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november 27, 2006 ● no.

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 19thand

20th centuries, the level of corruption fluctuated,
depending on the government in power. During the govern-
that spend funds at the discretion of the executive.
Corruption now permeates all levels of Venezuelan society.
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).

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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,
penalty for corruption in the first Venezuelan Marcos Pérez Jiménez, established a military
terized by the 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

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)
debt to the international banks. doing anti-corruption work, estimated that
stayed high.
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. poverty. His adversary, Salas Romer, attacked
• Populist political leaders willing to the call for a new constitution as populist. In
promote a welfare state in order to con- spite of his excellent performance as gover-

nor of the state of Carabobo, Salas Romer Conocimiento Económico (CEDICE), a
was perceived as a conventional political Caracas think tank, during a seminar on
reformer, while Chávez came across as a “Economy and Corruption,” held in
spokesman for the poor, oppressed majori- Caracas.10 In that speech Rangel put forward
ties. There is little doubt that, in a country what was taken to be the official position of
with 60 percent poverty and 30 percent the new government on corruption, which
extreme poverty at the moment of the elec- can be summarized as follows:
tions, Chávez’s promises to eliminate govern-
ment corruption and fight poverty were deci- 1. We recognize the existence of a sys-
sive factors in his victory.6 temic culture of corruption in
Chávez had promised to focus on the Venezuela.
political issues before tackling the social and 2. The citizens have come to identify it
economic issues. In his inaugural speech,7 whenever they see that hospitals lack
Chávez called for a “political revolution” and essential equipment or drugs because
started a process that would lead, during of the theft of the funds that should
1999, to the progressive elimination of most have been dedicated to the acquisi-
existing political institutions, including tion of those supplies.
Congress, the Supreme Court of Justice, and 3. From now on ethics will play a promi-
the Electoral Council. In late 1999 those nent role in the life of our society.
institutions were dissolved and replaced with 4. Corruption appears equally under
new ones staffed by Chávez’s followers. In a authoritarian and democratic gov-
letter to the Supreme Court of Justice in ernments and is more perverse in a
April 1999, Chávez had threatened the jus- democracy, since it requires the com-
tices with retaliation by the populace if they plicity of many.
did not rule in line with his wishes.8 He 5. Corruption has had an enormous cost
added in this letter that “only the president in Venezuela. It works fundamentally
has exclusive authority on the management through the contracting of public
of state affairs,” thus appearing to place him- works. Venezuelans have sent more
self above the law. Also during that year he than $100 billion abroad. The cost of
started violating the existing constitution. In corruption during the last 20 years,
July 1999 he promoted 33 army officers over according the NGO Pro Calidad De
the decision of the Senate, which had the Vida, is on the order of $100 billion.
authority to authorize the promotions, The spiritual and social costs of cor-
according to article 150 of the constitution. ruption have been even greater.
That violation was openly denounced by 6. February 4, 1992 (the date of
Congressman Jorge Olavarría in a speech Chávez’s attempted coup) has an
As the given before the president, his cabinet, and essentially ethical meaning. The coup
Venezuelan state the diplomatic corps on Independence Day.9 was an expression of popular protest
has swept up In his speech Olavarría called for Chávez’s against Venezuelan corruption.
impeachment, but, predictably, no action 7. To fight corruption we must fight
more and more was taken. against confidentiality and lack of
resources, its information from banks, financial
management of corporations, and the judicial system.
The New Government 8. The fight against corruption should
those resources Speaks Out on Corruption involve all of society and all citizens; the
has become organizations of the state; academic
In November 1999 the new minister of institutions; the media; religious institu-
less and less foreign affairs, José Vicente Rangel, gave a tions; and political, business, and labor
transparent. speech at the Centro de Divulgación del associations, in order to reverse the

effects of corruption and allow for the billion. The wide range of the estimates is due The elimination
rebirth of our moral and ethical values. to the lack of reliable information on of corruption in
9. We are on the threshold of change, Venezuelan oil production and income since
and one of the main objectives of this 2001. Petróleos de Venezuela, the government- government was
new government is to eliminate cor- owned oil corporation, ceased publishing its one of the three
ruption. This is the only way to rein- consolidated annual financial statements in
state democracy in our country. The 2003 and sent a last filing to the U.S. Securities
main electoral
main risk this government faces is and Exchange Commission in 2005—two promises made
not conducting this fight with audac- years late, since the figures corresponded to by Hugo Chávez.
ity and decision, since old corruption 2003. During Chávez’s tenure, Venezuela’s
tends to be immediately replaced national debt, both domestic and foreign, has
with new corruption. gone from $21 billion in 1998 to some $41 bil-
10. If we want to be a lawful state, we lion in 2005. In addition, the government has
need a judicial system we can trust. announced during 2006 a new issue of bonds
Without trustworthy justice, there is for up to $4 billion.11
no possibility of waging an efficient From oil and new indebtness, therefore,
fight against corruption. the Chávez government has received, up to
11. As a sign of our determination to com- the third quarter of 2006, between $175 bil-
bat corruption, we have incorporated lion and $225 billion. That figure does not
in our project of a new constitution a include all other sources of revenue, such as
body known as the Civic Power, made income taxes. The approved national budget
up of the comptroller, the attorney for 2006 amounts to $40.1 billion, with 47
general, and the ombudsman, with percent of the revenue coming from oil sales
full authority to investigate and con- and the rest from income tax and other
trol the functioning of the state and sources (including new debt and an extraor-
the use of public assets. dinary windfall of some $5 billion due to the
12. We will not be dealing in empty seizure of foreign reserves from the
rhetoric any longer but in concrete Venezuelan Central Bank).
ways to make institutions work. As the Venezuelan state has swept up
more and more resources, its management of
Almost eight years have passed since José those resources has become less and less
Vicente Rangel, still the second most influen- transparent. Both Petróleos de Venezuela
tial person in the government of Hugo and the Venezuelan Central Bank have had
Chávez, made that speech. That has given us to transfer significant amounts of money
more than enough time to evaluate the directly to FONDEN, a “development fund”
Chávez regime’s performance in relation to created in 2005 by presidential decree, and to
one of its primary objectives, that of elimi- BANDES, a development bank created in
nating corruption. 2001, both of which are accountable only to
Chávez. In parallel with this irregular man-
agement of public funds, the Chávez govern-
Financial Performance of ment dismantled the Macro Stabilization
Hugo Chávez’s Government: Economic Fund, created by the Venezuelan
government in 1998 to serve as a cushion to
An Overview protect the stability of Venezuelan public
In the eight years since Hugo Chávez came finances in times of low oil prices. In addi-
to power, an estimated $130 billion of net oil tion, during 2001–05 the Chávez govern-
income (after costs of oil production are ment withdrew the fund’s assets, in excess of
deducted) has entered the national treasury, $3 billion, for ordinary spending. Some of
although the figure could be as high as $180 the main irregularities in the management of

