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Venezuela's Chavez Political Corruption
From Petrostate to Narcostate

By Gustavo Coronel

INTRODUCTION

Our 2006 paper on corruption in Hugo Chavez’s Venezuela, published by the CATO Institute 1 revealed the extraordinary levels of waste and mismanagement of Venezuelan national resources present during the first eight years of authoritarian rule by Hugo Chavez. In this paper we update that publication and analyze the performance of the Chavez’s government during the period 2007 2009, with special attention to quality of governance and levels of transparency in the management of public assets.

The Venezuelan experience under Hugo Chavez will be useful to redefine some of the basic concepts about corruption. One of the concepts that will merit revision is the link between corruption and inefficiency. According to Robert C. Brooks 2: “while corruption is intentional…. failure to meet a recognized duty is not necessarily corrupt; it may be due to simple inefficiency. The inefficient official does not know any better”. The Venezuelan case clearly illustrates how inefficiency is a variety of corruption. Wasteful management of public resources has been the result of a selection of government bureaucracy based on nepotism, friendship, ideological affinity or personal loyalty. When a public official is named on the basis of one or more of these criteria, mismanagement of national resources is an inevitable result. Members of the Venezuelan cabinet are often named or removed by President Hugo Chavez during his Sunday television appearances, in decisions that often surprise outgoing and incoming officials. During his 11-year tenure Hugo Chavez has named over one hundred and forty different cabinet ministers, an average time in office of about six months. The cabinet has come to resemble a game of musical chairs, with no minister lasting long enough in his/her job to do much more than install some friends in the ministry or to grab a piece of the national treasury while in power. This style of government responds to a political strategy designed to maintain political control.

II FINANCIAL PERFORMANCE: AN UPDATE

1. The Chavez prodigality

In September 2008, President of Costa Rica Oscar Arias, had this to say regarding the prodigal manner Hugo Chavez has been spending Venezuelan
money abroad 3: “ Leftist-ruled Venezuela provides four or five times more aid to Latin America than Washington does. That's the truth, and I'm not making any value judgment,” Arias added: “[Chavez] has put into practice projects to finance petroleum sales to countries that buy oil from Venezuela and, for better or for worse, if that is an advantage for the people of Costa Rica, I'm going to join PetroCaribe because I was elected to protect Costa Rican interests.”
PetroCaribe is an initiative under which Caracas supplies crude on generous terms to 17 developing nations in the Caribbean and Central America at a considerable loss to the Venezuelan nation, with the main objective of increasing Chavez’s political clout in these countries..

The seduction of Oscar Arias represents a good example of how Chavez’ s regional handouts has given him the image of a generous leader. Arias is so happy to take advantage of the subsidies offered by Chavez through Petro- Caribe that he pays little attention to the opposition of Venezuelans to this program and fails to see the cost of this program for the Venezuelan nation and the real motivations behind Chavez’s apparent generosity. What Arias defines as Chavez’s foreign aid strings attached in terms of demands for political loyalty. In pursuing this objective Chavez has already committed or promised to Latin American and Caribbean countries, and even to some sectors of U.S. society, an estimated $36 billion dollars, as summarized in Table 1:

 

Table 1
Country
Million U.S. dollars

USA

River Hudson cleaning program

Oil subsidies for the “poor”

Donation for a Danny Glover film

Venezuelan Information Agency expenses




0.1

400.0

18.0

10.0
____

428.1

Cuba

Oil subsidies, 2004-2008

Cienfuegos Refinery

Houses and other infrastructure

Over-payment to Cuban personnel

 

 

11,000.00

45.0

150.0

600.0

_____

11,795.0

Nicaragua

Oil subsidies, mostly diesel

Electrical plants

Cash to Ortega

Promised refinery

 

 

590.0

80.0

60.0

4500.0
_____

5,230.0

Argentina

Acquisition of government bonds

Diesel subsidies

Oil bartered for food

Illegal money to the Kirchners

 

 

5,000.0

200.0

300.0

12.0
_____

5,512.0

Bolivia

Diesel subsidies

Cash given to Evo Morales

Infrastructure given or promised

145.0


85.0

10.0

50.0

_____

145.0

Ecuador

Refinery promised

Acquisition of government bonds

Oil subsidies

Paraguay

Promised expansion of refinery

Oil subsidies

 

 

5,000.0

300.0

100.0

 

 

100.0

100.0

_____

100.0

Uruguay

Upgrading refinery La Teja

Social handouts

 


2500.0

30.0
____

530.0

PetroCaribe

Oil subsidies for Caribbean countries

 


2500.0
_____

2500.0

Africa

Handouts to Niger, Mauritania, Mali
and Burkina Fasso.

 

5.0
____

5.0

United Nations, expenses connected with
efforts to obtain a seat in U.N. Security Council



1000.0
_____

1000.0

Brazil

Promised Pernambuco refinery, 50%

40 oil tankers, promised

Donation to Rio samba school


 

 

1500.0

2000.0

1.0

_____

3501.0

Estimated total
U.S $ 36 billion

Note: This table summarizes our best estimates of the amounts so far given or promised by Hugo Chavez to other countries, as pieced together from newspapers, Chavez’s speeches and other announcements made by his regime. They do not include domestic handouts, the $7 billion expenditures on weapons, the promises to lend Belarus $400 million to pay for a debt with Russia or any cash that might have been given under the table to Latin American political leaders or used in financing activities related to the presidential elections in Peru, Mexico, Argentina, Nicaragua, El Salvador and Bolivia, to the terrorist Colombian organization, FARC or to Hamas in Lebanon.

These amounts of money have been given or promised to other countries without previous financial planning or legal authorizations from other branches of government. The handouts are not the result of a formally approved foreign aid program but the product of Chavez’s decisions, many of them taken on the spur of the moment, as political expediency dictates. A foreign aid program must have a definite national objective and a permanent positive impact on the country receiving the aid. The objective of Chavez’s handouts is the consolidation of his political hegemony in the region. Much of the money has remained in the hands of the political leadership in each country, used for political gain or for their own financial benefit. These amounts are very similar to the size of new Venezuelan debt, which has increased about $50 billion during the last decade. This means that Chavez has increased the debt burden of Venezuela only to give the money away to ideological friends in the hemisphere. This constitutes an act of extreme corruption.

2. As Chavez’s prodigality increases, the national budget keeps showing a strong deficit

The accelerated increase in oil prices during 2007 and the first half of 2008
provided Hugo Chavez with some $150 billion in windfall petroleum revenues.
Oil and non-oil derived income received by the Chavez’s government during the
last ten years add up to some $750 billion. A reasonably efficient and honest
government could have done wonders with such amounts. However, Chavez
has managed to incur in new debt to make ends meet.

The 2009 budget contemplates expenditures of some $90 billion. The government has estimated income on the basis of an oil production of 3.2 million barrels per day and an average oil price of $60 per barrel. However, both this production level and the average oil price for 2009 are grossly over estimated. Independent observers, including OPEC, believe that real production is closer to 2.5 million barrels per day while a more realistic average price for the year
would be $50 per barrel. In parallel, the increase in domestic consumption, now
at some 700,000 barrels per day, means that the level of oil exports and foreign currency earnings will be much lower, since the price of oil in the domestic
market is grossly subsidized, selling at some $9 per barrel. As a result the 2009
budget will have a fiscal deficit of some $30 billion. In order to close the fiscal gap the government will be pressured to devalue the currency, increase its level of debt and impose new taxation on the already impoverished
population. The international reserves of the Venezuelan Central bank continue
being systematically raided by the government. A report by the Reuters news agency 4, informed recently that President Chavez had decided to transfer $12 billion of the international monetary reserves from the Central Bank to the presidency, “in order to finance [unspecified] government projects”.

