Chávez Moves Reserves Out of US Treasuries

Venezuela has transferred about half of its $30.4bn of foreign reserves out of US Treasuries and US banks into banks in Europe, seemingly for political reasons.

The decision, which was disclosed in an off-the-cuff comment by President Hugo Chávez last week, has fuelled confusion among bondholders and analysts concerned about Venezuela's opaque public finances.

Domingo Maza Zavala, a director at the central bank, said on Wednesday that during the past four months 60 per cent of the bank's roughly $24bn in operational reserves, or about $14.4bn, had been liquidated and the funds deposited at the Bank for International Settlements in Basel, Switzerland.

Most of the $14.4bn transferred was previously invested in US Treasuries or held on deposit at US banks, he said. About $6bn of Venezuela's foreign reserves are classed as non-operational.

Traditionally the country has held its reserves in a portfolio of US Treasuries, euro-denominated bonds, gold and cash.

"It was considered convenient to deposit a substantial proportion of the reserves in Basel," Mr Maza Zavala said, adding that the reason was "financial", not "political".

A spokeswoman at the BIS said on Wednesday the bank did not disclose any information about reserves held for individual customers. This week reports of the size of the total transfer had fluctuated between $10bn and $20bn.

Analysts say the transfer was probably politically motivated and that the bank had probably acted under pressure from Mr Chávez. "The fact that Chávez announced it several days before the central bank board verified the move leaves the market to suspect that political pressure was exercised at some point," said Vitali Meschoulam, emerging markets strategist at HSBC Securities in New York.

Mr Chávez frequently rails against what he sees as the US's "imperialist" foreign policy. He has warned that the Bush administration could "confiscate" some of Venezuela's assets if bilateral relations were to deteriorate.

Some US officials are concerned by what they see as Mr Chávez's growing oil-financed influence in some parts of Latin America.

Buoyed by high oil prices, Venezuela, the world's fifth-largest oil exporter, has seen the level of its international reserves rise to $31bn in recent weeks, from $24bn at the start of the year and from about $15bn in 2003.

Jose Guerra, until recently economic research chief at the central bank, said that while important details of the transfer of reserves from the US to Europe were cloaked in secrecy, the motive appeared clear. "The reason is eminently political, and it's a further example of the central bank's loss of autonomy."

This year legislators loyal to the government passed a law that allows Mr Chávez to withdraw and to spend at least $6bn of international reserves.

Mr Chávez has long insisted that the level of reserves is too high and that the money would be better used for domestic social programs. But in recent weeks he has also embarked on a range of international financial "projects", such as the purchase of at least $1bn in Argentine sovereign debt.