C 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, squanderingVenezuelan 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-run

financial 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.

n o v e m b e r 2 7 , 2 0 0 6 ● n o . 2

Corruption, Mismanagement, and Abuse of Power in Hugo

Chávez’s Venezuelaby 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

Background

In 1813 Simón Bolivar, while fullyengaged 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.”1 Yet the history ofVenezuela during the last 180 years has beencharacterized by the persistent and intensepresence of corruption in public administra-tion. In 1875 the Venezuelan Ministry ofFinance under the regime of dictatorAntonio Guzmán Blanco would confess:“Venezuela does not know how much or towhom it owes money. Our books are 20 yearsbehind. . . . ” One hundred years later theVenezuelan general comptroller during thepresidency of Luis Herrera would describeVenezuelan public administration in almostidentical terms, as “a system totally out ofcontrol.”2

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 Venezuelaas 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 deeplydemocratic leaders in spite of their militarytraining in Gómez’s army.

Gen. Medina Angarita was deposed in1945 by a coup led by the AcciónDemocrática party supported by young armyofficers. 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 militarydictatorship 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 avigorous boost with the construction ofroads, hospitals, universities, and publicbuildings.

The increasing discontent of army officerswho were excluded from access toVenezuelan 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 ofhis first term, Carlos Andrés Pérez, can becredited with the consolidation ofVenezuelan democracy and the promotion ofa 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 ofVenezuelan national assets started to deterio-rate dramatically. Political events in theMiddle East triggered an abrupt increase inglobal oil prices, and, as a result, Venezuelan

2

The history ofVenezuela duringthe last 180 yearshas been charac-

terized by thepersistent and

intense 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 tropicalversion of Mao’s “Great Leap Forward,” thegovernment poured close to two billion dol-lars into industrial projects in southernVenezuela, 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 aresult 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 ofthe Universidad Católica Andres Bello estimatesthat some $36 billion was subject to misuse anddishonest handling during that presidency,3

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 norms

and controls.• Large volumes of income coming from

petroleum 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 ofnational 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 ofAgriculture. The tribunal considering thecase dismissed it claiming that “the amountinvolved [some $20,000] was too small inrelation to the total budget of the Ministry.”4

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.5

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 ofbureaucratic inefficiency and corruption.The Chávez campaign platform consisted ofthree 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-

3

From 1975 to1998 Venezuelancorruption levelsgenerallyincreased andstayed high.

nor of the state of Carabobo, Salas Romerwas perceived as a conventional politicalreformer, while Chávez came across as aspokesman for the poor, oppressed majori-ties. There is little doubt that, in a countrywith 60 percent poverty and 30 percentextreme poverty at the moment of the elec-tions, Chávez’s promises to eliminate govern-ment corruption and fight poverty were deci-sive factors in his victory.6

Chávez had promised to focus on thepolitical issues before tackling the social andeconomic issues. In his inaugural speech,7

Chávez called for a “political revolution” andstarted a process that would lead, during1999, to the progressive elimination of mostexisting political institutions, includingCongress, the Supreme Court of Justice, andthe Electoral Council. In late 1999 thoseinstitutions were dissolved and replaced withnew ones staffed by Chávez’s followers. In aletter to the Supreme Court of Justice inApril 1999, Chávez had threatened the jus-tices with retaliation by the populace if theydid not rule in line with his wishes.8 Headded in this letter that “only the presidenthas exclusive authority on the managementof state affairs,” thus appearing to place him-self above the law. Also during that year hestarted violating the existing constitution. InJuly 1999 he promoted 33 army officers overthe decision of the Senate, which had theauthority to authorize the promotions,according to article 150 of the constitution.That violation was openly denounced byCongressman Jorge Olavarría in a speechgiven before the president, his cabinet, andthe diplomatic corps on Independence Day.9

In his speech Olavarría called for Chávez’simpeachment, but, predictably, no actionwas taken.

The New GovernmentSpeaks Out on Corruption

In November 1999 the new minister offoreign affairs, José Vicente Rangel, gave aspeech at the Centro de Divulgación del

Conocimiento Económico (CEDICE), aCaracas think tank, during a seminar on“Economy and Corruption,” held inCaracas.10 In that speech Rangel put forwardwhat was taken to be the official position ofthe new government on corruption, whichcan be summarized as follows:

1. We recognize the existence of a sys-temic culture of corruption inVenezuela.

2. The citizens have come to identify itwhenever they see that hospitals lackessential equipment or drugs becauseof the theft of the funds that shouldhave been dedicated to the acquisi-tion of those supplies.

3. From now on ethics will play a promi-nent role in the life of our society.

4. Corruption appears equally underauthoritarian and democratic gov-ernments and is more perverse in ademocracy, since it requires the com-plicity of many.

5. Corruption has had an enormous costin Venezuela. It works fundamentallythrough the contracting of publicworks. Venezuelans have sent morethan $100 billion abroad. The cost ofcorruption during the last 20 years,according the NGO Pro Calidad DeVida, is on the order of $100 billion.The spiritual and social costs of cor-ruption have been even greater.

6. February 4, 1992 (the date ofChávez’s attempted coup) has anessentially ethical meaning. The coupwas an expression of popular protestagainst Venezuelan corruption.

7. To fight corruption we must fightagainst confidentiality and lack ofinformation from banks, financialcorporations, and the judicial system.

8. The fight against corruption shouldinvolve all of society and all citizens; theorganizations of the state; academicinstitutions; the media; religious institu-tions; and political, business, and laborassociations, in order to reverse the

4

As theVenezuelan state

has swept upmore and more

resources, itsmanagement ofthose resources

has become less and lesstransparent.

effects of corruption and allow for therebirth of our moral and ethical values.

9. We are on the threshold of change,and one of the main objectives of thisnew government is to eliminate cor-ruption. This is the only way to rein-state democracy in our country. Themain risk this government faces isnot conducting this fight with audac-ity and decision, since old corruptiontends to be immediately replacedwith new corruption.

10. If we want to be a lawful state, weneed a judicial system we can trust.Without trustworthy justice, there isno possibility of waging an efficientfight against corruption.

11. As a sign of our determination to com-bat corruption, we have incorporatedin our project of a new constitution abody known as the Civic Power, madeup of the comptroller, the attorneygeneral, and the ombudsman, withfull authority to investigate and con-trol the functioning of the state andthe use of public assets.

12. We will not be dealing in emptyrhetoric any longer but in concreteways to make institutions work.

Almost eight years have passed since JoséVicente Rangel, still the second most influen-tial person in the government of HugoChávez, made that speech. That has given usmore than enough time to evaluate theChávez regime’s performance in relation toone of its primary objectives, that of elimi-nating corruption.

Financial Performance ofHugo Chávez’s Government:

An OverviewIn the eight years since Hugo Chávez came

to power, an estimated $130 billion of net oilincome (after costs of oil production arededucted) has entered the national treasury,although the figure could be as high as $180

billion. The wide range of the estimates is dueto the lack of reliable information onVenezuelan oil production and income since2001. Petróleos de Venezuela, the government-owned oil corporation, ceased publishing itsconsolidated annual financial statements in2003 and sent a last filing to the U.S. Securitiesand Exchange Commission in 2005—twoyears late, since the figures corresponded to2003. During Chávez’s tenure, Venezuela’snational debt, both domestic and foreign, hasgone from $21 billion in 1998 to some $41 bil-lion in 2005. In addition, the government hasannounced during 2006 a new issue of bondsfor up to $4 billion.11

From oil and new indebtness, therefore,the Chávez government has received, up tothe third quarter of 2006, between $175 bil-lion and $225 billion. That figure does notinclude all other sources of revenue, such asincome taxes. The approved national budgetfor 2006 amounts to $40.1 billion, with 47percent of the revenue coming from oil salesand the rest from income tax and othersources (including new debt and an extraor-dinary windfall of some $5 billion due to theseizure of foreign reserves from theVenezuelan Central Bank).

As the Venezuelan state has swept upmore and more resources, its management ofthose resources has become less and lesstransparent. Both Petróleos de Venezuelaand the Venezuelan Central Bank have hadto transfer significant amounts of moneydirectly to FONDEN, a “development fund”created in 2005 by presidential decree, and toBANDES, a development bank created in2001, both of which are accountable only toChávez. In parallel with this irregular man-agement of public funds, the Chávez govern-ment dismantled the Macro StabilizationEconomic Fund, created by the Venezuelangovernment in 1998 to serve as a cushion toprotect the stability of Venezuelan publicfinances in times of low oil prices. In addi-tion, during 2001–05 the Chávez govern-ment withdrew the fund’s assets, in excess of$3 billion, for ordinary spending. Some ofthe main irregularities in the management of

5

The eliminationof corruption ingovernment wasone of the threemain electoralpromises madeby Hugo Chávez.

public funds by the Chávez government arediscussed next.

Dollar Transfers Abroad Made by theGovernment

According to the Venezuelan Central Bank,about $22.5 billion has been transferred toaccounts abroad by the Chávez governmentsince 2004. About $12 billion of that amountremains unaccounted for.12 Financial analystand former Venezuelan Central Bank officerJosé Guerra, interviewed for this report, statedthat some of that money has been used by theChávez government “to buy political loyaltiesin the region in order to consolidate his politi-cal project and some has been donated to Cubaand Bolivia, among other countries.” He addedthat a more detailed analysis, if made, mightindicate that the amounts transferred abroadare far greater, since accounts receivable fromoil sales to politically friendly countries alsoremain unaccounted for.

