Venezuela's Vanishing Billions

En: https://100r.org/2011/10/venezuelas-vanishing-billions/

Nearly $30 billion is missing from a Venezuelan national development fund controlled by President Hugo Chávez, who appears to have diverted some of the missing money to his political allies in other countries, while much of the rest remains unaccounted for.
The money came from a $69.4 billion fund for development aid, known as Fonden, which is designed to take public money, largely from Venezuela’s state-run oil company and its Central Bank, and use it on domestic development projects such as highways, schools, factories and hospitals.
For years in Venezuela, critics of the president have nicknamed Fonden “Chávez’s slush fund.” Information only now becoming public shows that is not far off the mark: El Fondo de Desarrollo Nacional, as it is formally known, operates outside the Venezuelan National Assembly’s budget process and largely beyond public scrutiny, answerable only to a board of directors and to Chávez himself.
While it was long known that Chávez’s fingers were close to Fonden, the first accurate accounting of the amount missing – measured in the billions – came to light in August, after a Venezuelan lawmaker, Carlos Ramos, managed to obtain from the Venezuelan Finance Ministry a comprehensive list of Fonden projects and, separately, a breakdown of contributions to the fund and allocations over the years.
A comparison of the two documents uncovered a gaping $29 billion shortfall between the money allocated for projects, and the actual projects on record.
After studying the accounts with a “fine tooth comb,” Russ Dallen, head of Caracas capital markets for BBO investment bank, wrote in a recent newsletter that his firm had discovered that $28.5 billion was missing from some $69.45 billion the Latin American oil-rich country had allocated to 140 projects through Fonden.
Chávez established Fonden with initial funding of $6 million in oil revenues, as a private company under direct control of the executive branch. Fonden’s mission was to finance national investments in education, health, agriculture and “any other project that needs funding in the opinion of [Fonden’s] Board, upon approval of the President of the Republic.”
It now appears, Dallen said, that much of the missing funds instead went to Chávez’s political allies in the region in Bolivia, Cuba and Nicaragua, who belong to a group known as the Alianza Bolivariana, para los Pueblos de Nuestra America, or ALBA.
“The current system of foreign cooperation has no legal underpinnings, nor does it even need one in an autocratic regime like Chávez’s,” Gustavo Coronel, a political analyst and former representative to Transparency International told 100r.org. “It is he who decides when, how much and to whom the nation’s funds are allotted.”
Joel D. Hirst, an expert in Latin America at the Council on Foreign Relations and author of a forthcoming book on the ALBA alliance, told 100Reporters that, it is impossible to know with complete certainty exactly how much money has gone where, since Fonden operates without public oversight
But, Hirst’s own analysis concluded that “much of (the missing money) has gone to ALBA” states, and the rest “was just stolen,.” he said. Hirst also contends that Fonden money went to leftist rebels in Colombia. While other evidence, such as computers Colombian troops seized from the rebels in a 2008 raid, contained records of some $300 million in support from Chávez, the aid does not appear in Venezuela’s official budget. Chávez’s deputy had denied supporting the rebels at the time.
The $29 billion disparity was first reported by a Venezuelan blogger, Miguel Octavio, who also posted copies of the underlying documents online.
The Venezuelan government declined to comment for this story. Through a spokesman, Finance Minister Jorge Giordani dismissed the allegations as “false information.”
These new charges of corruption have put the spotlight once again on Chávez, whose government has been accused in the past of squandering the country’s vast oil resources under a cloak of secrecy.
Chávez’s “Bolivarian” revolution
Chávez assumed power in a country with at least the structure, however flawed, of a democracy. But once in office Chavez has shown little interest in the traditional underpinnings of democracy. As a result, the normal checks and balances that might have detected potential misuse of Fonden billions were not operating in Chávez’s Venezuela.
According to a 2009 U.S. diplomatic cable released by Wikileaks, Chávez’s model is that of a “participatory democracy,” which rejects the separation of powers and institutional autonomy as “bourgeois” notions. Expressions of personal fealty to Chávez by top officials are the norm in his country.
“Your institutions salute you,” Luisa Estella Morales, the president of Venezuela’s Supreme Court, told Chávez recently. Later, Attorney General Carlos Escarra followed suit, calling himself “the lawyer of the (Bolivarian) revolution.” And every January, at the beginning of the judicial year, magistrates and judges salute Chávez as “our chief.”