Raiding the Central Bank international reserves to use the money for current expenditures and structuring a national budget under false assumptions in order to create an illusion of prosperity, represent clear acts of administrative corruption.

III CHAVEZ’S GRAND CORRUPTION, AN UPDATE

As stated in our paper published by CATO 1, this category covers political or financial corruption derived from major policy decisions at the level of the president. Some of the newer examples include:

1. The Alliance between Hugo Chavez and the Colombian terrorist group, FARC

The capture by the Colombian army of several laptops belonging to the deceased FARC’s leader Raul Reyes, in January 2008, generated a wealth of
new information on FARC’s links with groups and governments all over the world. Some of the documents found establish clearly the support given by Hugo Chavez to this group and the gratitude of the FARC for this support. A report by AP 5 states: “documents recovered from a slain rebel leader’s computer reveals financial ties between Venezuelan President Hugo Chavez and Colombia’s largest guerrilla group, including a recent message that mentions US$ 300 million in Venezuelan support for the rebels”. The report adds: “Another document found in the laptop belonging to slain leader Raul Reyes suggests financial ties between Chavez and the rebels dating back to 1992, [Colombian Police chief Oscar] Naranjo said. At this time Chavez was jailed in Venezuela for leading a coup attempt and was plotting the comeback that…led to his election as president in 1998… A note recovered from Raul Reyes speaks of how grateful Chavez was for the 100 million pesos (about $150,000 at the time) that the Revolutionary Armed Forces of Colombia, FARC, delivered to Chavez when he was in prison”.

This association explains Chavez’s fury over Reyes’ death and his orders
to the Venezuelan army, in March 2, 2008, to send tanks and ten battalions
to the Colombian border. Only two weeks earlier Chavez had asked the
European Union to remove the label of terrorist to the Colombian irregular army, claiming that they represented a legitimate army of liberation. In doing so he referred to Colombian President Uribe as a “liar” and a “mob boss”. In reply President Uribe announced that Colombia would charge Chavez in the International Criminal Court (ICC) in The Hague for materially aiding the FARC and funding genocidal groups, an action that still remains in suspense.

During the return of two hostages of FARC, January 10, 2008, a video taped
by Chavez’s TV network Telesur, showed Venezuelan Interior Minister
Ramon Rodriguez Chacin transmiting to the rebels the support of the Venezuelan
government. He said to the rebels present in the delivery of the hostages “I have a message from President Chavez for you… We are very aware of your struggle and ask you to maintain this effort… You can count on us” 6.

The link between Hugo Chavez and the FARC has now been convincingly documented with the recent finding of Swedish weapons sold to Venezuela in
the hands of the FARC. January 2, 2009, the current leader of FARC, Guillermo
Leon, aka Alfonso Cano, stated: “The relations with Venezuela are essential to us. Jesus Santrich, aka Bertulfo, Timochenko, Ivan Márquez, Granda, Solis Almeida, Martin Villa and Hermes Aguilera will be stationed there”7. The transfer of weapons and cash to FARC and the explicit support given to the Colombian terrorists by Chavez are clear examples of political corruption at the highest level. A poll conducted in 2008 by Alfredo Keller 8 showed that over 90% of Venezuelans rejected both the FARC and the alignment of Chavez with these terrorists.

2. Chavez illegal financing of the presidential campaign in Argentina.

The case of Venezuelan-American businessman Guido Alejandro Antonini,
caught by customs officials in Argentina in August 2007 with a bag containing
$790,500, brought to the surface the strong illegal connections between Hugo Chavez and former President of Argentina, Nestor Kirchner and his wife, Cristina Fernandez, current president of the country. Although the customs officers retained the bag, Antonini was allowed to leave the country two days later, not before he had visited the presidential palace. He had traveled to Buenos Aires in a private flight chartered by ENARSA, an Argentinean state oil company, together with high executives from that company and middle managers of Petroleos de Venezuela, the Venezuelan state owned petroleum company.

Once back in Miami Antonini received the visit of three Venezuelans: Franklin Duran, Carlos Kaufmann and Moises Maionica, who told Antonini they had
been commissioned by the Venezuelan government to make sure that he would not reveal that the money was going directly to the presidential campaign of
Cristina Fernandez, who later became President of Argentina. In exchange for his silence, he was told, he would receive a cash amount. Antonini asked for
$2 million. While these conversations were underway the FBI convinced Antonini to cooperate in a sting operation against his former colleagues and agents of the Chavez’s government. As a result the three men were indicted and brought to trial. Kaufman and Maionica pleaded guilty while Duran did not. The transcript of the trial held in Miami, Florida 9 is a fascinating document, revealing the large extent of corruption at several high levels of the Chavez regime. The testimony of Carlos Kaufmann, Duran’s partner in crime, includes revelations such as
these:

• Duran and Kaufmann had acted as agents of the Ministry of Education, the Ministry of Finance, the Venezuelan National Guard, the government of the State of Cojedes and the Government of the State of Vargas, among other government organizations, to arrange for the deposit of their monetary funds in selected banks that paid them kickbacks, including Bancoro, Banesco, Banco Canarias, Banco Federal and Banco Bolivar.

They would share these kickbacks with the government bureaucrats in the different institutions above mentioned. Kaufmann stated that Governor of Cojedes Johnny Rangel received 30 percent of the kickbacks while Antonio Rodriguez, Governor of Vargas received up to 40 per cent.

• Kaufmann stated that he and Duran had bought Citibank building in Caracas for some $4.5 million and, two weeks later, had sold it to the Ministry of Finance for some $9.5 million.

The $5 million profit was shared among them and four members of the Ministry: the Minister Tobias Nobrega, the Vice Minister Jesus Bermudez, the Director of Public Credit Alejandro Dopazo and Adviser to the Minister Lenin Aguilera. Each one of these bureaucrats received one million dollars for their efforts. Kaufmann explained that in this transaction they obtained a relatively “modest” profit but served as prelude to other, more important transactions.

In one of them, Kaufmann explained, they bought government notes/bonds at a reduced price and sold them later on at much higher prices, after the Ministry re-structured the notes, making a $100 million profit within a matter of a few days. They paid the Minister Nobrega and his collaborators, mentioned above, $25 million in kickbacks.


The transcript is as follows:

“We were able to buy some of those Bermudez notes in the market for around 50 percent and with the minister and their party and their team, we were able to be part of a restructuring. Q. And how much money did Franklin and you make in your involvement with the Bermudez notes? A. Around $100 million. Q. Did you pay any kickbacks to anyone? A. Yes. Q. To whom? A. To the minister and that -- and the team. Q. The four individuals that you just mentioned? A. Yes. Q. And approximately how much money did you pay back to Tobias Nobrega, Jesus Bermudez, Lenin Aguilera and Alejandro Dopazo? A. $25 million”.

• Kaufmann stated that they acted as agents of the Chavez regime to try to keep Antonini silent about the destination of the money that he attempted to smuggle into Argentina. They had been asked to do this by the Director of the Venezuelan secret police, DISIP, Henry Rangel Silva, after the efforts to control Antonini made by Rafael Ramirez, the Minister of Energy and President of Petroleos de Venezuela, proved unsuccessful.

The testimony of Moises Maionica went further than Kaufmann’s. He
linked President Hugo Chavez with the moneybag carried by Antonini 10.
He testified that Henry Rangel Silva, Director of DISIP, the Venezuelan secret
police, told him “the president [Chavez] is upset and needs this case
resolved”.