Gold Reserves Likely Removed from theVenezuelan Central Bank

Reports by the group Militares Democráticos,a group of former or retired army officers thatgenerally opposes the government of HugoChávez, claim that the government of HugoChávez ordered the transport of a substantialamount of the country’s gold reserves from theCentral Bank to Fuerte Tiuna,13 the military gar-rison that has become Chávez’s stronghold. Onereport quotes Gen. Jorge Luis García Carneiro asalleging that the gold was transferred “under thedirect orders of Hugo Chávez.” If confirmed, thiswould raise questions about transparency.

The Seizure of $5 Billion in InternationalMonetary Reserves

In June 2005 the Chávez-controlledNational Assembly changed the law regulat-ing the Central Bank of Venezuela so that theChávez government could seize what itdefined as “excess reserves.”14 Under the pro-visions of this arbitrary change in the law,about $5 billion was transferred from theVenezuelan Central Bank to the executive, tobe used for government programs outside

normal budgetary channels. The lack offinancial controls and the diversion of inter-national monetary reserves for ordinary pub-lic spending have spurred inflation and erod-ed the confidence of international investorsin the financial stability of the country.

The Creation of a Development Bank, aTreasury Bank, and a Development FundThat Operate without Transparency orUndermine the Central Bank’sIndependence

In 2001, by executive decree, the governmentcreated BANDES, a development bank annexedto the Ministry of Finance, and in 2005 theChávez-controlled National Assembly created adevelopment fund, FONDEN, to spend “excess”international reserves. Both institutions areunder the complete control of the Chávez gov-ernment without any independent oversight orchecks whatsoever. The fund was to have up to $6billion, to be used at the discretion of the execu-tive. However, by mid-2005 the fund already had$7.5 billion coming from unspecified sources,probably Petróleos de Venezuela and theVenezuelan Central Bank, the only institutionsthat could have such a significant amount ofmoney in their systems. The money, according toFinance Minister Nelson Merentes, would beused for “infrastructure” and social projects. Thetruth is that the money in this fund has become aparallel budget and is being used without anytransparency or need for legislative approval. Thisis a situation that leads, almost inevitably, tolarge-scale corruption. The Ministry of Financetargeted the fund to accumulate as much as $17billion by the end of 2006.

In addition, a new Banco del Tesoro(Treasury Bank) was created in 2005 to collectsome of the taxes and customs duties thatwould normally have gone into the CentralBank or the national treasury, or both. Thedecision to create this bank, reports ManuelSuárez-Mier, in a note from the Bank ofAmerica, dated August 12, 2005, “virtuallyguarantees that any resemblance of an inde-pendent central bank in Venezuela will vanishand represents the additional erosion of thecountry’s institutional landscape.”15

6

Oil incomeshould have beena blessing, but itbecame a curse.

Losses and Bankruptcy at the VenezuelanCentral Bank.

BBO Weekly financial news editor MiguelOctavio estimates that the total losses of theVenezuelan Central Bank for 2006 alone arenearly $2 billion, the result of financing creditoperations to reduce monetary liquidity. Thisliquidity, claims Octavio, was created “on thebasis of reserves which are no longer in thehands of the Central Bank. Thus, the Bankdoes not receive sufficient cash flow from itsinvestments to pay for all the interest due onthese instruments.”16 Caracas banker OscarGarcía Mendoza has denounced the withdraw-al of 6 billion bolivars by the government fromthe Venezuelan Central Bank, alleging thatthat action has put the bank in technical bank-ruptcy. The government has not replaced thatwithdrawal, and it is unlikely to do so in thefuture. García Mendoza has filed suit againstthe government in the Supreme Tribunal ofJustice demanding that the central govern-ment compensate the bank for the withdrawal.But he fears that the government will solve thissituation by conducting a major devaluationof the bolivar. If so, he says, “This would be rob-bery . . . to devalue is to steal.”17

Favorable Deals for Friendly Banks in theAcquisition of Latin American Bonds

According to the Financial Times, a selectgroup of Venezuelan private banks is profitingfrom the acquisition of Argentinean bonds bythe Venezuelan government, at the expense ofthe national treasury.18 The Financial Timesspoke to U.S. financial analysts who said that“although the benefits for Argentina [the seller]are clear, they are less so for the Venezuelan gov-ernment, since the profits are not being accu-mulated by the government but by a few privatebanks.” According to reports, the two banks atissue are the Banco Occidental de Descuentoand the Fondo Común owned by Victor Vargasand Victor Gil, members of the new wealthyclass emerging under the umbrella of the revo-lution.19 Neither responded to requests by theFinancial Times for comment. In reselling $100million worth of bonds, the banks would prof-it by up to $17 million. In the Daily Journal,20

Cato Institute adjunct scholar and journalistCarlos Ball estimated that the favorite banks ofthe government could make up to $607 millionin profits if they bought the $2.4 billion inArgentinean bonds from the Venezuelan gov-ernment and resold them, because of the differ-ence between the official exchange rate and thefree market rate of the bolivar.

Where Is This Performance Leading theVenezuelan Financial Sector?

These and other irregularities in the man-agement of public finances by the Chávez gov-ernment have led José Alejandro Rojas, minis-ter of finance during the first years of theChávez presidency, to make very grave predic-tions about the immediate future of theVenezuelan economy. According to Rojas:“The financial crisis might not come due to adrought but to an excess of liquidity. It wouldseem that the way [for the Venezuelan govern-ment] to go from a market economy to a cen-tralized economy is through the destructionof the existing financial system.” Rojas adds:“The monetary policy [of Chávez] is one ofprogressive controls: exchange controls, totalcontrol over the use of public funds, parallelbudgets and an increasing state control of theeconomy, all of which is creating an exaggerat-ed increase of liquidity. As liquidity increaseswithout a real growth of the economy, the cur-rency becomes progressively devalued. Theloss of autonomy of the Venezuelan CentralBank and the disorder in the management ofthe financial resources on the part of the gov-ernment are leading to a significant financialcrisis that could eliminate private banking andjustify state intervention.”21

Corruption Flourishes inthe Revolution

The elimination of corruption in govern-ment was one of the three main electoralpromises made by Hugo Chávez and probablythe one that was most decisive in his victory.The two-party system that had held power inthe country for four decades had allowed cor-

7

Generation ofwealth by themany, the maincharacteristic ofdeveloped soci-eties, took a backseat to the distri-bution of oilwealth by thegovernment.

ruption to become systemic and “democratic,”in the sense that large sectors of the populationwere engaged in it. In interacting with the gov-ernment bureaucracy there was little that anaverage Venezuelan citizen could do withouthaving to bribe someone. Intolerable delaystook place if there was no bribe. Corruptionhad become a way of life in Venezuelan society.Abundant oil income and democracy, two fac-tors that should be positive, had combined toproduce a highly damaging mixture, destroy-ing the work ethic of a great portion of theVenezuelan population.

Oil income should have been a blessing,but it became a curse, given how rapidly itsurged from the 1970s on. Democracyshould have led to progress but not in thepopulist, paternalistic manner fostered byVenezuelan political leaders during the last40 years of the 20th century. The combina-tion of abundant oil rent and populism ledto increasing dependence of citizens on thewelfare state. Generation of wealth by themany, the main characteristic of developedsocieties, took a back seat to the distributionof oil wealth by the government, with the sec-tors of society friendliest to government get-ting the largest segments of the oil pie.

At first, the oil wealth was so large in com-parison with the relatively small populationthat, for many years, government hadenough money to keep most Venezuelanshappy. As time went by and populationincreased without a corresponding increasein oil income, popular dissatisfaction startedto intensify. With less pie to go around, moreand more of the population was excludedfrom the distribution of the oil wealth. By the1990s governments realized that a change insocial values and attitudes had to take placein the country and that oil income alonewould not be enough to drive the countryforward. By his second term (1989–93),President Pérez clearly understood this, butwhen he tried to introduce limited economicreforms leading to less government paternal-ism, he ran into a violent popular reaction.Withdrawal symptoms from governmentdependence proved to be too strong to be

accepted by the country. The resulting back-lash opened the way for Chávez’s attemptedcoup and, later, for his electoral victory.

Chávez has chosen to take the path of leastresistance. He saw what had happened toPresident Pérez and his attempts to reform. Hewas not prepared to follow that route for tworeasons: one, because he knew it would not bepopular and, two, because he did not believe itwas the correct path. In 1992 Chávez hadrebelled violently against Pérez’s attempts tointroduce austerity measures. Therefore, hebrought to his presidency ideas shared by mil-lions of Venezuelans, who strongly believe thatVenezuela is a very rich country and that pover-ty exists only because oil wealth has remainedin the hands of the few. If only the oil wealthwere better distributed, Chávez felt, Venezuelawould experience a true revolution.

Wealth redistribution has been a constantof the Chávez presidency, as has a totalneglect of the creation of new wealth. Chávezhas been taking away from the haves, the richand the middle class, in order to give hand-outs to the have-nots. That has led to the pro-gressive impoverishment of the averageVenezuelan, even as it has increased the levelof corruption in Venezuelan society.

