THE CORRUPTION OF DEMOCRACY IN VENEZUELA

Por Gustavo Coronel..

66 USA TODAY ★ MARCH 2008
WORLDVIEW
HUGO CHAVEZ was elected president
of Venezuela in December
1998 on the strength of three main
promises: convening a Constituent
Assembly to write a new constitution and improve
the state, fighting poverty and social exclusion,
and eliminating corruption. Nine
years later, it has become evident that the Constituent
Assembly primarily was a vehicle to
destroy all existing political institutions and replace
them with a bureaucracy beholden to his
wishes. Poverty and social exclusion remain
as prominent as before, while the levels of
government corruption are higher than ever.
Today, the nation is locked in an intense
struggle between the defenders of democracy
and a president intent on becoming a dictator
for life. Chavez’s latest attempt to push a constitutional
reform that would have allowed
him unlimited opportunities for reelection was
defeated by a margin that official figures put at
two points, but independent analysts place at
five to 10 points. In negotiating the narrower
margin with a National Electoral Council
largely under his control, Chavez managed to
appear magnanimous in defeat, but he is not a
democrat, and he will keep trying to become
president for life in any way he can.
Venezuela has been characterized by the
persistent presence of political and financial
corruption in public administration. In 1813
and, later, in 1824, national hero Simon Bolivar
felt it necessary to issue decrees defining
corruption as “the violation of the public interest.”
He established the death penalty for “all
public officers guilty of stealing 10 pesos or
more,” including “those judges who disobey
these decrees.” In 1875, the finance minister at
that time confessed, “Venezuela does not
know to whom it owes money and how much.
Our books are 20 years behind.” One hundred
years later, the General Comptroller under
Pres. Luis Herrera would describe the state of
the country’s finances in almost identical
terms, as “a system totally out of control.”
In the early 20th century, the long dictatorship
of Juan Vicente Gomez was plagued by
high corruption, but it was limited to the dictator’s
immediate collaborators. A similar situation
prevailed during the military dictatorship
of Marcos Perez Jimenez, from 1948-58. This
situation of administrative disarray was replaced
during the 1960s by a period of high
transparency in the management of public
wealth at the hands of democratic presidents
Rómulo Betancourt, Raúl Leoni and Rafael
Caldera. During these years, Venezuelan democracy
became the political model to be imitated
in Latin America, comparing favorably
with the dictatorships of the left and right that
prevailed in those years, and becoming a
haven for thousands of Latin American political
exiles looking for freedom.
In the mid 1970s, the management of national
assets deteriorated significantly, as the
country experienced a sudden oil windfall that
tripled fiscal income. The ordinary men in
charge of the government were exposed to extraordinary
temptations. Faced with such riches,
Pres. Carlos Perez established a program
called “The Great Venezuela,” a tropical version
of Mao Tse-Tung’s “Great Leap Forward”
in China that ended in financial and social disaster.
The government poured close to $2,000,-
000,000 into industrial projects designed to
convert southern Venezuela into another Ruhr.
At one point, the country was home to more
than 300 state-owned companies, none of
which was profitable. As a result of the significant
government expenditure and insufficient
enforcement of regulations, corruption spun
out of control. Up until then, graft had been restricted
to the ruling elites, but now many
Venezuelans started to participate in the abuse
and misuse of public funds. By 1980, the country
had fallen into debt to the international
banks, victim of the so-called “Dutch disease”
that affects Third World petrostates that depend
almost solely on hydrocarbon exports for national
income.
From 1980 onwards, Venezuelan corruption
has remained high. Particularly grave was the
administration of Pres. Jaime Lusinchi from
1984-94, which saw some $36,000,000,000
pilfered or stolen mainly through a corrupt exchange
control program, according to an estimate
by Venezuelan sociologist Ruth Capriles
at the Caracas Andres Bello Catholic University.
Soaring corruption during the Lusinchi period
resulted from several factors, including
weak political institutions, lack of administrative
controls, too much money circulating in
the financial system of the government, and,
above all, populist leaders promoting a welfare
state in which hard work and social discipline
were not encouraged. In 1997, the Caracasbased
nongovernment organization Pro Calidad
de Vida estimated that some $100,000,-
000,000 in oil income had been wasted or
stolen during the last 25 years.
