Tuesday, April 18, 2017

Venezuela is the new Greece as Maduro forced to sell gold and give up oil assets to deal with debts

At least with Hugo Chavez, the former Venezuelan President understood that gold was an important reserve to help hedge against the nation's declining oil revenues following the Great Recession.  But unfortunately for the people of Venezuela, the individual who followed him into power after Chavez's mysterious death is as ignorant about finance and economics as anyone can be.

But hey, what would you expect from a former bus driver?

Not counting the currency debasement that President Maduro has created which has led to more than a year's worth of hyperinflation from his socialist policies and capital controls, the Venezuelan dictator also chose to lease the very gold his predecessor had returned to the country.  But as things have continued to spiral downward, Maduro is being forced to sell it outright just to get some hard currency to at least pay the military as civil unrest reaches epic proportions.

Image result for maduro hyperinflation
It was almost exactly two years ago when a cash-strapped Venezuela quietly conducted its first, little-noticed gold-for-cash swap with Citigroup, as part of which Maduro converted part of his nation's gold reserves into at least $1 billion in cash courtesy of the US bank. As Reuters reported then, the motive was simple: convert $1 billion of the country's gold into much needed dollars to fund imports and keep the economy from sinking. However, instead of selling the gold outright, a move which would have been met with a firestorm of protests from political opponents and allies alike, leased it to Citi instead. 
Specifically, Venezuela provided 1.4 million troy ounces of gold to Citi in exchange for cash. And while Venezuela would have to pay interest on the funds, it got the key benefit of being able to maintain the gold as part of its foreign currency reserves. After all, the gold was "merely rehypothecated", if only on paper, the actual physical gold would be transferred to an unknown vault of Citi's choosing where it would become an asset effectively controlled by the bailed out US ban (there was a brief scare last July when Citi warned it would close the account of the Venezuela Central Bank, which prompted us to ask if Citigroup was about to confiscate $1 billion in Venezuela gold). 
While it is still unknown if Citi did in fact confiscate a substantial chunk of Venezuela's sovereign gold, what is worth noting is that even just two years ago, Venezuela was in far better economic and social shape than it is currently, which ultimately prompted Maduro's choice of picking a swap instead of an outright sale of the country's gold. Now, however, with hyperinflation rampant, with daily protests, many of which turn violent and deadly, and with the opposition set to unleash the "mother of all protests" on Wednesday even as Maduro has ordered the army to take to the streets, the president has far fewer qualms about preserving even the illusion of stability at this point. What he does need, however, is access to dollars, be it to pay Venezuela's creditors, provide funds to the cash strapped state-owned energy company PDVSA, or simply to pay the army which is the only thing keeping the nation away from a revolution, and Maduro from facing a deadly endgame. 
Which is why Maduro is about to do what he did two years ago, only on a vastly greater scale, and perhaps simply sell Venezuela's gold outright. - Zerohedge
However, this news isn't the only economic calamity for Maduro to hit the wires today as Russia has chosen to seize a Venezuelan oil tanker to use as collateral for the $30 million the nation owes in delinquent port fees.

It is estimated that Venezuela has some of the largest oil reserves in the world, as well as untapped minerals that could save the country from its monetary hell.  But with Hugo Chavez having nationalized (stolen) corporate property and equipment from foreign entities several years ago, Venezuela no longer has the skills, resources, or cash to produce their way out of debt, and thus the Bus Driver in Chief is left with little options but to sell the nation's gold just so he can stay in power a little bit longer.


Meanwhile, Russia is kicking off the Gold trade:

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