The gold swap will see Citibank provide the loan with interest rates of between 6 and 7 percent, according to experts close to the deal. The gold — equivalent to 3,500 gold bars, worth $1.7 billion at current prices — will be kept in the vaults of the Bank of England, and will be available to Citibank in case Venezuela fails to meet interest payments.
The transaction illustrates Venezuela’s worsening financial situation and follows increasing overtures by the Venezuelan government towards Wall Street, despite the stated enmity of the Miraflores Palace towards the White House.
The arrival of President Nicolás Maduro to power in 2013 saw a reset in relations with international banks. Bank of America-Merrill Lynch has developed a relationship with the Venezuelan government via Francisco Rodríguez, the bank’s chief economist for the Andean region, a former financial advisor to the National Assembly, and a close associate of the Venezuelan government.
The New York office of Deutsche Bank has meanwhile been working with PDVSA in issuing bond allocations to Citgo, the state petroleum firm’s sister company in the United States.
Another example of Maduro’s cooperation with US financial institutions is that of Goldman Sachs, whose brokerage department has bought the Dominican Republic’s debt with Venezuela.
The latest deal with Citibank comes as Venezuela’s international reserves fell to their lowest level in 12 years amid multiple bond payments to overseas creditors and low petroleum prices. The latest data available from the Central Bank of Venezuela (BCV) on Monday, April 27, has reserves falling by around US$2 billion from $20.8 billion at the beginning of the month.
The fall in reserves accompanies economic recession, high inflation, and worsening shortages of basic products.
In 2011, former Venezuelan President Hugo Chávez ordered the repatriation of Venezuelan gold held in the Bank of England in London. At the time, dissenting voices warned that the measure would be counterproductive, as the gold facilitated the country’s financial transactions by acting as a guarantee.
Venezuela, facing a severe shortage of dollars due to the global fall in petrol prices and government policies which have failed to encourage exports, is seeking alternatives to stabilize the country’s political and economic panorama.
On April 20, Maduro announced the receipt of a $5 billion loan from China, renewing financial agreements through which Venezuela has already received over $46 billion from the Asian giant in return for petroleum shipments.
Maduro has meanwhile launched an aggressive campaign to obtain cash from abroad, seeking to sell petroleum shares in return for loans.
One of the contemplated initiatives is the sale of PDVSA’s stake in Dominican refinery Refidomsa, which would net the Venezuelan firm around $200 million. The purchase follows the Dominican Republic’s cancellation on favorable terms of $4 billion it owed Venezuela for low-cost oil purchases, paying only $1.9 million to wipe out the debt.
Since assuming power two years ago, Maduro’s popularity has dramatically decreased amid the growing economic crisis facing the country. The Venezuelan government is set to unveil its electoral campaign ahead of legislative elections later in the year, and hopes through improving the country’s economic situation to salvage minor victories from a dismal outlook in opinion polls.
According to a survey published by polling firm Datanálisis on April 21, the government is set to lose the current majority it boasts in the National Assembly, winning only 25 percent of votes compared to 45 percent for the opposition.
The polling data indicates that citizens of the South-American nation are becoming more aware of high-profile corruption cases involving government officials, including money-laundering via the Banca Privada D’Andorra.