As the 20th century came to an end, Venezuela
was ripe for significant political change.
The main contenders in the 1998 presidential
election—paratrooper Hugo Chavez and former
Governor of the State of Carabobo, Henrique
Salas—promised radical political change.
Venezuelans perceived Chavez as someone
who looked and spoke like them and could,
therefore, represent them better. His electoral
promises were crucial in winning the votes of
the majority.
In his inaugural speech, in January 1999,
Chavez called for a “political revolution” before
tackling social or economic issues. Taking
advantage of the popular euphoria following
his victory—and in violation of the existing
constitution—he convoked a Constituent Assembly
possessing absolute power to write a
new constitution and to “redefine the state.”
This Assembly, made up of his followers,
went on to dissolve the democratically elected
Congress and dismiss all the members of the
USA TODAY ★ MARCH 2008 67
THE CORRUPTION
OF DEMOCRACY IN VENEZUELA BY GUSTAVO CORONEL
Under Pres. Hugo Chavez’s regime the last nine years, corruption has
reached heights undreamed of by even the greediest of despots, as the
people of Venezuela have been fleeced out of billions of dollars.
Supreme Court, as well as the Attorney General,
the General Comptroller, and most of the
judges in the country, only to replace them
with bureaucrats loyal to the president. In a
letter to the Supreme Court, Chavez stated that
“the president had exclusive authority on the
management of state affairs,” thus appearing
to place himself above the law.
In November 1999, the new Minister of
Foreign Affairs, Jose Vicente Rangel, gave a
speech in which he put forward the position of
the government regarding corruption. He said
that, from then on, public office would follow
ethical norms, that corruption had already cost
Venezuela too much in economic, social, and
spiritual terms, and that the new judicial system
and the new Civic Power, incorporated in
the new constitution, would combine to combat
corruption. That is not what has occurred,
however.
In the nine years since Chavez came to
power, an estimated $300,000,000,000 of oil
income has entered the national treasury. The
exact number is uncertain due to the poor
transparency of the government accounts, and
because the national petroleum company no
longer presents financial results to the U.S. Securities
Exchange Commission or to the Venezuelan
people. In parallel, during Chavez’s
tenure, national debt has increased from $22,-
000,000,000 to about $70,000,000,000. Together
with income tax revenues, the total income
of Venezuela during Chavez’s presidency
has been approximately $700,000,000,000.
This formidable amount of money is nowhere
to be seen in terms of public works or effective
health and education programs.
Three parallel budgets existed—totaling
more than $80,000,000,000—in 2007: the formal
one, for some $55,000,000,000 (including
additional amounts), approved without discussion
by the submissive National Assembly; a
second one, amounting to $10,000,000,000,
derived from the international monetary reserves
taken from the Venezuelan Central
Bank, in violation of the laws of the country;
and a third, in the amount of $15,000,000,000,
built from the funds siphoned out of Petroleos
de Venezuela, monies which were required for
investment and maintenance of the petroleum
industry. None of these budgets are discussed
publicly or subject to accountability.
Irregularities abound in the management of
public funds: more than $22,500,000,000 in
dollar transfers have been made to foreign accounts,
maintains the Venezuelan Central
Bank, and at least half of that money remains
unaccounted for. Jose Guerra, a former Central
Bank executive, indicates that some of this
money has been used by Chavez “to buy political
loyalties in the region . . . and some has
been donated to Cuba and Bolivia, among other
countries.”
According to a Jan. 31, 2006, story in the
Financial Times, a select group of Venezuelan
bankers, including those at Banco Occidental
de Descuento and Fondo Comun, has profited
from the acquisition of Argentinean bonds by
the Venezuelan government, at the expense of
the national treasury. The bonds are bought at
the official rate of exchange and sold at black
market rates, at considerable profit. Venezuelan
journalist Carlos Ball estimates that bankers
loyal to the government could have profited by
up to $600,000,000 as a result of the differential
between the official and the black market
rates. Former Chavez Minister of Finance Jose
Rojas has predicted that “the loss of autonomy
of the Venezuelan Central Bank and the disorder
in the management of the financial resources
on the part of the government will lead
to a significant financial crisis.”