TIME magazine 11 reported that Kaufman, Duran and Maionica had been commissioned by the [Chavez] government to keep Antonini silent.“They “cajoled and, even, threatened, Antonini to keep mum about the purpose
of the cash: a contribution from Chavez to Cristina Fernandez [Nestor Kirchner’s wife, at the time a candidate for the presidency of Argentina]”. The Miami trial made clear that corruption in the Chavez’s regime was not limited to massive stealing of national funds by Chavez’s bureaucrats, but also included the intervention of Hugo Chavez in the political affairs of Argentina and the illegal financial contributions made to one of the presidential candidates in that country.

3. Chavez: “If the opposition wins the elections I will put the tanks out in the streets….
I will not send money to the governors and mayors of the opposition…”

In a speech 12 given in the city of Puerto Cabello, November 19, 2008, a
few days before the elections for governors and mayors, Hugo Chavez said:
“If the Yankee lover and oligarch [Henrique Salas Feo, candidate of the
opposition for governor of the State of Carabobo] wins the election, perhaps I
will order our Tank Brigade to go out in the streets. I will not allow the oligarchs… to return”. This was the second time in less than a month that
Chavez had threatened with violence if he was defeated in the polls. In Maracaibo, capital of the State of Zulia, he claimed publicly, in October 25, 2008, that he would consider “a military plan” if the election for mayor was
won by leader of the opposition Manuel Rosales. He also said he
“would send Rosales to prison since such a person cannot be free”.

In another political speech 13 Chavez asserted that he would not send financial
resources to the governors of the opposition since they were plotting to assassinate him. He said: “the opposition is trying to win the governorships
and mayoralties in order to develop a plan to oust me from power. I will not
allow this… Why should I send financial resources to those governors of the opposition, just to promote their plans…? Why should I send money to them so they can steal it and use it against me?”. This statement is clear evidence of Chavez’s abuse of power since the Venezuelan constitution stipulates that the states should receive financial resources from the central government. To withhold these resources constitute an open violation of the constitution. In line with Chavez’s threats, the governors and mayors of the opposition who won in the November 20, 2008 elections, have been experiencing serious delays in the money deliveries from the central government.

4. Chavez financed the presidential campaign of the FMNL in El Salvador

Hugo Chavez supported the recent presidential campaign of the FMNLN
through a company called ENEPASA, jointly owned by the Venezuelan stateowned company Petroleos de Venezuela and by the InterMunicipal Energy Association of El Salvador, an organization of mayors belonging to the FMNL party. The mayor of Soyapango, Carlos Ruiz, said that 40 percent
of the oil received from Venezuela would be paid by FMNL on a longterm
basis, up to 2031, a very generous subsidy that represented, for all practical purposes, a significant financial contribution to the campaign of the FMNL candidate 14.

FMNL sold some $6 million per month in oil received from Venezuela, which
meant that some $2.5 million per month became available for financing the presidential campaign. During the campaign numerous posters of Mr. Funes,
together with Mr. Chavez and a can of Venezuelan lube oil appeared all over the country. Petroleum products received by the leftist mayors were estimated at some 20,000 gallons per month.

This type of activity prompted U.S. National Director of Intelligence, J. Michael
McConnell, in February 2008, to issue an intelligence report in which he stated: “We anticipate that Hugo Chavez will provide generous financing to the FMNL in El Salvador in their attempt to secure the presidential elections of 2009” 15.. Although FMNL’s candidate Mauricio Funes announced that he “would not accept money from Chavez” the fact remains that the FMNL did enjoy the financial support of Chavez through the subsidized oil mechanism described above. However, after his victory President Funes distanced himself from Chavez.

5. Chavez’s attempt at becoming president for life by “reforming” the constitution was defeated in a referendum in December 2007. However, only six months later, he imposed a new and illegal referendum to “modify” the constitution and succeeded

In December 2007 a Chavez proposal to reform the constitution in order to allow him to be re-elected indefinitely was defeated in a popular referendum. Official tallies were never published but the government said that the referendum had been defeated by less than two percentage points, although the unofficial version is that the margin of defeat was between 8 and 10 percentage points. According to Articles 72, 74 and 345 of the Venezuelan constitution, once a proposal is defeated in a referendum it cannot be put forward again within the same presidential term.. Surprisingly, in mid-2008 Chavez initiated a drive for
a new attempt at indefinite reelection. This time he called it a constitutional
modification (“enmienda”), to try to differentiate it from a constitutional
reform. The net effect, however, would be the same: allowing him to be re-elected indefinitely. Article 340 of the constitution defines a “modification” (enmienda) as a change that does not alter the structural principles
of the constitution. The modification that Chavez proposed, to eliminate the prohibition for indefinite re-election in the presidency, constituted a structural
constitutional change. Most Venezuelan lawyers defined this attempt as
unconstitutional but both the National Assembly and the Supreme Tribunal of
Justice, controlled by Chavez, approved the “legality” of the new proposal.

The new referendum took place in an environment of intimidation and abuse of power by the government. Chavez won.

IV. BUREAUCRATIC CORRUPTION, AN UPDATE

Violations of the law, norms and regulations by government employees and their non-government accomplices have continued unabated. Items:

1. Update on the corruption at Complex “Ezequiel Zamora”

The case of corruption in the “Ezequiel Zamora” agro-industrial complex, which includes a sugar mill, was described in our original paper 1 under “sweet corruption”. This sugar mill under construction was slated to be finished in 2005. $1.3 million were missing and 19 persons had been accused of corruption, including the then Minister of Agriculture Antonio Albarran.

In 2009 the sugar mill is still unfinished, the money remains unaccounted
for and no one has been condemned or even brought to trial.

2. Siemens bribed members of Venezuelan government in order to obtain contracts


According to a U.S. Security and Exchange Commission report recenly
made public Siemens of Venezuela made about $18.8 million in bribery payments to Venezuelan officials between November 2001 and May 2007, in order to obtain favorable business treatment business in major mass transit projects in the cities of Valencia and Maracaibo. The contract between Siemens and the Venezuelan government for the participation of Siemens in the Maracaibo Metro was signed by Chavez’s Minister of Finance, Tobias Nobrega 16. According to the reports 17 the money paid by Siemens went into the bank accounts of “a high-ranking member of the central government, a former Venezuelan Minister of Defense, two prominent Venezuelan attorneys and the relative of a local politician”.

The transcript of the legal action of the U.S. government against Siemen’s S.A., Venezuela 18, refers to the coconspirators in Siemen’s fraud in Venezuela as: Officer A, the Venezuelan president of Siemens, Venezuela; Agent A, the Venezuelan consultant who handled many of the bribes; Consulting firms A, B, C, one based in Georgia, USA, and two in Dubai, which handled the bribes to Venezuelan bureaucrats involved in the fraud connected with the Valencia (Georgia) and Maracaibo (Dubai) Metro projects respectively. There was another consulting firm based in Cyprus that also handled some of the bribes. The fraud was mostly done through payments for false studies, workshops, consulting services and supplies. Siemens Venezuela paid Agent A through a bank account in Panama.

The Siemens case clearly linked Chavez’s bureaucracy with unethical business
firms and was brought to light thanks to the diligence of the U.S. Department of
Justice. There is little doubt that many more cases similar to this one remain undocumented. Venezuelan authorities have made no attempt, so far, to investigate this case.

