Authored by Peter Christian Hall, originally posted at Reuters,
In August 2011, while undergoing cancer treatments that ultimately failed him, Venezuela’s President Hugo Chávez began withdrawing 160 tons of gold from U.S., European and Canadian banks. “It’s coming to the place it never should have left. ... The vaults of the central bank of Venezuela, not the bank of London or the bank of the United States. It’s our gold,” he said on national television as crowds cheered armored trucks carrying an initial bullion shipment to the central bank.
While Chávez suggested the gold repatriation might forestall a Libya-style seizure of Venezuela’s assets by Western powers he had antagonized, IHS Global Insight analyst Diego Moya-Ocampos told Reuters it might stymie potential claims by foreign corporations seeking compensation for nationalizations they had endured. Central Bank of Venezuela President Nelson Merentes said it was “an act of financial prudence and sovereignty” intended to guard against problems in the international markets.
The shipments, conducted by air after much talk of alternate delivery modes, concluded five months later in a celebratory caravan. (Germany’s doing it, too: Berlin has ordered repatriation of 674 metric tons of gold, worth $34 billion, from Paris and New York.)
The Caracas hoard would today be valued at around $9 billion, were it not for the fact that Venezuela has been selling it — about $550 million worth in the first eight months of 2012, according to the International Monetary Fund. Did further sales follow over the past six months, with proceeds partly paying for the public largesse that helped fuel Chávez’s victorious up-from-the-sickbed presidential run?
Hint: Even with the additional cash from gold sales, Venezuela’s foreign exchange reserves hit a five-year low in September, three weeks before Chávez won a narrower-than-customary victory over Henrique Capriles, who will represent the opposition in a presidential election to be held on April 14.
Campaigning to hold the presidency for the Bolivarian Revolution will be Chávez’s designated successor, Nicolás Maduro, a former foreign minister, National Assembly speaker, union leader and bus driver who marched to free Chávez after the visionary army major’s attempted coup put him in jail for two years. A prominent target of Chávez’s rebellion in 1992 was Miraflores Palace, the executive office complex at which he later lived and where Maduro now works.
Several blocks east of Miraflores Palace on Caracas’s broad Avenida Urbaneta stands the 26-story Central Bank of Venezuela, whose vaults are said to contain what remains of the repatriated gold.
At 50, Maduro has much to worry about. In October, challenger Capriles won 44 percent of the ballots against Chávez, then behaved gracefully in defeat. Capriles will be supported by the elements that staged a nearly successful coup against Chávez in 2002, details of which are still disputed. At the time, the U.S. blamed Chávez for the uproar, and documents later surfaced to show that the George W. Bush administration anticipated Chávez’s ouster. (A remarkable and controversial movie, The Revolution Will Not Be Televised, aka Chávez: Inside the Coup, was shot by an Irish film crew that documented the ins and outs of Chávez’s dramatic comeback; it can be viewed via YouTube.)
As Venezuelans look ahead, they are well armed. Global Firepower, a website that assesses the world’s militaries, ranks the country No. 40 in strength, behind only much larger Brazil and Mexico among Latin American nations. On the ground, Venezuela endures a harrowing crime rate. With one-fourth of Mexico’s population — and no formal cartels waging wars — the nation reported 161 percent as many murders as Mexico did in 2011. Reported abductions for money increased twentyfold from 1999 to 2011 (though many kidnappings are resolved privately, leaving no statistics). After 45 years in Caracas, Norway closed its embassy in 2012, preferring to operate from Bogota.
No one seems to know how or why violence is so endemic. For all the complaints about falling oil production and capital flight, Venezuela’s quality of life improved at the third-fastest rate in the world during the second half of Chávez’s presidency. Income inequality fell markedly and citizens expressed considerable satisfaction with life there.
Still, the country suffers towering levels of venality. In 2012, Transparency International’s global corruption index (see its map) rated Venezuela Latin America’s most corrupt nation. It ranked as the ninth-most-corrupt country in the world, trailing Iraq in a four-way tie with Burundi, Chad and Haiti.
Thus, there is something less than $8.5 billion in untraceable gold bullion stashed in an extremely politicized city that’s simmering with grudges and dreams. Should strife erupt in Caracas, thousands would inevitably covet a plentiful supply of metal that’s as liquid as can be when it comes to transactions. Physical gold is modestly short of priceless to a criminal. What mala gente or dissident generals wouldn’t want some of Chávez’s rich legacy?
So far, Chávez’s unusual choice to keep so much of his country’s foreign reserves in gold has paid well: Paper profits from the steep rise in the metal’s price surely outweigh proceeds from his pre-election bullion sale. But his demise leaves a glowing bomb buried underneath a tense society. It will take leadership and luck to keep the benefits of Venezuela’s bullion flowing peacefully and productively.