Eudomar Tovar is the Central Bank President in Venezuela and has taken the spotlight most recently for blaming a nation-wide blackout on sabotage. Accusations have been made that the Central Bank has been using their gold supply in a deal with Goldman Sachs and Bank of America to increase hard currency.

Tovar vehemently denies that the Central Bank is doing any sort of business with either Goldman Sachs or Bank of America. Henrique Capriles, an opposition leader, claims that Central Bank was involved in a value swap with Goldman Sachs for the equivalent of $2 billion dollars (USD) in gold ounces. Central Bank has also been accused of dealing with Bank of America to pay off debts owed to foreign governments. Tovar denied any such deals and claimed they were unofficial proposals, but did not elaborate or further explain the Bank’s position in regards to these claims.

The main problem is that Venezuela is experiencing a shortage of basic goods, and could potentially use its huge reserves of gold to procure a loan from such companies such as Goldman Sachs or Bank of America. Main Central Bank officials have complained that they are due a huge amount of hard currency from Washington, and that the red tape and delay in receiving this currency is causing inflation and product shortages.

Furthermore, a decrease in oil supply has caused tension on the dollar value, making some think that Venezuela is in desperate need of cash. The value of gold has decreased as well, putting a dent in the net worth of the country’s enormous gold reserves. As it stands, only government channels have access to the dollar due to harsh capital requirements, which often causes delays and bottlenecks day-to-day cash flow.

Leaders of the South American nation do not believe in free market capitalism and have tightly controlled the cash flow for decades. Consequently, the country falls more deeply into poverty every year, while the tyrannical government is not improving the situation.

President Maduro replaced the recently deceased President Chavez, who had a reputation for spending funds that could not be liquidated. Shortages have increased, inflation has risen to 55% and an inside Bank official claimed that Venezuela was indeed conversing with Wall Street. However, all three parties involved had no comment to offer on these claims. The economy is in a downward spiral, encouraged by the fact that stores cannot buy new inventory due to the cost of goods being higher than the retail price.

Questions are circulating about methods of intervention and whether American aid is appropriate, as well as questions regarding the depth of corruption in the Venezuelan government. Basic economics further show that public spending is good for the economy, when business have the right to compete with each other for capital gain.

The absence of a free market suggests that if Bank of America or Goldman Sachs loaned Venezuela the cash they need, it would just be reinvested into a corrupt system and exacerbate the problem. Solutions must involve correcting the dishonest practices of the government and its leaders so that the citizens will not continue to suffer, but instead thrive.

– Kaitlin Sutherby

Sources: Reuters, The Wall Street Journal: The Pope, State and Venezuela, The Wall Street Journal: Blackout
Photo: Vintage 3D