Defining Government CorruptionIn its broadest sense, government corrup-

tion can be defined as the violation of thepublic interest for personal or partisan gain.That broad definition clearly goes beyondsimple graft and the stealing of public funds.It involves the use and abuse of politicalpower to consolidate that power in order toobtain higher status and material wealth. Italso includes actions that erode the ethicalstandards of the society being governed, evenif no material loss takes place.

Under that definition, the eight-year periodof Chávez’s government has been hypercor-rupt, surpassing all preceding governments inboth incidence and intensity of corruption.The main causes of this hypercorruption are(a) the record oil income obtained by Chávez’sgovernment during his eight years in power; (b)the very mediocre management team that

8

Wealth redistri-bution has been

a constant of theChávez presiden-

cy, as has a totalneglect of the

creation of newwealth.

Chávez has put together; (c) the ideologicalpredilections of Chávez, which have led him toneglect his duties as president of allVenezuelans to try to play a messianic role inworld affairs; and (d) Chávez’s belief that thepath to follow in Venezuela was that of oilincome distribution in the form of directhandouts, rather than a more long-term policyof structural solutions to reduce Venezuelanpoverty and improve health and education.

Typology of Government Corruptionunder Chávez

For the purposes of this discussion, it isuseful to classify corruption in the Chávezgovernment under three main categories:grand corruption, bureaucratic corruption,and systemic corruption.

Grand Corruption. This category covers cor-ruption derived from major policy decisionsby the highest decisionmaking levels of gov-ernment, in this case the president, andincludes the following:

• Chávez’s acceptance of foreign con-tributions for his presidential cam-paign and during his presidency.During 1998 and 1999 at least one for-eign bank, Spain’s BBVA, allegedly con-tributed substantial amounts ofmoney to Chávez’s presidential cam-paign and, later, to his presidency. Theformer president of the bank, EmilioIbarra, admitted authorizing twodeposits, one for $525,000 in 1998,made to the Curacao-based Maduroand Curiel’s Bank NV, for a companycalled Concertina NV (a company setup by Luis Miquilena, Chávez’s cam-paign manager) and the other for$1,000,000 made after Chávez hadbeen elected, for the purpose of financ-ing Chávez’s followers’ campaigns forthe Constituent Assembly.22 Partlybecause of these alleged violations,Ibarra was to be tried in Spain at thestart of 2006, with the prosecutionseeking a two-year prison term. Thecurrent status of the case is unknown.

• Violations of the Constitution of 1961in order to convene a ConstituentAssembly with supraconstitutionalpowers. This resulted in the dissolution ofthe democratically elected NationalCongress and of other democratic institu-tions. Although elected in democratic elec-tions in 1999, Chávez went on to disman-tle the main democratic institutions in thecountry, with the complicity of the majori-ty of the members of the existing SupremeCourt of Justice. A Constituent Assembly,stacked with his followers and given supra-constitutional powers, unconstitutionallydissolved Congress and most other exist-ing democratic institutions during 1999and replaced them with institutionsstaffed by people loyal to Chávez. This wasa clear case of political corruption and aprogressive coup d’état that ended with allVenezuelan political institutions under thecontrol of the government and eliminatedeffective checks and balances. From thatmoment on, for all practical purposes,Venezuela ceased to be a democracy.

• Expenditures of up to $17 billion inthe last four years, mostly to buyweapons and political loyaltiesaround the world. During the lastfour years Hugo Chávez has been on a$4 billion shopping spree for weaponsin Russia, Spain, and other countriesand has been promising or actually dis-bursing significant amounts of moneyto Latin American and Caribbeancountries in exchange for promises ofpolitical loyalty and support forChávez’s objective of obtaining a seaton the Security Council of the UnitedNations. On January 27, 2006, I pub-lished an estimate of these expendi-tures, based on data from the Center ofEconomic Research in Caracas,amounting to $17 billion,23 directlycontrolled by Chávez. The spendinghas included plans to build refineriesin several Latin American countriesand donations to politically friendlygovernments, such as the $30 million

9

Bureaucraticcorruption hasexploded duringthe Chávezgovernment.

Chávez gave Bolivian president-electEvo Morales on the occasion of hisJanuary 2006 visit to Caracas. Thishuge disbursement was made withoutconsulting the people of Venezuela.

Bureaucratic Corruption. This categoryincludes violations of laws, norms, and regu-lations by government employees or non-government accomplices. This type of cor-ruption can involve extortion, bribery, thestealing of public funds, abuse of politicalpower, nepotism, and many other varieties ofillegal or unethical use of public assets forprivate gain. Given the enormous amount ofoil income during the last eight years and thealmost total absence of proper governmentcontrols, bureaucratic corruption hasexploded during the Chávez government.Some of the most remarkable manifestationsare described below.

• Government contracting is mostlybeing done directly, without followingexisting bidding regulations. The lawthat regulates the acquisition of goodsand services by the Venezuelan govern-ment says that all contracting should fol-low proper bidding procedures, except incases of national emergency, which canbe declared only by the Executive Cabinetor by the General Comptroller’s Office.Faulty bidding procedures and the lackof any bidding at all have been identifiedby Transparency International as themain causes of corruption in ThirdWorld countries. Multilateral organiza-tions such as the World Bank and theInter-American Development Bank haveestablished stringent procedures to guar-antee that all projects in which they par-ticipate as lenders are conducted accord-ing to proper bidding procedures.However, the Venezuelan government,especially during the last three to fouryears, has practically done away with bid-ding in public-sector contracting.According to the Venezuelan chapter ofTransparency International, today 95

percent of all known public contracts areawarded without bidding.24

In the state of Carabobo alone, currentgovernor Luis Acosta Carlez has openlyadmitted to 800 cases of no-bid contracts,involving tens of millions of dollars.25 Thegovernor declared, in every case, emergencyconditions of questionable validity or thatwere not defined as such by the properauthorities, as stipulated by law.

What is happening in the state ofCarabobo is also happening all over thecountry and in all sectors of the govern-ment. The complete disregard for properadministrative procedures is due to twomain factors: indifference toward, or igno-rance of, the law on the part of bureau-crats and the knowledge that they will notbe punished. Although it is impossible toquantify the financial damage to thenation attributable to these disorderlyprocedures, there is no doubt that thelevel of corruption associated with thisapproach to contracting is extremely high.• The social programs run by the mili-tary in 2000–02. Soon after he came topower, Chávez established a program calledBolívar 2000, run by the armed forces,designed to do social work. Conceptually itwas sound. It had to do with the fact thatVenezuela had a large—and largely idle—military force, seemingly active only duringthe military parades of the July 5 and 24every year. Why shouldn’t the military beput to work on social programs to improvethe social situation of the Venezuelan poor?To most Venezuelans that sounded like agood idea.

According to journalist Agustín Beroes,however, the execution of the program wasnot good.26 The Bolivar 2000 program wasrun by Army Commander Victor CruzWeffer and was assigned about $300 mil-lion. After only one year, the program wasterminated because of uncontrollablewaste and corruption in which an estimat-ed $150 million went unaccounted for.The most frequent mechanisms of corrup-tion operating in this program included

10

Venezuela is giv-ing Cuba a sub-

sidy on the orderof $2.2 billion to

$2.3 billionper year.

false invoicing and the signing of contractswith nonexistent suppliers. When GeneralComptroller Eduardo Roche tried to inves-tigate in earnest, he was replaced byClodobaldo Russian, who remains at hisjob five years later. Parallel to this failedprogram another was initiated, the so-called Fondo Único Social (Central SocialFund), led by Commander WilliamFariñas, another one of Chávez’s fellowconspirators during the unsuccessful 1992coup. This program received about $400million from the government and was ori-ented toward health services, housing, andeducational subsidies. In essence, FUS wasa typical direct subsidy program conduct-ed without careful planning. FUS gave$500,000 to an organization run by thewife of Commander Fariña’s driver,Horácio Pérez. Beroes estimates that theirregularities connected with this programhave cost some $30 million. • The acquisition of the presidentialairplane. During a 2001 trip to theMiddle East, Chávez had the opportuni-ty to travel in an Airbus 319 owned by amember of the royal family of Qatar.After returning to Venezuela, he declaredthat he wanted one just like it. In clearviolation of article 314 of the Venezuelanconstitution and of the law regulatinggovernment expenditures, the plane, anA319-133X, was acquired at a cost ofmore than $65 million, without properbudgetary provisions.27

• “Sweet” corruption at the agro-indus-trial complex Ezequiel Zamora. Aprominent case of corruption has takenplace since 2004 in the Ezequiel Zamoraagro-industrial complex, located in thestate of Barinas, Chávez’s home state. TheNational Assembly took the unusual stepof investigating it after a public accusationby journalist Eleazar Díaz Rangel, who isotherwise sympathetic to the Chávez gov-ernment. As a result of the investigation,Minister of Agriculture Antonio Albarrán,the director of the Sugar Mill complex,Army General Delfín Gómez, and 17

members of the armed forces involved inthe project were sent to the criminalcourts. The Venezuelan NationalAssembly has accused the group of takingabout $1.3 million from the accounts ofthe sugar-processing plant run with thehelp of Cuban advisers.28 The case has notyet been decided. According to anothersource, the 62nd Army Engineers Unit hasbeen accused of squandering $1.5 billionof the $2.6 billion appropriated for thecomplex.29 This too has not been resolved.Minister Albarrán admitted to malfeas-ance for not revealing these facts when hebecame aware of them on September 23,2005. By his own admission, he withheldthe information because, he claimed, thecountry was in the midst of parliamentaryelections and his revelation would havecreated a scandal damaging to the Chávezgovernment.• Corruption at the Supreme Tribunalof Justice. In early 200630 a scandalinvolving the Supreme Tribunal of Justiceheld the attention of the nation for a briefperiod of time (no corruption scandallasts more than one or two weeks in theVenezuelan press, as it is quickly super-seded by a new one). The minister of theinterior, Jesse Chacón, accused one of theleading members of the tribunal, LuisVelásquez Alvaray, of corruption. Somepeople saw this accusation as a politicalmaneuver designed to eliminate a promi-nent member of one government faction.Chacón accused Velásquez Alvaray ofpocketing significant amounts of moneyfrom commissions and overpricing in theacquisition of real estate for the tribunal.

