsh structural adjustment conditions attached to its loans. ESAF is also treated with skepticism by the U.S. Congress. Undaunted by criticism, however, the IMF wants to secure enough resources to make ESAF self-sustaining. That would be accomplished by providing funds until around 2004, at which time the IMF calculates that repayments from past ESAF loans would be sufficient to fund future loans. This would free the IMF from having to go hat in hand to Congress and would equip the IMF with a permanent ESAF that will keep it forever involved in the poorest countries and their economic policies.

The IMF has historically been hostile to the idea of debt relief, but agreed in late 1996 to participate in the HIPC initiative. The IMF scored a great coup with its participation, however: the linking of ESAF to HIPC debt relief. To qualify and eventually receive HIPC debt relief, a country must go through between three and six years of an ESAF program -- programs that are notoriously difficult to complete because of their harsh and socially unacceptable levels of austerity.

The IMF also succeeded in linking the financing of the HIPC initiative to the financing of its ESAF program. This means that the IMF will not contribute extra resources to the HIPC initiative, until it receives enough resources for a self-sustaining ESAF.

While the idea of gold sales for debt relief has been tossed around for many years, so has the idea of gold sales as a way to finance ESAF. The danger the various G-7 debt proposals is that gold sales might be used to create a permanent ESAF, with a portion of the gold sales proceeds dedicated to debt relief, serving as a "sweetener" to officials who might otherwise oppose a self-sustaining ESAF.

Such suspicions are fueled by the amount of gold -- 10% of the IMF's stock, valued at about $30 billion total -- the U.S. and others are proposing to sell. Three billion dollars roughly corresponds to what the IMF forecasts it would need for both ESAF and its participation in the HIPC initiative, making the intention behind the gold sales proposals crystal clear. Any decision by the IMF to sell gold will eventually need to be approved by the U.S. Congress. It is quite likely that approval within the IMF Board will happen relatively soon, and Congress could be asked to approve IMF gold sales this year. It is critical that Congress not let the US Treasury Department and the IMF hoodwink it into thinking that gold sales are going purely for debt relief. It is also extremely important that Congress realize that a self-sustaining ESAF would eliminate a crucial leverage point that Congress can use with the Treasury Department to push for needed IMF reform.