Nobody quite understands why Chavez wants his gold back. Or maybe it’s just too obvious
Spooked by the recent freeze of Lybian and Syrian assets in the West, Hugo Chavez has announced he would repatriate the whole of Venezuela’s gold reserves held overseas to Caracas. That’s 211 tons, and, to most analysts, more physical gold than anyone’s ever seen moving. It will need around 40 shipments to reach home in its entirety, and with the cost of insurance, transport, protection etc, that’s unlikely to come cheap. So why taking such a brash decision, at a time when the international focus is hardly on Venezuela?
Chavez says, it is time to reduce dependance on countries he’s always considered as hostile - the US, the UK and European nations - and who hold most of Venezuela’s reserves. Surely enough, the West has shown an increasing willingness to use asset freeze as a geopolitical tool. Plus Venezuela’s state oil company, PDVSA, is awaiting the outcome of an arbitration case against Exxon Mobil according to which it would have to pay around $3.7bn. The company is also subject to US sanctions for trading with Iran (who, incidentally, has repatriated its own gold reserves when targeted by international sanctions in the past). So Chavez says, that’s enough pretexts for our shameless ‘imperialist aggressors’ to confiscate our gold - one day or the other. On the face of it, he’s got his reasons.
Or does he? For one, unless Venezuela makes a particularly stupid move on the international scene, it’s hard to see why the country would climb at the top of the Western geopolitical agenda. Apart from ailing Cuba and isolated Iran, Chavez has few allies left. He has alienated most of his neighbours, now keener to follow the Brazilan model instead of the dubious Chavismo. In the wake of the Arab spring and embroiled in financial turmoil, the EU and the US have better things to do than a sudden raid on other people’s gold reserves. The PDVSA argument is no good either - the company is likely to find a negotiated solution to its stand-out with Exxon Mobil, and sovereign nations are normally protected from the outcome of corporate trials anyways.
In fact, most observers wonder whether Chavez’s motives aren’t more obvious than that. Venezuela’s reserves have been dwindling consistently since the beginning of the year, despite oil prices doubling over the past two years. This is mainly due to the administration’s shambolic economic management, and particularly to the woes of PDVSA, whose production has slumped and exports have fallen. And now the country is short of cash. So shipping gold back home, when the commodity is at its peak, is a tempting short-term solution to keep the flow going down the sink hole. You can always liquidate it on the market to get some cash, or use it as a collateral to extract even more loans from friendly countries (Russia, China, Brazil). Or maybe the gold will serve to guarantee loans that already exist, if the aforementioned creditors are starting to be a bit pressing about repayments.
But also, you can stash some of the cash derived from the new reserves in one of your opaque ‘development’ funds, such as the FONDEN (Fund for National Development), without saying much about how it will be spent. And even when you do, it won’t raise many eyebrows if the number don’t quite add up - for example if you end up ‘losing’ $28bn. With elections coming next year, and Chavez popularity tarnished by an electricity crisis, the highest inflation in the world, and worsening criminality, the opposition says the newly landed gold will indeed spend little time in the state’s coffers. It will instead be in short transit to Chavez’s pockets, and soon used to buy votes.
Standard & Poor's seems to agree: the rating agency just downgraded Venezuela’s long-term rating, on the grounds of heightened political risk. With Chavez’s additional decision to nationalise the country’s gold industry last Wednesday, giving him even more control on the country’s wealth, analysts will hardly see the downgrade as a bold move.
Credit photo: NPR