The nine years of Chavez’s presidency have
led to the highest levels of government corruption
ever experienced in Venezuela. The main
reasons have been: the record oil income obtained
by the nation, money going directly into
Chavez’s pockets; a mediocre management
team working without transparency or accountability;
the ideological predilections of
Chavez, which have led him to try to play a
messianic role in Latin America, and even
world affairs; and the policies of handouts put
in place by Chavez to keep the Venezuelan
masses politically loyal.
Corruption, Inc.
Three major areas of corruption have
emerged during the Chavez presidency: grand
corruption, derived from major policy decisions
made by Pres. Chavez; bureaucratic corruption,
at the level of the government bureaucracy;
and systemic corruption, taking place at
the interface between the government and the
private sector.
Examples of grand corruption include:
The acceptance by Chavez of foreign
contributions for his presidential campaign
and even after his election. In 1998 and
1999, the Spanish bank BBVA (Banco Bilbao
Vizcaya Argentaria) allegedly contributed substantial
amounts of money to Chavez’s presidential
campaign and, later, after he already
had been inaugurated as president. The former
president of the bank, Emilio Ibarra, admitted
authorizing two deposits, one for $525,000 in
1998 and another for $1,000,000 in 1999, to
finance Chavez’s political activities. In 2006,
the government of Spain tried Ibarra for these
and other irregularities.
Expenditures and promises made to political
leaders and countries of the Western
Hemisphere, in order to buy their political
loyalties. The Chavez government has disbursed
or promised an estimated $70,000,000,-
000 to foreign leaders and their countries.
These expenditures include some $2,000,-
000,000 per year in oil subsidies to Cuba;
about $4,000,000,000 in the acquisition of Argentinean
commercial papers; an estimated
$300,000,000 in cash donations to Evo
Morales in Bolivia; the promise of building up
to $20,000,000,000 worth of refineries in Jamaica,
Paraguay, Nicaragua, Brazil, Ecuador,
and nine other countries and a $25,000,000,000
gas duct from Venezuela to Argentina; and acquisitions
of about $6,000,000,000 worth of
sophisticated weaponry from Russia, China,
Belarus, and other countries. Many of the
promises never will be fulfilled, but the fact remains
that these expenditures and promises
have been made directly by Chavez, without
consulting the people of Venezuela or following
normal administrative procedures.
Social programs run by the military in
2000-02. Soon after becoming president,
Chavez established programs called Bolivar
2000 and Central Social Fund run by the
armed forces and designed to do social work.
Journalist Agustin Beroes reports, however,
that the execution of this program left much to
be desired. It became a vehicle for the personal
benefit of its managers—officers such as
Victor Cruz Weffer and William Farinas.
Some $700,000,000 was put into these programs
and, at least half of it remains unaccounted
for. The Central Social Fund, for instance,
gave a $500,000 grant to an organization
run by the wife of Horacio Perez, Commander
Farina’s personal driver.
Acquisition of the $65,000,000 presidential
airplane. After visiting the Middle East
and traveling in an Airbus owned by the royal
family of Qatar, Chavez decided he wanted
one just like it. In violation of article 314 of
the Venezuelan constitution and the laws regulating
government expenditures, he bought an
A319-133X without budgetary provisions to
acquire it and after saying in numerous public
speeches that he would get rid of all government
aircraft because there already were too
many of them.
Corruption at the State of Barinas Sugar
Mill. This Chavez pet project is run by the military
and Cuban advisors. A group of about 17
officers and their advisors have been charged
with pilfering or pocketing some $1,300,000
from the accounts of this project. Worse, the
62nd Army Engineers Unit has been charged
with squandering $1,500,000,000 of the
$2,600,000,000 appropriated for the project.
The Minister of Agriculture admitted to
malfeasance for not revealing these facts when
he became aware of them. His explanation?
“We were in the midst of parliamentary elections
and did not want to create a scandal damaging
to our government.”