public funds by the Chávez government are normal budgetary channels. The lack of
discussed next. financial controls and the diversion of inter-
national monetary reserves for ordinary pub-
Dollar Transfers Abroad Made by the lic spending have spurred inflation and erod-
Government ed the confidence of international investors
According to the Venezuelan Central Bank, in the financial stability of the country.
about $22.5 billion has been transferred to
accounts abroad by the Chávez government The Creation of a Development Bank, a
since 2004. About $12 billion of that amount Treasury Bank, and a Development Fund
remains unaccounted for.12 Financial analyst That Operate without Transparency or
and former Venezuelan Central Bank officer Undermine the Central Bank’s
José Guerra, interviewed for this report, stated Independence
that some of that money has been used by the In 2001, by executive decree, the government
Chávez government “to buy political loyalties created BANDES, a development bank annexed
in the region in order to consolidate his politi- to the Ministry of Finance, and in 2005 the
cal project and some has been donated to Cuba Chávez-controlled National Assembly created a
and Bolivia, among other countries.” He added development fund, FONDEN, to spend “excess”
Oil income that a more detailed analysis, if made, might international reserves. Both institutions are
should have been indicate that the amounts transferred abroad under the complete control of the Chávez gov-
a blessing, but it are far greater, since accounts receivable from ernment without any independent oversight or
oil sales to politically friendly countries also checks whatsoever. The fund was to have up to $6
became a curse. remain unaccounted for. billion, to be used at the discretion of the execu-
tive. However, by mid-2005 the fund already had
Gold Reserves Likely Removed from the $7.5 billion coming from unspecified sources,
Venezuelan Central Bank probably Petróleos de Venezuela and the
Reports by the group Militares Democráticos, Venezuelan Central Bank, the only institutions
a group of former or retired army officers that that could have such a significant amount of
generally opposes the government of Hugo money in their systems. The money, according to
Chávez, claim that the government of Hugo Finance Minister Nelson Merentes, would be
Chávez ordered the transport of a substantial used for “infrastructure” and social projects. The
amount of the country’s gold reserves from the truth is that the money in this fund has become a
Central Bank to Fuerte Tiuna,13 the military gar- parallel budget and is being used without any
rison that has become Chávez’s stronghold. One transparency or need for legislative approval. This
report quotes Gen. Jorge Luis García Carneiro as is a situation that leads, almost inevitably, to
alleging that the gold was transferred “under the large-scale corruption. The Ministry of Finance
direct orders of Hugo Chávez.” If confirmed, this targeted the fund to accumulate as much as $17
would raise questions about transparency. billion by the end of 2006.
In addition, a new Banco del Tesoro
The Seizure of $5 Billion in International (Treasury Bank) was created in 2005 to collect
Monetary Reserves some of the taxes and customs duties that
In June 2005 the Chávez-controlled would normally have gone into the Central
National Assembly changed the law regulat- Bank or the national treasury, or both. The
ing the Central Bank of Venezuela so that the decision to create this bank, reports Manuel
Chávez government could seize what it Suárez-Mier, in a note from the Bank of
defined as “excess reserves.”14 Under the pro- America, dated August 12, 2005, “virtually
visions of this arbitrary change in the law, guarantees that any resemblance of an inde-
about $5 billion was transferred from the pendent central bank in Venezuela will vanish
Venezuelan Central Bank to the executive, to and represents the additional erosion of the
be used for government programs outside country’s institutional landscape.”15

Losses and Bankruptcy at the Venezuelan Cato Institute adjunct scholar and journalist
Central Bank. Carlos Ball estimated that the favorite banks of
BBO Weekly financial news editor Miguel the government could make up to $607 million
Octavio estimates that the total losses of the in profits if they bought the $2.4 billion in
Venezuelan Central Bank for 2006 alone are Argentinean bonds from the Venezuelan gov-
nearly $2 billion, the result of financing credit ernment and resold them, because of the differ-
operations to reduce monetary liquidity. This ence between the official exchange rate and the
liquidity, claims Octavio, was created “on the free market rate of the bolivar.
basis of reserves which are no longer in the
hands of the Central Bank. Thus, the Bank Where Is This Performance Leading the
does not receive sufficient cash flow from its Venezuelan Financial Sector?
investments to pay for all the interest due on These and other irregularities in the man-
these instruments.”16 Caracas banker Oscar agement of public finances by the Chávez gov-
García Mendoza has denounced the withdraw- ernment have led José Alejandro Rojas, minis-
al of 6 billion bolivars by the government from ter of finance during the first years of the
the Venezuelan Central Bank, alleging that Chávez presidency, to make very grave predic-
that action has put the bank in technical bank- tions about the immediate future of the
ruptcy. The government has not replaced that Venezuelan economy. According to Rojas:
withdrawal, and it is unlikely to do so in the “The financial crisis might not come due to a
future. García Mendoza has filed suit against drought but to an excess of liquidity. It would
the government in the Supreme Tribunal of seem that the way [for the Venezuelan govern-
Justice demanding that the central govern- ment] to go from a market economy to a cen-
ment compensate the bank for the withdrawal. tralized economy is through the destruction
But he fears that the government will solve this of the existing financial system.” Rojas adds:
situation by conducting a major devaluation “The monetary policy [of Chávez] is one of
of the bolivar. If so, he says, “This would be rob- progressive controls: exchange controls, total
bery . . . to devalue is to steal.”17 control over the use of public funds, parallel
budgets and an increasing state control of the
Favorable Deals for Friendly Banks in the economy, all of which is creating an exaggerat-
Acquisition of Latin American Bonds ed increase of liquidity. As liquidity increases
According to the Financial Times, a select without a real growth of the economy, the cur-
group of Venezuelan private banks is profiting rency becomes progressively devalued. The
from the acquisition of Argentinean bonds by loss of autonomy of the Venezuelan Central
the Venezuelan government, at the expense of Bank and the disorder in the management of
the national treasury.18 The Financial Times the financial resources on the part of the gov-
spoke to U.S. financial analysts who said that ernment are leading to a significant financial
“although the benefits for Argentina [the seller] crisis that could eliminate private banking and
Generation of
are clear, they are less so for the Venezuelan gov- justify state intervention.”21 wealth by the
ernment, since the profits are not being accu- many, the main
mulated by the government but by a few private
banks.” According to reports, the two banks at Corruption Flourishes in characteristic of
issue are the Banco Occidental de Descuento the Revolution developed soci-
and the Fondo Común owned by Victor Vargas
and Victor Gil, members of the new wealthy The elimination of corruption in govern-
eties, took a back
class emerging under the umbrella of the revo- ment was one of the three main electoral seat to the distri-
lution.19 Neither responded to requests by the promises made by Hugo Chávez and probably bution of oil
Financial Times for comment. In reselling $100 the one that was most decisive in his victory.
million worth of bonds, the banks would prof- The two-party system that had held power in wealth by the
it by up to $17 million. In the Daily Journal,20 the country for four decades had allowed cor- government.

Wealth redistri- ruption to become systemic and “democratic,” accepted by the country. The resulting back-
bution has been in the sense that large sectors of the population lash opened the way for Chávez’s attempted
were engaged in it. In interacting with the gov- coup and, later, for his electoral victory.
a constant of the ernment bureaucracy there was little that an Chávez has chosen to take the path of least
Chávez presiden- average Venezuelan citizen could do without resistance. He saw what had happened to
having to bribe someone. Intolerable delays President Pérez and his attempts to reform. He
cy, as has a total took place if there was no bribe. Corruption was not prepared to follow that route for two
neglect of the had become a way of life in Venezuelan society. reasons: one, because he knew it would not be
creation of new Abundant oil income and democracy, two fac- popular and, two, because he did not believe it
tors that should be positive, had combined to was the correct path. In 1992 Chávez had
wealth. produce a highly damaging mixture, destroy- rebelled violently against Pérez’s attempts to
ing the work ethic of a great portion of the introduce austerity measures. Therefore, he
Venezuelan population. brought to his presidency ideas shared by mil-
Oil income should have been a blessing, lions of Venezuelans, who strongly believe that
but it became a curse, given how rapidly it Venezuela is a very rich country and that pover-
surged from the 1970s on. Democracy ty exists only because oil wealth has remained
should have led to progress but not in the in the hands of the few. If only the oil wealth
populist, paternalistic manner fostered by were better distributed, Chávez felt, Venezuela
Venezuelan political leaders during the last would experience a true revolution.
40 years of the 20th century. The combina- Wealth redistribution has been a constant
tion of abundant oil rent and populism led of the Chávez presidency, as has a total
to increasing dependence of citizens on the neglect of the creation of new wealth. Chávez
welfare state. Generation of wealth by the has been taking away from the haves, the rich
many, the main characteristic of developed and the middle class, in order to give hand-
societies, took a back seat to the distribution outs to the have-nots. That has led to the pro-
of oil wealth by the government, with the sec- gressive impoverishment of the average
tors of society friendliest to government get- Venezuelan, even as it has increased the level
ting the largest segments of the oil pie. of corruption in Venezuelan society.
At first, the oil wealth was so large in com-
parison with the relatively small population Defining Government Corruption
that, for many years, government had In its broadest sense, government corrup-
enough money to keep most Venezuelans tion can be defined as the violation of the
happy. As time went by and population public interest for personal or partisan gain.
increased without a corresponding increase That broad definition clearly goes beyond
in oil income, popular dissatisfaction started simple graft and the stealing of public funds.
to intensify. With less pie to go around, more It involves the use and abuse of political
and more of the population was excluded power to consolidate that power in order to
from the distribution of the oil wealth. By the obtain higher status and material wealth. It
1990s governments realized that a change in also includes actions that erode the ethical
social values and attitudes had to take place standards of the society being governed, even
in the country and that oil income alone if no material loss takes place.
would not be enough to drive the country Under that definition, the eight-year period
forward. By his second term (1989–93), of Chávez’s government has been hypercor-
President Pérez clearly understood this, but rupt, surpassing all preceding governments in
when he tried to introduce limited economic both incidence and intensity of corruption.
reforms leading to less government paternal- The main causes of this hypercorruption are
ism, he ran into a violent popular reaction. (a) the record oil income obtained by Chávez’s
Withdrawal symptoms from government government during his eight years in power; (b)
dependence proved to be too strong to be the very mediocre management team that

