Venezuela Allowed To Sell UK-Stored Gold To Buy Food And Medicine

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by Tyler Durden
Wednesday, May 27, 2020 - 05:22 PM

One month after Venezuela asked the Bank of England to sell part of the South American nation’s gold reserves held in its vaults and send the proceeds to the United Nations to help with the country’s coronavirus-fighting efforts, Venezuela has reached a deal with the U.N. Development Programme (UNDP) to use a part of its gold reserves Bank of England accounts to finance the purchase of food and medicine during the coronavirus pandemic, its central bank governor said on Wednesday according to Reuters.

The deal comes after the central bank made a legal claim earlier this month to force the bank to hand over part of the 31 tonnes of gold in accounts belonging to the government of President Nicolas Maduro, who Britain does not recognize as Venezuela's legitimate leader due to allegations he rigged his 2018 re-election, and has effectively "temporarily" confiscated Venezuela gold until the country has a leader that is internationally recognized.

Central bank governor Calixto Ortega told Reuters that under the arrangement, the UNDP would receive the funds directly, a move meant to assuage concerns about potential corruption in the management of the money.

"It's not my word, it's not me saying that I am going to buy food, medicine and medical equipment," Ortega said in an interview in his downtown Caracas office. "It's the United Nations who is saying that, and they are not going to be involved in anything dark that is not neutral and independent."

Venezuela for decades stored gold that makes up part of its central bank reserves in the vaults of foreign financial institutions including the Bank of England, which provides gold custodian services to many developing countries, before former president Hugo Chavez repatriated 160 tons of fold, worth more than $11BN at the time.

But the Bank of England has since 2018 refused to transfer the 31 tonnes of gold it still holds to the government of President Nicolas Maduro, whom Great Britain has refused to recognize as the country’s legitimate leader after his disputed 2018 re-election.

The ongoing effort signals that Maduro is desperately seeking financial resources around the world as the country’s economy struggles under low oil prices, crippling U.S. sanctions and a paralyzing coronavirus quarantine.

As Reuters reported last month, it was not immediately evident how much gold Venezuela was asking the Bank of England to sell. At current market prices, Venezuelan gold on deposit at the Bank of England would be worth around $1.7 billion.

Venezuela has lived a six-year economic crisis driven by an collapsing socialist system and a decaying oil industry, driving a mass migration of nearly 5 million people and fueling hyperinflation that has left many unable to obtain basic food. Recent tightening of U.S. sanctions meant to oust Maduro have strangled fuel imports, prompting Venezuelans to wait for hours in fuel stations queues or turn to the pricey black market.

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Maduro’s government has for years raised cash by selling or pledging gold, both from artisanal mines in the southern Amazon jungle and from gold reserves held by the central bank.

The central bank has continued to remove gold from its coffers in the last month with the hopes of exporting it, according to three sources, one of whom said eight tonnes have been removed since quarantine started in mid-March.  Central bank data shows that total monetary reserves fell more than $500 million between April 14 and 24.

Employees who work in the wing of central bank where the gold vaults are located have been arriving to work despite the quarantine, according to Reuters. It was not immediately evident how many gold sale operations had been carried out or where the gold was sold.

Part of the proceeds were used to acquire supplies to refine the country’s crude in response to the near collapse of the country’s 1.3 million barrel-per-day refining circuit.

Six tons of gold had already been withdrawn from the central bank between the end of 2019 and beginning of 2020 and sold to acquire euros in cash, which the institution channeled through local banks and the government used to pay suppliers.

Following the latest withdrawal, the central bank would still have more than 80 tonnes of gold in its vaults, according to sources, compared with 129 tonnes at the start of 2019.