Bureaucratic corruption has the government
involved in bribery, extortion, stealing of public
funds, abuse of political power, nepotism,
and other varieties of illegal or unethical use of
public assets. Examples include:
Government contracting is done mostly
without bidding. Although the law stipulates
that all government contracting should follow
bidding procedures, except in cases of national
emergency properly defined as such, the
Venezuelan chapter of Transparency International
estimates that 95% of all known public
contracts during the last decade have been
awarded without bidding. This is a major
source of personal enrichment for corrupt government
officers. An example of this is what
68 USA TODAY ★ MARCH 2008
WORLDVIEW
has taken place in the State of Carabobo, where
Gov. Acosta Carlez publicly has stated that he
has given some 800 no-bid contracts involving
tens of millions of dollars. His argument? “We
are always in an emergency here.”
Corruption at the Supreme Tribunal of
Justice. In early 2006, a major scandal erupted
when the Minister of the Interior accused one
of the magistrates, Luis Velazquez Àlvaray, of
stealing public funds in the acquisition of a
building for the Court. Àlvaray counterattacked
and accused Vice Pres. Rangel, as well
as Interior Minister Jesse Chacón and National
Assembly Pres. Nicolas Maduro, of running a
gang of corrupt judges called “The Dwarves,”
specialized in protecting drug traffickers. All of
these allegations came to naught. Àlvaray left
the country, and the bureaucrats he accused remained
in their jobs.
Corruption at the National Electoral Council.
The performance of the NEC under the political
control of Chavez has led to widespread
distrust among Venezuelans. The decisions of
this body always have been biased in favor of
the government, even during the recent referendum
which the government lost by a margin of
more than six points. Negotiations by Chavez
with the president of the NEC led to official figures
that showed a much narrower margin. Reports
by international observers from the Organization
of American States (OAS), European
Union (EU), and Spanish Parliament during the
electoral events of 2004 and 2005 state that the
Council lacks transparency and that its members
should be selected properly for impartiality.
Particularly grave is the situation of the electoral
registry. It has grown by more than
2,000,000 voters in the last three years, a statistically
improbable figure. Still worse, these voters
have no proper addresses or reliable identities,
making them “virtual” voters that could be
used by the government to swing any election
unless there is very rigid monitoring by the opposition.
Uruguayan analyst Adolfo Fabregat
found 39,000 voters that were shown to be older
than 100 years of age, and one was listed as
being 175. A man called Jose Gregorio Gonzalez
Rodriguez, born Aug. 4, 1962, is listed 62
times under different identity card numbers, and
therefore is able to vote that many times. Examples
like this number in the thousands and have
been documented properly and presented to the
OAS for analysis, so far without result.
High levels of mismanagement at the
state-owned petroleum company, Petroleos
de Venezuela. Corruption here takes many
shapes. It includes the naming of six presidents
and boards in seven years, in an effort to control
the company politically. This finally was
accomplished by naming the Minister of Energy
and Petroleum president of the company, in
violation of good management practice, since
he now supervises himself. As a result, oil production
has declined by some 800,000 barrels
per day during the last decade. In a recent public
hearing, Luis Vierma, the firm’s Vice President
for Exploration and Production, admitted
giving an oil well drilling contract for some
$20,000,000 to a company with only three employees
and no rigs.
Systemic corruption, meanwhile, takes
place when government bureaucrats and the
private sector interact in a permissive environment
where money flows abundantly and
without controls. Examples include:
The emergence of a new, rich, “revolutionary
bourgeoisie” that drives Hummers,
sports Cartier and Rolex watches, and wears
Ermenegildo Zegna suits. They buy luxury
apartments in the U.S. and Europe, fly in private
jets, and, salesmen say, always pay in cash.
Wilmer Rupert was a minor associate of an international
company a few years ago; today, he
is quite rich, thanks to obtaining a large share of
contracts from the state-owned oil company.
Rupert has bought a television station and, as a
present to the government, recently spent
$1,600,000 to acquire two pistols that belonged
to Simon Bolivar at auction at Christie’s.
Private corporations that deal with the
government are owned by government officers.
