As opposition to a plan to sell gold held by the International Monetary Fund mounted in Congress, the Clinton administration acknowledged yesterday that it is seriously considering dropping the idea and is studying other ways of funding a debt-relief plan for the world's poorest countries.
While insisting that the IMF gold-sale plan remains alive until a workable alternative emerges and gains support, the administration effectively conceded that opponents of the sale have severely undercut its political viability.
House Banking and Financial Services Committee Chairman Jim Leach (R-Iowa), whose panel would have to approve an IMF gold sale, this week became the latest in a string of powerful lawmakers declaring the proposal a bad idea because of its potential for hurting poor gold-exporting nations.
Only one month ago, President Clinton and other leaders of the Group of Seven major industrial countries trumpeted the gold sale at their summit in Cologne, Germany, as one of the key elements of a sweeping program to erase the debt burden of about 40 poor countries, including Mozambique, Nicaragua and Vietnam.
The idea was that the $2.5 billion proceeds of the sale would be essentially given to poor countries that agreed to put their economies on a sound footing, enabling them to repay some of their debts, particularly debts to the IMF, so they could direct less of their government revenue to debt and more to education, health and other social needs.
But gold-mining companies vehemently complained that the proposed sale was depressing the price of the yellow metal, which has plummeted about 12 percent this year to $256 an ounce late yesterday.
Their arguments won many adherents despite the insistence of IMF and G-7 officials that gold prices were falling for other reasons, such as surprisingly low inflation. South Africa registered strong opposition, as did several senators and House members from gold-producing states.
So yesterday, the U.S. Treasury beat a strategic retreat. A senior department official told reporters: "We are exploring whether there are alternative ways of mobilizing IMF gold reserves that would avoid any impact on the gold market and would be acceptable to the IMF's member [countries], would command the support of the Congress, and would mobilize adequate financing for the G-7 debt initiative.
"At this point, however, the proposal to sell IMF gold is the only viable option that has broad international support," said the official, speaking on the condition of anonymity.
Instead of auctioning off the gold, one idea under consideration is for the IMF, to sell it to rich central banks -- say, the Bank of Japan. But it isn't clear that any central bank is willing to buy so much gold now, and that approach might not assuage gold producers who would remain fearful that the gold would end up dumped on the market eventually.
Another proposal has been developed by Rep. Spencer Bachus (R-Ala.), chairman of the House Banking subcommittee on domestic and international monetary policy.
Under his plan, the IMF's gold would be returned to rich member countries such as the United States at book value, which is roughly $47 an ounce.
The rich countries might then give the gold to a trust fund, which would repay poor countries' debts to the IMF by giving the gold back to the fund, this time valued at market prices.