Published by Minyanville
The Venezuelan government has finally implemented laws first announced by President Hugo Chávez in August that ban the export of gold and seize control of all production in Venezuela, part of a larger package to end the “dictatorship” of the US dollar in the socialist state.
“All gold that is obtained through mining activity within national territory will be handed over to the Bolivarian Republic of Venezuela,” read a note in the country’s Official Gazette, after last month’s announcement that the government would take charge of all exploration and extraction in Venezuela. Around half of Venezuela’s gold output comes from illegal mining, a trade in the hands of “mafia and smugglers,” according to Chávez.
The government will hold no less than 55% of any joint venture in the precious metal. A royalty rate of between 10% and 13% is to be set with all Venezuelan gold sold to the state. Rusoro, the country’s only publicly traded gold miner will join forces with state oil (and now gold) firm Petróleos de Venezuela (PDVSA). The Canadian firm will hold the maximum allowed 45% of the new company.
The president also announced last month that he wanted to repatriate gold reserves held in the Bank of England, Barclays and the Bank of Nova Scotia. “We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home,” Chávez said on state television. “It’s a healthy decision.”
It’s certainly a political decision, part of the president’s larger plans to move assets out of western nations. These are thought by many analysts to be down to fear within the government that the country’s assets could be frozen following many expropriations of foreign companies, all of which are demanding hefty compensation. ExxonMobil (XOM) alone is demanding $7 billion after a 2007 expropriation. More than 400 companies have been expropriated this year alone.
As part of the plans, the Venezuelan government is to transfer more than $6 billion of reserves from UK and Swiss banks, among others, to countries including China, Russia and Brazil. There are suggestions that these nations have requested the reserves to act as collateral for the billions of dollars of loans they are giving to Venezuela.
Indeed, Chinese bankers visited Caracas late last week. China already loans Venezuela some $32 billion. Thursday saw the announcement that $4 billion would be added to that figure, coming from the Chinese Development Bank. Earlier this month, the government signed contracts valued at $473 million that are designed to boost steel production. Chávez also announced a socialist car project for Venezuela alongside Chinese automaker Chery. “These quality, good-looking and cheap cars are coming to Venezuela,” the president said. “Only under socialism is this possible.”
In London’s Financial Times, Benedict Mander writes: “Given the magnitude of economic support [China] has extended to Venezuela enabling its wobbly economy to stay afloat—Chinese loans amount to about as much as the rest of Venezuela’s outstanding external debt put together—it’s probably not an exaggeration to say that Chávez will owe some thanks to the Chinese if he wins presidential elections due in just over a year’s time.”
The elections suffered another twist last week as the Inter-American Court of Human Rights (IACHR) announced its decision in the case of Leopoldo López, a leading opposition figure banned from standing for office in 2008. He was accused by the Venezuelan government of corruption, however, was never convicted. The IACHR ruled that López must be allowed to stand, however Chávez laughed off the decision, despite his country’s legal obligation to follow it.
“The government has no option. They must follow what the constitution says,” said López. “Not accepting the decision by the court [is] a sign of weakness by the government and Chávez himself…. Why not accept the ruling? It’s a sign of a weak, authoritarian regime.”
However, Chávez is not one to bow to international pressure and it seems unlikely the López’s situation will change. That has not stopped him celebrating and insisting to reporters that a unified opposition will win the October vote.
The opposition will itself vote for its candidate in February. Henrique Capriles Rodonski is the leading figure, however López has said that he too would like to win the primaries and lead the opposition to the October vote. While the court ruling appears to be in the opposition’s favor, López’s desire to lead it could do it more harm than good as voters are confused and split between him and Capriles.
The Wall Street Journal points out that were the opposition to win the presidential elections, a smooth transition is unlikely with several high-ranking government and military officials already having vowed to follow only Chávez. “Chavismo is here to stay,” Boris Segura, a Nomura analyst told the newspaper. “I think that the opposition would have to be really smart in achieving some sort of orderly transition.”