Gustavo Coronel : Hugo Chavez:
The Venezuelan anti-Midas
Income and expenditures during the Chavez government, 1999-2011 .
The 13 years of the Hugo Chavez presidency have been the most disorganized in the history of Venezuelan finances. The amount of money coming into the country has been the highest in our history but this money has been spent in a truly chaotic manner. The only other comparable period of waste and disarray in Venezuelan finances came during the first presidency of Carlos Andres Perez in 1974 – 1979, when oil prices suddenly quadrupled and the government decided to embark on a program called “The Great Venezuela” that turned out to be a jump into the abyss.
Today many Venezuelans and international observers do not fully realize the magnitude of the waste that has taken place in my country. I have done a back of the envelope exercise for the benefit of those who do not have a clear idea of the situation. As I am not a financial expert I do not pretend to offer an exact account of the financial disaster that has taken place. However, I believe these numbers are of the right order of magnitude.
VENEZUELAN INCOME, 1999-2011.
The total Venezuelan income during the 13 years of Hugo Chavez's rule, from 1999 to 2011 amounts to about U.S. $ 1,125 billion ($ 1.125 trillion). This averages some U.S. $87 billion per year, although there have been wide variations from year to year.
This income has come primarily from three sources: Oil sales, taxes and other national income and new debt. A breakdown of these three sources is as follows:
Oil Income U.S. $ 500 billion
Taxes and other national income U.S. $ 550 billion
Income from new debt: Bond emissions and
Loans mostly from China , Japan and
Russia U.S. $ 75 billion
TOTAL INCOME, some U.S. $ 1,125 billion, or, $1.125 trillion.
Oil income has been essentially derived from export and domestic sales of crude oil and products and, to a minor degree, from bonus payments made by Russia , Italy , China and other countries, as part of their exploration and production contracts in the Orinoco region and other Venezuelan oilfields. The national debt of Venezuela is now almost four times higher than at the beginning of Chavez's tenure.
VENEZUELAN EXPENDITURES, 1999-2011.
Expenditures are more difficult to estimate. They can be divided into Budgeted Expenditures; parallel, Non-Budgeted Domestic Expenditures, and International Expenditures ordered by Hugo Chavez, including acquisition of weapons and cash donations to his friends.
It is estimated that expenditures have been as follows:
Budget related expenditures U.S. $ 780 - 910 billion
Parallel, non-budget domestic expenditures U.S. $ 90 billion
International Expenditures, ordered by
Chavez U.S. $ 60 billion
TOTAL EXPENDITURES U.S. $ 930-1,060 billion
THE GANG OF 1500.
Since existing international reserves are of the order of $30 billion, there are some $35 – 65 billion that can be said to be unaccounted for. Probably more, since these international reserves are mostly in gold, only about $6 billion in cash. The amount of money that I believe is in the hands and pockets of the some 300 members of the Chavez elite and about 1200 related bankers, minor bureaucrats, boot-lickers, contractors and sundry accomplices is, therefore, between $65 and 95 billion.
BREAKDOWN OF THE EXPENDITURES
An attempt at detailing expenditures is as follows:
- Budgeted expenditures .
These are particularly difficult to keep track of, as the National Assembly keeps approving non- budgeted, expenditures throughout the fiscal year. Furthermore budget execution is unknown but it is doubtful that the government can execute more than 80 percent of its formal budget in any given year. Since parallel, “additional expenditures” are being approved by the Chavez-controlled National Assembly at all times, it might be estimated that national expenditures related to the “formal” budget have averaged about $60-70 billion per year. These expenditures cover investments (maybe 20 percent of the total) and ordinary expenditures (the other 80 percent), as well as the service of the increasing national debt. It should be noted, however, that the regime faces significant short to medium term contingencies due to the 18 international lawsuits and/or arbitrations against the government. These contingencies could be in the order of $15-18 billion.