Surprisingly, Velásquez Alvaray counter-attacked, accusing Vice-President Rangel,Minister Chacón, and National Assemblypresident Nicolás Maduro of being at thehead of an extensive criminal judicial groupcalled the “Gang of the Dwarfs.” Accordingto Velásquez Alvaray, this group acted princi-pally in the protection of drug traffickers. Inaddition to pointing a finger at these threehigh government officers, Velásquez Alvaray

11

The ElectoralRegistry is deeplycorrupted.

also accused the brother of Minister Chacón,bank owner Arne Chacón, of pressuring himto get the judicial system to deposit its fundsin Arne Chacón’s bank. He also accusedsome of his colleagues at the SupremeTribunal of Justice of being connected withdrug trafficking. These allegations remainunresolved. Velásquez Alvaray is said to be inMadrid, Spain. • The oil supply agreement signed withCuba, a gigantic loss for the nation. Oneof the most damaging examples of theChávez government’s political and eco-nomic corruption is the oil supply agree-ment with Cuba.31 Fidel Castro andHugo Chávez signed this “integral coop-eration agreement” in Havana inOctober 2000. The agreement pledgesVenezuela to supply Cuba for 15 yearswith volumes of Venezuelan hydrocar-bons, starting at 53,000 barrels per day.In December 2004 this volume wasincreased to 90,000 barrels per day.

Several characteristics of this oil supplyagreement are irregular and highly damag-ing to the Venezuelan nation: First, theform of payment, including 15-year financ-ing at 2 percent interest of 25 percent of thevolume, is a gift to Cuba that can be esti-mated at some $400 million per year at cur-rent oil prices; second, Cuban delays in pay-ing or outright refusal to pay should havetriggered an interruption of supply, whichhas not taken place. This is bureaucraticnegligence on the part of the Venezuelangovernment and means that some $1.3 bil-lion per year is not being collected, either ina timely fashion or at all; Finally, Cuba’sreal consumption of hydrocarbons is prob-ably lower than claimed. There are indica-tions that Cuba is reexporting some of thepetroleum supplied by Venezuela, possiblyas much as 25,000 barrels per day. At cur-rent prices that would represent a furtherloss of some $500 million per year for theVenezuelan nation.

In total, therefore, Venezuela is givingCuba a subsidy on the order of $2.2 bil-lion to $2.3 billion per year. This is an

enormous amount, sorely required byVenezuela for the improvement of thequality of life of its citizens. • Corruption at the National ElectoralCouncil. The performance of theVenezuelan National Electoral Council,under the political control of Chávez, hasled to widespread distrust of it amongVenezuelans. As a result of this distrust, inDecember 2005, 75 percent of eligible vot-ers, according to official figures, abstainedfrom voting for the election of members ofthe National Assembly. The figures givenby the opposition placed abstention at 85percent. The reasons for this widespreaddistrust are several: First, the members ofthe council are all Chávez followers, withone exception. That means that the deci-sions made by this body have alwaysfavored the interests of the government.Until several months ago, the president ofthe council, Jorge Rodríguez, was also theadviser of Peruvian candidate OllantaHumala, while still president of theVenezuelan Electoral Council. Second, thenaming of these members has not beendone according to proper constitutionalprocedures.

Third, reports by internationalobservers (the Organization of AmericanStates, the European Union, and SpanishCongress) during the last two electoralevents, in 2004 and 2005, found that theNEC’s activities lack transparency.Fourth, the Electoral Registry is deeplycorrupted. It includes, according to thecouncil, almost 17 million voters, a sta-tistical improbability since Venezuela hasa population of 26 million, 60 percent ormore of whom are too young to register.It is presumed, therefore, that millions offoreigners have been given Venezuelanpapers in a very short time in order toswell the registry, which has grown 8 to10 times faster than normal in the lasttwo years. Gustavo Adolfo Fabregat, a 57-year-old Uruguayan information systemexpert who resides in South Carolina,has made an analysis of the Venezuelan

12

The Chávezgovernment has

generated twolists of voters to

retaliate against.

electoral roll and describes some of themany irregularities, such as the existenceof 39,000 voters over one hundred yearsold.32 This is a number equal to that ofthe same age group in the United States,where the population is 10 times greater.Of these 39,000 people, 17,000 were bornin the 19th century, and one is 175 yearsold and still working! Nineteen thou-sand voters were born the same day andyear in the state of Zulia. There are thou-sands of people sharing the sameaddress. This would make hilarious read-ing if it were not so tragic.

Fifth, the voting machines used by thegovernment belong to a company allegedto have had connections to the govern-ment until the Miami Herald denouncedthis perceived conflict of interest.33 Thecompany that owns the machines,Smartmatic, was created in 2000. Reportshave linked its owners to Chávez and othermembers of his government.34 ButSmartmatic and the Venezuelan govern-ment deny the company has ever had anytype of relationship with the Chávezadministration. This company received ano-bid government contract for $100 mil-lion in 2004, just a few months before theAugust 2004 Venezuelan presidential ref-erendum, in which the machines wereused for the first time. The results of thatreferendum were questioned by the oppo-sition but validated by the observers of theCarter Center and the OAS.35

In addition to the irregularities listedabove, the Chávez government has gener-ated two lists of voters to retaliateagainst: one, a list of those who asked forthe referendum against the president,the Tascón List, named after LuisTascón, a pro-Chávez member of theNational Assembly that put it together,and, two, a list of those who had, in fact,voted to revoke him, the so-calledMaisanta List, after the grandfather ofHugo Chávez, a small Venezuelan caudil-lo of the 19th century whom Chávez hasinstalled as one the icons of his revolu-

tion. On several occasions, Chávez wenton TV to threaten citizens who had votedagainst him in the referendum andallowed the use of the lists to dismissmany Venezuelans from their jobs, torefuse them identity papers, and, in gen-eral, to treat them as second-class citi-zens. This practice of “apartheid” is stillin force in Venezuela, and manyVenezuelans have emigrated after beingpersecuted because of their politicalbeliefs. In April 2006 a Venezuelan mag-istrate of the Supreme Tribunal of Justicecame to the United States on a tour ofhalf a dozen cities to talk about the“wonderful” revolution of Hugo Chávez.During his talk in Washington, at theSchool of Law of American University, hespoke of how the revolutionary govern-ment of Chávez had included allVenezuelans. He was immediately chal-lenged by several young Venezuelans inthe audience, including a lawyer who hadbeen dismissed from her job inVenezuela for signing the petition tohold the presidential referendum.36

• Corruption in the state-owned petro-leum company, Petróleos de Venezuela.Corruption in the most importantVenezuelan state-owned corporation takesmany shapes. It includes the naming of sixpresidents and boards during the lastseven years, in an effort to control the com-pany politically. That turnover has shat-tered management continuity and coher-ence and has practically destroyed thecapacity of the company to prepare andfollow strategic plans. As a result, the six-year plan of the company is the same oneprepared before Chávez came to power, aplan that has been waiting for six years tobe put into effect. If it had been imple-mented at the proper time, the companywould now be producing about 5 millionbarrels of oil per day. In fact, it producesonly about 2.7 million barrels per day.

Add to that the fact that the minister ofmines and petroleum is also the presidentof the company, which may be not only a

13

Chávez hasrepeatedly usedoil to buy loyalty.

violation of the laws of the country but amajor error of strategic management sincethe organization is now being managedand monitored by the same person.Further evidence includes Chávez’s dis-missal, on a television program, of almost20,000 technical and managerial staff in2002, in open violation of Venezuelanlabor laws. That mass layoff significantlydiminished the operational efficiency ofthe company. Not only has productionbeen decreasing steadily in the last threeyears, but refinery stoppages, oil spills,industrial accidents, and widespread inter-ruptions in the normal operations of thecompany have increased dramatically.Moreover, the international marketing ofVenezuelan oil has fallen into the hands ofbrokers and intermediaries, instead ofbeing run by the marketing division of thecompany. Those brokers have politicalconnections with the Chávez governmentand serve as go-betweens with clients, col-lecting significant commissions at theexpense of national income.37

Chávez has repeatedly used oil to buyloyalty. In November 2005 he orderedPetróleos de Venezuela’s U.S. affiliate,CITGO, to distribute subsidized fuel oilto “poor” communities in several states ofthe United States for purposes of politicalpropaganda. These subsidies are absorbedby CITGO, but a substantial portion ofthe cost is actually paid by the U.S. gov-ernment through tax deductions. TheChávez government also supplies thou-sands of barrels of oil per day toCaribbean countries, essentially inexchange for their political loyalty. Themechanism of payment allowed by theChávez government is in the form of agri-cultural products such as bananas andbeans. This will inevitably produce signif-icant losses to the Venezuelan nation.