Chávez has put together; (c) the ideological • Violations of the Constitution of 1961
predilections of Chávez, which have led him to in order to convene a Constituent
neglect his duties as president of all Assembly with supraconstitutional
Venezuelans to try to play a messianic role in powers. This resulted in the dissolution of
world affairs; and (d) Chávez’s belief that the the democratically elected National
path to follow in Venezuela was that of oil Congress and of other democratic institu-
income distribution in the form of direct tions. Although elected in democratic elec-
handouts, rather than a more long-term policy tions in 1999, Chávez went on to disman-
of structural solutions to reduce Venezuelan tle the main democratic institutions in the
poverty and improve health and education. country, with the complicity of the majori-
ty of the members of the existing Supreme
Typology of Government Corruption Court of Justice. A Constituent Assembly,
under Chávez stacked with his followers and given supra-
For the purposes of this discussion, it is constitutional powers, unconstitutionally
useful to classify corruption in the Chávez dissolved Congress and most other exist-
government under three main categories: ing democratic institutions during 1999
grand corruption, bureaucratic corruption, and replaced them with institutions
and systemic corruption. staffed by people loyal to Chávez. This was
Grand Corruption. This category covers cor- a clear case of political corruption and a corruption has
ruption derived from major policy decisions progressive coup d’état that ended with all exploded during
by the highest decisionmaking levels of gov- Venezuelan political institutions under the
ernment, in this case the president, and control of the government and eliminated the Chávez
includes the following: effective checks and balances. From that government.
moment on, for all practical purposes,
• Chávez’s acceptance of foreign con- Venezuela ceased to be a democracy.
tributions for his presidential cam- • Expenditures of up to $17 billion in
paign and during his presidency. the last four years, mostly to buy
During 1998 and 1999 at least one for- weapons and political loyalties
eign bank, Spain’s BBVA, allegedly con- around the world. During the last
tributed substantial amounts of four years Hugo Chávez has been on a
money to Chávez’s presidential cam- $4 billion shopping spree for weapons
paign and, later, to his presidency. The in Russia, Spain, and other countries
former president of the bank, Emilio and has been promising or actually dis-
Ibarra, admitted authorizing two bursing significant amounts of money
deposits, one for $525,000 in 1998, to Latin American and Caribbean
made to the Curacao-based Maduro countries in exchange for promises of
and Curiel’s Bank NV, for a company political loyalty and support for
called Concertina NV (a company set Chávez’s objective of obtaining a seat
up by Luis Miquilena, Chávez’s cam- on the Security Council of the United
paign manager) and the other for Nations. On January 27, 2006, I pub-
$1,000,000 made after Chávez had lished an estimate of these expendi-
been elected, for the purpose of financ- tures, based on data from the Center of
ing Chávez’s followers’ campaigns for Economic Research in Caracas,
the Constituent Assembly.22 Partly amounting to $17 billion,23 directly
because of these alleged violations, controlled by Chávez. The spending
Ibarra was to be tried in Spain at the has included plans to build refineries
start of 2006, with the prosecution in several Latin American countries
seeking a two-year prison term. The and donations to politically friendly
current status of the case is unknown. governments, such as the $30 million

Chávez gave Bolivian president-elect percent of all known public contracts are
Evo Morales on the occasion of his awarded without bidding.24
January 2006 visit to Caracas. This In the state of Carabobo alone, current
huge disbursement was made without governor Luis Acosta Carlez has openly
consulting the people of Venezuela. admitted to 800 cases of no-bid contracts,
involving tens of millions of dollars.25 The
Bureaucratic Corruption. This category governor declared, in every case, emergency
includes violations of laws, norms, and regu- conditions of questionable validity or that
lations by government employees or non- were not defined as such by the proper
government accomplices. This type of cor- authorities, as stipulated by law.
ruption can involve extortion, bribery, the What is happening in the state of
stealing of public funds, abuse of political Carabobo is also happening all over the
power, nepotism, and many other varieties of country and in all sectors of the govern-
illegal or unethical use of public assets for ment. The complete disregard for proper
private gain. Given the enormous amount of administrative procedures is due to two
oil income during the last eight years and the main factors: indifference toward, or igno-
almost total absence of proper government rance of, the law on the part of bureau-
controls, bureaucratic corruption has crats and the knowledge that they will not
exploded during the Chávez government. be punished. Although it is impossible to
Some of the most remarkable manifestations quantify the financial damage to the
are described below. nation attributable to these disorderly
procedures, there is no doubt that the
• Government contracting is mostly level of corruption associated with this
being done directly, without following approach to contracting is extremely high.
existing bidding regulations. The law • The social programs run by the mili-
that regulates the acquisition of goods tary in 2000–02. Soon after he came to
and services by the Venezuelan govern- power, Chávez established a program called
ment says that all contracting should fol- Bolívar 2000, run by the armed forces,
low proper bidding procedures, except in designed to do social work. Conceptually it
cases of national emergency, which can was sound. It had to do with the fact that
be declared only by the Executive Cabinet Venezuela had a large—and largely idle—
or by the General Comptroller’s Office. military force, seemingly active only during
Faulty bidding procedures and the lack the military parades of the July 5 and 24
of any bidding at all have been identified every year. Why shouldn’t the military be
by Transparency International as the put to work on social programs to improve
main causes of corruption in Third the social situation of the Venezuelan poor?
World countries. Multilateral organiza- To most Venezuelans that sounded like a
tions such as the World Bank and the good idea.
Inter-American Development Bank have According to journalist Agustín Beroes,
established stringent procedures to guar- however, the execution of the program was
antee that all projects in which they par- not good.26 The Bolivar 2000 program was
Venezuela is giv- ticipate as lenders are conducted accord- run by Army Commander Victor Cruz
ing Cuba a sub- ing to proper bidding procedures. Weffer and was assigned about $300 mil-
However, the Venezuelan government, lion. After only one year, the program was
sidy on the order especially during the last three to four terminated because of uncontrollable
of $2.2 billion to years, has practically done away with bid- waste and corruption in which an estimat-
ding in public-sector contracting. ed $150 million went unaccounted for.
$2.3 billion According to the Venezuelan chapter of The most frequent mechanisms of corrup-
per year. Transparency International, today 95 tion operating in this program included

false invoicing and the signing of contracts members of the armed forces involved in The Electoral
with nonexistent suppliers. When General the project were sent to the criminal Registry is deeply
Comptroller Eduardo Roche tried to inves- courts. The Venezuelan National
tigate in earnest, he was replaced by Assembly has accused the group of taking corrupted.
Clodobaldo Russian, who remains at his about $1.3 million from the accounts of
job five years later. Parallel to this failed the sugar-processing plant run with the
program another was initiated, the so- help of Cuban advisers.28 The case has not
called Fondo Único Social (Central Social yet been decided. According to another
Fund), led by Commander William source, the 62nd Army Engineers Unit has
Fariñas, another one of Chávez’s fellow been accused of squandering $1.5 billion
conspirators during the unsuccessful 1992 of the $2.6 billion appropriated for the
coup. This program received about $400 complex.29 This too has not been resolved.
million from the government and was ori- Minister Albarrán admitted to malfeas-
ented toward health services, housing, and ance for not revealing these facts when he
educational subsidies. In essence, FUS was became aware of them on September 23,
a typical direct subsidy program conduct- 2005. By his own admission, he withheld
ed without careful planning. FUS gave the information because, he claimed, the
$500,000 to an organization run by the country was in the midst of parliamentary
wife of Commander Fariña’s driver, elections and his revelation would have
Horácio Pérez. Beroes estimates that the created a scandal damaging to the Chávez
irregularities connected with this program government.
have cost some $30 million. • Corruption at the Supreme Tribunal
• The acquisition of the presidential of Justice. In early 200630 a scandal
airplane. During a 2001 trip to the involving the Supreme Tribunal of Justice
Middle East, Chávez had the opportuni- held the attention of the nation for a brief
ty to travel in an Airbus 319 owned by a period of time (no corruption scandal
member of the royal family of Qatar. lasts more than one or two weeks in the
After returning to Venezuela, he declared Venezuelan press, as it is quickly super-
that he wanted one just like it. In clear seded by a new one). The minister of the
violation of article 314 of the Venezuelan interior, Jesse Chacón, accused one of the
constitution and of the law regulating leading members of the tribunal, Luis
government expenditures, the plane, an Velásquez Alvaray, of corruption. Some
A319-133X, was acquired at a cost of people saw this accusation as a political
more than $65 million, without proper maneuver designed to eliminate a promi-
budgetary provisions.27 nent member of one government faction.
• “Sweet” corruption at the agro-indus- Chacón accused Velásquez Alvaray of
trial complex Ezequiel Zamora. A pocketing significant amounts of money
prominent case of corruption has taken from commissions and overpricing in the
place since 2004 in the Ezequiel Zamora acquisition of real estate for the tribunal.
agro-industrial complex, located in the Surprisingly, Velásquez Alvaray counter-
state of Barinas, Chávez’s home state. The attacked, accusing Vice-President Rangel,
National Assembly took the unusual step Minister Chacón, and National Assembly
of investigating it after a public accusation president Nicolás Maduro of being at the
by journalist Eleazar Díaz Rangel, who is head of an extensive criminal judicial group
otherwise sympathetic to the Chávez gov- called the “Gang of the Dwarfs.” According
ernment. As a result of the investigation, to Velásquez Alvaray, this group acted princi-
Minister of Agriculture Antonio Albarrán, pally in the protection of drug traffickers. In
the director of the Sugar Mill complex, addition to pointing a finger at these three
Army General Delfín Gómez, and 17 high government officers, Velásquez Alvaray