In December 2010, without two thirds attendance of lawmakers required for a quorum, the National Assembly passed a law that enables Chávez to dictate rules and approve national and international contracts. He now has the power to use Venezuelan oil revenues to fund government-implemented programs unilaterally, something he has done for the benefit of the ALBA states using the Fonden money.
“That law allows him to regulate activities and agreements, including the ALBA cooperation packages, even if they are unconstitutional,” explains Jorge Pabon, constitutional lawyer and former dean of the Faculty of Law at the Central University of Venezuela.
In 2007, Pabon noted, Chávez had sought a Constitutional referendum that would have broadly extended presidential power, removing term limits, putting state governors under the president’s control and granting Chavez authority over the Central Bank and the country’s international reserves.
Though his bid failed, Pabon said, Chávez has nevertheless claimed the powers denied him at the ballot box.
And the de rigueur declarations of personal loyalty from top lawmakers and judges suggest that 13 years after sweeping to power on a pledge to end corruption, Chávez is able to operate virtually unchecked in Venezuela.
Nicaragua’s octopus-like ALBANISA
One big beneficiary of Chávez’s murky largess has been his ALBA ally, President Daniel Ortega of Nicaragua. While using some of the millions of dollars his government receives from Venezuela on public projects, Ortega has used the Fonden money as a kind of private kitty for himself and his inner circle.
Take ALBANISA, a private company created by Ortega to invest money coming to his government from Venezuela. This company, formally known as ALBA de Nicaragua, S.A., came about through an agreement between oil agencies of the two countries.
Under the agreement, ALBANISA controls the monopoly of oil imports from Venezuela and the marketing of its derivatives. Under the oil cooperation agreement between the two governments, 50 percent of the oil bill must be paid within 90 days, while the other 50 percent is converted into a 23-year-loan with a two-year of grace period and two percent annual interest, all of which is handled at the discretion of the government of Nicaragua through ALBANISA and Caruna (Caja Rural Nacional), a cooperative.
Of the revenues that stay in Nicaragua, half are meant to go to domestic social programs, while the rest goes to the coffers of ALBANISA itself, according to the Council on Hemispheric Affairs.
Between 2008 and 2010, ALBANISA received $1.415 billion from Venezuela under the label “state cooperation”, according to Nicaragua’s Central Bank.
Much like Fonden, ALBANISA operates as a private company with no public oversight. Ortega and his associates have used ALBANISA to build a private business empire that blurs the line between what is public money and what accrues to Ortega and those close to him.
As a private company, ALBANISA has discretionary authority to manage, without accountability, state programs, grants, donations, loans, investments (none included in the national budget); to own private businesses (such as a TV station and a hotel) and to finance the official FSLN party campaigns when needed. While financial information on these businesses is scant, what is known is that some of Ortega’s and Chavez’s top political allies are officers of ALBANISA.
In fact, the company is a three-legged operation. It runs:
• the privatized (and most lucrative) state oil agreements and the supply of 10 million barrels of discounted oil per day;
• investments in an oil refinery yet to be built, with a planned capacity of 100,000 barrels per day, and a promised aluminum plant;
• donations and grants, such as $10 million for social programs and $12 million for student scholarships.
An investigation carried out by the Nicaraguan journalist Carlos Fernando Chamorro disclosed that ALBANISA has, in fact, become “a huge conglomerate” which, since its creation in 2007, has grown like an octopus –with power plants, agricultural exports and transportation businesses, construction equipment, as well as farming, importing and fuel distribution outfits.
As part of his reporting, Chamorro was able to obtain an Excel copy of Albanisa’s accounts covering the years 2007 and 2008, as well as over eight months of operations in 2009. (http://www.confidencial.com.ni/articulo/3388/las-cuentas-secretas-de-albanisa). The documents show that ALBANISA is slowly becoming an economic empire in Nicaragua.
“It’s a sweet deal, one in which the recipient does not have to account for the money it receives, in what is the largest private transaction ever negotiated in Nicaragua without any tender,” Chamorro told 100Reporters.
