CARACAS, Venezuela, Aug. 18 (UPI) — Venezuela is planning to take over the gold mining industry in the country as part of a wave of nationalizations and will also move the country’s gold reserves from foreign banks.
Critics warned the strategy, a response from President Hugo Chavez to U.S. dollar fluctuations, was fraught with risks for the country as the measure would expose Venezuela to more financial risks, especially if the price of gold falls.
Chavez, who is undergoing chemotherapy and radiotherapy for cancer, announced the latest plans on state television, explaining the moves as part of his effort to eliminate “dictatorship” of the U.S. dollar and move the country’s gold reserves away from banks in North America and elsewhere in the West.
Venezuela is believed to hold gold worth about $11 billion in banks outside the country, although some reports put the figure at $18 billion.
Opposition critics said the move would increase the national economy’s dependence on gold price fluctuations.
Plans for taking over the remaining gold mines outside state control would likely expose the country to legal action by foreign investors in the industry. Canadian Crystallex International Corp. is among three companies with international investors.
Chavez asked Central Bank of Venezuela President Nelson Merentes to take action right away on moving the gold reserves to Venezuela, El Universal newspaper reported.
“I agree, Nelson. Let us bring that gold and have it in our vaults at the BCV (…). For how long are we, the countries of the south, to keep on funding the countries of the north?” Chavez asked. “Take it all,” he said, the newspaper reported.
The gold will be taken to the BCV vaults. Venezuela’s Minister of Planning and Finance Jorge Giordani said officials would be following the president’s orders on diversification or international reserves.
Chavez dismissed opposition criticism of the decision.
“All that the bourgeoisie wants is to dismantle the State of Venezuela and be subordinated to the imperial state,” Chavez said, in a reference to the United States.
Rafael Ramirez, minister of energy and petroleum and president of the state-run oil company PDVSA, said a law to nationalize gold mining industry was being drafted and would “bring order to the industry” and prevent “plunder” of the country’s reserves.
Chavez said the gold mining industry in the country was run by a “mafia” that he was determined to eliminate from the key economic sector.
Central Bank data indicated Venezuela in the first half of 2011 had a declining portion of operating reserves in its total international reserves during the period, an indication of lower foreign currency reserves required for immediate access.
In contrast, the portion of international reserves held in gold climbed 35 percent, from $13.29 billion to $17.91 billion, El Universal said in an analysis of the Central Bank data.
Gold accounts for 63 percent of Venezuela’s total international reserves, the newspaper said.
Jose Guerra, director of the School of Economics at the Central University of Venezuela, quoted by the newspaper, said that “apart from the fact that Venezuela depends on oil prices, the country has now a high vulnerability to fluctuations in the price of gold. So far, the move has worked well, but the risk is quite high.”
If the price of gold falls, Venezuela’s reserves will need to be recalculated at a new price and that could mean a decline in Venezuela’s total international reserves, Guerra said.