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Corruption, Mismanagement, and Abuse of Power in Hugo Chávez's Venezuela, Cato Development Policy Analysis No. 2

Corruption, Mismanagement, and Abuse of Power in Hugo Chávez's Venezuela, Cato Development Policy Analysis No. 2



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Published by Cato Institute
Executive Summary

Corruption has existed in Venezuela since at least
1821, when it gained independence. In the 19thand
20th centuries, the level of corruption fluctuated,
depending on the government in power. During the government
of President Hugo Ch
Executive Summary

Corruption has existed in Venezuela since at least
1821, when it gained independence. In the 19thand
20th centuries, the level of corruption fluctuated,
depending on the government in power. During the government
of President Hugo Ch

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Published by: Cato Institute on Mar 27, 2009
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orruption has existed in Venezuela since at least1821, when it gained independence. In the 19thand20th centuries, the level of corruption fluctuated,depending on the government in power. During the govern-ment of President Hugo Chávez, however, corruption hasexploded to unprecedented levels. Billions of dollars are beingstolen or are otherwise unaccounted for, squandering Venezuelan resources and enriching high-level officials andtheir cronies.The windfall of oil revenues has encouraged the rise incorruption. In the approximately eight years Chávez hasbeen in power, his government has received between $175billion and $225 billion from oil and new debt. Along withthe increase in revenues has come a simultaneous reduc-tion in transparency. For example, the state-owned oil com-pany ceased publishing its consolidated annual financialstatements in 2003, and Chávez has created new state-runfinancial institutions, whose operations are also opaque,that spend funds at the discretion of the executive.Corruption now permeates all levels of Venezuelan society.Bureaucrats now rarely follow existing bidding regulations, andordinary citizens must pay bribes to accomplish bureaucratictransactions and have to suffer rampant neglect of basic gov-ernment services. All this has been encouraged by a general envi-ronment of impunity: officers implicated in major corruptionscandals have sometimes been removed from their posts, butthey have not otherwise been held legally accountable.The dramatic rise in corruption under Chávez is ironicsince he came to power largely on an anti-corruption cam-paign platform. To truly fight corruption, the governmentneeds to increase the transparency of its institutions andreduce its extensive involvement in the economy, somethingthat has placed Venezuela among the least economically freecountries in the world.
november 27, 2006
no. 2
Corruption, Mismanagement, andAbuse of Power in HugoChávez’s Venezuela
by Gustavo Coronel
Gustavo Coronel was a member of the Board of Directors of Petróleos de Venezuela (1976–79) and, as president of Agrupación ProCalidad de Vida, was the Venezuelan representative to Transparency International (1996–2000).
 Executive Summary
the cato institute1000 Massachusetts Avenue, N.W., Washington D.C. 20001-5403 www.cato.orgPhone (202) 842-0200 Fax (202) 842-3490
In 1813 Simón Bolivar, while fully engaged in the war of independence againstSpain, issued a decree stipulating the deathpenalty for corruption in the first Venezuelanrepublic. He issued a second decree in 1824and still a third one in 1826, defining cor-ruption as “the violation of the public inter-est,” establishing the death penalty for “allpublic officers guilty of stealing ten pesos ormore.” The second article of the 1824 decreeread: “Those judges who disobey the disposi-tions of this decree will be condemned to thesame [death] penalty.”
 Yet the history of  Venezuela during the last 180 years has beencharacterized by the persistent and intensepresence of corruption in public administra-tion. In 1875 the Venezuelan Ministry of Finance under the regime of dictator Antonio Guzmán Blanco would confess:“Venezuela does not know how much or towhom it owes money. Our books are 20 yearsbehind. . . . ” One hundred years later the Venezuelan general comptroller during thepresidency of Luis Herrera would describe Venezuelan public administration in almostidentical terms, as “a system totally out of control.”
The dictatorship of Juan Vicente Gómez,from 1909 to 1935, was a period in which theexercise of corruption was limited to the dic-tator’s immediate collaborators and hisextended family, since Gómez did not needelections to stay in power, running Venezuela as his personal hacienda. The 10 years thatfollowed Gómez’s death constituted the firstdecade of real democracy and transparency inthe Venezuelan public sector, thanks to hissuccessors, army generals E. López Contrerasand I. Medina Angarita, who were deeply democratic leaders in spite of their military training in Gómez’s army.Gen. Medina Angarita was deposed in1945 by a coup led by the AcciónDemocrática party supported by young army officers. From 1945 to 1948 AcciónDemocrática conducted a rather transparentthree-year government under the brief presi-dencies of Rómulo Betancourt and thefamous novelist Rómulo Gallegos. In 1948the young military officers who had support-ed Acción Democrática three years earlieroverthrew Gallegos. The leader of the coup,Marcos Pérez Jiménez, established a military dictatorship that lasted 10 years. Corruptionduring the following decade was high butmostly limited, as in the years of Gómez, tothe immediate circle of the dictator, and itwas essentially related to commissionsobtained through contracting of publicworks. Venezuelan infrastructure received a  vigorous boost with the construction of roads, hospitals, universities, and publicbuildings.The increasing discontent of army officerswho were excluded from access to Venezuelan public funds promoted a popu-lar revolt in 1958 that successfully expelledPérez Jiménez