Finally, the Chávez government givesChina, on terms that are not known toVenezuelans, the licenses owned by theVenezuelan Research Center for China toproduce Orimulsion, an emulsion of

heavy oil and water that competes favor-ably with coal for heating purposes andindustrial use. This array of irregularities,all of which squander Venezuelan wealth,is the result of the politicization of theVenezuelan state petroleum company.

Systemic Corruption: The Interface betweenGovernment and the Private Sector. In additionto bureaucratic corruption that constitutesthe major component of corruption underthe Chávez government, there is a third cate-gory involving the interaction of state andprivate actors in a contaminated social sys-tem. This type of corruption can involveimportant amounts of money or smallfavors, which are qualitatively identical. Theterm “petty corruption,” although some-times applied, tends to be misleading as itsuggests that there are transactions that are“more” corrupt than others because theyinvolve larger amounts of money. Systemiccorruption includes the liaison between gov-ernment officials and private buccaneers todo business at the expense of the publicgood, as well as bribes, extortion, and illegalappropriation of public monies for personalgain. This sort of corruption has explodedduring Chávez’s tenure, promoted by theimmense amounts of public expenditure andthe policy of handouts favored by the gov-ernment. Some of the most prominent exam-ples include the following:

• The emergence of a new rich, “revo-lutionary” class. The great amount ofoil income freely used by the governmenthas created what El Nuevo Herald and theNew York Times have called a new class ofwealthy “revolutionaries.”38 According tothese reports, a new bourgeoisie has beencreated in the country: “They driveHummers and Audis; use Cartier watch-es and Mont Blanc bags. They buy luxu-ry apartments and fly to Miami in pri-vate jets. And they always pay cash,” readsthe El Nuevo Herald report. This suddenwealth, says economist José Guerra in ElNuevo Herald: “can only be explained by

14

The revolutiontaking place in

Venezuela duringthe last eight

years has beenmore successful

in creating aninstant class of

the new rich thanin solving the

problems ofpoverty.

the close association of these new richwith the government.” One of the mainexamples of this sudden new class ofwealthy people is Wilmer Ruperti, whoreceives an inordinate number of con-tracts from the state-owned petroleumcompany. Ruperti has been investigated,both in Venezuela and in the UnitedStates, because of some of the transac-tions made with the oil company andwith CITGO, but nothing has resultedfrom these investigations. Last yearRuperti bought at Christie’s, for $1.6million, two pistols that belonged toSimón Bolivar, as a present to the gov-ernment. An employee of one of theMont Blanc shops in Caracas stated to ElNuevo Herald that their customers, espe-cially the military, only use cash. • Government-controlled private cor-porations. When government officersown a company but conceal this fact byworking through private intermediaries,corruption can reach very high levels.Kenneth Rijock, a financial analyst for lawenforcement agencies who previouslyserved time in prison for money launder-ing, notes that government-controlled cor-porations have flourished under Chávez,especially corporations that produce anddistribute food.39 The major agribusinessorganization that government officialscontrol, he says, is the PROAREPA group,the main supplier of food to the govern-ment handout programs. PROAREPA,Rijock says, owns a large group of compa-nies, including Almacenes y Transportesde Cereales, which is “rumored to beowned by Chávez’s brother Adan.” Theofficers of record of PROAREPA, saysRijock, include Ricardo FernandezBarrueco, a close friend of high-level gov-ernment officials and of certain ofPresident Chávez’s relatives. According toRijock, Fernandez was investigated for cus-toms-related offenses, and he deals withthe government food distribution organi-zation PROAL, but the investigation wasterminated in February 2001 for reasons

not explained. Rijock also mentions theseafood sector as a sector where this type ofbusiness prevails

El Nuevo País, a Venezuelan daily, hasreported that in August 2005 ArneChacón, brother of Minister of the InteriorJesse Chacón, made a $10 million offer tobuy the company INDULAC, a very largedairy-processing company in westernVenezuela.40 The question posed byPatricia Poleo, the journalist reporting thestory, is “Where did Mr. Chacón, a retirednavy lieutenant, obtain the $10 millionrequired to buy this company?”

Juan Carlos Zapata, editor ofDescifrado, a Venezuelan publication, haswritten a more general report in which hedescribes the emergent new power struc-ture surrounding the Chávez govern-ment.41 From this analysis one thing isclear: the revolution taking place inVenezuela during the last eight years hasbeen more successful in creating aninstant class of the new rich than in solv-ing the problems of poverty of theimmense majority of Venezuelans. The sit-uation strongly resembles the oil windfallof the 1970s, except that now there is morewaste since there is more money.

According to Zapata, a new “revolu-tionary” bourgeoisie is being born underChávez. But this group is far from beingtruly revolutionary. As time goes by itwill tend to become closer to interna-tional capital, and there is little thatChávez can do to prevent that. What willhappen then? asks Zapata. The “revolu-tion,” he suggests, will simply replace onefinancially dominant class with another.Political loyalty and ideology will be sac-rificed to the desire for wealth. Zapatalists the names of some of the membersof this new financial aristocracy.

An Economist article published at thesame time as Zapata’s article reports thatthe brother of the minister of the interi-or, Jesse Chacón, was “illegally lobbyingfor a bank,” which he eventually boughtwithout really paying for it, and which

15

A new “revolu-tionary” bour-geoisie is beingborn underChávez.

may have been the source of the $10 mil-lion he later offered to INDULAC.42

Analyst Kenneth Rijock claims thatthe Chávez government is “engaged in amassive money laundering operation” inorder to transfer dollars derived from theoil bonanza overseas, for the benefit ofthe top members of the government.43

This operation, Rijock says, seems to bemodeled after similar schemes by FidelCastro. He claims that the transfer mech-anisms include moving the moneythrough Swiss banks and the possibleacquisition of one such bank for thesepurposes. • The case of Hugo Chávez’s personallawyer, Esther Bigott de Loaiza, and her$18 million retainer. Esther Bigott deLoaiza was for some time the personallawyer of Hugo Chávez. In that capacity shemade excellent contacts and obtainedimportant contracts from governmentagencies. One in particular has createdquite a scandal, the product of a very dam-aging decision by the government lawyerMarisol Plaza, who, according to the gov-ernment, incorrectly accepted as valid somepromissory notes, called the BandagroBonds, after the bank that issued them,back in 1981. One hundred million dollarsworth of these bonds have been held since2004 by Skye Ventures, an Ohio-basedinvestment company controlled by DavidRichard, that has sued the Chávez govern-ment for payment of the face value plusinterest.44 The government hired lawyerBiggot de Loaiza and allegedly gave her aretainer of $18 million to defend the nationagainst this legal action, according to courtpapers. That money was apparentlydeposited in a New York City branch of aU.S. bank, under authorization of FinanceMinister Nelson Merentes. Apparently thatmoney should have also covered paymentto a U.S.-based lawyer named ClaudiaSilvestre. However, Silvestre claims shenever got paid. She tried, unsuccessfully, ina legal action against Bigott de Loaiza inNew York Supreme Court to get her

money, some $2.6 million, but relief wasdenied for lack of jurisdiction. That legalaction was the reason the alleged $18 mil-lion, payment to Bigott de Loaiza becameknown. Bigott de Loaiza has denied shewas being paid such amounts.• Drug trafficking: Venezuela as a “gate-way to heaven,” because of the absenceof border controls.The Caracas daily ElUniversal, quotes the 2006 InternationalNarcotics Control Strategy Report as saying:“Rampant corruption and a weak judicialsystem are the main reasons for the promi-nent role Venezuela is now playing as a keytransit point for drugs leaving Colombiafor the U.S. The Colombian guerrillas,FARC, ELN and the Auto Defensas deColombia, move freely through Venezuela,unchallenged by the authorities.”45

The attitude of the government hasbeen ambivalent; on the one hand, it hasmade some efforts to combat drug traf-ficking, and, on the other hand, it hasrefused the extradition of alleged drugdealers and even released some of them,as was reportedly the case with MateoHolguín Ovalle in March 2006. A reportby Andy Webb-Vidal for Jane’s IntelligenceReview, May 2006, asserts that cocainetrafficking operations are shiftingtoward Venezuela and notes that drugseizures have skyrocketed the last 10years, from 2.7 tons in 1995 to almost 60tons in 2005.46 Seizures, authorities esti-mate, represent only about 10 percent oftotal traffic.

