Corruption in Venezuela Hits Record Levels Under Hugo Chávez

Lack of transparency and accountability encourages impunity

November 27, 2006

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WASHINGTON – Higher oil revenues have enabled mismanagement and abuse of power in Venezuela, leading to record levels of corruption, argues a new policy analysis by the Cato Institute. In the study released today, “Corruption, Mismanagement, and Abuse of Power in Hugo Chávez’s Venezuela,” author Gustavo Coronel, member of the first Board of Directors of Petróleos de Venezuela from 1976 to 1979 and Venezuelan representative to Transparency International from 1996 to 2000, details how the Chávez regime is squandering the country’s wealth through rampant official and personal corruption.

Dubbing Chávez’s government “hypercorrupt,” Coronel identifies four main reasons for the nation’s rapid decline to the bottom of global corruption and economic freedom indices. Misused oil income, mediocre management, Chávez’s determination to play a “messianic” role in world affairs, and political populism designed to garner the affection of the people rather than promote the creation of new wealth have also contributed to the rise of graft. 

Coronel classifies Venezuelan corruption into three categories — grand corruption, bureaucratic corruption, and systemic corruption — and details disturbing examples of graft, incompetence, and flagrant disregard for both the rule of law and the welfare of Venezuelans. For example, the operations of at least two state-run financial institutions are completely opaque and the institutions spend funds at the discretion of Chávez alone. The management of national funds is done in secrecy and without accountability to the people.

Venezuela has received up to $225 billion from oil and new debt. Using Venezuela’s oil reserves as a tool of public diplomacy, Chávez has repeatedly signed agreements with neighboring countries to buy loyalty — one example being the oil supply agreement with Cuba. Currently, Venezuela supplies Cuba with 90,000 barrels of oil per day. Says Coronel: “In total, therefore, Venezuela is giving Cuba a subsidy on the order of $2.2 billion to $2.3 billion per year.”

From suspect voter rolls (Venezuela has 17,000 voters born in the 19th century, with one person 175 years old and still working) to state-owned corporations, all levels of society have been affected. Failed social programs, faulty infrastructure, and a judicial system in the pocket of the executive have created an authoritarian system.

Unfortunately, prospects for reform seem bleak. Prominent cases of corruption have not been punished. Coronel concludes: “Meaningfully reducing corruption in Venezuela would require eliminating motives and opportunities for corruption and punishing those responsible. After eight years of Hugo Chávez, it’s entirely clear that the battle against corruption in Venezuela cannot begin until Chávez has gone.”

Development Policy Analysis # 2