It is also “a mechanism that privatizes a state cooperative agreement, which owns a holding company and private investments in various fields —all outside the national budget—with discretionary use of funds for private and for the official Sandinista party activities”, he added.
Bayardo Arce, a Nicaraguan government official, defended the Albanisa structure, as a way to make sure that Chávez’s money continues to flow to Nicaragua free of local opposition. Speaking on national television, he argued that if Venezuela decided to put its oil cooperation aid in private hands, it was exclusively “to stop the local opposition from blocking Chávez’s cooperation projects for political reasons.”
THE BOLIVARIAN WAY
Fonden’s missing billions, and their trail to ALBA, illustrate how Chávez has used Venezuela’s oil wealth to cast Venezuela as a regional leader, and build support among his Socialist allies in the region.
His Bolivarian Revolution rejects “neo-liberalism” and promotes trade and investment between member governments based on cooperation, with the ostensible aim of “improving people’s lives,” not making individual profits. Aside from Venezuela and Nicaragua, ALBA members include Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Saint Vincent and the Grenadine Islands.
In Cuba, Venezuela exchanges oil for the services of doctors and teachers. It also supplies buses to improve Cuba’s public transport system, helped pay for a massive aqueduct to improve its public water supply, and revamped its main oil refinery. In fact, Chávez subsidizes the Caribbean island to the tune of $5 billion annually, supplying some 60 per cent of the oil consumed there, according to Venezuelan writer Moises Naim, author of the 2006 book Illicit: How Smugglers, Trafickers and Copycats are Hijacking the Global Economy.
There’s more than a little help from Chávez elsewhere, always to ALBA nations –mysterious agreements that members of the Venezuelan opposition criticize fiercely, to the point of calling their operators “comrades that bleed us to death,” energy expert José Mendez said in an interview.
Venezuela and Cuba have aided Bolivia since 2006, by importing Bolivian soybeans after the US stopped buying them from the Andean country.
Since 2006, when Ortega won the elections with 38 percent of the vote, Chávez has sent electricity generators to Nicaragua worth $289 million, to help the country overcome its chronic blackouts. In 2007, when Nicaragua laid the first stone for an oil refinery that has yet to be built, Venezuela pardoned “without conditions” Nicaragua’s debt of $33.2 million.
But there’s a catch.
In Nicaragua at least, Venezuela’s support through ALBA comes with legal loopholes that allow some to make profit –mostly those in power, their associates and family members. Asdrubal Chávez Jimenez, the Venezuelan leader’s cousin, is president of the Nicaraguan subsidiary of Venezuela’s state-owned oil monopoly, for example. And Juan Carlos Ortega Murillo, President Ortega’s son, now runs Tn8, a national television channel bought with ALBA funds.
Many in Venezuela, and elsewhere in Latin America, are alarmed by the lack of accountability.
José Cordeiro, director of Venezuela Node at The Millennium Project (www.millennium-project.org), a U.N. project to reduce world poverty, hunger and disease, said that revenues from Venezuela’s state-owned oil company, Petroleos de Venezuela, S.A., or PDVSA, are a mystery, despite their vital importance to the country’s economic health.
“It’s beyond the control of the national budget, to the point that nobody knows PDVSA’s real production,” Cordeiro said. In addition, Chávez has also “used foreign private companies to conduct some of his personal business,” as well as that of his ALBA partners, Cordeiro added in an interview with 100Reporters.
Mendez, the energy expert, agreed. “These discretionary and ‘personal’ agreements” between the state-owned oil companies in Nicaragua and Venezuela, he said, “highlight the absence of accountability in our nation, one that our Constitution clearly demands, because neither President Chávez, nor any of his ministers, are held accountable for anything.”
Even if Venezuela is still rich with oil, production is not as robust as it had been in the past. As a result, this may crimp Chávez’s ability to reward his regional friends in the Alba group of nations.
According to a recent report by the Council on Hemispheric Affairs, yields from Venezuela’s oil fields began to decline by the time Chávez became president in 1999. In part, this was due to the normal effects of long-term extensive extraction.
That natural decline has been aggravated over the last 13 years by “excessive government meddling in the state corporation’s affairs, poor maintenance of extraction sites, company corruption, and the repercussions of using corporate profits to fund government-implemented programs,” the report said.