also accused the brother of Minister Chacón, enormous amount, sorely required by
bank owner Arne Chacón, of pressuring him Venezuela for the improvement of the
to get the judicial system to deposit its funds quality of life of its citizens.
in Arne Chacón’s bank. He also accused • Corruption at the National Electoral
some of his colleagues at the Supreme Council. The performance of the
Tribunal of Justice of being connected with Venezuelan National Electoral Council,
drug trafficking. These allegations remain under the political control of Chávez, has
unresolved. Velásquez Alvaray is said to be in led to widespread distrust of it among
Madrid, Spain. Venezuelans. As a result of this distrust, in
• The oil supply agreement signed with December 2005, 75 percent of eligible vot-
Cuba, a gigantic loss for the nation. One ers, according to official figures, abstained
of the most damaging examples of the from voting for the election of members of
Chávez government’s political and eco- the National Assembly. The figures given
nomic corruption is the oil supply agree- by the opposition placed abstention at 85
ment with Cuba.31 Fidel Castro and percent. The reasons for this widespread
Hugo Chávez signed this “integral coop- distrust are several: First, the members of
eration agreement” in Havana in the council are all Chávez followers, with
The Chávez October 2000. The agreement pledges one exception. That means that the deci-
government has Venezuela to supply Cuba for 15 years sions made by this body have always
generated two with volumes of Venezuelan hydrocar- favored the interests of the government.
bons, starting at 53,000 barrels per day. Until several months ago, the president of
lists of voters to In December 2004 this volume was the council, Jorge Rodríguez, was also the
retaliate against. increased to 90,000 barrels per day. adviser of Peruvian candidate Ollanta
Several characteristics of this oil supply Humala, while still president of the
agreement are irregular and highly damag- Venezuelan Electoral Council. Second, the
ing to the Venezuelan nation: First, the naming of these members has not been
form of payment, including 15-year financ- done according to proper constitutional
ing at 2 percent interest of 25 percent of the procedures.
volume, is a gift to Cuba that can be esti- Third, reports by international
mated at some $400 million per year at cur- observers (the Organization of American
rent oil prices; second, Cuban delays in pay- States, the European Union, and Spanish
ing or outright refusal to pay should have Congress) during the last two electoral
triggered an interruption of supply, which events, in 2004 and 2005, found that the
has not taken place. This is bureaucratic NEC’s activities lack transparency.
negligence on the part of the Venezuelan Fourth, the Electoral Registry is deeply
government and means that some $1.3 bil- corrupted. It includes, according to the
lion per year is not being collected, either in council, almost 17 million voters, a sta-
a timely fashion or at all; Finally, Cuba’s tistical improbability since Venezuela has
real consumption of hydrocarbons is prob- a population of 26 million, 60 percent or
ably lower than claimed. There are indica- more of whom are too young to register.
tions that Cuba is reexporting some of the It is presumed, therefore, that millions of
petroleum supplied by Venezuela, possibly foreigners have been given Venezuelan
as much as 25,000 barrels per day. At cur- papers in a very short time in order to
rent prices that would represent a further swell the registry, which has grown 8 to
loss of some $500 million per year for the 10 times faster than normal in the last
Venezuelan nation. two years. Gustavo Adolfo Fabregat, a 57-
In total, therefore, Venezuela is giving year-old Uruguayan information system
Cuba a subsidy on the order of $2.2 bil- expert who resides in South Carolina,
lion to $2.3 billion per year. This is an has made an analysis of the Venezuelan

electoral roll and describes some of the tion. On several occasions, Chávez went
many irregularities, such as the existence on TV to threaten citizens who had voted
of 39,000 voters over one hundred years against him in the referendum and
old.32 This is a number equal to that of allowed the use of the lists to dismiss
the same age group in the United States, many Venezuelans from their jobs, to
where the population is 10 times greater. refuse them identity papers, and, in gen-
Of these 39,000 people, 17,000 were born eral, to treat them as second-class citi-
in the 19th century, and one is 175 years zens. This practice of “apartheid” is still
old and still working! Nineteen thou- in force in Venezuela, and many
sand voters were born the same day and Venezuelans have emigrated after being
year in the state of Zulia. There are thou- persecuted because of their political
sands of people sharing the same beliefs. In April 2006 a Venezuelan mag-
address. This would make hilarious read- istrate of the Supreme Tribunal of Justice
ing if it were not so tragic. came to the United States on a tour of
Fifth, the voting machines used by the half a dozen cities to talk about the
government belong to a company alleged “wonderful” revolution of Hugo Chávez.
to have had connections to the govern- During his talk in Washington, at the
ment until the Miami Herald denounced School of Law of American University, he
this perceived conflict of interest.33 The spoke of how the revolutionary govern-
company that owns the machines, ment of Chávez had included all
Smartmatic, was created in 2000. Reports Venezuelans. He was immediately chal-
have linked its owners to Chávez and other lenged by several young Venezuelans in
members of his government.34 But the audience, including a lawyer who had
Smartmatic and the Venezuelan govern- been dismissed from her job in
ment deny the company has ever had any Venezuela for signing the petition to
type of relationship with the Chávez hold the presidential referendum.36
administration. This company received a • Corruption in the state-owned petro-
no-bid government contract for $100 mil- leum company, Petróleos de Venezuela.
lion in 2004, just a few months before the Corruption in the most important
August 2004 Venezuelan presidential ref- Venezuelan state-owned corporation takes
erendum, in which the machines were many shapes. It includes the naming of six
used for the first time. The results of that presidents and boards during the last
referendum were questioned by the oppo- seven years, in an effort to control the com-
sition but validated by the observers of the pany politically. That turnover has shat-
Carter Center and the OAS.35 tered management continuity and coher-
In addition to the irregularities listed ence and has practically destroyed the
above, the Chávez government has gener- capacity of the company to prepare and
ated two lists of voters to retaliate follow strategic plans. As a result, the six-
against: one, a list of those who asked for year plan of the company is the same one
the referendum against the president, prepared before Chávez came to power, a
the Tascón List, named after Luis plan that has been waiting for six years to
Tascón, a pro-Chávez member of the be put into effect. If it had been imple-
National Assembly that put it together, mented at the proper time, the company
and, two, a list of those who had, in fact, would now be producing about 5 million
voted to revoke him, the so-called barrels of oil per day. In fact, it produces
Maisanta List, after the grandfather of only about 2.7 million barrels per day. Chávez has
Hugo Chávez, a small Venezuelan caudil- Add to that the fact that the minister of
lo of the 19th century whom Chávez has mines and petroleum is also the president
repeatedly used
installed as one the icons of his revolu- of the company, which may be not only a oil to buy loyalty.

