Politics

Already Sinking, Venezuela Cuts Loose Its Last Lifeboat-Gold

Already Sinking, Venezuela Cuts Loose Its Last Lifeboat-Gold by James Cordelaine

With the Venezuelan economy now in shambles, everyday life in the South American country has become a living hell. Families wait in supermarket lines for eighteen hours at a stretch just to purchase small amounts of oil, rice or pasta.  Violent crimes are on the upswing, and Caracas, the country’s capital, has become the world’s most violent city. Many government offices are not open even two days a week. Starvation and malnutrition are becoming more common, and well-known companies, like beer producer Empresas Polar, are closing up shop.

Dany Bahar, a fellow at the Brookings Institution and associate at the Harvard Center for International Development, observes the political events behind Venezuela’s economic decline have been gathering force for more than a decade, due to tanking crude prices and the failures of President Nicolas Maduro’s government to address the problem. As credit rating agency Moody’s declares the nation “highly unlikely” to meet its debt obligations this year, Bahar feels Venezuela’s problems will require “significant foreign intervention” by the International Monetary Fund (IMF) or other organizations.

Doubling down on the economic disaster, as Venezuela’s crisis worsens its gold reserves have been shrinking dramatically. According to IMF data, the country’s stockpile has dropped by 36% in one year, and by a whopping 50% just since February.

According to Goldman Sachs Group, Venezuela’s government may have to deplete its international reserves to satisfy its debt requirement through the end of the year. The banking giant also notes that, despite the government’s declared willingness to pay its debt, “the moment of financial reckoning looms larger.” Switzerland is on record as importing over five million metric tons of gold from Venezuela in June.

The IMF forecasts Venezuela’s economy will shrink ten percent in 2016, the most it’s contracted in more than a decade.  In the meantime, its rate of inflation shot up to about seven hundred percent.

As a July 5 article in The Atlantic bluntly states, “Venezuela desperately needs new economic policies—and likely new political leadership to enact them.” There are many who agree, including the county’s opposition-controlled National Assembly, which has challenged the power of the Supreme Court that supports President Maduro.

Under the circumstances, it’s somewhat understandable but highly regrettable that Venezuela is parting with its gold so readily in the midst of this economic turmoil. Gold has traditionally been a source of security for countries looking to hedge against currency volatility; and heaven knows Venezuela has had more than its share of that.  The bottom line?  They’re giving up the only security they have left.

Venezuela

Venezuela

Get our newsletter and our in-depth investor case studies all for free!

  • Will Hann

    True….Vebezuela had “an amount” registered in Switzerland to SELL, they weren’t buying.

  • Axel Saggenstråhle

    Did you even read his post? 5 million metric tons is about 30 times more than the amount of gold ever mined. No one is buying that amount of gold from anyone any time soon. What part of this is too difficult to understand?

  • Croesus

    Yeah, according to USGS the total above-ground gold stock of the planet is some 171,000+ tonnes. If that is correct, importing 5,000,000 tonnes from Venezuela is quite a feat :D

  • Will Hann

    100% CORRECT…. (in reverse) Venezuela has/is selling tons on Gold consistently. This SALE you wrote of was reported n several financial outlets and you can soon look for another round of Gold sales. Venezuela just got 50Millionin loans, which will hold of their next sale for 30-60 days. unless Teas Intermediate trades above $70, by Q3 of 2017 the country will be insolvent.

  • Ahmet

    “Switzerland is on record as importing over FIVE MILLION METRIC TONS of gold from Venezuela in June”. Venezuela seems to have solved their money issues… forever.

  • Lee Ashton

    “…the political events behind Venezuela’s economic decline have been gathering force for more than a decade, due to tanking crude prices and the failures of President Nicolas Maduro’s government to address the problem.”

    Silly journalist Dany Bahar,…government created this problem and never has “solutions.” All government has is another temporary band aid to put on the problem they originally created, and when the band aid falls off, guess what? MORE PROBLEMS!

  • Auldenemy

    Instead of selling off their gold why don’t they back their currency with gold. It would reverse the run away inflation.

  • gheorghhe

    Disgusting. This economic war against bolivarian revolution. Sha.e on you