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How wealth, mismanagement, and populist rhetoric have corroded the country

Mismanagement and abuse of power have enabled official corruption in Venezuela to explode to unprecedented levels, argues a new policy analysis by the Cato Institute. In the study released today, "Corruption, Mismanagement, and Abuse of Power in Hugo Chávez's Venezuela," author Gustavo Coronel, member of the first Board of Directors of Petróleos de Venezuela from 1976 to 1979 and Venezuelan representative to Transparency International from 1996 to 2000, details how the Chávez regime is squandering the country's wealth through rampant official and personal corruption.

Dubbing Chávez's government "hypercorrupt," Coronel identifies four main reasons for the nation's rapid decline to the bottom of global corruption and economic freedom indices. Misused oil income, mediocre management, Chávez's determination to play a "messianic" role in world affairs, and political populism designed to garner the affection of the people rather than promote the creation of new wealth have also contributed to the rise of graft.

Coronel classifies Venezuelan corruption into three categories -- grand corruption, bureaucratic corruption, and systemic corruption -- and details disturbing examples of graft, incompetence, and flagrant disregard for both the rule of law and the welfare of Venezuelans. For example, the operations of at least two state-run financial institutions are completely opaque and the institutions spend funds at the discretion of Chávez alone. The management of national funds is done in secrecy and without accountability to the people.

Using Venezuela's oil reserves as a tool of public diplomacy, Chávez has repeatedly signed agreements with neighboring countries to buy loyalty -- one example being the oil supply agreement with Cuba. Currently, Venezuela supplies Cuba with 90,000 barrels of oil per day. Says Coronel: "In total, therefore, Venezuela is giving Cuba a subsidy on the order of $2.2 billion to $2.3 billion per year. This is an enormous amount, sorely required by Venezuela for the improvement of the quality of life of its citizens."

From suspect voter rolls (Venezuela has 17,000 voters born in the 19th century, with one person 175 years old and still working) to state-owned corporations, all levels of society have been affected. Failed social programs, faulty infrastructure, and a judicial system in the pocket of the executive have created a totalitarian system in all but name.

Unfortunately, prospects for reform seem bleak. Prominent cases of corruption have not been punished. Coronel concludes: "Meaningfully reducing corruption in Venezuela would require eliminating motives and opportunities for corruption and punishing those responsible. After eight years of Hugo Chávez, it's entirely clear that the battle against corruption in Venezuela cannot begin until Chávez has gone."

Corruption, Mismanagement,
and Abuse of Power in Hugo Chávez's Venezuela

By Gustavo Coronel

Summary

Corruption has existed in Venezuela since at least 1821, when it gained independence. In the 19thand 20th centuries, the level of corruption fluctuated, depending on the government in power. During the government of President Hugo Chávez, however, corruption has exploded to unprecedented levels. Billions of dollars are being stolen or are otherwise unaccounted for, squandering Venezuelan resources and enriching high-level officials and their cronies.

The windfall of oil revenues has encouraged the rise in corruption. In the approximately eight years Chávez has been in power, his government has received between $175 billion and $225 billion from oil and new debt. Along with the increase in revenues has come a simultaneous reduction in transparency. For example, the state-owned oil company ceased publishing its consolidated annual financial statements in 2003, and Chávez has created new state-run financial institutions, whose operations are also opaque, that spend funds at the discretion of the executive.

Corruption now permeates all levels of Venezuelan society. Bureaucrats now rarely follow existing bidding regulations, and ordinary citizens must pay bribes to accomplish bureaucratic transactions and have to suffer rampant neglect of basic government services. All this has been encouraged by a general environment of impunity: officers implicated in major corruption scandals have sometimes been removed from their posts, but they have not otherwise been held legally accountable.

The dramatic rise in corruption under Chávez is ironic since he came to power largely on an anti-corruption campaign platform. To truly fight corruption, the government needs to increase the transparency of its institutions and reduce its extensive involvement in the economy, something that has placed Venezuela among the least economically free countries in the world.

Ver Corruption, Mismanagement, and Abuse of Power in Hugo Chávez's Venezuela, by Gustavo Coronel PDF/catocoronel.pdf

The Cato Institute was founded in 1977 by Edward H. Crane. It is a non-profit public policy research foundation headquartered in Washington, D.C. The Institute is named for Cato's Letters, a series of libertarian pamphlets that helped lay the philosophical foundation for the American Revolution. Petroleumworld not necessarily share these views.

Nota del Editor: This commentary was originally published by The Cato Institute, on Nov. 27, 2006 . Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 11/28/06