The revolution violation of the laws of the country but a heavy oil and water that competes favor-
taking place in major error of strategic management since ably with coal for heating purposes and
the organization is now being managed industrial use. This array of irregularities,
Venezuela during and monitored by the same person. all of which squander Venezuelan wealth,
the last eight Further evidence includes Chávez’s dis- is the result of the politicization of the
missal, on a television program, of almost Venezuelan state petroleum company.
years has been 20,000 technical and managerial staff in
more successful 2002, in open violation of Venezuelan Systemic Corruption: The Interface between
in creating an labor laws. That mass layoff significantly Government and the Private Sector. In addition
diminished the operational efficiency of to bureaucratic corruption that constitutes
instant class of the company. Not only has production the major component of corruption under
the new rich than been decreasing steadily in the last three the Chávez government, there is a third cate-
years, but refinery stoppages, oil spills, gory involving the interaction of state and
in solving the industrial accidents, and widespread inter- private actors in a contaminated social sys-
problems of ruptions in the normal operations of the tem. This type of corruption can involve
poverty. company have increased dramatically. important amounts of money or small
Moreover, the international marketing of favors, which are qualitatively identical. The
Venezuelan oil has fallen into the hands of term “petty corruption,” although some-
brokers and intermediaries, instead of times applied, tends to be misleading as it
being run by the marketing division of the suggests that there are transactions that are
company. Those brokers have political “more” corrupt than others because they
connections with the Chávez government involve larger amounts of money. Systemic
and serve as go-betweens with clients, col- corruption includes the liaison between gov-
lecting significant commissions at the ernment officials and private buccaneers to
expense of national income.37 do business at the expense of the public
Chávez has repeatedly used oil to buy good, as well as bribes, extortion, and illegal
loyalty. In November 2005 he ordered appropriation of public monies for personal
Petróleos de Venezuela’s U.S. affiliate, gain. This sort of corruption has exploded
CITGO, to distribute subsidized fuel oil during Chávez’s tenure, promoted by the
to “poor” communities in several states of immense amounts of public expenditure and
the United States for purposes of political the policy of handouts favored by the gov-
propaganda. These subsidies are absorbed ernment. Some of the most prominent exam-
by CITGO, but a substantial portion of ples include the following:
the cost is actually paid by the U.S. gov-
ernment through tax deductions. The • The emergence of a new rich, “revo-
Chávez government also supplies thou- lutionary” class. The great amount of
sands of barrels of oil per day to oil income freely used by the government
Caribbean countries, essentially in has created what El Nuevo Herald and the
exchange for their political loyalty. The New York Times have called a new class of
mechanism of payment allowed by the wealthy “revolutionaries.”38 According to
Chávez government is in the form of agri- these reports, a new bourgeoisie has been
cultural products such as bananas and created in the country: “They drive
beans. This will inevitably produce signif- Hummers and Audis; use Cartier watch-
icant losses to the Venezuelan nation. es and Mont Blanc bags. They buy luxu-
Finally, the Chávez government gives ry apartments and fly to Miami in pri-
China, on terms that are not known to vate jets. And they always pay cash,” reads
Venezuelans, the licenses owned by the the El Nuevo Herald report. This sudden
Venezuelan Research Center for China to wealth, says economist José Guerra in El
produce Orimulsion, an emulsion of Nuevo Herald: “can only be explained by

the close association of these new rich not explained. Rijock also mentions the
with the government.” One of the main seafood sector as a sector where this type of
examples of this sudden new class of business prevails
wealthy people is Wilmer Ruperti, who El Nuevo País, a Venezuelan daily, has
receives an inordinate number of con- reported that in August 2005 Arne
tracts from the state-owned petroleum Chacón, brother of Minister of the Interior
company. Ruperti has been investigated, Jesse Chacón, made a $10 million offer to
both in Venezuela and in the United buy the company INDULAC, a very large
States, because of some of the transac- dairy-processing company in western
tions made with the oil company and Venezuela.40 The question posed by
with CITGO, but nothing has resulted Patricia Poleo, the journalist reporting the
from these investigations. Last year story, is “Where did Mr. Chacón, a retired
Ruperti bought at Christie’s, for $1.6 navy lieutenant, obtain the $10 million
million, two pistols that belonged to required to buy this company?”
Simón Bolivar, as a present to the gov- Juan Carlos Zapata, editor of
ernment. An employee of one of the Descifrado, a Venezuelan publication, has
Mont Blanc shops in Caracas stated to El written a more general report in which he
Nuevo Herald that their customers, espe- describes the emergent new power struc-
A new “revolu-
cially the military, only use cash. ture surrounding the Chávez govern- tionary” bour-
• Government-controlled private cor- ment.41 From this analysis one thing is geoisie is being
porations. When government officers clear: the revolution taking place in
own a company but conceal this fact by Venezuela during the last eight years has born under
working through private intermediaries, been more successful in creating an Chávez.
corruption can reach very high levels. instant class of the new rich than in solv-
Kenneth Rijock, a financial analyst for law ing the problems of poverty of the
enforcement agencies who previously immense majority of Venezuelans. The sit-
served time in prison for money launder- uation strongly resembles the oil windfall
ing, notes that government-controlled cor- of the 1970s, except that now there is more
porations have flourished under Chávez, waste since there is more money.
especially corporations that produce and According to Zapata, a new “revolu-
distribute food.39 The major agribusiness tionary” bourgeoisie is being born under
organization that government officials Chávez. But this group is far from being
control, he says, is the PROAREPA group, truly revolutionary. As time goes by it
the main supplier of food to the govern- will tend to become closer to interna-
ment handout programs. PROAREPA, tional capital, and there is little that
Rijock says, owns a large group of compa- Chávez can do to prevent that. What will
nies, including Almacenes y Transportes happen then? asks Zapata. The “revolu-
de Cereales, which is “rumored to be tion,” he suggests, will simply replace one
owned by Chávez’s brother Adan.” The financially dominant class with another.
officers of record of PROAREPA, says Political loyalty and ideology will be sac-
Rijock, include Ricardo Fernandez rificed to the desire for wealth. Zapata
Barrueco, a close friend of high-level gov- lists the names of some of the members
ernment officials and of certain of of this new financial aristocracy.
President Chávez’s relatives. According to An Economist article published at the
Rijock, Fernandez was investigated for cus- same time as Zapata’s article reports that
toms-related offenses, and he deals with the brother of the minister of the interi-
the government food distribution organi- or, Jesse Chacón, was “illegally lobbying
zation PROAL, but the investigation was for a bank,” which he eventually bought
terminated in February 2001 for reasons without really paying for it, and which

may have been the source of the $10 mil- money, some $2.6 million, but relief was
lion he later offered to INDULAC.42 denied for lack of jurisdiction. That legal
Analyst Kenneth Rijock claims that action was the reason the alleged $18 mil-
the Chávez government is “engaged in a lion, payment to Bigott de Loaiza became
massive money laundering operation” in known. Bigott de Loaiza has denied she
order to transfer dollars derived from the was being paid such amounts.
oil bonanza overseas, for the benefit of • Drug trafficking: Venezuela as a “gate-
the top members of the government.43 way to heaven,” because of the absence
This operation, Rijock says, seems to be of border controls.The Caracas daily El
modeled after similar schemes by Fidel Universal, quotes the 2006 International
Castro. He claims that the transfer mech- Narcotics Control Strategy Report as saying:
anisms include moving the money “Rampant corruption and a weak judicial
through Swiss banks and the possible system are the main reasons for the promi-
acquisition of one such bank for these nent role Venezuela is now playing as a key
purposes. transit point for drugs leaving Colombia
• The case of Hugo Chávez’s personal for the U.S. The Colombian guerrillas,
lawyer, Esther Bigott de Loaiza, and her FARC, ELN and the Auto Defensas de
$18 million retainer. Esther Bigott de Colombia, move freely through Venezuela,
Loaiza was for some time the personal unchallenged by the authorities.”45
lawyer of Hugo Chávez. In that capacity she The attitude of the government has
made excellent contacts and obtained been ambivalent; on the one hand, it has
important contracts from government made some efforts to combat drug traf-
agencies. One in particular has created ficking, and, on the other hand, it has
quite a scandal, the product of a very dam- refused the extradition of alleged drug
aging decision by the government lawyer dealers and even released some of them,
Marisol Plaza, who, according to the gov- as was reportedly the case with Mateo
ernment, incorrectly accepted as valid some Holguín Ovalle in March 2006. A report
promissory notes, called the Bandagro by Andy Webb-Vidal for Jane’s Intelligence
Bonds, after the bank that issued them, Review, May 2006, asserts that cocaine
back in 1981. One hundred million dollars trafficking operations are shifting
worth of these bonds have been held since toward Venezuela and notes that drug
2004 by Skye Ventures, an Ohio-based seizures have skyrocketed the last 10
investment company controlled by David years, from 2.7 tons in 1995 to almost 60
Richard, that has sued the Chávez govern- tons in 2005.46 Seizures, authorities esti-
ment for payment of the face value plus mate, represent only about 10 percent of
interest.44 The government hired lawyer total traffic.
A cursory exami- Biggot de Loaiza and allegedly gave her a One of the most recent seizures of drugs
nation of real retainer of $18 million to defend the nation originating in Venezuela took place in the
estate acquisi- against this legal action, according to court state of Campeche, Mexico, when the
papers. That money was apparently authorities captured a DC-9 and a Falcon
tions in Florida deposited in a New York City branch of a jet. The DC-9 had 5.5 tons of cocaine
reveals names U.S. bank, under authorization of Finance aboard. The growing drug industry in
Minister Nelson Merentes. Apparently that Venezuela allegedly has intimate connec-
that are familiar money should have also covered payment tions with high-level members of the
on the to a U.S.-based lawyer named Claudia Venezuelan National Guard. The report
Venezuelan Silvestre. However, Silvestre claims she stated that several generals of this force,
never got paid. She tried, unsuccessfully, in including Alex Maneiro and Frank
bureaucratic a legal action against Bigott de Loaiza in Morgado, as well as three other officers,
scene. New York Supreme Court to get her have been denied U.S. visas because of their

