WASHINGTON - THE International Monetary Fund on Monday proposed the sale of 403.3 tonnes of gold to bolster its sagging coffers as part of a wide-ranging financial overhaul.

The sale, amounting to some 12 per cent of its gold reserves, could yield around US$11 billion (S$15 billion), IMF officials said, supporting a reorganization of the institution as it seeks to survive a downturn in lending to troubled countries.

Managing director Dominique Strauss-Kahn said in a statement the IMF would use the funds to help shore up IMF finances and create a new endowment with more diverse investments to generate income.

The IMF faces a budget shortfall of some US$140 million for the fiscal year 2008 that ends on April 30.

The sale would affect some 13 million ounces of the IMF's 103.4 million ounces of gold reserves.

IMF officials said the sale would likely take place over several years in an effort to avoid market disruption.

Still, the sale could have a dramatic impact on the market, where according to IMF officials some 500 tonnes are traded annually.

Gold prices recently hit an all-time record above 1,000 dollars an ounce.

An IMF official speaking on condition of anonymity said an average price of about US$850 an ounce would generate about US$11 billion.

The IMF said the executive board agreed to revamp the institution's income model from one that primarily relies on lending to one that 'generates funds from various sources.' The expansion of the fund's investment authority is contingent on a charter amendment that would need legislative action in most member countries. In addition, approval by the US Congress is required for the US executive director to vote for the gold sale.

The reform plan requires approval by 85 per cent of the voting power of the institution's 185 member nations, which is dominated by the US.

Mr Strauss-Kahn hailed the executive board's proposal for a new financial framework for the fund, calling it 'a landmark agreement that will put the institution on solid financial footing and modernise the IMF's structure and operations.'

'We have made difficult, but necessary choices to close the projected income shortfall and put the Fund's finances on a sustainable basis,' he said.

The investment policies would include safeguards to ensure that the broadened investment authority 'does not give rise even to perceived conflicts of interest.'

At the same time, the board considered the medium-term budget for the financial years 2009-2011, which includes 'deep spending cuts,' and approved the administrative budget for the 2009 financial year that begins May 1, 2008.

'With these measures the fund expects to close the projected income-expenditure gap of US$400 million within a few years,' said the multilateral institution, created in the aftermath of World War II with a mission to promote global financial stability.

If approved, the new income model 'could generate' an additional 300 million dollars in income within a few years, the IMF said.

Mr Strauss-Kahn said the board also agreed on a medium-term budget proposal with sharp spending cuts of US$100 million over the next three years.

On the cost-cutting side, nearly 400 jobs are targeted for elimination, officials said. That process, currently under way, includes a period of voluntary departures that ends on April 21.

The announcement came ahead of the spring meetings of the IMF and its sister institution, the World Bank, in Washington this weekend. -- AFP