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  • Mathieu Provencher

Why is Maduro burning Venezuela’s gold?

(picture from Wix's library)

Hello everyone!

Ok ok… I’m sorry for using such a click-bait title. Mr. Maduro is not literally burning gold from the reserves of the government.

Hey! Look on the bright side: you’re here and reading this amazing article now!!!!

Mr. Maduro is however burning through the gold reserves of Venezuela, in other words of the Venezuelan people, to finance his operations. Let’s try to see why.

First, a bit of context: My last article described the general situation in Venezuela as of February the 15th. In that article, I predicted that Mr. Maduro could lose his position (and perhaps his life) in the following two or three months (if not earlier, which has not happened yet). We are approaching this deadline rapidly and I want to take time to revisit my thoughts with you guys.

First of all, there has been no improvements whatsoever in Venezuela in terms of the economic decline and hyperinflation in the country. Things are even worst as before… let me give you guys a few examples and we’ll go back to the figurative burning of Venezuelan gold by Mr. Maduro.

Since my last article, Mr. Guaido (the self-proclaimed interim president) has gained substantial traction towards his claim to the presidency while Mr. Maduro seems to have been more and more isolated. Not only did Mr. Guaido come back to Venezuela (and it’s capital, Caracas), but he has gathered more support and was able to keep social and political pressure on Mr. Maduro. This seems to be quite a feat but the current president has a less-than-stellar reputation with many citizens these days.

On top of the usual food and medical shortages people in Venezuela are now somewhat used to live with, more problems erupted in the past few months:

(1) Electricity shortages have hit the country for days in a row. For the majority of people and institutions (including hospitals), electricity doesn’t seem to be coming back in a reliable way;

(2) Emigration continues at an unsustainable level, emptying the country of capable and educated people (although most of those have probably already left);

(3) The dollarization of the economy has become common practice in most of the country. This means that most shops will only accept American dollars (USD) and not the local currency (the Bolivar). This is a very important issue for most people because their salaries are not paid in USD. On top of that, there were capital controls up to recently, making it almost impossible for most to exchange their bolivars for dollars (effectively making their currency useless)… it is unclear if those restrictions have indeed been removed for the general public;

(4) Last but not least, there are strong signs now that part of the military is switching sides. At least some relatively important members of the military are supporting Mr. Guaido. There was a broadcast this week with Mr. Guaido in a naval base near Caracas, surrounded by military men that were supportive of him.

All of this makes Mr. Maduro’s hold on power more and more fragile… and with it his position and life more and more precarious.

SO!!! I said I would speak about burning gold did I?

Less than a month ago, I learnt that Mr. Maduro was paying some of his government’s debts with their gold reserves. This may not seem like much to most people but that was very interesting for me!!!!

Why, might you ask, would a president draw from the country’s gold reserves to pay for anything? In times of crisis, and there is no doubt this is the case in Venezuela, gold is a safe asset to keep. It will often even gain in value compared to your local (and some international) currency over time. This is not something you should be selling away in difficult times… unless… unless?

Unless you have nothing else to pay your expenses and debts with!

When I read about Mr. Maduro throwing Venezuela’s gold out of the window (again, not literally) at such a pace that all that gold might be gone by the end of this year or the middle of the next, I saw a possibility that is more and more probable now: Venezuela is running out of foreign currencies, most particularly USD, and is not going to continue paying for its programmes for long. One of those “programmes” I am referring to is to pay the military to keep them aligned with Mr. Maduro’s aspirations (which is simply to stay in power for as long as he can).

Less than a month after this revelation (that Venezuela is using up its gold fast), Mr. Guaido appears on TV at a military institution, surrounded by military men and saying that they joined his cause. By the way, he also named judges and a multitude of public servants that were now on his side (yes, he actually gave their names).

I had started doubting that Mr. Maduro would go down in the next few months, given that it seemed that he had enough money to keep the allegiance of the military. Now that I am convinced that he cannot for long, I think that my original predictions might actually be somewhat close to the facts.

I see two main possibilities (with any combinations of the two).

First: Mr. Maduro loses enough support from different groups (most importantly the military) and is forced to step down in a semi-peaceful way. I am not sure how likely this is but it would obviously be my preferred outcome.

Second: A sufficient partition of the military breaks up from the government and we might see a civil war in Venezuela. This may include external powers like the USA and Russia, which seems more likely month by month.

With Russia (most importantly) and Cuba (a bit more of a symbolic gesture) giving assistance to Mr. Maduro, it’s very difficult to know how long this can last. The final days of Mr. Maduro’s reign might be years away (in which case you can remind me of my failed predictions anytime you see fit) but I would doubt that very much.

Although it is possible indeed, I think that a fairly swift defeat awaits Mr. Maduro relatively soon. If it does end up quickly and soon, you can adore my every word for the rest of your days… if you want… no pressure!!!!!

Well, that’s it for now! Thanks a lot for hanging around guys and don’t forget to have fun!!!!!

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