3. The Venezuelan Armed Forces are ordered to salute: “Fatherland, socialism or death”

Although the Venezuelan constitution stipulates that the armed forces will always be non-political and to the exclusive service of the nation and not to any personal political project, a May 10, 2008 order from Admiral Benigno Calvo Diaz, Navy Commander 19, instructed all members of the Venezuelan armed force to salute: “Fatherland, Socialism or Death”, in imitation of the salute utilized in Castro’s Cuba. Rear Admiral Luis Cabrera Aguirre explained “if our government is socialist we will also be socialist since we have no ideological autonomy”. General Alberto Muller Rojas added, rather cynically: “ Why not? The Venezuelan armed forces have always been politicized”. This instruction, coupled with one “suggesting” public employees the use of red garments in the workplace, points to the progressive creation of a totalitarian state, in total violation of the constitution that calls for a democratic state with plurality of political ideas and a non-political, professional armed force.

4. A $2.1 billion contract for a thermo electrical plant awarded without bidding

Blog :www.caracasgringo.wordpress. com, June 8, 2009 had this to say regarding the largest turnkey contract awarded by the Chavez regime:

“Duro Felguera, a Spanish company which specializes mainly in building turn key combined cycle power generation plants worldwide, was awarded in June 2009 a $2.1 billion turn key contract to build a combined cycle gas-fueled thermal power generation plant in Miranda’s Tuy Valley, near Caracas.

Duro Felguera says the contract for the Termocentro power generation plant was awarded directly by Corpoelec subsidiary New Electricidad
de Caracas (NEDC).

This is the largest turnkey power contract awarded in over ten years – certainly the biggest power generation project contract since Hugo Chavez was first elected president at the end of 1998.

There was no competitive bidding, no public disclosures or debate, and no prior reviews of the proposed project
by the appropriate authorities."

5. Petroleos de Venezuela: less oil production, more food imports and distribution, less maintenance, more corruption

During the last two years the unorthodox activities of Petroleos de Venezuela,
the state-owned petroleum company, have further contributed to its deterioration. A May 2008 report by Transparency International analyzing 42 large international petroleum companies 20, ranks Petroleos de Venezuela as one of the least transparent. While Petrobras (Brazil) and Pemex (Mexico) showed high degrees of transparency in their financial and operational disclosures, Petroleos de Venezuela received a low ranking, together with
Societé Nationale des Petroles du Congo, Lukoil (Russia) and Sonangol
(Angola). In presenting the report, themain researcher Juanita Olaya indicated : “In the case of Venezuela, they have a long way to go”. In the same
report the Venezuelan chapter of Transparency International was quoted defining the situation of Petroleos de Venezuela as “critical”.

Some specific cases of corruption linked to Petroleos de Venezuela during
this period include:


• The case of the money bag carried by Guido Antonini to Buenos Aires, meant for the presidential campaign of Cristina Fernandez. On the basis of the findings of the Miami trial of Carlos Kaufmann, Franklin Duran and Moises Maionica, already mentioned in this document, the origin of the money was traced to Petroleos de Venezuela. It was established that Rafael Ramirez, president of the
company, had been ordered been Chavez to keep Antonini silent on this matter, something that he was unable to accomplish;

• Corruption involving the contracting, without bidding, of oil exploration drilling rigs for the amount of some $75 million. This contract had been given by the company to a Colombian outfit that had only three employees. Called by the National Assembly to explain this situation, Exploration and Production Director of the company, Luis Vierma, said 21 that this was true but “it was not his responsibility”. He placed the responsibility on the Bidding
Committee of the company. He emphasized that the president of the company, Rafael Ramirez, had a strong voice in the decision. Surprisingly Vierma admitted that PDVSA “had not checked the credentials of the winning company” due to the need to hire the rigs as soon as possible. The candid revelations by Vierma did not stop here. He further said that the Board of the company had approved another contract for $70 million to a company, Constructora Bolivariana S.A., an Andean multinational that, at the moment of obtaining the contract, had only one employee. In addition, a contract to buy seven drilling rigs for $2 billion was assigned to Cosmaca, a company that only had a capital of one million dollars. Once it won the contract, this company simply sub-contracted the acquisition.

• Corruption in the Gas Division of the company. A member of the national Assembly, Luis Tascon, reported 22 a $99 million contract for a construction project related to natural gas to a company called Ecoinca. The person authorizing the contract was the wife of the president of the winning com- pany. However, the Chavez controlled National Assembly dismissed this case on the grounds that Ecoinca “was a patriotic company”.

• In early 2008 PDVSA created a subsidiary, PDVAL, to import and distribute food. This subsidiary uses Petroleos de Venezuela’s international offices to conduct searches for the acquisition of foodstuffs to be imported and local offices for its distribution. Not only this new occupation opens the door to numerous opportunities for corruption in the acquisition, importing and distributing process but it engages human and financial resources of the company that should be utilized in the core activities of the company. Not surprisingly the levels of petroleum production of the company have kept declining steadily, while the volumes of commercial exports are at an all time low. This has produced a decline in the financial wellbeing of the company, in spite of the very high international oil prices that have prevailed during the last two years. A report 23 states: “PDVSA is no longer just an oil producer”. Chávez has made it into what Elie Habalian, a former Venezuelan governor of the Organization of Petroleum Exporting Countries (OPEC), calls a parallel state. He says: “The company has transferred billions of dollars to funds controlled by the president, and directly finances and runs a range of social projects. There's a ministry of education—but PDVSA educates too. There's a housing ministry,
but PDVSA builds houses”. After the dismal performance by Venezuelan athletes in the 2008 Beijing Olympic games Chavez ordered the oil company to take over the training of these athletes for future competition.

• From 2007 through early 2009 Hugo Chavez has tried to increase state control of the oil industry. As the report by Mr. Habalian, quoted above, says 23: “[Mr. Chavez] decided that it would be a nifty idea to squeeze the remaining private oil companies operating in Venezuela and ordered the cancellation of the contracts signed in the 1990s, under which [the companies] were investing to develop deposits of superheavy crude. In their place would come joint ventures in which Petróleos de Venezuela (PDVSA), the state oil company, would wield the controlling share”. This Venezuelan government decision was unilateral. Compensation is based on book value and not on the current value of the properties but has not been paid. Most companies reluctantly accepted this situation in an effort to protect their large investments but ExxonMobil and ConocoPhillips resorted to international arbitration. Independently of the final results of the arbitrations the effects of this dispute on foreign investments in Venezuela are already apparent: 2008 foreign direct investment into Venezuela has been negative. The cash flow situation in Petroleos de Venezuela appears to be deteriorating significantly. The report 23 added: “in 2008 the company demanded that customers settle their bills eight days after shipment, rather than the customary 30 days. By the end of January 2008 it was offering fuel oil below the mar- ket price in an effort to rise cash…. during 2007 the company increased the debt burden from under $4 billion to over $16 billion”. More recently
the signs of acute cash shortage have become more noticeable. A
detailed report 24 has indicated that since August, 2007, payments by Petroleos de Venezuela to contractors and suppliers have experienced long delays, considered “serious” by the Venezuelan Petroleum Chamber, organization that groups these service companies. Large contractors have practically paralyzed their work due to this situation.. Pending payments by PDVSA to contractors was of the order of some $9.5 billion in 2007, twice the amount for 2006 and increased to about $12 billion by mid-2009. This situation, adds the Petroleum Chamber representatives, has become “a great source of corruption, as employees of the company extort contractors in order to accelerate payments”. The shortage in the cash flow of the company is partly attributed to the diversion of the company’s income into the pockets of the central government for unspecified political use.

• In May 2009 Chavez ordered PDVSA to take over about 36 private companies doing transport of oil industry personnel in the Lake of Maracaibo. The explanation was that such takeover was required “to guarantee operations”. The real reason was that PDVSA owed them and other contractors a significant amount of money and the takeover would postpone payment. About 8,000 new workers were incorporated into PDVSA’s payroll, with the corresponding increase in operational costs. In 2008, these costs increased about 20 percent as compared to the preceding year.