One of the most recent seizures of drugsoriginating in Venezuela took place in thestate of Campeche, Mexico, when theauthorities captured a DC-9 and a Falconjet. The DC-9 had 5.5 tons of cocaineaboard. The growing drug industry inVenezuela allegedly has intimate connec-tions with high-level members of theVenezuelan National Guard. The reportstated that several generals of this force,including Alex Maneiro and FrankMorgado, as well as three other officers,have been denied U.S. visas because of their

16

A cursory exami-nation of realestate acquisi-

tions in Floridareveals names

that are familiaron the

Venezuelanbureaucratic

scene.

alleged involvement in the trafficking.Venezuelans, says Webb-Vidal, “are becom-ing more integrated into the supply chain,rather than merely acting as couriers.” Aformer member of FARC, quoted by Webb-Vidal, says that, during the time he operat-ed in Venezuela in activities related to drugtrafficking, some 30 tons of cocaine worthabout $750 million in Miami were movedinto Venezuela by the FARC each year. Thereport claims that alleged prominent drugtraffickers of Colombian origin arebelieved to be based in Venezuela, includ-ing Diego Montoya Sánchez, Wilber VarelaFajardo, Juan Carlos Ramírez, andSalomón Camacho Mora. It is hard tobelieve that the increase in drug traffickingin Venezuela would not also increase cor-ruption in the Venezuelan military andamong government bureaucrats. • Corruption at the second and thirdlevels of government bureaucracy.Living beyond one’s means is probablythe most revealing sign of corruption. InChávez’s Venezuela, where salaries ofministers average some $5,000 permonth and even high-level bureaucratsearn only between $3,000 and $4,000 permonth, the style of living of lower-levelbureaucrats is more in tune withincomes of about $15,000 per month.Luxury goods, including cars and evenprivate planes, are bought in an abun-dance never seen before; 18-year-oldscotch whisky is the drink of choice; andpower lunches usually last between threeand four hours, at a cost of some $100per person. As already mentioned, pay-ment for most of these transactions isalmost always in cash.

A cursory examination of real estateacquisitions in Florida reveals names thatare familiar on the Venezuelan bureaucrat-ic scene. A recent report by Exceso, aVenezuelan magazine,47 reveals severalexamples of houses and condos in Caracaswhere members of the Chávez governmentlive, a type of housing that is very expensiveby Venezuelan standards and certainly

beyond the reach of bureaucrats earningrather modest salaries. • The plight of the average citizen. Inthis wild collective hunt for oil booty, inwhich the powerful few obtain most of thespoils, the ordinary Venezuelan citizen isinvariably a latecomer. He or she will haveto wait in line to receive his or her meagershare. A small job at a state agency requirestotal loyalty to the government, a modestscholarship for a son requires months ofpleading and persuading. Obtaining apassport or an identity card usuallyinvolves days or weeks of getting up at 4:00a.m. to get in line with hundreds of others,hoping that passports have arrived andthat the person at the bureaucratic deskhappens to be in a good mood. Payingtaxes or even the electric bill requires con-siderable patience and hours of waiting.Corruption flourishes in such an environ-ment. Since Venezuelans have to go towork or to school, they cannot afford towaste time, and most end up bribing thebureaucrat or accepting extortion. Almostevery bureaucratic transaction requiresthat payment be made or expedited.

Infrastructure problems, especiallyregarding roads and electricity, also plaguethe country. The number of major electrici-ty blackouts increased from 49 in 2004 to80 in 2005, and major highways andbridges are in need of substantive repairs.48

In fact, the main bridge on the highwayconnecting Caracas with the internationalairport collapsed in early 2006, and some40,000 cars have to travel on a provisionalroad that seems to have become perma-nent. As another example of inattention tobasic government functions, garbage fre-quently remains uncollected in the citiesand towns of the country.

The crime rate has made Venezuelaone of the most dangerous countries inthe world. A statistical summary fromsources such as Latinobarometro, theInter-American Development Bank,PROVEA (a human rights group based inCaracas), and other organizations shows

17

The crime ratehas madeVenezuela one ofthe most danger-ous countries inthe world.

that, during the period 1998 to 2005,homicides in Venezuela increased by 128percent, violent deaths increased by 74percent, deaths by fire arms increased by36 percent, kidnappings increased by 426percent, and Caracas homicide rates werethe second-highest in South Americaafter Recife, Brazil.49

The Chávez Anti-Corruption Record: BrokenPromises and Failed Policies

Eight years is more than enough time toevaluate Hugo Chávez’s electoral promisesand the effectiveness of his government’santi-corruption policies. This evaluation canbe made by using objective internationalmeasures, such as the Corruption PerceptionIndex produced every year by TransparencyInternational, as well as other indices thatexamine economic freedom and quality ofgovernance, such as the Economic Freedom ofthe World annual report, published by theFraser Institute, and the Human DevelopmentIndex of the United Nations. A more subjec-tive, impressionistic comparison of what thegovernment of Hugo Chávez said it would doand what it has done in the realm of trans-parency and honesty is also worthwhile.

International IndicesThe 2005 Corruption Perception Index, pub-

lished by Transparency International, ranksVenezuela 136th out of 159 nations.50 In2000 Venezuela ranked 73rd out of 90nations. Although in both years Venezuelaranked near the bottom, a meaningful com-parison is not easy to establish because of thedifferent number of countries included inthe rankings. More accurate is the compositescore obtained during these two years, sincethe factors used in making up this score areessentially the same. On a scale of least cor-rupt (10) to most corrupt (1), Venezuela wentfrom 2.7 in 2000 to 2.3 in 2005, a significantdeterioration. In contrast, a country likeneighboring Colombia, in spite of its signifi-

cant political and social problems, went froma score of 3.2 in 2000 to 4.0 in 2005, a signif-icant improvement.

Those scores are based on surveys doneindependently and involve thousands of peo-ple being consulted, both in the countriesbeing ranked and abroad. In the case ofVenezuela and Colombia, the scores wereestablished with the help of 10 and 9 indepen-dent surveys, respectively. It is curious to con-trast Vice President Rangel’s change in attitudefrom when he gave his speech in 1999 with hislater reaction to Transparency International’s2005 ranking. In 1999 he spoke of the enor-mous cost of corruption in Venezuela and ofthe need to mobilize all institutions in the fightagainst it. In 2005 he dismissed the ranking bymaking the unsubstantiated claim thatTransparency International was a discreditedinstitution, alleging incorrectly that it chargeda “tariff” to countries for their position on thecorruption table.51

Venezuela’s ranking in the 2006 EconomicFreedom of the World index is 126 out of agroup of 130 nations, very close to the bot-tom of the ladder, only above the Republic ofCongo, the Democratic Republic of Congo,Myanmar, and Zimbabwe. A comparison ofthe scores through the years is, again, reveal-ing. In 1970 Venezuela had a rating of 7.6 ona scale of 0 to 10. In 2000 the rating was 5.5,and today it is only 4.4. According to theindex, Venezuela is the country that has expe-rienced the largest fall in economic freedomsince 1980.52 The bottom 10 countries in theranking are African, with the exceptions ofVenezuela and Myanmar.

The index helps to illustrate the connec-tion between economic freedom and corrup-tion. Countries with a low level of economicfreedom are characterized by exchange con-trols, a large level of government consump-tion as a percentage of total consumption,investment largely concentrated in stateenterprises, a judicial system not indepen-dent of the government, military influence inthe political process, high and variable infla-tion, restrictions on access to foreign capitalmarkets, price controls, and bureaucratic red

18

Eight years ismore than

enough time toevaluate Hugo

Chávez’s anti-cor-ruption policies.

tape. That perfectly describes Chávez’sVenezuela. This and other studies also showthe strong correlation between corruptionand low levels of economic freedom.

In 1975 Venezuela was ranked 34 in thegroup of UN member countries, with a scoreof 0.716 on the UN’s Human DevelopmentIndex, which measures broad indicators ofhuman well-being. That year Venezuela had ahigher ranking than South Korea, Chile, orMexico. In 2000 Venezuela was ranked 46,with an index of 0.776. In 2005 Venezuela isranked 76 with an index of 0.772, muchlower than South Korea, ranked 28, Chile,ranked 37, and Mexico, ranked 53. Thisshows a clear deterioration when comparedwith other countries’ rankings and whenmeasured by its rating. In particular the fallby 30 places in the ranking in the last sixyears is dramatic. Development in Venezuelahas come to a standstill while other countriesare passing Venezuela by. This is in spite ofthe immense amount of income received bythe country during that period.

A Legacy of CorruptionBroken Promises. Hugo Chávez came to

power promising an all-out fight against cor-ruption. At the time, he may very well havemeant it. Most Venezuelans agreed with theneed for more honesty and transparency ingovernment, and they wanted a clean breakwith the past. They voted for Chávez toinstall an honest democratic government.

But the record shows an enormous gapbetween Chávez’s promises and Venezuelanreality. Today Venezuela is not a democraticcountry. It is aligned with some of the most dic-tatorial regimes on the planet: those ofMugabe, Kim II Sung, Ahmadinejad, Assad,Gahdafi, and Castro and with armed, irregularforces that practice drug trafficking or globalterrorism, such as the Colombian FARC andELN and the Lebanese Hezbollah. Chávez’spromise of an all-out fight against Venezuelancorruption has turned into a fight against theU.S. government. Most of the energy andresources of the Venezuelan government havebeen placed at the service of this objective.

