Trump puts Venezuela on the brink of default, analysts say

© AP Photo / Evan VucciПрезидент USA Donald trump. Archival photoTrump puts Venezuela on the brink of default, analysts say© AP Photo / Evan Vucci

New US sanctions against Venezuela cause enormous damage to the economy, which is in deep crisis, — blocking of all transactions with the gold reserves hurt the country to pay the debts and develop the economy. The response may be the gold exports Venezuela on the black market, according to analysts and experts interviewed by «Vestnik gold mining» (included in the MIA «Russia Today»).

The President of the United States Donald trump November 1 ordered to impose sanctions aimed at blocking the operations of Venezuela, with its gold reserves. As the document says, the U.S. administration intended to prevent the authorities of the Latin American countries, in particular, to «plunder the wealth of Venezuela to their own corrupt purposes» and «damage the infrastructure of Venezuela and the ecology of the country through wasteful management».

In this regard, Washington prohibited Americans to carry out operations «in the gold sector of Venezuela». It is noted that these measures can be extended to «any other sector of the Venezuelan economy» depending on «the decisions of the Ministry of Finance in consultation with the state Department.»

Trump puts the country on the brink of default

According to the chief analyst of PSB Romana Antonova, a ban on transactions in gold could cause a severe blow to the finances of Venezuela, since the administration of Venezuelan President Nicolas Maduro this year is using it as an alternative of falling oil production.

«But the impact on other industries, which are considered corrupt, trump creates the conditions of pressure on legal entities, provide logistical and financial support to Venezuela. A possible solution would be the export of gold to the black market, which, however, would be difficult to implement,» — said Antonov.

Analyst UK «the alpha-the Capital» Artem Kopylov also stressed that the decree on sanctions against Venezuela cause enormous damage to the economy, as the country is currently desperately in need of cash. The only engine of GDP is the oil sector which is in decline due to the lack of funds to maintain infrastructure, as well as obligations to pay debts worth billions of dollars.

«The country is in fact on the verge of default and the probability that, after the imposition of sanctions on transactions with gold, Venezuela will be able to service its debt is zero,» emphasizes Kopylov.

Talk about the fact that Venezuela will start selling gold from its reserves, began in 2016, then Maduro has declared war on illegal miners and made gold a strategic priority in an attempt to stimulate production, to create an alternative source of income for the economy. This decision led to a sharp increase in production, but the gold mining sector remains small compared to oil, which accounts for more than 90% of exports.

According to Antonov, Venezuela has considered gold as a way of protection from sanctions and economic crisis, and the actions the United States can become an obstacle to the stabilization of the situation. According to the World gold Council (WGC), in the third quarter of 2018, the Central Bank of Venezuela has become one of the largest buyers of gold after Russia, India and Turkey (purchased 11 tons).

At the same time, analyst of commodity markets, «Open-Broker» Oksana Lukicheva, believes that the new sanctions are an attempt by the US to prevent the payment for goods and services in gold, as payments in dollars, sanctions have been imposed.

According to her, the gold reserves of Venezuela in September 2018, according to the IMF, amounted to 161,2 tons, which suggests that almost all of the gold is located on the territory of the country.

«So, we’re probably talking about the gold not included in official reserves, and therefore its volume cannot be estimated. In this vein, the decree of the President of the United States would not harm the economy,» she said.