The performance of Petroleos de Venezuela through early 2009 has been riddled with corruption, wasteful use of income and diversion of the company’s human and financial resources to activities that have little to do with its mission. As a result the company is no longer a reliable supplier to its international clients and is dedicating more and more efforts to politically related activities. Since oil provides half of national income and 95 per cent of export earnings, it seems obvious that the nation is threatened with serious financial problems in the short and medium term.

IV. SYSTEMIC CORRUPTION

The interaction between the government bureaucracy and private actors
has provided a rich environment for corruption in a country where money
flows abundantly and without controls. In our previous report on this topic 1
we mentioned the emergence of a new class of new rich, mostly made up of contractors to government agencies, relatives and friends of government bureaucrats and bankers close to the ministry of finance and other financial institutions of the regime. This new class has multiplied in number during the last two years. New examples of this type of corruption include:

1. The case of the vanishing $20 million, an up-date

According to a report by journalist Gerardo Reyes 25 the government of
Hugo Chavez does not know the fate of $20 million that should have been
used for the defense of the country in two U.S. and Switzerland based trials.
The money had been given to the Caracas legal firm of Chavez’s former
lawyer, Esther Biggot de Loaiza, but another legal firm, based in Florida, is
suing the Venezuelan government and Loaiza for payment of services they
claim to have rendered but not paid for. According to Reyes, “the key person
in this controversy is lawyer Esther Biggot de Loaiza... who had been commisioned by the Venezuelan government to contract two foreign legal firms for the international disputes.... although Loaiza received $20 million from the government no one knows how this money was spent.... so far Loaiza has not responded to the inquiries by the government”.

2. Luis D’Elia, Argentinean “piquetero” , financed by Hugo Chavez

A “piquetero” in Argentina is a person that generates social unrest for personal or group gain. He/she asks the government for payment not to create
unrest, clearly an act of extorsion. They are also for hire by private groups or,
even, by foreign governments. A story in Argentina 26 reports on an interview
given to journalist Franco Lindner by “piquetero” leader Luis D’Elia, a political follower of the Kirchners, where he says: “The Mar del Plata [anti-Bush rally in Mar del Plata in November 2005] and the Ferro events were financed by Chavez, no one can deny this. We got paid for this and also got financing to mobilize our people... no one should be so naive about this [issue] since international financing is everywhere”.

Mr. D’Elia admitted receiving one million dollars from Hugo Chavez for this activity.

3. The case of the 9,000 ghost employees of the Caracas Mayoralty

A story by Phil Gunson 27 revealed that, after the unexpected 2008 defeat
of Chavez’ s candidate for Mayor of Caracas, the opposition winning candidate found over 9,000 ghost employees in the payroll of the mayoralty. Included among those “employees” were a significant number of gunmen belonging to Chavez’s controlled urban violent groups. According to the new Mayor’s spokesperson, David Perez Hansen, the ghost employees included some
members of the National Assembly, also getting paid by that legislative body.

New Security Chief Angel Rangel complained, “more than half of the 315 motorcycles of the police disappeared [after the ousting of the Chavez –controlled Mayor]”.

4. Foreign Exchange controls.

CADIVI: its many faces of corruption CADIVI is the acronym of the Venezuelan
Commission of Administration of Foreign Currencies. It was established with the purpose of managing the foreign exchange market in the country, since Venezuela has had rigid exchange control in place for the last seven years. Financial expert Miguel Octavio 28 describes some of the many tricks of CADIVI under the Chavez’s revolution:

“Every exchange control system has led to huge levels of corruption in
Venezuela. CADIVI is no different. What is different this time around is the lack of checks and balances.. Under Chavez, few things are ever investigated…
even if you knew all the details, who would you go to? The Prosecutor?
The Comptroller? There really is nobody to go to, as everything gets covered up even when Chavez and his Government know things are going on”. Octavio 28 supplies the following guide to the types of corruption under CADIVI:

"The Straight Bribe: A payment of Bs. 0.15 to Bs 0.30 [per dollar] will speed
up your request for dollars dramatically. The Inflated Invoice: Import something,
but have your supplier inflate the price, without overdoing it. Then have your supplier keep the difference abroad and you can either keep that or bring it back at the swap exchange rate.

The Forgotten Debt: Find a business that is bankrupt or cannot pay the
debt; buy the debt for ten or twenty cents on the dollar and then go to CADIVI and ask that you get paid the dollars at Bs. 2.15 per dollar. You will have to pay a bribe for this, but the margins are huge.

The Official Export: Find something you can get the Government to sell to you, say a diesel carrying tanker, an iron ore barge or steel products and
pay for the item at international prices, but at the official rate of exchange. Turn around and sell the goods abroad in exchange for US dollars and turn around again and sell the dollars in the swap market.

The Carousel: Find something to import from Colombia, let's say school notebooks, not food or anything that will get custom officials suspicious.
Import it from Colombia at the official exchange rate of Bs. 2.15 per US$ and
get it shipped from Colombia by truck via one Colombian border point and
immediately send it back to Colombia via another. Start the process again,
getting import permits to bring the truck back. Same stuff, you just never
sell it, just recycle it and move it around like a carousel. You get preferential
dollars for every entrance.

The Nouveau Travel Agent: Set up or buy a travel agency. Find people who
have credit cards but can’t afford US$ 5,000 for travel (plus a cash advance of
US$ 500). Promise to take them to Panama, Aruba and the like, pay their
hotels for a couple of nights and arrange a way to get them all of their
quota. You pay their expenses, give them some cash and you keep 60-70% of the dollars purchased at Bs. 2.15 per US$, which you sell at the swap rate which is almost three times higher. [the amount has now been reduced to $2,500 but is still a good business]”.

As described by Octavio CADIVI has proven to be a rich source of fraud against the nation. No wonder there are so many instant millionaires under the Chavez revolution. The essential pre-requisite, of course, is to have an accomplice within the Chavez bureaucracy. Sad to say, these mechanisms outlined above are not only utilized by Chavez bureaucrats and followers but also by anti-Chavez “businesspersons”. Venezuelan corruptioncuts across ideological borders.

V. TELLING SIGNS OF A FAILING, CORRUPT PETROSTATE

As a result of large scale, widespread corruption, especially during the last two
years, Venezuelan political, social and economic conditions have taken a turn for the worse. Democratic links have been replaced by a progressive alignment with totalitarian regimes such as Cuba, Iran, Zimbabwe, Syria and Belarus, among others. The political project of Hugo Chavez has been based in the creation of a global alliance against the United States and the political hegemony of his revolution in the western hemisphere. These two objectives have required an enormous personal effort on his part and the often illegal use of large financial and petroleum resources of the Venezuelan nation. There are strong signs that the country has become a failing, hyper corrupt petrostate.

1. A deteriorating social and economic situation.

In 2008 Hugo Chavez received over $100 billion in oil revenues. However, this was also the year in which Hugo Chavez lost considerable popular and political support, due to his lack of progress in the solution of Venezuelan social and economic problems. In a well documented paper 29 Venezuelan economist
Francisco Rodriguez has described Chavez’s leftist revolution as “a fake”, calling attention to four characteristics: (1), the increasing size of the state, illustrated by the fact that government expenditure has moved from 18.8 percent of the GDP in 1999 to 29.4 percent of the GDP in 2007; (2), rigid regulation of prices and wages and the implementation of exchange controls; (3), deterioration of property rights, as documented by an increasing number of invasions of private lands and buildings and expropriations of private business; and, (4), the formulation of social policies no longer based on long-term structural programs but on short-term direct subsidies to the poor.