The fight against the United States hashelped to generate large-scale corruption in theChávez government, through the use ofimmense amounts of Venezuelan money tofurther a global anti-U.S. alliance. That money,irregularly taken from its legitimate owners,has been used to buy political loyalty fromother countries in the region. At least fivecountries in the region—Mexico, Peru, Chile,Nicaragua, and Bolivia—have denounced theintervention of Chávez in their internal politi-cal affairs, and three of them (Mexico, Peru,and Chile) have recently demanded thatVenezuela retire its ambassadors, and theBolivian Congress, in October 2006, was dis-cussing the possibility of naming theVenezuelan ambassador persona non grata.

Failed Policies. Chávez’s policies have pro-moted corruption rather than combated it.Although then–foreign minister Rangelacknowledged, in his 1999 speech, the exis-tence of a systemic culture of corruption inthe country, the Chávez government hasdone nothing to change that culture—exceptto make it worse. The concentration of polit-ical power in Chávez’s hands, the rapidturnover of ministers and other high-levelbureaucrats, the absence of debate in theNational Assembly about important nation-al economic and political issues, and the lackof checks and balances in the system havecontributed to a dramatic increase in corrup-tion. Prominent cases of corruption inChávez’s government, such as the onesdescribed in this paper, have not been pun-ished. A few bureaucrats, such as LuisVelásquez Alvaray and Antonio Albarrán,have been dismissed from their posts buthave remained undisturbed.

In his 1999 speech, Rangel also called for atrustworthy judicial system. This has not hap-pened. From the Supreme Tribunal of Justicedownward, the judicial system is rotten. Themembers of the Supreme Tribunal of Justice,dressed in full regalia, stood up at the end of theirinaugural session in January 2006 and sang;“Uuh ah, Chávez no se va” (Chávez is not going).53

Could such a grotesque event ever take place in acountry with independent institutions?

19

Studies show thestrong correla-tion between cor-ruption and lowlevels of econom-ic freedom.

Rangel has also called for the elimination ofconfidentiality in banks, financial corpora-tions, and other state and private organiza-tions. Yet, the Chávez government remains ablack box, much more so than any previousgovernment. Petróleos de Venezuela, the mostimportant state-owned corporation, no longerpublishes annual reports. The management ofnational funds is done in total secrecy andwithout accountability to the people. TheChávez government makes the major deci-sions; when it provides information on thosedecisions, it does so only after the fact.

Rangel mentioned in his 1999 speech that,as a sign of the Chávez government’s determi-nation to combat corruption, a fourth powercalled the Civic Power was being incorporatedinto the new constitution. In practice this hasturned out to be a cruel fraud against the peo-ple. The three members of the Civic Power—thegeneral comptroller, the ombudsman, and theattorney general—have all performed dismally,siding at all times with the government, failingin their duty to control executive abuses ofpower and to punish corruption in govern-ment. As a result, the Civic Power has been com-pletely discredited in the eyes of the people.

Rangel warned in his 1999 speech that themain risk the new government faced wastimidity and delay in the fight against cor-ruption. After eight years it has become evi-dent that timidity and delay reign. However,as long as there is substantial oil income,Chávez will continue his policy of massivehandouts, which tends to mask the presenceand damaging effects of corruption. Many ofthe Venezuelan poor will tend to tolerate cor-ruption as long as they get a piece of the pie.Protests will intensify only when there is notenough money to go around.

Finally, in 1999 then–foreign ministerRangel criticized mere rhetoric and promisedthat the new government would adopt con-crete policies designed to make institutionswork. In fact, the Hugo Chávez governmenthas been dominated by rhetoric. The newpolitical leadership’s attitude toward corrup-tion is even more permissive than that of pre-vious governments.

Conclusion

Corruption has dominated the HugoChávez government as never before inVenezuela’s history. The reasons seem clear.Corruption occurs when there is motive, oppor-tunity, and impunity of action. In the case ofthe government of Hugo Chávez, all three ofthose factors are present to a large degree.

MotiveA common motive for bureaucrats’ engag-

ing in corruption is low income. TheVenezuelan bureaucratic system has tradi-tionally made a point of paying low salaries,basing that practice on pretensions of auster-ity in the management of public funds. Theresult has been negative. Since bureaucratsare poorly paid, many resort to corruption toincrease their income. Low-level bureaucratsresort to asking for payment from the publicto do the most basic tasks. High-level bureau-crats resort to asking for commissions fromprivate contractors in order to assign themwork. When authority is highly concentratedin a few officers or in one person, as is cur-rently the case in the government of Chávez,national assets can be transferred to individ-uals in positions of power without any kindof control. The bureaucrats who came topower with Chávez felt excluded for manyyears from participating in what they felt waspartly theirs. Now that they are the govern-ment, they feel that it’s their turn to prosper.

OpportunityOpportunity for corruption arises when

administrative controls and procedures areabsent, when there are few checks and bal-ances, and when bureaucratic turnover is high,preventing the consolidation of a stable orga-nizational culture with a tradition of efficiencyand honesty. The Chávez government has beenparticularly disorganized. There are few con-trols or checks and balances because of theconcentration of political power at the top.High-level bureaucratic turnover has been veryhigh, with as many as five or more ministers

20

The record showsan enormous gapbetween Chávez’s

promises andVenezuelan

reality.

taking turns at any particular cabinet post. Infact, Venezuelan cabinet changes are so fre-quent that up-to-date lists are difficult tomaintain.54 At more subordinate levels theturnover is also high. When combined with anoverall lack of accountability, that promotesirregular management of public assets.

ImpunityIn addition to motive and opportunity,

impunity is a major contributing factor toboth the incidence and the intensity of cor-ruption. The very high volumes of oil moneybeing received by the Venezuelan govern-ment, together with the lack of controls andthe existence of a bureaucracy ready to obtainits share of the booty, becomes a strongincentive for corruption, especially if punish-ment is absent. The cases described in thispaper illustrate the waste or illegal appropri-ation of billions of dollars, but not one singlecorrupt officer or businessperson has yetgone to prison as a result. A few of those offi-cers who have obviously enriched themselveshave been removed from their posts, but nofurther action has been taken against them.They live rich and unmolested lives. This isexactly the opposite of what the nation waspromised by candidate Chávez.

Meaningfully reducing corruption inVenezuela would require eliminating motivesand opportunity for corruption and punish-ing those responsible. After eight years ofHugo Chávez, it’s entirely clear that the bat-tle against corruption in Venezuela cannotbegin until Chávez has gone.

Notes1. Gustavo Coronel, Venezuela: La Agonía del Subdesar-rollo (Caracas: Editorial Melvin, 1990), p. 136.

2. Ibid., pp. 138, 139.

3. Ruth Capriles, “Diccionario de la Corrupción enVenezuela,” 1984–1992 Ediciones Capriles (Caracas:Consorcio de Ediciones Capriles, December 3, 2002).

4. Coronel, Venezuela, p. 143.

5. Quoted in a speech given by José Vicente Rangel for

the 15th anniversary of Centro de Divulgación delConocimiento Económico, Caracas, November 1999.This speech can be found on the website of the ATLASEconomic Research Foundation, http://www.atlasusa.org?vz/files/pdfs/1999_H_Winter.pdf#search=%22CEDICE%20on%20Corruption%2c% 201999%22

6. Equipo Acuerdo Social 2006, Venezuela: Unacuerdo para el desarrollo (Caracas: PublicacionesUniversidad Católica Andrés Bello, 2006), p. 29.

7. The transcript of the inaugural presidentialspeech can be found in Hugo Chávez, “Discursode la toma de posesión del Teniente CoronelHugo Chávez Frías,” URRU, February 2, 1999,http://www.urru.org/papers/1999_varios/1999_DiscursoTomaPosesionHCh.htm.

8. Letter from Hugo Chávez to the SupremeCourt of Justice. This letter can be found in HugoChávez, “Carta del Teniente Coronel Hugo Cháveza la Corte Suprema de Justicia,” URRU, March 12,1999, http://www.urru.org/papers/1999_varios/199904_cartaHcalTSJ.htm.

9. Jorge Olavarría, speech before the NationalCongress, July 5, 1999. That speech, which was astrong indictment of Hugo Chávez’s violations ofthe constitution, can be found in Jorge Olavarría,“Discurso de orden en el Congreso Nacional, el 5de julio de 1999,” Analitica Consulting, July 5, 1999,http://www.analitica.com/bitblioteca/jolavarria/5julio1999.asp.

10. Rangel, speech in Caracas, November 1999.

11. See BBO Servicios Financieros, “bbo WeeklyReport,” BBO, March 3, 2006, http://www.bbo.com.ve.

12. Interview by Blanca Vera with economistsAsdrubal Ontiveros and José Guerra, El Nacional,July 6, 2006. See also “Las Fugas del Gobierno,”VenEconomía, July 7, 2006, www.veneconomia.com.

13. Johan Freitas, “Gold Reserves Looted fromVenezuela’s Central Bank,” Militares Democraticos,December 28, 2002, http://www. militaresdemocraticos.com/articulos/en/20021228-06.html.

14. Andy Webb-Vidal, “Chávez Set to Seize $5Billion of Central Bank Reserves,” Financial Times,July 28, 2006.

15. Manuel Suárez-Mier, “President ChavezCreates a New Government-Owned Bank,”Americas Data and Policy Commentary, Bank ofAmerica Notes, August 12, 2005.