from power. After that, Venezuela would not witness another mili-tary coup or coup attempt until 1992, whenHugo Chávez tried unsuccessfully to over-throw the elected president Carlos AndrésPérez. From 1958 to 1999 Venezuela changeddemocratically elected presidents 10 times.During the first half of that period, from1958 to about 1975, the country experienceda succession of democratic governmentstogether with a satisfactory level of trans-parency in the management of nationalassets. Presidents Rómulo Betancourt, RaúlLeoni, Rafael Caldera, and, for about half of his first term, Carlos Andrés Pérez, can becredited with the consolidation of  Venezuelan democracy and the promotion of a society characterized by a strong emergingmiddle class. During those years Venezuelandemocracy became the political model to beimitated in Latin America and was comparedfavorably by political analysts with the dicta-torships of the left and the right still presentin the hemisphere.In the mid-1970s the management of  Venezuelan national assets started to deterio-rate dramatically. Political events in theMiddle East triggered an abrupt increase inglobal oil prices, and, as a result, Venezuelan
The history of Venezuela duringthe last 180 yearshas been charac-terized by thepersistent andintense presenceof corruption.
oil income tripled. The ordinary men incharge of the Venezuelan government wereexposed to extraordinary financial tempta-tions. Faced with a windfall, President Pérezstructured a program that he called “TheGreat Venezuela.” Under that plan, a tropical version of Mao’s “Great Leap Forward,” thegovernment poured close to two billion dol-lars into industrial projects in southern Venezuela, which were designed to triple steelproduction within five years and to build sev-eral new aluminum plants. At one point morethan 300 state-owned companies existed inthe country, none of which was profitable.During the second half of Pérez’s term, as a result of the torrential influx of oil money, cor-ruption spun out of control—it became“democratic.” Up to that moment, graft hadbeen essentially restricted to the ruling clique,but now many Venezuelans started to partici-pate, directly and indirectly, in the abuse andmisuse of public funds. At the end of Pérez’spresidency, and in spite of the oil incomewindfall, Venezuela had managed to fall intodebt to the international banks.From 1975 to 1998 Venezuelan corruptionlevels generally increased and stayed high.Particularly grave was the period of JaimeLusinchi, 1984 to 1994. In her research on cor-ruption, sociologist Ruth Capriles Méndez of the Universidad Católica Andres Bello estimatesthat some $36 billion was subject to misuse anddishonest handling during that presidency,
especially through the foreign exchange con-trols program called RECADI (Régimen deCambios Diferenciales). Several factors con-tributed to soaring corruption:
Weak political and social institutions.
Lack of adequate administrative normsand controls.
Large volumes of income coming frompetroleum production, a wealth essen-tially not earned by the work of themajority of the population but generat-ed by a small group of oil industry tech-nical staff.
Populist political leaders willing topromote a welfare state in order to con-solidate their political positions ratherthan lead the country toward stableprosperity through hard work andsocial discipline. Those leaders per-suaded Venezuelans that oil money “belonged” to the government and thatsome of it could be handed out to thepeople in exchange for political loyalty.Because of that belief, the use of national assets for personal benefit,among both the political elite and thepopulation at large, lost much of itspejorative meaning.The benevolent view of corruption thatprevailed in those decades can be illustratedby a legal decision in a 1982 case of corrup-tion at the Venezuelan Ministry of  Agriculture. The tribunal considering thecase dismissed it claiming that “the amountinvolved [some $20,000] was too small inrelation to the total budget of the Ministry.”
In 1997 Pro Calidad de Vida, a Venezuelannongovernmental organization (NGO)doing anti-corruption work, estimated thatsome $100 billion in oil income had beenwasted or stolen during the last 25 years.
Enter Hugo Chávez
 As the 20th century came to an end, Venezuela was ripe for significant politicalchange. The December 1998 presidentialelections gave victory to Hugo Chávez. BothChávez and his main adversary, HenriqueSalas Romer, had promised a radical depar-ture from existing politics, which was stillbased on a two-party system alternating inpower and maintaining high levels of bureaucratic inefficiency and corruption.The Chávez campaign platform consisted of three main proposals: convening a con-stituent assembly to write a new constitu-tion, eliminating government corruption,and fighting against social exclusion andpoverty. His adversary, Salas Romer, attackedthe call for a new constitution as populist. Inspite of his excellent performance as gover-
From 1975 to1998 Venezuelancorruption levelsgenerally increased andstayed high.

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Luis Enrique Millán added this note
Este es un ejemplo claro de la apariencia profunda de un simple ideólogo del antichavismo. Lo triste es la difusión que estos documentos reciben en distintas páginas de la web, marcando tendencialmente y con sesgo la valoración de un proceso en desarrollo. Capriles viene de los sectores que estuvieron a punto de vender PDVSA a compañías extranjeras, cara nueva de la política corrupta y vieja.
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This weekend, Hugo Chávez won the presidential election in Venezuela this weekend. He captured 54 percent of the vote over challenger Henrique Capriles. Once again, corruption becomes the lingering storyline in a country racked by a crumbling infrastructure. Capriles' showing brings promise that he can pose a credible threat to Chávez during the next election in six years. This article from the Ca
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