One of the results of these policies, adds Rodriguez, is that social inequality
has actually increased during the Chavez regime. The Gini coefficient
moved from 0.44 in 2000 to 0.48 in 2005. Education, health and housing expenditures under Chavez, says Rodriguez, represent about 25 percent
of the total budget, the same as in preceding governments. The latest
United Nation statistics 30 indicate that Venezuelan illiteracy remains at some 7 percent, the same as in 1999.
Rodriguez asks: Where is, then, the
revolution?

In January 2009 Venezuelan newspapers reproduced information from news agency EFE31 on Venezuelan official crime statistics for the period 1999 to November 2008. According to this report 101,141 Venezuelan were murdered during this period, an average of 10,114 citizens per year, twice the average of past decades. These numbers tend to increase, as during 2008 alone 13,129 Venezuelans died violently. Venezuela is now the most violent country in South America and the second most violent in the hemisphere. Caracas is the most dangerous city in the western hemisphere after Ciudad Juarez, in Mexico. The number of Venezuelans dying violently is higher than in countries such as Iraq, where a war has been in progress for several years. In the economic front 2008 inflation reached 32 percent, the highest in the hemisphere, with food inflation in the range of 50 percent. A Venezuelan poll taken by Alfredo Keller and Associates in September 2007, quoted by Rodriguez, indicates that 50 percent of Venezuelans feel they are worse off than before and only 22 percent feel they are better off than before.

2. Increasing Government links with international terrorism.

The alignment of Hugo Chavez’s government with the government of Iran
and other extremist regimes has become stronger during the last two
years. In 2008 the U.S. Department of the Treasury designated two Venezuelan
nationals 32 under Executive Order 13224, as linked to terrorist activities: Ghazi Nasr al Din, a member of the Venezuelan embassy in Syria and Fawsi Kana’n, a financial supporter of Hizballah. A report by the Center for Security Policy 33 quotes exiled Venezuelan journalist Patricia Poleo as saying: “There are over ten Hizballah training camps in Venezuela... involving explosive expert Abdul Ghani Suleiman Wanked ”. This report also asserts that Venezuelan identity cards are distributed to foreign nationals from Syria, Pakistan, Egypt and Lebanon who later attempt to enter the United States.

According to this report one of the key figures in the Venezuelan-Iranian link is the Minister of Interior Tarek El Aissami, a Venezuelan citizen of Syrian descent.
His father, Carlos Aissami, “is head of the Venezuelan branch of the Iraqi Baath political party”. Mr. Aissami has described himself as a taliban and has referred to Osama bin Laden as “the great Mujahedeen, Sheik Osama bin Laden”. Patricia Poleo claims that Ghazi Nasserdine, Venezuelan diplomat in Damascus, and his brother Ghassan Atef Salameh Nasserdine, are in charge of recruiting young Venezuelan Arabs to be trained in Lebanon and sent back to Venezuela to continue training in explosives and asymmetrical warfare. These groups and individuals are supervised by the Hizballah organization in Venezuela and by the Palestinian Democratic Front, headed by Salid Ahmed Rahman, who has his office in Parque Central (Central Park), in downtown Caracas.

In January 2008 Chavez and Iranian leader Ahmadinejad called for a global
summit against the state of Israel and Chavez expelled the Israeli Ambassador
from the country, a move imitated two weeks later by Bolivian President Evo Morales. Chavez has openly sided both with Hamas and Hizballah. In late 2008 the Jewish synagogue was vandal-ized in Caracas by thugs under the protection of the Chavez police.

3. Chemicals going from Iran to Venezuela stopped in Turkey

In December 2008, 22 containers being trucked from Iran across Turkey with
final destination to Venezuela were stopped at the Mediterranean port of Mersin 34. The containers had been labeled “tractor parts” but the Turkish authorities found laboratory equipment and dangerous chemicals capable of producing explosives. The Turkish authorities did not find radioactive material but said the equipment found “was enough to set up an explosives laboratory”.

4. Morocco denounced Chavez as supporting terrorist group Polisario and
closed down its Caracas embassy

In January 2009 the government of Morocco denounced the cooperation of
Hugo Chavez with the Polisario terrorists 35 and closed down its embassy in Caracas, after 22 years of normal diplomatic relations.

5. Clamping down on the media: Radio Caracas TV and Globovision.

In March 2007 Hugo Chavez closed down Radio Caracas TV, the most
popular television station in the country and confiscated its plant and equipment. As of this writing the equipment is still in the hands of the government, being utilized for an official TV station and no compensation has been offered to its owners. The government claimed that Radio Caracas TV license had expired and that the frequency used by the station was needed for official purposes. Both claims were wrong. The government had about 75 idle frequencies available.The real reason was that Radio Caracas TV owner, Marcel
Granier had become a very prominent political dissenter and had to be silenced 36.

Hugo Chavez has placed Venezuelan freedom of expression under siege byimposing three laws: the modified Penal Law, the Law of Responsibility in Radio and Television and the Law for the Protection of Children and Adolescents. Although theoretically designed to promote a better media performance these laws are utilized, in practice, to intimidate the media, promote self-censorship and punish dissidents. The Penal Code, an imitation of Italian laws of the XIX century, considers punishable with fines and/or prison of
4-5 years any expression that might be defined as offensive against the president, his family and the government bureaucracy. Who defines the offense? The government.

The government used the law on children and adolescents to fine a dissident
newspaper, Tal Cual, with $120,000 for having made a totally innocent
reference to Hugo Chavez’s daughter Rosines. In protest for this arbitrary measure a popular collect paid the fine in 48 hours.

By the end of 2008 37 Venezuelan communications expert Antonio Pasquali estimated that Chavez had used 2544 hours of compulsive media, radio and television hook-ups, the equivalent of 318 days at an average of seven to 19
In March 2007 Hugo Chavez closed down RadioCaracas TV, the most popular television station in the country and confiscated its plant and equipment eight hours per day, in order to address the nation in often unimportant
or partisan matters.

In 2009 Chavez harassment has beendirected towards Globovision, the sole
remaining opposition TV station. The home of his president has been raided
twice and the station has been fined $4million on vague charges by the government.As in the case of Tal Cual, apublic collection generated the money
required to pay the debt.

6. Creating chaos within the Organization of American States

During the last two years the Venezuelan government has systematically
tried to destroy what is left of the ineffective OAS. Chavez has promoted
UNASUR, a parallel organization restricted to South American countries.
UNASUR is being modeled after the European Union and would promote a
single currency, passport and parliament. It would also include a NATOlike
military organization and a bank, Bank of the South, for which Venezuela has pledged $3 billion, still unpaid. However, as Southern Affairs reports 38, there is profound distrust among the members, as illustrated by conflicts such as the FARC-inspired political crisis between Colombia, Ecuador and Venezuela, the Argentina- Uruguay paper mill controversy, Peru’s border suit against Chile in The Hague, Bolivian’s demands for Chilean territory, the Bolivian gas disputes
with Brazil and Argentina and Venezuela’s claims to two thirds of the territory
of Guyana.

In a recent move 39 the Venezuelan Supreme Tribunal of Justice refused to
recognize a decision by the Inter American Commission of Human Rights of the OAS in connection with the politically motivated dismissal of three Venezuelan
judges. The Venezuelan Supreme Tribunal of Justice considered that such decision could not be accepted. This position of the Venezuelan judiciary violated the sovereign act by which Venezuela became a member of the OAS and accepted to abide by its norms, regulations and decisions. Chile, faced with a 2001 decision by the OAS related to censorship of information 40 not only accepted this decision but altered its constitution in order to conform with it.

