The Golden Fleece

Like a gentleman's club, the International Monetary Fund has certain rules which members are expected to observe-- even when no one is watching. One rule is that no members can sell gold above $35 an ounce. This is the Fund's way of trying to insure stable currencies and exchange rates among its members. Therefore, Fund members were outraged last week when one of the brethren chucked the rules.

South Africa announced that it would sell 100,000 ounces of 22-carat gold at $38.20 an ounce through the London brokers Mocatta & Goldsmid. (On the basis of 24-carat or "pure" gold, the Fund's yardstick, that meant a premium of about $6.50 over the $35 rate.) South Africa said the gold was not being sold for monetary purposes but for industrial and similar uses, and was thus beyond the Fund's jurisdiction. The Fund thought differently. Since the brokers kept mum on the gold's destination, the Fund suspected that it was going to hoarders, who in some parts of the world will pay $70 an ounce. The Fund protested the sale.

Fiction? South Africa's unsmiling old (67) Finance Minister Nicolaas Christiaan Havenga went right ahead anyway. He ridiculed the Fund's objections. Said he: "It is becoming increasingly clear . . . that . . . the fiction that gold is worth only $35 an ounce cannot endure much longer. This is an international problem and will soon be the touchstone of the success or failure of the Fund."

Havenga had not always flouted the rules. A tough veteran of the Boer War, he became Finance Minister in 1924, and budgeted so conservatively in the next 15 years that he became known as the "Minister of Surpluses." When war came in 1939, he plumped for South African neutrality, split with Prime Minister Smuts, and two years later disappeared into the political wilderness. Last spring he allied his Afrikaaner Party with the race-conscious Nationalist Party (TIME, June 7) and rode back into power when Smuts went out.

He found South Africa's economy, based primarily on its gold-mining industry, in deep trouble and short of dollars. Gold sales looked like the quickest solution. What disturbed the Fund more than the first sale was Havenga's apparent determination to make additional premium sales. If Havenga got away with it, there was no reason why other gold-producing countries, notably Canada, could not do the same thing.

Fact. The Fund let Havenga get away with it this time, saying: "The Fund regrets that [Havenga] has chosen to make declarations which can only tend to undermine [its] exchange policies."

The words were polite, but the threat was evident. If Havenga does not abide by the rules in the future, the Fund has the power to expel South Africa or at least freeze the $15 million on which South Africa is eligible to draw this year. There was a greater threat. The Fund, controlled by the U.S., might persuade the Export-Import Bank to turn thumbs down on South Africa's application for a $100 million loan. In any case, the Fund had no intention of being pressured into boosting the price of gold.

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