The International Monetary Fund agreed last night to put the IMF's finances on sounder footing by selling some of its gold and investing the profits in government and corporate bonds, and possibly equities.
IMF Managing Director Dominique Strauss-Kahn described the agreement to overhaul of the IMF's 62-year-old financial mechanism as "a landmark decision".
Until now, the IMF, which played a central role in bailouts of countries in Asia and Latin America in the 1990s, has relied on lending to countries to fund its operations. But with fewer crises over the past few years, the IMF has lost income and faced a growing income deficit.
"We have made difficult but necessary choices to close the projected income shortfall and put the fund's finances on a sustainable basis, but in the end it will make the fund more focused, efficient and cost effective in serving the needs of our members," Mr Strauss-Kahn said in a statement.
Under the proposal, still to be approved by the IMF's 185 member countries, an endowment will be created with the sale of 403.3 tonnes of the fund's 3,217 tonnes of gold stocks, an IMF official said.
Approval of the US Congress will be needed before any gold sales could begin.
An IMF official said the gold would be sold on the market or offered to central banks to acquire at market prices. The sales would be coordinated within an existing European central bank gold agreement, which allows for the sale of about 500 tonnes of gold a year.
"We would either sell to the market or, if we can, sell it to a central bank," the official said, adding: "It will start as soon as we get the green light for the sales and will be spaced over several years."
The official said expanding the IMF's investment role would require changing the IMF's charter, a move that will need the approval of legislatures in most of its member countries.
"An endowment of say, $6 billion or so, will be relatively small and, secondly, we will handle this through investment managers very much in terms of a hands-off attitude ... to avoid any perceived conflict of interest," the official added.
"We will be investing in government bonds and later in corporate bonds. We will stay in fixed income portfolio initially, and may get moving into equities, but these are still discussions we will have with the executive board," the official added.