Across Colombia’s border Venezuela’s President Hugo Chávez is to nationalise the gold sector in an attempt to stamp out illegal mining and boost international reserves. Whilst illegal mining is also a problem in Colombia, President Chávez has failed to recognize that the Colombian government’s liberal market policy regarding mining (and other sectors) sees foreign direct investment flooding into the country and its international reserves increasing nicely.
Like Colombia, Venezuela sits on large untapped gold deposits but nationalistic intervention has seen a succession of foreign (Canadian) explorers turfed out including Bolivar Gold and Crystallex International, leaving just Russian mining company Rusoro as the sole foreign company. Meanwhile, lack of state presence has allowed illegal miners to overrun highly prospective areas, creating extensive environmental damage and paying no taxes. Venezuela officially produces 11 tpy of gold with illegal miners producing an estimated additional 10 to 11 tpy, according to Mr Chávez. The government is preparing a decree to stop illegal miners exploiting gold, which will be as effective as Colombian laws to do the same. Stopping illegal mining requires direct action and the creation of viable economic alternatives for the poor that generally are engaged in illegal mining as a subsistence activity.
Both Colombia and Venezuela are using the army to help combat illegal mining, which is often run by what Chávez calls ‘mafias’, or criminal bands in Colombia. “I’m counting on you because the area remains in anarchy, run by mafias … We can’t keep allowing them to take it away,” he said during an address to the army as he presented them with newly purchased Russian military equipment, reported the Financial Times. Chavez’s past effort to control illegal mining have produced international conflict in the past as Guyana, a small country in north-eastern Latin America, claims Venezuelan soldiers blew up two gold-mining dredges working on the Cuyuni River near the frontier.
President Chavez will also repatriate US$11 billion in gold held in foreign banks reports Bloomberg. The country has about 211 tons of its 365 tons of gold reserves held overseas at various banks. “We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home,” Chavez said on state television. Opposition lawmaker Julio Montoya says the move is to reassure select Venezuelan creditors that it can repay loans. “We think that China, Russia and Brazil have asked Venezuela to transfer the reserves to guarantee the loans that the government has received in recent years,” said Montoya according to the Financial Times, with whom Venezuela has accumulated US$34bn of debt over the past 16 months.