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Page added on October 29, 2015

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Venezuela is running out of cash

Venezuela is running out of money fast and has started selling its gold.

The cash-strapped country could default by next year when lots of debt payments are due. Venezuela’s reserves, which are mostly made up of gold, have fallen sharply this year as the country needs cash to pay off debt and tries to maintain its social welfare programs.

Venezuela owes about $15.8 billion in debt payments between now and the end of 2016.

But it doesn’t have enough to make good on its payments. Venezuela only has $15.2 billion in foreign reserves — the lowest amount since 2003. A lot of those reserves are in gold.

Less than $1 billion of Venezuela’s reserves are in cash, and it has a couple billion in reserves at the IMF.

venezuela selling gold

Its government won’t say how much gold it currently has. In May, Venezuela had $11.7 billion — nearly 70% — of its reserves in gold and it was fast dwindling. In February, it had $14 billion in gold reserves. Both these figures are from the most recent government data.

“It’ll have to sell some of its gold reserves to make the debt payments,” says Edward Glossop, emerging markets economist at Capital Economics. “[Cash] reserves are almost virtually zero.”

Related: Pepsi has a Venezuela problem

venezuela cash

Venezuela overwhelmingly relies on oil to drive its economy and pay its debts. But with oil prices still low, Venezuela is making little on its oil sales. It has no choice but to dive into its gold reserves to pay some of its bills, experts say.

It’s another sign that Venezuela — despite having the world’s largest oil reserves — could be the worst economy on the planet now. Its currency has plummeted, inflation has skyrocketed over 100% and it can’t pay for basic imports like french fries or even napkins. Venezuela’s economy is expected to shrink 10% this year, according to the IMF.

Related: Venezuela’s currency is worth less than a napkin

venezuela gold

Meanwhile its government, led by President Nicolas Maduro, continues to ramp up public spending to beef up pensions, subsidize grocery stores and provide free health care. Those policies are nearly impossible to maintain when oil prices plummet.

“The bottom line is that the spending is unsustainable with oil below $50 and needs to be reined in,” says Win Thin, global head of emerging markets at Brown Brothers Harriman. Thin believes Venezuela will eventually cut spending to avoid default, but he points out that financial markets overall are predicting a default.

You might think the rest of Venezuela’s reserves are all in cash. But they’re not. After its gold reserves, its backup fund of $2.3 billion is with the IMF, leaving Venezuela with a paltry sum of actual cash reserves, now under $1 billion.

Experts say there are two possible lifesavers for Venezuela now:

(1) A rally in oil prices could help Venezuela get more money in its coffers. But that’s not looking too likely in the short-term.

(2) China or Russia, its key allies, can volunteer to pay its debts. But Russia has its own economic problems and appears unlikely to bail out Venezuela, experts say. China did give Venezuela billions last year, and it could come to the rescue again. But relying on China at a time when its own economy is slowing is unsustainable, experts say.

Related: China’s chess move against U.S.:Latin America

“It’s likely that they get some financing from China,” says Alejandro Arreaza, an economist at Barclays, who is from Venezuela.

If anything, some say that the falling reserves are just another example of how poorly mismanaged Venezuela is under Maduro.

“What kind of government does it take to bring a country with the largest oil reserves in the world to the brink of bankruptcy?” says Russ Dallen, managing partner at LatInvest, a Miami-based firm that invests in Venezuela.





19 Comments on "Venezuela is running out of cash"

  1. Davy on Thu, 29th Oct 2015 8:10 pm 

    It won’t be long before China gets a South American hair cut. Why throw good money after bad except this is the Chinese who like kicking the bad debt can down the road. Who else is there? Oh I forgot Venezuela has a close ally in Iran. Maybe the Iranians will come to the rescue. Oops they have their hands full with Assad. Cuba might send some more doctors to them that couls save Venezuela 1Mil. Russia is the wild card. How big is Putin’s boots? I think Putin has lost interest in South America.

  2. Satori on Thu, 29th Oct 2015 9:06 pm 

    maybe China will see this as a real opportunity to establish a strong foot hold in that part of the world?

  3. Davy on Thu, 29th Oct 2015 10:30 pm 

    Satori, the end game is China.

