november 27, 2006 ● no. 2 Corruption, Mismanagement, and Abuse of Power in Hugo Chávez’s Venezuela by Gustavo Coronel Executive Summary orruption has existed in Venezuela since at least financial institutions, whose operations are also opaque, C 1821, when it gained independence. In the 19th and that spend funds at the discretion of the executive. 20th centuries, the level of corruption fluctuated, Corruption now permeates all levels of Venezuelan society. depending on the government in power. During the govern- Bureaucrats now rarely follow existing bidding regulations, and ment of President Hugo Chávez, however, corruption has ordinary citizens must pay bribes to accomplish bureaucratic exploded to unprecedented levels. Billions of dollars are being transactions and have to suffer rampant neglect of basic gov- stolen or are otherwise unaccounted for, squandering ernment services. All this has been encouraged by a general envi- Venezuelan resources and enriching high-level officials and ronment of impunity: officers implicated in major corruption their cronies. scandals have sometimes been removed from their posts, but The windfall of oil revenues has encouraged the rise in they have not otherwise been held legally accountable. corruption. In the approximately eight years Chávez has The dramatic rise in corruption under Chávez is ironic been in power, his government has received between $175 since he came to power largely on an anti-corruption cam- billion and $225 billion from oil and new debt. Along with paign platform. To truly fight corruption, the government the increase in revenues has come a simultaneous reduc- needs to increase the transparency of its institutions and tion in transparency. For example, the state-owned oil com- reduce its extensive involvement in the economy, something pany ceased publishing its consolidated annual financial that has placed Venezuela among the least economically free statements in 2003, and Chávez has created new state-run countries in the world. Gustavo Coronel was a member of the Board of Directors of Petróleos de Venezuela (1976–79) and, as president of Agrupación Pro Calidad de Vida, was the Venezuelan representative to Transparency International (1996–2000). the cato institute 1000 Massachusetts Avenue, N.W., Washington D.C. 20001-5403 www.cato.org Phone (202) 842-0200 Fax (202) 842-3490 The history of Background dencies of Rómulo Betancourt and the Venezuela during famous novelist Rómulo Gallegos. In 1948 In 1813 Simón Bolivar, while fully the young military officers who had support- the last 180 years engaged in the war of independence against ed Acción Democrática three years earlier has been charac- Spain, issued a decree stipulating the death overthrew Gallegos. The leader of the coup, terized by the penalty for corruption in the first Venezuelan Marcos Pérez Jiménez, established a military republic. He issued a second decree in 1824 dictatorship that lasted 10 years. Corruption persistent and and still a third one in 1826, defining cor- during the following decade was high but intense presence ruption as “the violation of the public inter- mostly limited, as in the years of Gómez, to est,” establishing the death penalty for “all the immediate circle of the dictator, and it of corruption. public officers guilty of stealing ten pesos or was essentially related to commissions more.” The second article of the 1824 decree obtained through contracting of public read: “Those judges who disobey the disposi- works. Venezuelan infrastructure received a tions of this decree will be condemned to the vigorous boost with the construction of same [death] penalty.”1 Yet the history of roads, hospitals, universities, and public Venezuela during the last 180 years has been buildings. characterized by the persistent and intense The increasing discontent of army officers presence of corruption in public administra- who were excluded from access to tion. In 1875 the Venezuelan Ministry of Venezuelan public funds promoted a popu- Finance under the regime of dictator lar revolt in 1958 that successfully expelled Antonio Guzmán Blanco would confess: Pérez Jiménez from power. After that, “Venezuela does not know how much or to Venezuela would not witness another mili- whom it owes money. Our books are 20 years tary coup or coup attempt until 1992, when behind. ” One hundred years later the Hugo Chávez tried unsuccessfully to over- Venezuelan general comptroller during the throw the elected president Carlos Andrés presidency of Luis Herrera would describe Pérez. From 1958 to 1999 Venezuela changed Venezuelan public administration in almost democratically elected presidents 10 times. identical terms, as “a system totally out of During the first half of that period, from control.”2 1958 to about 1975, the country experienced The dictatorship of Juan Vicente Gómez, a succession of democratic governments from 1909 to 1935, was a period in which the together with a satisfactory level of trans- exercise of corruption was limited to the dic- parency in the management of