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Armoured vehicles carrying gold bars drive past Miraflores Palace in Caracas, Nov. 25, 2011. The first shipment of gold bars arrived home in Venezuela on Friday after President Hugo Chavez ordered that almost all of the country's foreign bullion reserves be repatriated from Western bank vaults.Reuters/Reuters



Venezuelan officials on Monday denied that the decision to repatriate gold reserves was motivated by a mounting debt burden with China. Government supporters meanwhile took to the streets to celebrate the arrival of the first shipment last week.

Nelson Merentes, president of the central bank, said the decision to transport more than 160 tonnes of gold, mostly stored at the Bank of England, back to Venezuela was prompted by worries about the global economic crisis.

"We are bringing the gold back because unfortunately capital markets and the world economy are in turmoil, and for that reason it is preferable to seek protection," said Mr. Merentes, who led a convoy of 500 heavily armed soldiers, tanks and aircraft from Maiquetia International Airport to downtown Caracas on Friday.

The socialist government's supporters flocked to roadsides waving red flags and shouting nationalist slogans as they cheered the triumphant return of the nation's gold, the bulk of which was deposited in foreign banks between 1986 and 1992 as guarantees for loans from the International Monetary Fund, according to Mr. Merentes.

The gold arrived in a commercial aircraft with passengers on board. "It was very emotional, the passengers took photographs and all the way from airport people were cheering from their cars," said Mr. Merentes, who was wearing a baseball cap that read "The Central Bank of Venezuela with the People."

"We don't want to say explicitly where the cargo comes from, because we have been asked, for reasons of security, not to give specific information since they are big amounts. There is still some 200 tonnes abroad and in a relatively short period we are going to have all that gold back in the country," he added, explaining that the transport costs for the first shipment amounted to $7-million (U.S.) – not $700-million as some have maintained.

As well as a guarantee for Chinese loans, some analysts argue that the move may also be an attempt to reduce Venezuela's assets abroad that risk seizure in the event that sanctions are imposed as a result of several pending international arbitration cases, with a number of major oil companies pushing for compensation after their Venezuelan operations were expropriated.

Others see it as a populist move designed to drum up nationalist sentiment as critical presidential elections approach in October, 2012.

With Venezuela's growing debt to China now also in the limelight, after President Hugo Chavez confirmed another $4-billion loan last week that will go toward boosting oil production by a joint venture between the two countries from 112,000 barrels per day currently to as much as 1.1 million bpd by 2014, some opposition politicians suspect that China may be demanding stronger guarantees for its loans. The OPEC country's $32-billion bilateral debt with China now exceeds the value of its sovereign debt.

More than 80 per cent of Venezuela's 211 tonnes of gold reserves held abroad, valued at $11-billion, are in the U.K., mainly in the Bank of England.

The remaining 154 tonnes of its gold reserves, valued at $7.2-billion, are already in the vaults at Venezuela's central bank, according to the institution.

Venezuela has the 15th-largest gold reserves in the world. With more than 60 per cent of its international reserves in gold , that is nearly eight times the regional average.

Copyright The Financial Times Ltd. All rights reserved.

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