Latin Americn Herald Tribune

Caracas, Friday, November 29,201

By Ezequiel Minaya & Kejal Vyas


CARACAS — The head of Venezuela’s central bank denied Thursday that the government had deals in place with U.S. banks that aimed to counter a shortage of hard currency in the import-dependent economy.

Central bank President Eudomar Tovar was responding to reports that Venezuela, which has grappled with a scarcity of basic goods, was considering using a portion of its vast gold reserves as backing for a loan from Goldman Sachs of around $1.6 billion.

Mr. Tovar also rebutted speculation that the left-leaning government was negotiating naming Bank of America as an intermediary to clear as much as $3 billion in backlogged payments to importers. Mr. Tovar, speaking at a news conference Thursday, downplayed the two possible transactions as “unofficial” proposals, though he didn’t clarify.

Though Venezuelans have scrambled to fill their shopping carts with common groceries like cooking oil, sugar and toilet paper, the government has maintained that it has enough dollars to keep imports flowing and has refused to publicly consider selling any gold.

Late leader Hugo Chávez crammed the vaults of the central bank with gold on the heels of soaring prices, placing a massive bet that his handpicked successor, President Nicolás Maduro, has stood behind even as prices for the precious metal have slipped, denting international reserves.

A gold swap deal would make sense since it would allow Venezuela to continue recording those gold holdings as international reserves even while using them as collateral for the loan, said Russ Dallen, a partner at Caracas Capital Markets.

A potential deal with banks could give the sign that Venezuela “is desperate for cash” after years of heavy government spending, Mr. Dallen warned. “For years, Venezuela has been writing checks that it can’t cash,” he added.

Mr. Tovar didn’t say whether negotiations had been held or are still under way. The central bank “doesn’t have any kind of operation” with the banks, he said.

Mr. Tovar also addressed concerns that Venezuela’s international reserves had fallen to as low as $20.7 billion in recent weeks, levels not seen in nearly a decade. He said the liquid portion of reserves, slated for day-to-day operations, was at normal levels.

On Wednesday, a central-bank official speaking anonymously because he wasn’t authorized to make public comments said the government was in talks with the banks. According to documents seen by The Wall Street Journal, Venezuela was considering using 1.45 million ounces of gold as collateral for a loan that would have cost some $800 million in interest. Bank of America, in its transaction, would have charged a 1.25% fee, the documents said. Mr. Tovar declined to respond to comments from the unnamed official. Bank of America and Goldman Sachs also declined to comment.

Strict capital controls in Venezuela restrict access to dollars to only government channels. Bottlenecks in the centralized system have kept greenbacks from importers, stirring shortages and inflation that has skyrocketed to a 12-month rate of nearly 55%.

President Maduro has attempted to turn around the economy, which posted anemic growth of 1.1% in the July through September period, by spreading price controls to more goods. Mr. Maduro, following the playbook of Mr. Chavez, has blamed economic woes on allegedly price-gouging businesses and has jailed dozens in connections with a nationwide crackdown. Mr. Maduro was elected into office after the death of Mr. Chavez in March from cancer.

Many analysts say, however, that during his 14 years in office Mr. Chavez sent public spending soaring while oil production sagged, straining Venezuela’s dollar supply.

Though experts have expressed concerned over Venezuela’s tumbling reserves, the oil-rich country keeps billions of dollars in a series of opaque off-budget funds, making it unclear exactly where Venezuela’s hard currency position stands.

The government maintains that it has more than enough dollars to keep the economy afloat once greedy shopkeepers and the currency black market are dealt with.

According to the World Gold Council, Venezuela has the most gold of any country in Latin America both by volume and percentage of overall international reserves. According to council data release this month, Venezuela holds 367.6 metric tons of gold, which makes up just under 70% of reserves.

Mexico is a distant second in the region with 123.5 metric tons of the precious metal, according to the World Gold Council.

Venezuela’s sinking reserves can be explained in part by the fall of gold prices, which have approached lows for the year this month. In a research note, UBS placed its one-month gold price target at $1,180 an ounce and its three-month target at $1,100 an ounce. WSJ DJ