Government officers own companies that
do business with the government, but conceal
this fact by working through private intermediaries.
Kenneth Rijock, a financial analyst, notes
that these types of corporations have sprouted
under Chavez. He mentions major agribusiness
organizations such as ProArepa, the main supplier
of food for government handout programs.
Rijock also points to a large grain transport
group “rumored to be owned by Chavez’s
brother, Adan.” Officers of record of ProArepa
include Ricardo Fernandez Berruecos, whose
private jet recently was detained by the U.S.
government at a Florida airport for not having
the proper documentation of ownership. Journalist
Patricia Poleo mentions the case of the
brother of Chacón, who made a $10,000,000
offer to buy INDULAC, a large milk producer,
without the source of the funds being known.
Drug trafficking. Venezuela has become a
haven for Colombian guerrillas who move
drugs across the country with impunity due to
the absence of border controls. A report by
Andy Webb-Vidal for Jane’s Intelligence Review
in May 2006 reveals that cocaine operations
are shifting to Venezuela; he notes that
drug volumes going through the country have
skyrocketed during the last 10 years. Prominent
drug traffickers of Colombian origin live
without fear of prosecution in Venezuela.
Chavez obviously has failed to live up to his
electoral promises to end corruption. The
record is clear. The Corruption Perception Index,
published by Transparency International,
has shown a progressive deterioration of the
ranking of Venezuela, both in Latin America
and the world. The latest index shows
Venezuela in position 138 among 163 countries.
This is the worst ranking of all Latin
American nations with the exception of Haiti.
Vice Pres. Jorge Rodríguez, expressing the official
position of the government, claims that
Transparency International “was a discredited
institution since it charges a tariff for positioning
countries favorably in the rankings.” Transparency
International is headquartered in
Berlin, Germany, and has chapters in more
than 100 countries, including Venezuela. It is a
highly respected organization and its corruption
rankings are accepted by the international
community as the best source of information
on this global problem.
Meanwhile, the Venezuelan ranking in the
Economic Freedom of the World Index is 126
out of 130 nations, above only the Republic of
Congo, Zimbabwe, and the Democratic Republic
of Congo. This ranking has been declining
steadily since Chavez came to power.
It has been established that countries with little
economic freedom, characterized by exchange
controls, military influence in government,
and predominance of state-owned enterprises
display the highest levels of corruption. Moreover,
the Human Development Index produced
yearly by the United Nations also charts
Venezuela in free-fall. The country has lost 30
places in this index in the last six years.
Promises vs. reality
Chavez’s record shows a significant gap between
his promises to end corruption and the
current reality. Immense amounts of money belonging
to the Venezuelan people have been
misused in furthering an anti-U.S. alliance in
the Western Hemisphere and beyond. Five
countries of the region—Mexico, Peru, Argentina,
Paraguay, and Chile—have expelled
Chavez’s ambassadors for interfering in the internal
political processes of their countries.
Chavez’s policies have promoted corruption
rather than combating it. The concentration of
power in his hands and the lack of institutional
checks and balances have led to a total absence
of accountability and transparency in the government.
Although corrupt bureaucrats have
been identified, none have been punished. Not
one single person is in prison in Venezuela for
corruption. At most, some have lost their jobs,
while retaining their bounties.
It seems clear that no meaningful victory
against corruption can be won in Venezuela
while the Chavez government is in power. Only
a democratic government, fully accountable to
the people, and fully transparent, will be able to
minimize this malady. This is why the Venezuelan
lovers of freedom and democracy are in for
the fight of their lives and, thankfully, seem to
be making real progress. Chavez’s pretensions
of becoming dictator for life came to an end on
Dec. 2, 2007, when a constitutional reform that
would have made him president for life was defeated.
He still is president, but is starting to
look more and more like a paper tiger. ★
Gustavo Coronel, as president of Agrupacion
Pro Calidad de Vida, was the Venezuelan representative
to Transparency International from
1996-2000. He was a member of the board of
directors of Petroleos de Venezuela from 1976-
79. This article is adapted from a policy paper
written for the Cato Institute, Washington, D.C.
USA TODAY ★ MARCH 2008 69