alleged involvement in the trafficking. beyond the reach of bureaucrats earning The crime rate
Venezuelans, says Webb-Vidal, “are becom- rather modest salaries. has made
ing more integrated into the supply chain, • The plight of the average citizen. In
rather than merely acting as couriers.” A this wild collective hunt for oil booty, in Venezuela one of
former member of FARC, quoted by Webb- which the powerful few obtain most of the the most danger-
Vidal, says that, during the time he operat- spoils, the ordinary Venezuelan citizen is
ed in Venezuela in activities related to drug invariably a latecomer. He or she will have
ous countries in
trafficking, some 30 tons of cocaine worth to wait in line to receive his or her meager the world.
about $750 million in Miami were moved share. A small job at a state agency requires
into Venezuela by the FARC each year. The total loyalty to the government, a modest
report claims that alleged prominent drug scholarship for a son requires months of
traffickers of Colombian origin are pleading and persuading. Obtaining a
believed to be based in Venezuela, includ- passport or an identity card usually
ing Diego Montoya Sánchez, Wilber Varela involves days or weeks of getting up at 4:00
Fajardo, Juan Carlos Ramírez, and a.m. to get in line with hundreds of others,
Salomón Camacho Mora. It is hard to hoping that passports have arrived and
believe that the increase in drug trafficking that the person at the bureaucratic desk
in Venezuela would not also increase cor- happens to be in a good mood. Paying
ruption in the Venezuelan military and taxes or even the electric bill requires con-
among government bureaucrats. siderable patience and hours of waiting.
• Corruption at the second and third Corruption flourishes in such an environ-
levels of government bureaucracy. ment. Since Venezuelans have to go to
Living beyond one’s means is probably work or to school, they cannot afford to
the most revealing sign of corruption. In waste time, and most end up bribing the
Chávez’s Venezuela, where salaries of bureaucrat or accepting extortion. Almost
ministers average some $5,000 per every bureaucratic transaction requires
month and even high-level bureaucrats that payment be made or expedited.
earn only between $3,000 and $4,000 per Infrastructure problems, especially
month, the style of living of lower-level regarding roads and electricity, also plague
bureaucrats is more in tune with the country. The number of major electrici-
incomes of about $15,000 per month. ty blackouts increased from 49 in 2004 to
Luxury goods, including cars and even 80 in 2005, and major highways and
private planes, are bought in an abun- bridges are in need of substantive repairs.48
dance never seen before; 18-year-old In fact, the main bridge on the highway
scotch whisky is the drink of choice; and connecting Caracas with the international
power lunches usually last between three airport collapsed in early 2006, and some
and four hours, at a cost of some $100 40,000 cars have to travel on a provisional
per person. As already mentioned, pay- road that seems to have become perma-
ment for most of these transactions is nent. As another example of inattention to
almost always in cash. basic government functions, garbage fre-
A cursory examination of real estate quently remains uncollected in the cities
acquisitions in Florida reveals names that and towns of the country.
are familiar on the Venezuelan bureaucrat- The crime rate has made Venezuela
ic scene. A recent report by Exceso, a one of the most dangerous countries in
Venezuelan magazine,47 reveals several the world. A statistical summary from
examples of houses and condos in Caracas sources such as Latinobarometro, the
where members of the Chávez government Inter-American Development Bank,
live, a type of housing that is very expensive PROVEA (a human rights group based in
by Venezuelan standards and certainly Caracas), and other organizations shows

that, during the period 1998 to 2005, cant political and social problems, went from
homicides in Venezuela increased by 128 a score of 3.2 in 2000 to 4.0 in 2005, a signif-
percent, violent deaths increased by 74 icant improvement.
percent, deaths by fire arms increased by Those scores are based on surveys done
36 percent, kidnappings increased by 426 independently and involve thousands of peo-
percent, and Caracas homicide rates were ple being consulted, both in the countries
the second-highest in South America being ranked and abroad. In the case of
after Recife, Brazil.49 Venezuela and Colombia, the scores were
established with the help of 10 and 9 indepen-
dent surveys, respectively. It is curious to con-
The Chávez Anti- trast Vice President Rangel’s change in attitude
Corruption Record: Broken from when he gave his speech in 1999 with his
later reaction to Transparency International’s
Promises and Failed Policies 2005 ranking. In 1999 he spoke of the enor-
Eight years is more than enough time to mous cost of corruption in Venezuela and of
evaluate Hugo Chávez’s electoral promises the need to mobilize all institutions in the fight
and the effectiveness of his government’s against it. In 2005 he dismissed the ranking by
Eight years is anti-corruption policies. This evaluation can making the unsubstantiated claim that
more than be made by using objective international Transparency International was a discredited
enough time to measures, such as the Corruption Perception institution, alleging incorrectly that it charged
Index produced every year by Transparency a “tariff” to countries for their position on the
evaluate Hugo International, as well as other indices that corruption table.51
Chávez’s anti-cor- examine economic freedom and quality of Venezuela’s ranking in the 2006 Economic
governance, such as the Economic Freedom of Freedom of the World index is 126 out of a
ruption policies. the World annual report, published by the group of 130 nations, very close to the bot-
Fraser Institute, and the Human Development tom of the ladder, only above the Republic of
Index of the United Nations. A more subjec- Congo, the Democratic Republic of Congo,
tive, impressionistic comparison of what the Myanmar, and Zimbabwe. A comparison of
government of Hugo Chávez said it would do the scores through the years is, again, reveal-
and what it has done in the realm of trans- ing. In 1970 Venezuela had a rating of 7.6 on
parency and honesty is also worthwhile. a scale of 0 to 10. In 2000 the rating was 5.5,
and today it is only 4.4. According to the
International Indices index, Venezuela is the country that has expe-
The 2005 Corruption Perception Index, pub- rienced the largest fall in economic freedom
lished by Transparency International, ranks since 1980.52 The bottom 10 countries in the
Venezuela 136th out of 159 nations.50 In ranking are African, with the exceptions of
2000 Venezuela ranked 73rd out of 90 Venezuela and Myanmar.
nations. Although in both years Venezuela The index helps to illustrate the connec-
ranked near the bottom, a meaningful com- tion between economic freedom and corrup-
parison is not easy to establish because of the tion. Countries with a low level of economic
different number of countries included in freedom are characterized by exchange con-
the rankings. More accurate is the composite trols, a large level of government consump-
score obtained during these two years, since tion as a percentage of total consumption,
the factors used in making up this score are investment largely concentrated in state
essentially the same. On a scale of least cor- enterprises, a judicial system not indepen-
rupt (10) to most corrupt (1), Venezuela went dent of the government, military influence in
from 2.7 in 2000 to 2.3 in 2005, a significant the political process, high and variable infla-
deterioration. In contrast, a country like tion, restrictions on access to foreign capital
neighboring Colombia, in spite of its signifi- markets, price controls, and bureaucratic red

