Venezuela's moves of gold, reserves stir debate
Thursday, August 18, 2011
CARACAS, Venezuela (AP) — Venezuela's Central Bank president said Thursday that on top of pulling $11 billion in gold reserves out of U.S. and European banks, the government aims to move other international assets to buffer the country against economic woes in those regions.
The announcement by Central Bank chief Nelson Merentes came as opposition lawmakers hotly debated the plans, and as analysts said the moves of the country's reserves will make investors see the country as riskier.
President Hugo Chavez announced the decision to move gold reserves back to Venezuela on Wednesday, saying the intent is to help protect the oil-producing country from economic troubles in the United States and Europe.
Merentes said during a congressional debate Thursday night that about $6.5 billion in non-gold international reserves such as bank deposits and bonds also will be "spread out" to diversify Venezuela's assets. Those funds, like the gold reserves, are now held largely in various European and U.S. banks.
"We have to look for which are ... the best places to have our investments," Merentes told the National Assembly, citing a volatile economic climate.
Diego Moya-Ocampos, an analyst with IHS Global Insight in London, said moving the gold and other reserves out of U.S. and European banks is "going to affect Venezuela in terms of credibility in international markets, which could substantially affect the capacity of Venezuela to access credit."
"It could weaken Venezuelan bonds," said Moya-Ocampos, who said Venezuela is running a risk by moving away from the dollar and the euro.
Economist Jose Guerra said the decisions will have an impact on "the perception of risk" for investors as the gold is moved to Venezuela, where there are fewer controls.
Opposition lawmakers denounced the moves during the congressional debate Thursday night, saying the government's plans are ill-advised.
Venezuela currently has more than 211 tons of gold held in foreign banks.
The government is to transfer its non-gold reserves to banks in China, Russia, Brazil and other nations in Asia and Latin America, according to a recent report by Finance Minister Jorge Giordani that was leaked to the news media.
The report said that about $3.7 billion of those bank reserves are at the Switzerland-based Bank for International Settlements. It said Britain-based Barclays Bank has about $1.1 billion and smaller amounts are held at France's BNP Paribas, Deutsche Bank, J.P. Morgan Chase, the U.S. Federal Reserve and World Bank.
Chavez also said Wednesday that the government will nationalize gold mining operations in the South American country, though it was unclear what concrete effects that order would have. Chavez said his government's aims include fighting rampant illegal mining by wildcat miners in the remote forests of southern Venezuela.
Rusoro Mining Ltd., the one private company with significant mining operations in Venezuela, produces gold both at an open-pit mine and an underground mine that is a joint venture with the government. The company, based in Vancouver, British Columbia, said it has had no indication from the government "of any changes to the company's operations."
"We believe the government's announcement is targeted toward the many illegal mining operations in Bolivar state that operate without government permits and continue to cause significant environmental damage," Rusoro President and CEO Andre Agapov said in a statement, noting that informal mining operations destroy forests and pollute rivers with mercury.
"Gold produced by these illegal operations is often smuggled out of the country or sold illegally, and the government is now taking action," Agapov said.
Associated Press writer Fabiola Sanchez contributed to this report.