Wednesday, June 19, 2019
Home World How Venezuela transforms its useless banknotes into gold

How Venezuela transforms its useless banknotes into gold

EL CALLAO, Venezuela (REUTERS) – Venezuela's most successful financial operations in recent years have not taken place on Wall Street but in primitive goldmine deposits in the south of the country.

A man melts gold in his workshop in Puerto Ordaz, Venezuela, on August 7, 2018. REUTERS / William Urdaneta

With the country's economy collapsing, an estimated 300,000 Fortune hunters have descended into this mineral-rich jungle area to earn a living by pulling gold-blasted earth from makeshift mines.

Their picks and shovels help support the left-wing government of President Nicolas Maduro. Since 2016, its administration has bought 17 tons of the metal, worth about $ 650 million, from so-called Artisan miners, according to the latest National Bank data.

With the almost worthless banknotes of the country paid, these amateurs in turn deliver the government with hard currencies to buy much-needed imports of food and hygiene products. This gold trade is a hit on the international markets. Nevertheless, the United States is using sanctions and intimidation to keep Maduro from using his nation's gold to stay afloat.

The Trump administration urges the UK not to release $ 1.2 billion of gold reserves that Venezuela has stored in the Bank of England. US officials recently scourged an Abu Dhabi-based investment firm for their gold purchases in Venezuela and warned other potential foreign buyers about their withdrawal.

The existence of Maduro's gold program is well known. How it works is not.

To get a glimpse of the world, Reuters traded Venezuelan gold from the steaming jungle mines, through the central bank in the capital, Caracas, to gold refineries and food exporters abroad, and spoke to more than 30 professionals. These included miners, intermediaries, merchants, scientific researchers, diplomats and government officials. Almost everyone demanded anonymity because they were not allowed to speak publicly, or because they feared retaliation from Venezuelan or American authorities.

Hence the portrait of a desperate experiment in the industrial policy of laissez-faire by the socialist leaders of Venezuela. US sanctions have hammered the nation's oil industry and restricted its borrowing. The formal mining sector was decimated by nationalization. So Maduro has released freelance prospectors to promote the nation's treasury with virtually no regulation or government investment.

The Bolivarian revolution now relies heavily on Ragtag workers, such as Jose Aular, a teenager who says he has contracted malaria five times in a Wildcat mine near the Venezuelan border with Brazil. Aular works 12 hours a day, hauling sacks of earth into a small mill that uses toxic mercury to extract precious metal stains. Miner accidents are common in these shaky operations, the workers said. Likewise shootings and robberies.

"The government knows what's happening in these mines, and it benefits them," said Aular, 18. "Our gold is in their hands."

Maduro also received crucial support from Turkish President Recep Erdogan, a strong man who has also worked with the Trump administration.

Venezuela sells most of its gold to Turkish refineries and uses part of the proceeds to buy that nation's consumer goods, as people with direct knowledge of the trade say. Turkish pasta and milk powder are now part of Maduro's subsidized food program. Trade between the two nations has increased eightfold in the last year.

But control is intensifying as Venezuela's policy reaches boiling point. In recent days, many western countries have recognized Venezuela's opposition leader Juan Guaido as the legitimate president of the South American nation.

Maduro's adversaries have called on foreign buyers of Venezuela's precious metals to refrain from doing business with what they call an illegitimate regime.

"We will protect our gold," opposition lawmaker Carlos Paparoni said in an interview with Reuters.

gold fever

The Gold Route begins in places like La Culebra, an isolated jungle area in southern Venezuela. Here, hundreds of men work in crude oil mines that were at home in the 19th century. They dig mined debris with hoes in hand-dug tunnels and haul it out with pulleys and winches.

Their activity is to devastate the fragile forest ecosystems and spread the diseases transmitted by mosquitoes. Miners complain of setbacks by military troops guarding the region, whose murder rate is seven times the national average. Venezuelan Defense and Information Ministries did not respond to requests for opinion.

The miner Jose Rondon is in need. At the age of 47 he came in 2016 with his two grown sons from the northeast of Venezuela. His bus driver salary failed to match Venezuela's hyperinflation, which is set to hit 10 million percent this year by International Monetary Fund projects.

The three men earn around 10 grams of gold a month from the groundbreaking work. Yet it is about 20 times what they could earn at home.