tape. That perfectly describes Chávez’s The fight against the United States has
Venezuela. This and other studies also show helped to generate large-scale corruption in the
the strong correlation between corruption Chávez government, through the use of
and low levels of economic freedom. immense amounts of Venezuelan money to
In 1975 Venezuela was ranked 34 in the further a global anti-U.S. alliance. That money,
group of UN member countries, with a score irregularly taken from its legitimate owners,
of 0.716 on the UN’s Human Development has been used to buy political loyalty from
Index, which measures broad indicators of other countries in the region. At least five
human well-being. That year Venezuela had a countries in the region—Mexico, Peru, Chile,
higher ranking than South Korea, Chile, or Nicaragua, and Bolivia—have denounced the
Mexico. In 2000 Venezuela was ranked 46, intervention of Chávez in their internal politi-
with an index of 0.776. In 2005 Venezuela is cal affairs, and three of them (Mexico, Peru,
ranked 76 with an index of 0.772, much and Chile) have recently demanded that
lower than South Korea, ranked 28, Chile, Venezuela retire its ambassadors, and the
ranked 37, and Mexico, ranked 53. This Bolivian Congress, in October 2006, was dis-
shows a clear deterioration when compared cussing the possibility of naming the
with other countries’ rankings and when Venezuelan ambassador persona non grata.
measured by its rating. In particular the fall Failed Policies. Chávez’s policies have pro-
by 30 places in the ranking in the last six moted corruption rather than combated it.
years is dramatic. Development in Venezuela Although then–foreign minister Rangel
has come to a standstill while other countries acknowledged, in his 1999 speech, the exis-
are passing Venezuela by. This is in spite of tence of a systemic culture of corruption in
the immense amount of income received by the country, the Chávez government has
the country during that period. done nothing to change that culture—except
to make it worse. The concentration of polit-
A Legacy of Corruption ical power in Chávez’s hands, the rapid
Broken Promises. Hugo Chávez came to turnover of ministers and other high-level
power promising an all-out fight against cor- bureaucrats, the absence of debate in the
ruption. At the time, he may very well have National Assembly about important nation-
meant it. Most Venezuelans agreed with the al economic and political issues, and the lack
need for more honesty and transparency in of checks and balances in the system have
government, and they wanted a clean break contributed to a dramatic increase in corrup-
with the past. They voted for Chávez to tion. Prominent cases of corruption in
install an honest democratic government. Chávez’s government, such as the ones
But the record shows an enormous gap described in this paper, have not been pun-
between Chávez’s promises and Venezuelan ished. A few bureaucrats, such as Luis
reality. Today Venezuela is not a democratic Velásquez Alvaray and Antonio Albarrán,
country. It is aligned with some of the most dic- have been dismissed from their posts but
tatorial regimes on the planet: those of have remained undisturbed.
Mugabe, Kim II Sung, Ahmadinejad, Assad, In his 1999 speech, Rangel also called for a
Gahdafi, and Castro and with armed, irregular trustworthy judicial system. This has not hap-
forces that practice drug trafficking or global pened. From the Supreme Tribunal of Justice Studies show the
terrorism, such as the Colombian FARC and downward, the judicial system is rotten. The
ELN and the Lebanese Hezbollah. Chávez’s members of the Supreme Tribunal of Justice, strong correla-
promise of an all-out fight against Venezuelan dressed in full regalia, stood up at the end of their tion between cor-
corruption has turned into a fight against the inaugural session in January 2006 and sang; ruption and low
U.S. government. Most of the energy and “Uuh ah, Chávez no se va” (Chávez is not going).53
resources of the Venezuelan government have Could such a grotesque event ever take place in a levels of econom-
been placed at the service of this objective. country with independent institutions? ic freedom.

The record shows Rangel has also called for the elimination of
an enormous gap confidentiality in banks, financial corpora- Conclusion
tions, and other state and private organiza-
between Chávez’s tions. Yet, the Chávez government remains a Corruption has dominated the Hugo
promises and black box, much more so than any previous Chávez government as never before in
government. Petróleos de Venezuela, the most Venezuela’s history. The reasons seem clear.
Venezuelan important state-owned corporation, no longer Corruption occurs when there is motive, oppor-
reality. publishes annual reports. The management of tunity, and impunity of action. In the case of
national funds is done in total secrecy and the government of Hugo Chávez, all three of
without accountability to the people. The those factors are present to a large degree.
Chávez government makes the major deci-
sions; when it provides information on those Motive
decisions, it does so only after the fact. A common motive for bureaucrats’ engag-
Rangel mentioned in his 1999 speech that, ing in corruption is low income. The
as a sign of the Chávez government’s determi- Venezuelan bureaucratic system has tradi-
nation to combat corruption, a fourth power tionally made a point of paying low salaries,
called the Civic Power was being incorporated basing that practice on pretensions of auster-
into the new constitution. In practice this has ity in the management of public funds. The
turned out to be a cruel fraud against the peo- result has been negative. Since bureaucrats
ple. The three members of the Civic Power—the are poorly paid, many resort to corruption to
general comptroller, the ombudsman, and the increase their income. Low-level bureaucrats
attorney general—have all performed dismally, resort to asking for payment from the public
siding at all times with the government, failing to do the most basic tasks. High-level bureau-
in their duty to control executive abuses of crats resort to asking for commissions from
power and to punish corruption in govern- private contractors in order to assign them
ment. As a result, the Civic Power has been com- work. When authority is highly concentrated
pletely discredited in the eyes of the people. in a few officers or in one person, as is cur-
Rangel warned in his 1999 speech that the rently the case in the government of Chávez,
main risk the new government faced was national assets can be transferred to individ-
timidity and delay in the fight against cor- uals in positions of power without any kind
ruption. After eight years it has become evi- of control. The bureaucrats who came to
dent that timidity and delay reign. However, power with Chávez felt excluded for many
as long as there is substantial oil income, years from participating in what they felt was
Chávez will continue his policy of massive partly theirs. Now that they are the govern-
handouts, which tends to mask the presence ment, they feel that it’s their turn to prosper.
and damaging effects of corruption. Many of
the Venezuelan poor will tend to tolerate cor- Opportunity
ruption as long as they get a piece of the pie. Opportunity for corruption arises when
Protests will intensify only when there is not administrative controls and procedures are
enough money to go around. absent, when there are few checks and bal-
Finally, in 1999 then–foreign minister ances, and when bureaucratic turnover is high,
Rangel criticized mere rhetoric and promised preventing the consolidation of a stable orga-
that the new government would adopt con- nizational culture with a tradition of efficiency
crete policies designed to make institutions and honesty. The Chávez government has been
work. In fact, the Hugo Chávez government particularly disorganized. There are few con-
has been dominated by rhetoric. The new trols or checks and balances because of the
political leadership’s attitude toward corrup- concentration of political power at the top.
tion is even more permissive than that of pre- High-level bureaucratic turnover has been very
vious governments. high, with as many as five or more ministers