national tator’s immediate collaborators and his assets. Presidents Rómulo Betancourt, Raúl extended family, since Gómez did not need Leoni, Rafael Caldera, and, for about half of elections to stay in power, running Venezuela his first term, Carlos Andrés Pérez, can be as his personal hacienda. The 10 years that credited with the consolidation of followed Gómez’s death constituted the first Venezuelan democracy and the promotion of decade of real democracy and transparency in a society characterized by a strong emerging the Venezuelan public sector, thanks to his middle class. During those years Venezuelan successors, army generals E. López Contreras democracy became the political model to be and I. Medina Angarita, who were deeply imitated in Latin America and was compared democratic leaders in spite of their military favorably by political analysts with the dicta- training in Gómez’s army. torships of the left and the right still present Gen. Medina Angarita was deposed in in the hemisphere. 1945 by a coup led by the Acción In the mid-1970s the management of Democrática party supported by young army Venezuelan national assets started to deterio- officers. From 1945 to 1948 Acción rate dramatically. Political events in the Democrática conducted a rather transparent Middle East triggered an abrupt increase in three-year government under the brief presi- global oil prices, and, as a result, Venezuelan 2 oil income tripled. The ordinary men in solidate their political positions rather charge of the Venezuelan government were than lead the country toward stable exposed to extraordinary financial tempta- prosperity through hard work and tions. Faced with a windfall, President Pérez social discipline. Those leaders per- structured a program that he called “The suaded Venezuelans that oil money Great Venezuela.” Under that plan, a tropical “belonged” to the government and that version of Mao’s “Great Leap Forward,” the some of it could be handed out to the government poured close to two billion dol- people in exchange for political loyalty. lars into industrial projects in southern Because of that belief, the use of Venezuela, which were designed to triple steel national assets for personal benefit, production within five years and to build sev- among both the political elite and the eral new aluminum plants. At one point more population at large, lost much of its than 300 state-owned companies existed in pejorative meaning. the country, none of which was profitable. During the second half of Pérez’s term, as a The benevolent view of corruption that result of the torrential influx of oil money, cor- prevailed in those decades can be illustrated ruption spun out of control—it became by a legal decision in a 1982 case of corrup- “democratic.” Up to that moment, graft had tion at the Venezuelan Ministry of From 1975 to been essentially restricted to the ruling clique, Agriculture. The tribunal considering the 1998 Venezuelan but now many Venezuelans started to partici- case dismissed it claiming that “the amount corruption levels pate, directly and indirectly, in the abuse and involved [some $20,000] was too small in misuse of public funds. At the end of Pérez’s relation to the total budget of the Ministry.”4 generally presidency, and in spite of the oil income In 1997 Pro Calidad de Vida, a Venezuelan increased and windfall, Venezuela had managed to fall into nongovernmental organization (NGO) stayed high. debt to the international banks. doing anti-corruption work, estimated that From 1975 to 1998 Venezuelan corruption some $100 billion in oil income had been levels generally increased and stayed high. wasted or stolen during the last 25 years.5 Particularly grave was the period of Jaime Lusinchi, 1984 to 1994. In her research on cor- ruption, sociologist Ruth Capriles Méndez of Enter Hugo Chávez the Universidad Católica Andres Bello estimates that some $36 billion was subject to misuse and As the 20th century came to an end, dishonest handling during that presidency,3 Venezuela was ripe for significant political especially through the foreign exchange con- change. The December 1998 presidential trols program called RECADI (Régimen de elections gave victory to Hugo Chávez. Both Cambios Diferenciales). Several factors con- Chávez and his main adversary, Henrique tributed to soaring corruption: Salas Romer, had promised a radical depar- ture from existing politics, which was still • Weak political and social institutions. based on a two-party system alternating in • Lack of adequate administrative norms power and maintaining high levels of and controls. bureaucratic inefficiency and corruption. • Large volumes of income coming from The Chávez campaign platform consisted of petroleum production, a wealth essen- three main proposals: convening a con- tially not earned by the work of the stituent assembly to write a new constitu- majority of the population but generat- tion, eliminating government corruption, ed by a small group of oil industry tech- and fighting against social exclusion and nical staff.