Venezuela Shifts Cash Reserves, Nationalizes Gold in Anti-US Move
President Hugo ChÃ¡vez wants to end the "dictatorship" of the US dollar, and is pulling in foreign reserves as well as finally nationalizing the gold industry.
News of the move was followed on Wednesday by an announcement that President Hugo Chávez is finally to nationalize Venezuela’s gold industry, after years of talk on the subject.
As he returns to Venezuela after a second bout of chemotherapy in Cuba, Chávez appears to be becoming more belligerent by the day. The news has shocked many analysts and is a solid two middle-fingers up to the “dictatorship” of the US dollar from the firebrand leader.
Officials from the Ministry of Finance and Central Bank have been quiet on the news, another sign of Chávez’s top-down style of government in which only he is capable of saying the right thing while lesser officials cower from the limelight.
Analysts are bemused by the move, which they say makes little economic sense as Venezuela would be moving money from secure banks to those that are less so, as well as putting it in currencies that are not reserve currencies, such as the Chinese yuan or Russian ruble.
The reason is ostensibly political and backed up by Chávez’s typically strong rhetoric. However, analysts suggest that there may be fear that the country’s assets are to be frozen. The Venezuelan government may have to pay billions of dollars in compensation to foreign companies that have been expropriated by Chávez. José Guerra, a former official at the country’s Central Bank, told the Journal that another reason could be that China asked for collateral for its billions of dollars of loans to Venezuela.
“We think that China, Russia and Brazil have asked Venezuela to transfer the reserves to guarantee the loans that the government has received in recent years,” opposition lawmaker Julio Montoya told Caracas-based El Universal.
Around 211 tons of the 365 tons of gold reserves held by Venezuela at foreign banks including the Bank of England, Barclays, and the Bank of Nova Scotia are to be repatriated. “We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home,” Chávez said on state television. “It’s a healthy decision.”
Illegal gold mining is a well-known problem in Venezuela; the industry remains in the hands of “mafia and smugglers,” according to Chávez. “Let's convert (gold) into our international reserves because gold is increasing in its value,” he said.
However, Benedict Mander in the Financial Times is wondering what all the fuss is about. “Not only is Venezuela’s gold production relatively insignificant,” says Mander, “but it’s not entirely clear exactly what Chávez is nationalizing anyway, given that most of the sector is under state control already.”
Around half of Venezuela’s gold output is illegal. Attempts to combat the mining have been unsuccessful, primarily thanks to corruption. Most of Venezuela’s legal production, writes Mander, is carried out by state-backed companies, leaving only smaller firms such as the Russian Rusoro, which is not all too successful anyway.
“Frankly, given the consistent failure of foreign companies to succeed in getting any gold out of the ground in Venezuela, the state could hardly do much worse -- even if it doesn’t have a great track record of managing other nationalized industries,” concludes Mander.
As Venezuelan officials look forward to next year’s presidential elections, they must curb soaring inflation -- running at 25.1% over the last 12 months -- and boost spending in social programs which will pull in votes. Already, the government is overseeing prices of many goods, the range of which was increased last month.
The government announced this week that it will temporarily freeze private hospital fees as officials work out how to increase access to health care for the poor. Private hospitals have agreed not to raise fees for two to three weeks, as their own representatives discuss with the government the best way to keep costs down.
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