"I'm feeling much better here," said Rondon, resting in a raw, hammock-lined bunkhouse.

Gold in hand, the miners go to El Callao town to sell their nuggets. Most buyers are unlicensed small traders who work in tight shops equipped with alarm systems and steel doors.

"The state buys gold, everyone buys gold because it works well," said Jhony Diaz, a licensed wholesaler in Puerto Ordaz, 171 kilometers north of El Callao. Diaz says he buys gold from traders and resells to the central bank every three days.

Since the currency of Venezuela, the Bolivar, is worth less every hour, the state pays a premium over international prices to exchange for dollars for those who might smuggle gold out of the country.

Traders selling to Diaz end up with bricks they take to El Callao and other gold mining towns to pay for miners to buy food and supplies and send whatever is left to their families.

The government-bought gold is being melted in the nearby stoves of Minerven, a state mining company, according to a high-ranking employee. It is then transported to the vaults of the central bank in the 843 kilometers distant capital Caracas.

The gold will not stay there long. The central bank's gold reserves have fallen to their lowest level in 75 years. According to two senior government officials, Venezuela is selling the craft metal as well as the existing reserves to pay its bills.

The main buyer of these days is Turkey, said the officials.

Turkish Alliance

Maduro's gold program has developed in conjunction with his in-depth relationship with Turkish Erdogan. Both leaders were internationally criticized for having acted against political differences and undermined democratic norms to focus power.

A November 1 ruling signed by US President Donald Trump has banned US individuals and entities from buying gold in Venezuela. It does not apply to foreigners. Ankara has assured the US Treasury Department that all Turkish trade with Venezuela complies with international law.

In December 2016, Venezuela announced a direct flight with Turkish Airlines from Caracas to Istanbul. Given the low demand for travel between the two nations, the development was surprising.

Trade data shows that these aircraft carry more than passengers. On New Year's Day 2018, the Venezuelan central bank began transporting $ 36 million of its metal to Istanbul to Turkey. It came just a few weeks after a visit by Maduro in Turkey.

According to the Turkish government and trade reports, shipments last year amounted to $ 900 million.

The Venezuelan central bank sold its craft gold directly to the Turkish refinery. The proceeds go to the Venezuelan state development bank Bandes to buy Turkish consumer goods, the officials said.

Gold buyers are the Istanbul Gold Refinery or IGR. and Sardis Kiymetli Mandele, a Turkish trading company, according to a person who works in the Turkish gold industry, as well as a diplomat from Caracas and the two leading Venezuelan officials.

In an interview with Reuters, the CEO of IGR, Aysan Esen, denied that the company was involved in any of the Venezuelan gold transactions. In a written statement, she said she met with Venezuelan and Turkish officials in Istanbul in April to express their views on compliance with international regulations.

Esen said she told the Turkish government that cooperation with Venezuela "is not right for leading institutions or the state."

As for Sardis Kiymetli Mandele, no one in his Istanbul office responded to Reuters requests.

In the meantime, Turkish consumer goods are making their way to Venezuelan tables. At the beginning of December, 54 containers of Turkish milk powder arrived in the port of La Guaira near Caracas.

Istanbul-based freight forwarder Mulberry Proje Yatirim shares an address with Marilyn's Proje Yatirin, a mining company that signed a joint venture with state-owned mining company Minerven in Venezuela last year. This emerges from a Turkish commercial register in September.

The companies did not respond to a request for comment.

slideshow (13 pictures)

Even Maduro's critics admit that he has done a neat trick of alchemy: by compensating hard-pressed miners with inflation-ravaged Bolivarians for precious metal, he has found a way to spin straw into gold.

Venezuelan economist Angel Alvarado, an opposition legislator, said that "dark operations and unusual mechanisms of commercial exchange" are among the few tools Maduro still has.

"It's a desperation to stay in power at all costs," said Alvarado.

Coverage of Corina Pons and Maria Ramirez in El Callao. Additional coverage by Mayela Armas at Caracas, Tibisay Romero at Valencia, Humeyra Pamuk at Washington, Daren Butler and Dominic Evans at Istanbul. Writing by Brian Ellsworth. Editing by Marla Dickerson

Our standards:The Thomson Reuters Trust Principles.

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