Venezuela sells off $1.7 billion in gold as the country struggles to stay afloat; 1,600 % inflation on the horizon in 2017
The situation in Venezuela has gotten so desperate that you can no longer buy a Coke-a-Cola due to a lack of sugar cane in the country. This news comes shortly on the tail of the closing of Polar SA, which made the majority of the country’s beer.
Venezuela has been increasingly selling off its gold holdings to raise cash needed to fund imports and pay back its debt as the economy collapses in the wake of lower oil prices. The country divested 16% of its gold reserves in the first quarter of 2016, following the sale of 24% of the reserves in 2015, reports Bloomberg. The 1.38-million ounce reduction was the largest by any central bank since Switzerland sold 3.2 million ounces in the third quarter of 2007, and coincided with continued increases in gold reserves in mainland China.
Desperate for cash
Source: PBS Grocery isle in Venezuela
The country sold $1.7 billion in gold throughout the first quarter, dropping the OPEC member’s gold reserves below $12.1 billion.
The gold swaps indicate the country is desperate for cash. Venezuela and state-owned oil company PDVSA have roughly $6 billion in debt payments to make this year, Russ Dallen of investment bank Caracas Capital Markets told Financial Times.
Crude oil accounts for roughly 95% of the country’s export earnings, and nearly half the federal budget. Between the steep decline in oil prices, mismanagement and corruption, Venezuela appears to be on the verge of collapse.
Venezuelan Minister of Industry and Trade Miguel Perez Abad said last month that the country reached a deal with China to extend loans, and that he would further cut imports, despite growing unrest in the country.
“We have a cash flow problem, but we have sufficient assets for the short-term and will reprofile the debt levels in an intelligent manner. There are various scenarios, and all of the proposals are extraordinary for the bondholders. They have the absolute assurance that their securities are guaranteed,” said Perez.
Needs to sell its oil for $121 per barrel to balance the budget – a far cry from $49
To balance its budget, Venezuela would need to sell oil for $121 per barrel, more than twice the current price. Inflation is expected to hit 481% by the end of 2016 and 1,642% next year, according to TIME.
No electricity due to draught; lacks power generation plants
A draught has also hit the country hard, leaving the country without electricity much of the time. About 65% of the Venezuela’s electricity is generated by a single hydroelectric dam that’s now unable to support demand.
On average, there are 17 demonstrations per day across the country as social unrest continues to grow. President Nicholas Maduro’s approval rating is at 26%, and 70% of Venezuelans want him removed from office. The opposition movement needed 200,000 signatures to trigger a recall referendum. It got 1.85 million.