    “The Ghost Cities Finally Died: For China’s Steel Industry “The Outlook Is The Worst Ever Amid Unprecedented Losses”

    “The cherry on top is that China itself is now trapped: it simply can’t afford to let anyone default, as one bankruptcy would cascade across the entire bond market and wipe out countless corporations leaving millions of angry Chinese workers unemployed, and is therefore forced to keep bailing out insolvent companies over and over. By doing so, it is adding even more deflationary capacity and even more production into the market, which leads to even lower prices, and even greater bailouts!

    In short: this is a deflationary toxic spiral, because while that $30 trillion in inflationary debt led to easy growth and much wealth and prosperity on the way up when prices were soaring and monetary transmission mechanisms were not clogged up, now that China has hit hit a 300% debt/GDP and the direction of the arrow is in reverse, all the growth and all the expansion of the past 7 years will be promptly unwound as mean reversion demands payment.

    But perhaps most importantly, as we first reported last week citing BofA’s David Cui, we now have an ETA when this whole Chinese debt house of cards, some $30 trillion of it, bursts with consequences that will be so devastating not only China but the entire world, as the one catalyst that pulled the Developed Markets out of depression will be, poetically enough, the same one that pushed it right back in.”

  4. Jeff on Fri, 30th Oct 2015 12:14 am 

    Oil Prices are about to spike, probably early next week… Venezuela’s cash flow issue is soon to be a thing of the past…

  5. makati1 on Fri, 30th Oct 2015 12:21 am 

    Satori, if China lets Venezuela go down, it will only be the first of many countries to go down in the next year or so, and that will end globalization and the dollar’s hold on the world.

    All of those Treasuries will come flying home to roost and the dollar will plunge into the toilet where it belongs. The world’s biggest debtor is not immune. Zimbabwe, here the we come! Trillion dollar bills that won’t buy a loaf of bread. Crash! Splat! Are you really prepared? LMAO

  6. kevin on Fri, 30th Oct 2015 12:57 am 

    Here’s a thought China has all these USA Treasury notes and seemingly can’t sell them fear of crashing the dollar and the value of the remaining Chinese $ rChinese. So why doesn’t China pay Venezuelan debt in American Dollars and Gain an appropriate level of control of Venezuela oil. A seemingly win win scenario

  7. idontknowmyself on Fri, 30th Oct 2015 2:10 am 

    Canadian tar sand and Venezuelan tar sand operation are shutting down because they are energy consumer not energy producer.

    The movie A Crude Awakening – The Oilcrash talk about that. Listen from min 36:00 to 37:00 what Bartelt is saying

  8. makati1 on Fri, 30th Oct 2015 2:28 am 

    kevin, I suspect that China will do just that. Loan them the cash to be repaid in oil. As you said, China wants to get rid of as many dollars as possible before they are worthless. This would sure be a big help. And $15B is less than the interest on the Treasuries they hold.

  9. Davy on Fri, 30th Oct 2015 5:41 am 

    China is in an economic trap in Venezuela just like it is in its own domestic economic tangle. Deflation and over capacity are driving China’s financial system into paralysis. China has been importing far too much oil for the actual Chinese economic activity most generally know is likely. Many are asking if China has any growth in aggregate. The numbers are so manipulated and distorted as to be a smoke and mirror show. We know some sectors are growing but others are so far into the bad debt malinvestment of overcapacity as to be a negative growth.

    China’s policy in Venezuela is just another form of its overall bad debt policies. China is good at unhindered growth but has not learned how to throttle growth and investment. Hence across the board bad debt of overdevelopment and excess capacity. A significant amount of this activity has resulted in a destroyed Chinese ecosystem. If Venezuela grinds to a halt Chain’s investment is going to go south. How south is debatable.

    If China’s appetite for oil is going to decline we will see so many poor investments like Venezuela come home to roost as poor investment decisions. You don’t hear much of the hype on the Russian and Chinese pipelines and energy deals. There will be some activity but the hype we were hearing out of the board whores like makster is not happening. China is one big black hole of deflation that is going to suck the entire world economy down including the US.

  10. BobInget on Fri, 30th Oct 2015 8:49 am 

    Name a single OPEC nation NOT in financial difficulty..

    (Norway, Canada, the US) while not OPEC, are also not Totally dependent on oil exports)

    Venezuela is now and has been for over a year, totally dependent on China.

    How does this effect Me, you might ask?
    Venezuela’s (oil) exports once sold to the US will now go to China to repay over 40 billion in existing debt.
    In effect Venezuela has been financially colonized. What does it mean when a nation runs out of foreign exchange? (key word..’exchange’) It means, that nation can’t buy foreign goods and services without hard currency. Poof, Venezuela shifts from being one of America’s trading partners to being a Chinese dependency. Not for long friends.

