The recurring theme of Venezuela issuing a bond “backed” by gold

March 31, 2010

Periodically, the geniuses that manage Venezuela’s finances return to the idea that they can somehow issue a bond “backed” by gold production and that this will make it different, special and the country would have to pay less because of such guarantee. The idea was being kicked around last year, so that the Corporacion Venezolana de Guayana (CVG) could issue gold bonds, without having to pay an outrageous coupon on the bond. Since Venezuela yields like 12-13% and PDVSA 13-15%, imagine if CVG which loses money issues a bond. Thus, Minister Sanz has floated the idea of a gold bond many times, he did it again today.

Except it would make no difference whether it is backed or not by gold.

After all, aren’t all PDVSA or even Venezuela bonds backed by oil? Certainly not by the hard work of Venezuelans, no?

The problem is that if Venezuela ever had a crunch time in terms of money, such as the one being predicted by Morgan Stanley yesterday as soon as maybe the end of this year, the fact that the bonds are “backed” by oil, or gold would be simply useless.

Because the oil or the gold is here in Venezuela.

Thus, if CVG or the Central Bank (It is not clear who would be the issuer) “backed” a bond with gold production, the gold is in Venezuela. You would still have to go through Venezuelan Courts to get it. The risk is as good (or as bad) as the recently issued PDVSA “local law” bonds which foreign investors like less than the PDVSA bonds issued internationally. (I disagree with this interpretation, but that is a different story)

What Sanz or Merentes don’t understand is that for the gold “guarantee” to give the Government an advantage, it would have to be deposited abroad in an escrow account, something which I doubt Chavez is ready to do now, or ever.

I actually wrote about this already in August of last year when it was first floated. later Sanz himself said Chavez had approved the idea.

But, forget it. As long as the gold is here, or it will come from future local production, what matters most is who will issue it. CVG will have to pay more than the Republic or the Central Bank. A lot more.

That’s what happens when a country is run by amateurs.

14 Responses to “The recurring theme of Venezuela issuing a bond “backed” by gold”

  1. Thank you for your wonderful post. Very informative and I enjoyed reading it along with your other articles. Thanks for sharing and continue the great work.Excellent text. I am very grateful that I had a chance to look at

  2. Bob Taylor Says:

    So Putin is here which means Russian Mafia is here.
    I learnt a lot about them through unofficially working with them in Finland. They will certainly have a percentage of everything being imported and exported from Venezuela and unfortunately for chavez ..They are VERY well organised !!.
    Should be fun !!.
    Chavez is even looking at deals regarding a space program….Where is this guy ???????

  3. HalfEmpty Says:

    I seem to recall those pictures were linked to last year?

  4. Megaescualidus Says:

    Though I’ll be off topic again, since in this blog there’s been so much discussion about the electrical sector I thought I’d mention this site which has a very informative set of pictures about the current state of Planta Centro

  5. Karl Says:

    Ok.. let’s see. .. the bonds will be backed by gold located in Venezuela, either underground or in a Cenrtral bank safebox .. That’s actually like a non secured bond, no warranty at all..
    Why? The day that CVG would default a payment you will certainly be unable to receive an ounce of gold.. Mr Chavez will say ” THIS GOLD BELONGS TO VENEZUELAN PEOPLE, NOT TO BANKERS AND SPECULATORS.. right Miguel??

  6. Bob Taylor Says:

    I see Putin is coming to get chavez´s money while there is still time.
    He had good training for that…

  7. Roger Says:

    Speaking of bolivarian financing Putin is heading your way with a deal you can’t refuse moving past the technology transfer thing….. lets hope that this proposed “Air Defense System” will catch more lumbering drug planes flying in, out and through Venezuela than the last system they bought from the Russians does.

  8. moses Says:


    This is a frequent problem. The daily report cannot be accesed easily, when you try to get a date you see “//20”.

    What they are saying in ND is that the values of say 25- Mar are reported as 31-March, for examplel.Look up in Twitter “#Guri”, check the values at Opsis and you will see that they do not match for a given day (#Guri are lower).

  9. Gringo Says:

    Moses, one thing I have noted about OPSIS is that the daily report goes offline fairly often. Such as now. IIRC, also yesterday and last weekend. I don ‘t check it on a daily basis, but it seems that about half the time I do, it is offline.

  10. Megaescualidus Says:

    A little off topic, but I thought I’d still mention the following.

    Today it was anounced in the news that in Sudan all major opposition political parties are withdrawing from upcoming presidential elections which are expected to be rigged in order to keep Omar al-Bashir in power. It just reminded me of the National Assembly elections of 2005 in Venezuela when all opposition parties withdrew from the ballot.

    Election rigging is a practice that is clearly going strong well into the new millenium, with which the international community cannot do much (or rather, is not interested in doing much other than “producing hot air” – condemning it as anti democratic, bla, bla, bla…).

    Afganistan’s presidential election of late ’09 is yet another example where even under the “careful watch” of the US Hamid Karzai managed to stay in power in spite of allegedly it being widely rigged.

    It all goes to say that if venezuelan citizens don’t take action Venezuela will continue in this downward spiral (or downfall, or freefall) while the international community, in the best case scenario, is just watching (and more probably, not even watching).

  11. moses Says:


    Sorry for this OT, check this it, seems that the values been reported by OPSIS for the Guri dam level have a”lag” of 5-6 days ….

    Check the Twitter hashtag #Guri:

  12. luigimenx Says:

    Nice Pic!

  13. loroferoz Says:

    “Because the oil or the gold is here in Venezuela.”

    And is controlled by the Venezuelan government. And there would be no guarantees on private property even if it were not.

    Therefore, it is under the administration of Hugo B. S. Chavez. B. S. stand for Bipolar and Socialist. Investors don’t need much more to decide.

  14. HalfEmpty Says:

    I’d go for a Rum Bond if the rum was in a 3rd country netural warehouse.
    Or a Fishhook Bond for that matter.

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