16. BBO Servicios Financieros, “bbo WeeklyReport,” BBO, May 2006.

21

17. Oscar García Mendoza, “Según Oscar GarcíaMendoza retiro del gobierno de 6 mil millones de bolí-vares dejó en completa indefensión al BCV,”Globovision, September 2, 2005, www.globovision.com/news.php?nid=36695.

18. Andy Webb-Vidal, “Venezuelan Banks EnjoyTreasuries Windfall,” Financial Times, January 31, 2006.

19. Juan Carlos Zapata, “Los colores del nuevo poder,”Guiadenoticias, June 22, 2006, http://www.guiadenoticias.com.ve/scan0606/desc0622_ rx.php.

20. Carlos Ball, “Social Entrepreneurship,” DailyJournal, February 8, 2006.

21. Interview with former Venezuelan minister offinance José Alejandro Rojas, reprinted in Juan CarlosZapata, “Peligro para los bancos Venezolanos,”Guiadenoticias, March 9, 2006, www.noticierodigital.com/imatges200603/ 0309_jcz.php.

22. Documents on the presidential referendum of2004 with details of the irregularities of that eventcan be found in Tulio Alberto Alvarez,“Ciudadanos: Magistrados de la sala plena del tri-bunal supremo de justicia.—su despacho,” URRU,www.urru.org/papers/TulioAlvarez_BBVA.htm.

23. A website specializing in petroleum issues canbe found in Gustavo Coronel, “ChavorragiaFinanciera,” Petroleum World, January 27, 2006,www.petroleumworld.com/Edito012706.htm.

24. A report by Transparency International,Venezuelan chapter can be found in Silvia Salvato,“Contrataciones Publicas,” Transparency Internation-al, March 2006, www.transparencia.org.ve/admin/multimedia/imagenes/ 200608 10103321.pdf.

25. “Son 800 empresas que tienen adjudicacióndirecta,” Notitarde, July 4, 2006.

26. Agustín Beroes, “La corrupción en tiempos deChávez,” 2002, http://es.geocities.com/malversa-cion/index.htm.

27. Gustavo Coronel, “The Case of the VenezuelanAirbus: A Planeload of Corruption,” VenezuelaTODAY.net, December 28, 2003, http://venezuelatoday.net/Gustavo-Coronel/Venezuela+airbusA319CJ+Hugo-Chávez+avion.html.

28. Alex Holland, “Venezuelan Military OfficersCharged with Corruption,” VenezuelAnalysis. com,February 16, 2006, www.venezuelanalysis.com/news.php?newsno=1897. This website is the mostactive pro-Chávez site in English.

29. Ralph Galliano, “Agro-Industrial SugarComplex: Cuba-Venezuela Joint Venture,” U.S.

Cuba Policy Report 13 (February 28, 2006).

30. Velásquez Alvaray, quoted in Hernán Lugoand Vanesa Gómez, “Velásquez Alvaray: 15 JuecesIntegran la Banda de Los Enanos,” El Nacional,May 26, 2006.

31. See Leonardo Montiel Ortega, El Convenio PetroleroCubano Venezolano (Caracas: 2001) which describes indetail the characteristics of the agreement.

32. Gustavo Adolfo Fabregat, “Red Flags onVenezuela’s Electoral Roll,” vcrisis.com, April 25,2006, http://www.vcrisis.com/?content=letters/200604251640.

33. Richard Brand, ““Forget Dubai—Worry aboutSmartmatic Instead,” Miami Herald, March 27, 2006.

34. Casto Ocando, “Asocian a Chávez conFabricante de Maquina de Votar Usada enEE.UU,” El Nuevo Herald, May 14, 2006.

35. This detailed analysis of the alleged fraud com-mitted by the government of Hugo Chávez duringthe presidential referendum can be found in TulioAlvarez, “Fraude a la democracia,” URRU, October15, 2004, www.urru.org/papers/Rrfraude/fraudealademocra cia_final.doc.

36. Gustavo Coronel, “Fernando Vegas Torrealba: AVenezuelan Magistrate on a U.S. Tour,” venezuelaTODAY.net, April 17, 2006, http://venezuelatoday.net/gustavo-coronel/magistrate_ ontour.html.

37. For an example of the new class of PDVSA’sbrokers, see “Irrevocable Master Fee Protection,”URRU, 2005, www.urru.org/papers/2005_varios/documento_uno.pdf.

38. Steven Dudley, “Surge una nueva clase dericos en Venezuela,” El Nuevo Herald, July 17, 2006.See also Simon Romero, “Venezuela’s Cup RunsOver and the Scotch Whiskey Flows,” New YorkTimes, August 20, 2006.

39. See Kenneth Rijock, “PEPwatch Venezuela: Bewareof Government-Controlled Private Corporations (Part1 and Part 3),” vcrisis.com, February 2 and 3, 2006,http://www.vcrisis.com/?content=letters/200602031112 and www.vcrisis.com/?content=letters/200602031132 .

40. See Patricia Poleo, “Chacon Undulac,” URRU,August 5, 2005, www.urru.org/papers/2005_varios/20050805_Chacon_Indulac.pdf.

41. Juan Carlos Zapata, “Los colores del nuevopoder,” Guiadenoticias, June 22, 2006, http://www.guiadenoticias.com.ve/scan0606/desc0622_rx.php.

22

42. “The Sickly Stench of Corruption,” The Economist,April 1, 2006, p. 31.

43. Kenneth Rijock, “Hugo Chávez Moves Venezuela’sWealth Offshore,” vcrisis.com, January 21, 2006, www.vcrisis.com/letters/200602211019.

44. Miguel Octavio, “How the Revolution Throws theMoney Around: The $18 Million Retainer,” Devil’sExcrement, May 7, 2006, http://blogs.salon.com/0001330/2006/05/07.html.

45. A story on the 2006 International NarcoticsControl Strategy Report can be found in “ElUniversal,” Caracas Daily, March 2, 2006.

46. Andy Webb-Vidal, “South American CocaineTrafficking Shifts Operations towards Venezuela,”Jane’s Intelligence Review, May 2006, www.dere-choshu manos.gov.co/shared/venezueladrugs.pdf.

47. “Al Este cueste lo que cueste,” Exceso, June 2006.http://www.exceso.net/.

48. Brian Ellsworth, “A Closed Bridge MirrorsVenezuela’s Many Woes,” New York Times, January

22, 2006.

49. A special report of PROVEO can be found inEnglish and in Spanish in Alek Boyd, “VenezuelaOvertook Colombia in Homicide Numbers,” vcri-sis.com, June 9, 2006, http://www.vcrisis.com/index.php?content=pr/200609050651.

50. “The Corruption Perception Index,” TransparencyInternational, 2005, http://ww1.transparency.org/cpi/2005/cpi2005.sources.en.html.

51. “The Sickly Stench of Corruption; Venezuela—ACampaign against Sleaze Raises More QuestionsThan Answers,” The Economist, March 30, 2006.

52. James D. Gwartney and Robert Lawson,Economic Freedom of the World: 2006 Annual Report(Vancouver: Fraser Institute, 2006), p. 3.

53. See Caracas Chronicles.com, Jauary 28, 2006,http://caracaschronicles.blogspot.com/archives/2006_01_22_caracaschronicles_archive.html.

54. “The Cabinet of Hugo Chávez,” Answers.com,http://www.answers.com/topic/cabinet-of-hugo-ch-vez.

23

ANNE APPLEBAUMWASHINGTON POST

GURCHARAN DAS FORMER CEO, PROCTER

& GAMBLE, INDIA

ARNOLD HARBERGERUNIVERSITY OF CALIFORNIA

AT LOS ANGELES

FRED HUGOLDMAN SACHS, ASIA

PEDRO-PABLOKUCZYNSKIFORMER PRIME MINISTER

OF PERU

DEEPAK LALUNIVERSITY OF CALIFORNIA

AT LOS ANGELES

JOSÉ PIÑERAFORMER MINISTER OF LABOR AND

SOCIAL SECURITY, CHILE

T he Center for Global Liberty and Prosperity was established to promotea better understanding around the world of the benefits of market-lib-eral solutions to some of the most pressing problems faced by develop-

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Avenue, N.W., Washington, DC, 20001, (202) 842-0200, fax (202) 842-3490, www.cato.org.

“The Rise of Populist Parties in Central Europe: Big Government, Corruption, and the Threat toLiberalism” by Marian L. Tupy, Cato Institute Development Policy Analysis no. 1 (November 8, 2006)

“Foreign Aid and the Weakening of Democratic Accountability in Uganda” by Andrew Mwenda,Foreign Policy Briefing no. 88 (July 12, 2006)

“Private Education Is Good for the Poor: A Study of Private Schools Serving the Poor in Low-Income Countries” by James Tooley and Pauline Dixon, White Paper (December 7, 2005)

“Trade Liberalization and Poverty Reduction in Sub-Saharan Africa” by Marian L. Tupy, PolicyAnalysis no. 557 (December 6, 2005)

“The Triumph of India’s Market Reforms: The Record of the 1980s and 1990s” by ArvindPanagariya, Policy Analysis no. 554 (November 7, 2005)

“Underdevelopment in Sub-Saharan Africa: The Role of the Private Sector and Political Elites” by Moeletsi Mbeki, Foreign Policy Briefing no. 85 (April 15, 2005)

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