7. “Nationalization” and expropriation of private assets, with no opportune or fair compensation.

(i), Converting Hato Piñero into a “socialist” cooperative.

January 12, 2009 the government announced the expropriation of Hato Piñero,
a well-known Venezuelan ecological sanctuary visited every year by
thousands of tourists from all over the world 41. The property, according to the announcement, “would be dedicated to a socialist cooperative”. This property is the last refuge of wildlife left in the central portion of the country and has been in private hands for over sixty years.

(ii), The expropriation of Sambil, a large mall in downtown Caracas.

In another abusive move Hugo Chavez ordered the suspension of construction and expropriation of a large commercial mall, Sambil, in downtown Caracas 42.
This mall had been under construction for two years, had all permits in order and was close to being inaugurated. About 200 owners had bought space in the building to install their shops. December 21, 2008 President Chavez went on TV and announced that this mall would not be allowed to operate since “it would create traffic problems in the area”. His decision is the final word, as no one would dare to contradict him. As of this writing the building is deserted, the work paralyzed and the owners of space do not know if they will ever recover their investment.

(iii), The takeover of SIDOR steel mill.

In August 2008 the Venezuelan government took over the control of SIDOR, a
Venezuelan steel mill owned by Ternium, an Argentinean company. As a result 43 some 2,300 Argentine steel workers of Siderar, the parent company,
have been laid-off. Also as a result of the takeover, steel production of SIDOR declined in 16.9 percent 44 . The 2008 production of the plant went back to 2003 levels, from 4.3 to 3.6 million tons.

(iv), Expropriation of Mexican, Swiss and French cement plants.

In 2008 the government expropriated four cement plants owned by Mexican company CEMEX 45. Since the government has offered no satisfactory compensation, the company has initiated legal action against Venezuela through the international arbitration tribunal of the World Bank. Expropriations of smaller cement plants belonging to Swiss company Holcim and French company Lafarge are also in process.

The financial good name of Venezuela has been greatly damaged.

Some $7-8 billion would be needed to pay for the announced expropriations, an amount Venezuela cannot afford to disburse at this time. When the potential compensation due to oil companies Exxon Mobil and ConocoPhillips is added to this amount, Venezuela would be facing payments of the order of $20 billion in the short term, an amount the country simply cannot pay. Great damage has been done to the good financial name of the nation because of this wild spree in government takeovers. Foreign Direct Investment in Venezuela in 2007 47 stood at a scant $400 million, as compared to $8.2 billion in Colombia and $37.4 billion in Brazil. Venezuelan 2008 foreign direct investment was negative, minus $570 million, as the outflow of capitals surpassed the inflow.

 

VI. POOR GOVERNANCE TO HYPER-CORRUPTION, THE VICIOUS CYCLE

Government transparency and accountability and high quality governance feed on each other. However, the main characteristics of Chavez’s ten years in government have been a low quality of governance and insufficient attention to the real needs of the Venezuelan people. Decision-making in Chavez’s government is concentrated in very few hands. The selection of his
collaborators has been based on personal loyalty, never on the proper credentials for the job. Receiving massive oil income but surrounded by an inefficient bureaucracy over whom he cannot exercise proper control, Chavez has allowed corruption to grow un-checked, although the elimination of corruption was the promise that won him the presidency in 1998. By subordinating the solution of national economic and social problems to his objective of attaining national and, even, hemispheric political hegemony, he has been incapable of exercising good governance.

1. Overall economic outlook

The country obtains about 95 percent of its export earnings from oil. The
price of this commodity rocketed in the first half of 2008, reaching almost $140 per barrel, but started to plummet in the second half of that year, due to the global economic crisis that is still developing. As a result the government
of Hugo Chavez faces an acute fiscal deficit for 2009 while government expenditures, both at home and abroad, continue unabated. The budget will show a deficit of some $30 billion, an amount difficult to close due to its size and to the loss of international credit ranking by Venezuela. In December 2008 Fitch reduced Venezuelan credit rating from BB- to B+ 48. This move, says the report, “comes on the heels of a similar move by Standard Poor Ratings services, which also lowered the credit rating of Venezuelan state-owned energy company Petroleos de Venezuela, PDVSA, from stable to negative. These downgrades reflect increasing concern over Venezuela’s ongoing fiscal practices and the prospects for the country’s overall stability”.

Borrowing by Venezuela in 2007 and 2008 has been mostly from China, Japan and Russia, some $6 billion from China, $3.5 billion from Japan and $2 billion from Russia, as well as $1 billion through Citgo, in the United States. All in all, the Venezuelan petroleum company obtained loans for some $20 billion during 2007 and 2008, most of the money going to the central government. Two of the lending countries, China and Russia, are starting to have their own financial problems and might not be good candidates for further loans. The China-Venezuela agreement already includes a $12 billion loan from China, to be repaid by Venezuela with deliveries of 100,000 barrels per day of Boscan-type crude oil and 100,000 barrels per day of fuel oil. The deliveries of this oil during 2008 and 2009 have been irregular and China is said to be unhappy 49.

Chavez will be facing some hard financial choices in the near term: one, to devalue the Bolivar, possibly by about 30 percent; two, cutting down on his handouts to ideologically friendly political leaders such as Morales in Bolivia, Ortega in Nicaragua and Kirchner in Argentina; and/or, three, cutting down on
his handouts to the Venezuelan poor, the segment of Venezuelan society that remains as his main source of political support.

2. Political and social outlook

The decline in oil income has increased the fragility of the government, since its
hold on power depends largely on massive handouts to the Venezuelan population and the regional political leadership that shares its ideology. His maneuvers to gain unlimited opportunities for presidential re-election have hardened the resolve of the opposition that now is more unified than ever before and has made significant gains during the last year.

As economic and political conditions deteriorate, quality of life of Venezuelans
has declined significantly. The crime rate is already the highest in South
America and there are no signs that this situation will improve. Prisons are overcrowded. In 2007, 492 prisoners were murdered, a 21 percent increase over the preceding year.

Food shortages are acute and will increase, as there will be less money for imports. Venezuela has been importing up to 65 percent of its food consumption and has been spending about $40 billion per year in imports. This will not be possible in 2009, due to lower foreign exchange earnings from oil exports.

Popular protests have increased significantly 50. According to Carlos Correa,
Director of the Venezuelan ONG “Espacio Publico”, 773 popular protests have taken place in the country between January and July 2008. This represents a
20 percent increase over 2007. Most of these protests, said Correa, have been related to food shortages, working rights and the lack of security, in contrast with previous years when the protests were mostly politically motivated.

VII. CONCLUSION

The Venezuelan case is a classic example of how an authoritarian petrostate
can become a hotbed of corruption and how, in turn, rampant corruption
can allow and promote more authoritarianism. The combination of significant oil income received by the country over a short period of time and an authoritarian regime lacking institutional checks and balances has produced such a degree of national disarray that the damage to institutions and society will probably take decades to mend. Not only Venezuelan governance has practically disappeared but the whole hemisphere is being threatened by Hugo Chavez’s drive to impose his political ideology in the region. However, his objectives of converting Venezuela into a socialist state similar to Castro’s Cuba and to create a hemispheric alliance against the United States have stalled, due to numerous errors in foreign policy and to the progressive disenchantment of Venezuelans for his fake revolution.