    Oil is headed back up because the world simply cannot survive, at this time, without.

    EVERY multinational has cut back on new production projects. Deep water the most expensive, was the first to go.

    This story, “Ven Running out of Cash” tells savvy traders, the squeeze is in place.

  11. joe on Fri, 30th Oct 2015 9:14 am 

    Another oilocracy, badly ruled, badly run. Turning it into another Brazil would not help either. Socialist in name only.

  12. Jeff on Fri, 30th Oct 2015 12:31 pm 

    I agree with Bob… Oil Prices are coming back MUCH quicker than anyone thinks… Europe is already running out, they are having to release fuel tom Switzerland’s SPR (though they spun the story to make it seem negative for oil prices, of course). Iraqi Exports have been drastically cut… Global Oil shortage will manifest itself before Thanksgiving, probably before the end of next week…

  13. Davy on Fri, 30th Oct 2015 12:53 pm 

    Jeff, don’t you think it depends on the economy or do you think that the economy is irrelevant? I will acknowledge a spike is possible but a spike in oil prices are going to hammer the economy bad this time around. The Fed can’t even raise rates a quarter of a percentage points without screaming and howling globally not just in the US. What do you think will happen if oil goes back to $80 or $90?

    We are in another world now. QE is at it limits of effectiveness. If it is tried again it will be out of desperation from severe economic decline. Rates can’t go lower. Nirp is just a banking gimmick for the big guys. China is in a slow uncontrolled deleveraging. China has vast non-performing loans (billions maybe trillions) and industrial sectors with huge excess capacity (steel, concrete, and property development).

    We are talking egg shells here Jeff. Our global economy just can’t take much more without a domino effect. Everywhere you look there are economic problems. Long story short ok prices may go up but how far and how long is another story.

    BTW, Bob and I have a bet on prices by the end of the year. I am not sure if he will remember but I saved the comment the bet was made in. Bob, are you out there? You remember our bet?

  14. shortonoil on Fri, 30th Oct 2015 3:08 pm 

    The oil age is approaching its end, and the world is now in a deflationary spiral for which there is no escape. As the entropic decay of the world’s petroleum system continues the world’s economies will follow it. Venezuela is just the first of the oil states that will eventually fail. One by one their economies will revert to pre-industrial states.
    It ends when producers can no longer make a profit producing oil. That occurs when oil can no longer supply sufficient enough energy to the economy to power it. When oil can no longer supply an adequate amount of energy to the economy its price falls. In the present price environment producers can no longer replace the reserve that they are extracting; when the present fields are depleted out they will not be replaced.

    This scenario is a mathematically assured outcome. Even though we can see its progress taking place daily it is still being frantically denied by many. This is more of a reflection of humans nature than a statement of the present situation, and is not unique in history. Many Romans were denying the enviable fate of Rome to the day that Alaric marched his army through the city streets.

  15. Boat on Sat, 31st Oct 2015 1:12 pm 

    I thought $60 oil by the end of the first quarter. You?

  16. marmico on Sat, 31st Oct 2015 1:46 pm 

    The oil age is approaching its end, and the world is now in a deflationary spiral

    Right fuctard. The 2012 ETP model says that 84% oil recovery happened in 2012. Guess what? 2015 means 90%. That means that there are only five years left of oil production at current production levels. You are such a fuctard you can’t even update your pathetic charts.

    Core PCE inflation in the U.S. is running 1.4% year on year. Wait until December when headline inflation moves off the zero level. Ain’t no deflationary spiral there fuctard.

  17. shortonoil on Sun, 1st Nov 2015 12:54 pm 

    “Guess what? 2015 means 90%.”

    How do you come up with 90% dink bat; your abacus broken again? According to the Etp Model the average barrel will reach the “dead state” by 2030. Since you probably think that the “dead state” is a rap group it probably doesn’t mean a thing to you!

  18. ellsworth on Sun, 1st Nov 2015 1:47 pm 

    @Shortonoil, do you think in a last ditch effort the oil companies could be nationalized and the governments make sure the oil keeps flowing by funding production with fiat money?

  19. antaris on Sun, 1st Nov 2015 2:27 pm 

    Ells you must mean The Department of Homeland Oil

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