Archive for August 15th, 2011

Not Much To The “Move” in Venezuela’s International Reserves

August 15, 2011

I found this report about Venezuela moving its international reserves somewhat funny. Really. What’s the problem?

In reality, there isn’t much to move in the end and I would like to see if it is true that Venezuela will move back its 11.76 million Troy ounces of gold. To give you an idea, 11.76 million Troy ounces of gold happens to be some 365 Tons of gold. Since each Ton is about 907 Kilos, that is a lot to move back to Venezuela. About 150 armored trucks at each end. Moreover, strategically, having it abroad is better for the Government, they can sell it and nobody would even know.

I had not looked at Venezuela’s gold reserves in a while, but a comment from a reader made me look and calculate again and lo and behold, Venezuela’s International reserves are roughly at the same level as Jan. 1st of this year, only because gold has gone up a lot this year. The graph below shows the value of the gold in the country’s reserves, where I have used the accounting of the Venezuelan Central Bank, which according to the auditors is that the price used is the average for the last 60 days:

As you can see, gold reserves have gone up from a bit above US$ 16.25 billion on Jan. 1st., to roughly US$ 18.4 billion on August 10th., for a difference of US$ 2.15 billion dollars. Given that reserves were US$ 28.77 billion that same day, this means that reserves have actually dropped US$ 1.47 billion since Jan. 1st (when they stood at US$ 30.24 billion) despite much higher oil prices. But since gold reserves have gone up by US$ 2.15 billion, it turns out that reserves are down even more than it appears at first sight, a total of US$ 3.6 billion.

But more importantly, of the US$ 28.77 billion, US$ 18.4 billion were gold, that represents essentially 64% of all reserves. Thus, the reserves that can really be moved, since I don’t believe the gold will be moved, is “only” US$ 10.37 billion dollars. I think gold reserves should be here anyway.

Except form that you have to subtract about US$ 2.08 billion of “special drawing rights” which Venezuela has at the IMF, which would only leave US$ 8.29 billion to move.

Then, the Central Bank bought US$ 1.7 billion from PDVSA in the PDVSA 2013 bond and was assigned about US$ 1 billion of the Global 2031 bond, that’s US$ 2.7 billion of Venezuelan bonds, which in the end it does not matter whether they are here or in Ruanda, we know the owners and the Central Bank needs them close and handy to sell into the SITME foreign exchange system. Subtract those US$ 2.7 billion and you have US$ 5.59  billion to “move”. Then there is Venezuela’s contribution to the IMF, about US$ 300 million and you have only US$ 5.29 billion.

There could be other things, but we don’t find out about them until its very late. The Central Bank regularly lends money to PDVSA, we don’t know when they do it, we know when it gets paid back. Suppose that’s zero right now and this “newsy” move would apply to about US$ 5 billion in investments.

Five billion? In a country where a US$ 29 billion discrepancy does not even make the news except in obscure blogs one and/or two?

Who cares if they move it?

Note added: Here is the “Punto de Cuenta” for the transfer of reserves. The proposal is indeed to transfer the “operating reserves” within two months. There is a longer term plan to move the gold back to Venezuela (What is not in Venezuela). However, it says this will violate the rules. Now, the reason seems to be to protect them form being frozen by the Federal Reserve. Whether they are in Switzerland (where 60% are) or in the US, if it is part of the compensation system and they are worried the funds can be frozen. This may have to do with the concerns about helping Iran and that the US imposes a financial ban on Venezuela. But it may also have to do with fears that Exxon will sue to freeze Venezuelan assets if it wins the arbitration case. I would bet is the former, not the latter, sovereign nations have protection from such suits.

Now, the US$ 5.25 billion figure is even lower, because there are about US$ 900 million more in there that is not that liquid that I had not counted, so we are talking about US$ 4.3 billion in the end.