Increasing Signs of an impending implosion

As this paper goes to press important Venezuelan related events continue to take place, such as: (1), the political crisis in Honduras, one in which the government of Hugo Chavez has played an important role as promoter and organizer of the referendum that Mr. Zelaya tried to put in place against the Honduran Constitution; (2), the publication of a U.S. paper on the surge of drug trafficking in Venezuela; (3), further information on the links between Chavez and Ecuadorian President Rafael Correa with the Colombian terrorist group, FARC; and, (4), the harassement and persecution of the legitimately elected Governos and Mayors of the opposition, which are finally getting the attention of the international community due to the hunger strike of Caracas Mayor Antonio Ledezma.

The emergence of a Narcostate

Excessive spending by the Chavez regime and the collapse of the oil prices in the first half of 2009 have led to their search for alternative sources of income. The alignment of the regime with the Colombian narcoterrorist group FARC could be providing increasingly significant drug-related income to the regime. The amount of cocaine moving across Venezuela during recent years has increased by a factor of ten 51. Latin American drug production, fed by Bolivia and the FARC, seems to have Venezuela as a main center for distribution. The recent political events in Honduras have brought to surface information regarding a probable link between the Chavez and Zelaya regimes related to drug distibution.

Petroleum income is still the major source of Chavez’s political power but drugs are becoming a secondary source of income and political clout for his regime. This is why the Chavez regime is now showing characteristics that apply both to a petrostate and a narcostate.

 

VIII. REFERENCES

1. Gustavo Coronel, “Corruption, Mismanagement, and Abuse of Power in Hugo Chavez’s Venezuela”, CATO Institute, the Center for Global Liberty and Prosperity, Development Policy Analysis Paper #2, November 27, 2006.

2. Robert C. Brooks, “The nature of Political Corruption”, in “Political Corruption”, 1973

3. “Costa Rica says U.S. crisis will hurt Latin America”, www.ticotimes.com, September 30, 2008

4. Venezuela sacará 12.000 mln dlrs reservas excedentes

5. “Dead Rebel’s laptops show that Chavez is funding rebels”, The International Herald Tribune, March 3, 2008

6. “Chavez irks Colombians by defending rebels”, Christopher Toothacker, AP, in MSNBC, January 11, 2008 and in The Seattle’s Times, January 12, 2008

7. “Jefe de las FARC revela su conexion con Venezuela”, January 2, 2009

8. “Encuesta a Chávez asegura que apoyo cayó al 38%”, Alfredo Keller, in
www.cadenaglobal.com, February 12, 2008

9. U.S. District Court, Southern District of Florida, Miami Division, case 07-20999, U.S., plaintiff-vs. – Franklin Duran, defendant, Jury trial, October 17, 2008

10. In www.unionradio.com and www.thedevilsexcrement.com, September 9,
2008

11. “Chavez and the cash-filled suitcase, TIME magazine, September 3, 2008

12. www.terra.com.ve, November 20, 2008

13. “Chavez negará presupuesto a gobernadores oposicionistas”, Patricia Rondon Solis, in www.noticias24.com and Reuters Dispatch, October 5, 2008

14. In Tim’s El Salvador blog, February 9,2008

15. Frank Kendrick, “El Salvador: A deeply divided country”, COHA Report, August 20, 2008

16. “Denuncian que Nóbrega firmó contrato financiero con Siemens”, El Nacional, December 21, 2008

17. “Venezuelan government officials are again at the heart of a huge world-wide corruption scandal”, Miguel Octavio in www.thedevilsexcrement.com, December

15, 2008 and, “Siemens pagó millonarios sobornos en América Latina”, Gerardo Reyes, El Nuevo Herald, December 16, 2008

18. U.S. District Court for the District of Columbia, cr# 08-370-RJ

19. “Ordenan a militares saludar: Patria, Socialismo o Muerte, El Universal, May 11, 2008

20. El Nacional, April 29, 2008

21. www.globovision.com, July 18, 2007

22. Jorge Chávez Morales, “Una tormenta enturbia el clima de PDVSA-Gas,”Ultimas Noticias, July 22, 2007

23. “Exxon’s wrathful tiger takes on Hugo Chavez”, The Economist, February 14, 2008

24. “Pagos de PDVSA a contratistas suman retrasos de hasta cuatro meses”, Mariana Párraga, El Universal, October 19, 2008

25. Gerardo Reyes, “Caracas ignora el paradero de $20 millones para litigios”, El Nuevo Herald, January 8, 2008

26. “No aclaren que oscurece, www.perfil.com, August 8, 2008

27. Phil Gunson, “Alcaldia mayor empleaba pistoleros durante el mando de Barreto”, El Nuevo Herald, December 26, 2008

28. Miguel Octavio, “The many tricks of CADIVI’s corruption during the Chavez’s revolution”, in www.thedevilsexcrement.com, January 12, 2009

29. Francisco Rodriguez, “An empty revolution”, Foreign Affairs, March/April, 2008

30. http://www.unesco.org/education/ gmr2009/press/GMR2009_RO_LAC.pdf).

31. Ultimas Noticias, January 11, 2009, a report on Venezuelan crime statistics during the last ten years.

32. U.S. Department of the Treasury, “Treasury targets Hizballah in Venezuela”,
June 18, 2008

33. Center for Security Policy, “Iran-Latin America”, edited by Nancy Menges, 2008

34. Selcan Hacaoglu, “Turkey holds suspicious Iran-Venezuela shipment”, Yahoo
news, report by AP, January 6, 2009

35. “Marruecos acusa a Venezuela de participar en campañas bélicas del Polisario”, El Nacional, January 16, 2009

36. Thamara Nieves, “Quienes estan detrás del botín de RCTV?” An interview with Antonio Pasquali, El Nacional, April 23, 2007

37. Ana Nuño, “La respuesta social: no futuro”, in “Exteriores”, October 27, 2008

38. Nathan Gill, “UNASUR 2008 summit: allcircus, no bread”, Southern Affairs, June 7, 2008

39. “TSJ desconoce sentencia del CIDH”, ElDiario de Guayana, January 14, 2009

40. Sue Reisinger, Columbia Law School, Friedman Conference 2008 on Efficacy of International Courts, April 23, 2008

41. Pedro E. Piñate, “Gravísimo error expropiación del Hato Piñero”, Notas Agropecuarias, January 12, 2009

42. Oscar Tenreiro, “La expropiación del Sambil…” www.analitica.com January 9,
2009

4. “Downsizing deals – Siderar hopes for payment”, Dow Jones wire, January 17, 2008

44. “SIDOR’s production of liquid steel declined 16,9 percent in 2008”, El Universal, January 12, 2009

45. Radio Santa Fe, Bogotá, December 4, 2008

46. “Hugo Chavez anuncia la nacionalización del Banco de Venezuela”, El Universal, July 31, 2008

47. “Honduras recibe más inversión extranjera que Venezuela”, in www.lasarmasdecoronel.blogspot.com, November 18, 2008

48. Stratfor report for non-subscribers, December 16, 2008

49. Gustavo Coronel, “China fuels Chavez’s corruption”, in www.lasarmasdecoronel.blogspot.com, November 2007 and Brian Ellsworth,

“Venezuela to borrow $4 billion from China”, November 6, 2007
50. “Aumento de las protestas es signo del deterioro institucional”, in www.guia.com.ve, January 12, 2009.

51. http://www.washingtonpost.com/wpdyn/ content/article/2009/07/18/
AR2009071801785.html

 

 

 

Gustavo Coronel is a petroleum geologist, political scientist, and social activist, a 28 years oil industry veteran, 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.You can read all its articles in las armasdecoronel.blogspot. Petroleumworld does not necessarily share these views.

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