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Venezuela's Oil Wealth: From Black Box to Black Hole

By Francisco Toro | The Devil's Excrement

27.06.05 | One striking aspect of Hugo Chavez's leadership is the way his criticisms of past practices reliably foreshadow his own plans. Between 1998 and 2003, Chavez rarely missed a chance to criticize the Venezuelan State Oil company, PDVSA, for its lack of transparency, accountability and auditability. In the 30 months since chavistas took full control of PDVSA, however, the oil industry has reached levels of opacity, unaccountability, and inauditability undreamed of in the pre-Chavez era.

Now, with the proposed reforms to Venezuela's Central Bank Law, the lack of transparency that has characterized PDVSA's operations since 2003 will be officially extended to the oil industry's thick revenue stream. As explained by AIO in Daniel's Blog the new Central Bank law would enshrine in law a series of quasi legal practices in place since last year that allow PDVSA to keep part of its dollar revenues outside the country, to be spent - as dollars - however the government wants.

Needless to say, in the current context, "the government" and "Chavez" are synonyms.

There's so much wrong with this proposal it's hard to know where to even start. From my point of view, though, what's most dismaying about the new law is that it officializes the Chavista Parallel Budgets doctrine. Blithely discarding the long established principle of the "single treasury" -la unidad del tesoro" - and the centuries' old doctrine of the parliamentary "power of the purse strings," the new law allows PDVSA (read: Chavez) to set aside billions of dollars each year to spend without any constraints, controls, or oversight whatsoever. The fundamental notion that the state can only spend money in accordance to a budget approved by the elected legislature - a doctrine dating back to Magna Carta and enshrined in every modern constitution around the world, including Venezuela's 1999 constitution - is quite simply ignored, as is any measure that might obstruct Chavez's total discretionary power over the billions of dollars involved.

The parallel dollar budget will stand beyond the reach of any attempt at independent auditing. This is not merely because the Contraloria General de la Republica and the National Assembly's leadership have been in the hands of presidential cronies for years - though this is clearly a major part of the problem - but more fundamentally because it will be administered in dollars, from accounts sitting outside the country, where Venezuelan state auditors have no jurisdiction. No longer will lack of transparency hinge on the contraloria's current political docility: with the new central bank law, even a future, hypothetically honest contralor would be unable to track the money. Until now, transparency has been enshrined in law but ignored in practice - with these reforms, the Chavez cronies' disdain for transparency is solidified into law.

Shielded from any oversight, any need for parliamentary authorization, any auditing standards, any controls at all, there is just no telling what will happen to the substantial sums of money involved. One thing I can say for sure as a social scientist: lack of transparency breeds corruption. Barring a "government of angels" - which no country on earth has, and Venezuela less than most - extending such thorough, sure-fire guarantee of zero-oversight virtually guarantees that substantial sums will be stolen. What will happen to the rest is anyone's guess.

In light of the longstanding Chavista rhetoric against the lack of transparency in the old PDVSA's finances, this whole episode brims with particularly bitter irony.

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