taking turns at any particular cabinet post. In the 15th anniversary of Centro de Divulgación del
Conocimiento Económico, Caracas, November 1999.
fact, Venezuelan cabinet changes are so fre- This speech can be found on the website of the ATLAS
quent that up-to-date lists are difficult to Economic Research Foundation, http://www.atlasusa.
maintain.54 At more subordinate levels the org?vz/files/pdfs/1999_H_Winter.pdf#search=%
turnover is also high. When combined with an 22CEDICE%20on%20Corruption%2c% 201999%22
overall lack of accountability, that promotes 6. Equipo Acuerdo Social 2006, Venezuela: Un
irregular management of public assets. acuerdo para el desarrollo (Caracas: Publicaciones
Universidad Católica Andrés Bello, 2006), p. 29.
7. The transcript of the inaugural presidential
In addition to motive and opportunity, speech can be found in Hugo Chávez, “Discurso
impunity is a major contributing factor to de la toma de posesión del Teniente Coronel
both the incidence and the intensity of cor- Hugo Chávez Frías,” URRU, February 2, 1999,
ruption. The very high volumes of oil money
being received by the Venezuelan govern-
ment, together with the lack of controls and 8. Letter from Hugo Chávez to the Supreme
the existence of a bureaucracy ready to obtain Court of Justice. This letter can be found in Hugo
its share of the booty, becomes a strong Chávez, “Carta del Teniente Coronel Hugo Chávez
a la Corte Suprema de Justicia,” URRU, March 12,
incentive for corruption, especially if punish- 1999,
ment is absent. The cases described in this 199904_cartaHcalTSJ.htm.
paper illustrate the waste or illegal appropri-
ation of billions of dollars, but not one single 9. Jorge Olavarría, speech before the National
Congress, July 5, 1999. That speech, which was a
corrupt officer or businessperson has yet strong indictment of Hugo Chávez’s violations of
gone to prison as a result. A few of those offi- the constitution, can be found in Jorge Olavarría,
cers who have obviously enriched themselves “Discurso de orden en el Congreso Nacional, el 5
have been removed from their posts, but no de julio de 1999,” Analitica Consulting, July 5, 1999,
further action has been taken against them. 5julio1999.asp.
They live rich and unmolested lives. This is
exactly the opposite of what the nation was 10. Rangel, speech in Caracas, November 1999.
promised by candidate Chávez.
11. See BBO Servicios Financieros, “bbo Weekly
Meaningfully reducing corruption in Report,” BBO, March 3, 2006, http://www.bbo.
Venezuela would require eliminating motives
and opportunity for corruption and punish-
ing those responsible. After eight years of 12. Interview by Blanca Vera with economists
Asdrubal Ontiveros and José Guerra, El Nacional,
Hugo Chávez, it’s entirely clear that the bat- July 6, 2006. See also “Las Fugas del Gobierno,”
tle against corruption in Venezuela cannot VenEconomía, July 7, 2006,
begin until Chávez has gone.
13. Johan Freitas, “Gold Reserves Looted from
Venezuela’s Central Bank,” Militares Democraticos,
December 28, 2002, http://www. militaresdemoc
1. Gustavo Coronel, Venezuela: La Agonía del Subdesar-
rollo (Caracas: Editorial Melvin, 1990), p. 136. 14. Andy Webb-Vidal, “Chávez Set to Seize $5
Billion of Central Bank Reserves,” Financial Times,
2. Ibid., pp. 138, 139. July 28, 2006.

3. Ruth Capriles, “Diccionario de la Corrupción en 15. Manuel Suárez-Mier, “President Chavez

Venezuela,” 1984–1992 Ediciones Capriles (Caracas: Creates a New Government-Owned Bank,”
Consorcio de Ediciones Capriles, December 3, 2002). Americas Data and Policy Commentary, Bank of
America Notes, August 12, 2005.
4. Coronel, Venezuela, p. 143.
16. BBO Servicios Financieros, “bbo Weekly
5. Quoted in a speech given by José Vicente Rangel for Report,” BBO, May 2006.

17. Oscar García Mendoza, “Según Oscar García Cuba Policy Report 13 (February 28, 2006).
Mendoza retiro del gobierno de 6 mil millones de bolí-
vares dejó en completa indefensión al BCV,” 30. Velásquez Alvaray, quoted in Hernán Lugo
Globovision, September 2, 2005, and Vanesa Gómez, “Velásquez Alvaray: 15 Jueces
news.php?nid=36695. Integran la Banda de Los Enanos,” El Nacional,
May 26, 2006.
18. Andy Webb-Vidal, “Venezuelan Banks Enjoy
Treasuries Windfall,” Financial Times, January 31, 2006. 31. See Leonardo Montiel Ortega, El Convenio Petrolero
Cubano Venezolano (Caracas: 2001) which describes in
19. Juan Carlos Zapata, “Los colores del nuevo poder,” detail the characteristics of the agreement.
Guiadenoticias, June 22, 2006, http://www.guiadenoti rx.php. 32. Gustavo Adolfo Fabregat, “Red Flags on
Venezuela’s Electoral Roll,”, April 25,
20. Carlos Ball, “Social Entrepreneurship,” Daily 2006,
Journal, February 8, 2006. 200604251640.

21. Interview with former Venezuelan minister of 33. Richard Brand, ““Forget Dubai—Worry about
finance José Alejandro Rojas, reprinted in Juan Carlos Smartmatic Instead,” Miami Herald, March 27, 2006.
Zapata, “Peligro para los bancos Venezolanos,”
Guiadenoticias, March 9, 2006, www.noticierodigital. 34. Casto Ocando, “Asocian a Chávez con
com/imatges200603/ 0309_jcz.php. Fabricante de Maquina de Votar Usada en
EE.UU,” El Nuevo Herald, May 14, 2006.
22. Documents on the presidential referendum of
2004 with details of the irregularities of that event 35. This detailed analysis of the alleged fraud com-
can be found in Tulio Alberto Alvarez, mitted by the government of Hugo Chávez during
“Ciudadanos: Magistrados de la sala plena del tri- the presidential referendum can be found in Tulio
bunal supremo de justicia.—su despacho,” URRU, Alvarez, “Fraude a la democracia,” URRU, October 15, 2004,
ademocra cia_final.doc.
23. A website specializing in petroleum issues can
be found in Gustavo Coronel, “Chavorragia 36. Gustavo Coronel, “Fernando Vegas Torrealba: A
Financiera,” Petroleum World, January 27, 2006, Venezuelan Magistrate on a U.S. Tour,” venezuela, April 17, 2006, http://venezuelatoday.
net/gustavo-coronel/magistrate_ ontour.html.
24. A report by Transparency International,
Venezuelan chapter can be found in Silvia Salvato, 37. For an example of the new class of PDVSA’s
“Contrataciones Publicas,” Transparency Internation- brokers, see “Irrevocable Master Fee Protection,”
al, March 2006, URRU, 2005,
multimedia/imagenes/ 200608 10103321.pdf. documento_uno.pdf.

25. “Son 800 empresas que tienen adjudicación 38. Steven Dudley, “Surge una nueva clase de
directa,” Notitarde, July 4, 2006. ricos en Venezuela,” El Nuevo Herald, July 17, 2006.
See also Simon Romero, “Venezuela’s Cup Runs
26. Agustín Beroes, “La corrupción en tiempos de Over and the Scotch Whiskey Flows,” New York
Chávez,” 2002, Times, August 20, 2006.
39. See Kenneth Rijock, “PEPwatch Venezuela: Beware
27. Gustavo Coronel, “The Case of the Venezuelan of Government-Controlled Private Corporations (Part
Airbus: A Planeload of Corruption,” Venezuela 1 and Part 3),”, February 2 and 3, 2006,, December 28, 2003, http://venezuela 1112 and
A319CJ+Hugo-Chávez+avion.html. 31132 .

28. Alex Holland, “Venezuelan Military Officers 40. See Patricia Poleo, “Chacon Undulac,” URRU,
Charged with Corruption,” VenezuelAnalysis. com, August 5, 2005,
February 16, 2006, 20050805_Chacon_Indulac.pdf.
news.php?newsno=1897. This website is the most
active pro-Chávez site in English. 41. Juan Carlos Zapata, “Los colores del nuevo
poder,” Guiadenoticias, June 22, 2006, http://
29. Ralph Galliano, “Agro-Industrial Sugar
Complex: Cuba-Venezuela Joint Venture,” U.S. 0622_rx.php.

42. “The Sickly Stench of Corruption,” The Economist, 22, 2006.
April 1, 2006, p. 31.
49. A special report of PROVEO can be found in
43. Kenneth Rijock, “Hugo Chávez Moves Venezuela’s English and in Spanish in Alek Boyd, “Venezuela
Wealth Offshore,”, January 21, 2006, www. Overtook Colombia in Homicide Numbers,” vcri-, June 9, 2006,
44. Miguel Octavio, “How the Revolution Throws the
Money Around: The $18 Million Retainer,” Devil’s 50. “The Corruption Perception Index,” Transparency
Excrement, May 7, 2006, International, 2005,
0001330/2006/05/07.html. 2005/cpi2005.sources.en.html.

45. A story on the 2006 International Narcotics 51. “The Sickly Stench of Corruption; Venezuela—A
Control Strategy Report can be found in “El Campaign against Sleaze Raises More Questions
Universal,” Caracas Daily, March 2, 2006. Than Answers,” The Economist, March 30, 2006.

46. Andy Webb-Vidal, “South American Cocaine 52. James D. Gwartney and Robert Lawson,
Trafficking Shifts Operations towards Venezuela,” Economic Freedom of the World: 2006 Annual Report
Jane’s Intelligence Review, May 2006, www.dere- (Vancouver: Fraser Institute, 2006), p. 3.
53. See Caracas, Jauary 28, 2006,
47. “Al Este cueste lo que cueste,” Exceso, June 2006. 2006_01_22_caracaschronicles_archive.html.

48. Brian Ellsworth, “A Closed Bridge Mirrors 54. “The Cabinet of Hugo Chávez,”,
Venezuela’s Many Woes,” New York Times, January

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