Meet the New Boss, Same as the Old Boss

By Phil Gunson
July 31, 2006

As gushing petrodollars stick to the wrong hands, corruption threatens the regime of Hugo Chávez.

Luis Velazquez alvaray is an unlikely whistle-blower in the Venezuela of Hugo Chávez. The 54-year-old, mercurial provincial lawyer rose to prominence as a congressman from Chávez's Fifth Republic Movement, and as a lawmaker Velázquez drafted legislation enabling the Venezuelan president to pack the nation's Supreme Court with his supporters—one of whom turned out to be Velázquez himself. He quickly established himself as one of the court's most powerful justices and sacked dozens of judges on corruption charges last year before Chávez's Interior minister accused Velázquez himself of pocketing $4 million in kickbacks from a contract to build new courthouse complexes. Today Velázquez's whereabouts are unknown: he fled the country in June after no-showing a congressional hearing where he was scheduled to testify about the kickback accusations against him. Velázquez has denied any wrongdoing, and in one of his last public statements he issued a ringing indictment of the corruption inside the Venezuelan judiciary. To end the rot, he declared, "a bomb should be put in the Palace of Justice."

The Velázquez affair is just one symptom of the cancer eating away at Chávez's so-called Bolivarian Revolution. The Venezuelan leader, who turns 52 later this month, swept to power in the 1998 presidential election on an anti-graft platform. But in the intervening years, the soaring price of oil has flooded government coffers with petrodollars and fanned the same endemic corruption that thoroughly discredited Venezuela's two major political parties in the 1990s. As part of his commitment to end poverty within 20 years, Chávez has lavished government largesse on a plethora of welfare programs mostly devoid of parliamentary oversight or any other supervision. Not surprisingly, vast sums of money have stuck to the wrong hands, and most polls show that corruption now ranks among the top three concerns of ordinary citizens. "Only 18 percent of voters think the government is resolving the issue," notes Caracas pollster Alfredo Keller.

The problem has captured Chávez's attention. Mindful of the parallels that critics can draw to the kleptocracy that preceded his ascent, Chávez has OK'd a few high-profile investigations led by a congressional audit commission. He personally has not set the most inspiring of examples; several family members occupy choice government posts. But the corruption issue has nonetheless become a source of mounting frustration for him, judging from a recent presidential outburst. "I swear that in cases like these," fumed Chávez in January, "if I could have people shot I would." Pro-government legislators share the concern. "If the government doesn't put a stop to corruption," warns congressional audit-commission vice president Eustoquio Contreras, "corruption will put a stop to the government."

The biggest headache of all is rooted in a government agricultural-development fund known as Fondafa. The fund was established under a government plan to achieve food self-sufficiency, but early results have not been encouraging: despite a 50 percent increase in farm credits issued by Fondafa last year, the number of hectares planted nationwide rose by a paltry 1.4 percent, according to official figures. Investigators are fingering corrupt bureaucrats in cahoots with rural business interests, who have allegedly channeled Fondafa credits into phantom agricultural cooperatives. As a result, food imports have soared to record levels.

The town of Zaraza illustrates the problem. The community of 70,000 produces about 40 percent of the corn in the breadbasket state of Guárico, which accounts for nearly half the country's total annual harvest. But corn production has slumped by 70 percent despite a multimillion-dollar influx of new agricultural credits. Instead of going to local farmers, many of the new loans wound up in the bank accounts of unscrupulous landowners, who formed bogus cooperatives by collecting signatures and personal data from Zaraza residents in exchange for a $2,000 payoff. Among the willing volunteers were some of the town's prostitutes.

As "advisers" to the cooperatives they had formed themselves, the landowners would recommend swapping Fondafa purchase orders for seeds and agrochemicals from their own farm-supply businesses. "Last year Fondafa sent investigators into the brothels," says city-hall official Reinaldo Barrios. "They found sacks of corn seed under the beds, and agricultural supplies would be exchanged for firewater at the liquor stores." Estimates of the sums stolen from Fondafa hover in the $65 million range. In some cases loans were approved for crops utterly unsuitable for the designated parcels of land, and with the arrival of the planting season, credit from Fondafa is drying up. One former adviser to the agricultural fund's board of directors blames the scandal on the government's spendthrift approach to credit. "When you have to approve a loan every two minutes, there's no way you can do it properly," notes the ex-adviser, who asked to remain anonymous because he still works in the public sector. "The analysts had to approve so many credits that the only thing they could do was to match the identification numbers with the applicants."

The granting of government contracts in the absence of any proper tendering procedures exacerbates the situation. A recent survey by the government-funded National Contracting System (SNC) found that 95 percent of the official contracts issued in 2004 were awarded without any competitive bids through loopholes in the law. In testimony before the congressional audit commission, SNC chief Eliécer Otaiza acknowledged that "a small group of people have become multimillionaires in this revolutionary process."

In its 2005 survey of perceptions about corruption, the Berlin-based watchdog group Transparency International ranked Venezuela 130th out of 159 countries, and it figured among a dozen countries where respondents asserted that graft had "greatly" increased. The lack of any effective checks and balances compounds the challenge facing the Chávez government. In previous years the judiciary was bipartisan, and opposition parties controlled the office of auditor general. No longer. And those parties' decision to boycott congressional elections last December gave Chávez complete control over the legislature. That has helped foster a permissive climate: though military officers have been accused of embezzlement or misuse of public funds totaling hundreds of millions of dollars in a half-dozen cases, none has been charged and some still hold government jobs.

Indeed, the only high-level official to have been punished thus far has been Luis Velázquez, who was suspended from the Supreme Court and then formally removed from the bench this spring before he vanished. That could change in the coming months: Chávez is up for re-election to a third consecutive term in December, and a few trials of selected scapegoats could help burnish El Comandante's credentials in the war against graft. But that is unlikely to halt the erosion of trust in the regime in the long term. Pollster Keller warns that more than half the electorate may boycott the balloting later this year, including millions of Chavistas who are disenchanted with the epidemic of sleaze inside the corridors of power. Chávez could find that the parallels to his predecessors haven't ended yet.