About 7-8 percent of the total budgeted expenditure has gone every year to the so-called Missions (social expenditures) and other direct subsidies and handouts, some U.S. 5 billion per year. This is part of the “bread and circus” strategy that serves to keep people “happy” and to minimize popular protests. It is distributed in the form of partially free food, free education and subsidized health, food and transport. Very little budgeted money goes into real investment in infrastructure, which explains the lack of new roads, hospitals and schools observed during the period. It should be added that whatever is given for free in Venezuela turns out to be quite expensive in the longer term, as primary, state managed education is of very low quality, food is often sub-standard and medical assistance is mostly of a primary, symptom-relieving nature.
- Parallel, non-budgeted domestic expenditures.
These expenditures are made outside the formal, legal channels and are decided by a very small group of people that includes Chavez, Ministers Giordani, Merentes and Ramirez and a few other bureaucrats. The money is taken from parallel funds such as FONDEN (a Development Fund), The Chinese Fund (the money lent by China), from the pockets of the oil company Petroleos de Venezuela or from banks and other state institutions. These funds offer no accountability. The money feeding the Development Fund mostly comes from oil sales done at values in excess of the budgeted estimates. This is the main way the regime has found to cheat Governors and Mayors of the opposition from money that constitutionally belongs to them. For example, the 2011 national budgeted income is based on a $40 a barrel of oil, although the real price has averaged twice that much. The proportion of this excess income that should be allocated to states controlled by the opposition never reaches them. Instead, this extra money goes into parallel funds controlled by Chavez, which lie outside the public area. As readers can imagine this modus operandi constitutes a very strong source of government corruption, which is today at an all-time high.
- International expenditures ordered by Chavez.
This group of expenditures basically include handouts by Chavez to his friends in the Western hemisphere and in some other areas of the world, as well as the money to acquire weapons from China, Russia and Iran and for the acquisition of a myriad of mostly useless objects from abroad. Examples include a $150 million donation to Cuba in the eve of a 2010 hurricane, checks from a Venezuelan state bank distributed by Bolivian president Evo Morales to friendly politicians and military officers, bags full of money going to Cristina Kirchner in Argentina, donations to presidential campaigns in Peru and other countries, acquisition of electric plants for Daniel Ortega in Nicaragua, a modest $100,000 for the cleaning of the Hudson river in New York City; roads, houses, oil refinery in Cuba, roads in Jamaica, houses in Equatorial Guinea, an oil refinery in Ecuador, a stadium in Libya, donations to hospitals in Uruguay, buying shares of bankrupt companies in Argentina, Uruguay and other countries, promised loans to Lukashenka in Belarus (do not know if they were finally given) and buying artificial satellites, car and bicycle assembly lines from Iran, diaper “technology” and about 300,000 iceboxes and other electrical equipment from China.
BUT, THE VENEZUELAN FINANCIAL WASTE IS MUCH BIGGER
The financial drain of Venezuelan money is much bigger than as described above, because there are enormous losses that are not out of pocket, such as the subsidies given to Cuba for Venezuelan oil delivered, to the tune of some $2.5 billion per year, subsidies to Ecuador for oil refined at a loss in Venezuelan refineries, donations of oil to Ortega's political party in order to finance the presidential campaign of the rapist, donations of fuel oil to the U.S. “poor” (who receive an average income six times greater than the average Venezuelan poor), estimated at some $600-700 million so far; oil subsidies to the Caribbean states of the order of $200 million per year and buying over-priced food from countries like Guyana and Dominican Republic to keep their governments (often unsuccessfully) under Chavez's political control.
This financial disaster explains why Venezuela has one of the highest country-risk ratings in the Western Hemisphere and why is considered to be the second country, after Greece , most likely to default. It also explains the horrendous rate of inflation, the highest in the world, next to Afghanistan 's. This has been a negative miracle in a country with relatively low population and an enormous oil income.
Hugo Chavez is the true Anti-Midas.
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Gustavo Coronel is a 28 years oil industry veteran, a member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), author of several books. At the present Coronel is Petroleumworld associate editor and advisor on the opinion and editorial content of the site. All his articles can be read in Gustavo's blog. Las Armas de Coronel . Petroleumworld does not necessarily share these views.
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Petroleumworld News 10/31/2011
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