Venezuela may try to get its gold back

Submitted by cpowell on Wed, 2011-08-17 01:21. Section: Daily Dispatches

Venezuela May Move Cash, Gold

By Daniel Cancel and Corina Rodriguez Pons
Bloomberg News
Tuesday, August 16, 2011

http://www.bloomberg.com/news/2011-08-16/venezuela-may-move-reserves-fro...

CARACAS -- Venezuela may transfer billions of dollars in cash and gold reserves held in U.S. and European banks to financial institutions in "allied" countries, opposition lawmaker Julio Montoya said today.

Montoya, speaking on the Globovision network from the National Assembly, said the Finance Ministry wants to transfer more than $6 billion of cash reserves to countries including China, Russia, and Brazil. Of Venezuela's $18 billion in gold reserves, $11 billion is held abroad and could be transported back to Venezuela, Montoya said, citing a document he said he obtained from the ministry.

"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," Montoya said. "President Hugo Chavez has not yet approved the plan."

Chavez, who says he wants to eliminate the "dictatorship" of the U.S. dollar, has called on Venezuela's central bank to diversify its $28.7 billion in reserves away from U.S. institutions. He has also promoted the expanded use of the sucre, a currency created by the Alba bloc in 2009, for regional trade.

Messages left for officials at the Finance Ministry and central bank seeking comment weren't returned.

A large-scale repatriation of gold reserves and transfers of assets to non-U.S. and European banks may cause borrowing costs to rise over investor concerns regarding the guarantee of outstanding bonds, Asdrubal Oliveros, director of Caracas-based consulting and research firm Ecoanalitica, said.

"The country risk would rise because the reserves are seen as a guarantee of payment for foreign investors," he said. "A repatriation of gold reserves could cloud the transparency over actual holdings."

Venezuela has the highest borrowing costs of all emerging-market countries. The extra yield investors demand to own Venezuelan government bonds instead of U.S. Treasuries rose 9 basis points, or 0.09 percentage point, to 1,184, today at 4:15 p.m. in New York, according to JPMorgan Chase & Co.’s EMBI+.

Venezuela's government may want to move funds out of the U.S. to avoid any possible freezing of funds in the future, said Montoya, without providing more details.

Venezuela sold $4.2 billion of bonds due in 2031 on Aug. 5 with an interest rate of 11.95 percent. The government had previously sold $3 billion of securities with a coupon of 12.75 percent in 2010.

The central bank has also transferred some $40 billion of international reserves since 2005 to a government-run development fund known as Fonden to finance infrastructure projects, including $3.25 billion this year.

China has lent Venezuela as much as $32 billion since 2008 to finance infrastructure and social development projects. The South American country, in turn, ships more than 200,000 barrels of oil a day to China to repay the loan. The government is in talks with both Brazil and Russia for new multibillion-dollar loans, Chavez said on Aug. 11.