Support the
Henry Jackson
Society

Our work is only possible through the generosity of private philanthropy. Find out how you can support our mission and can contribute to our work.

Members' log in
Event Summaries
October 4, 2013

Executive Summary: The Catastrophic Impact of Corruption on a National Economy: The Case of Venezuela

by
Rachelle Olinger

This is a summary of an event with Gustavo Coronel; it reflects the views expressed by the speaker and not those of the Henry Jackson Society or its staff.

To view the full transcript of the event, click here

Notoriously rife with corruption and characterised by a variety of other unscrupulous activities, the dire state of Venezuela’s economy can be explained, in part, by the contrasting fortunes of its poor and its middle class.  Those currently in power hail from extremely poor backgrounds and, as a result of years of exclusion that served to cultivate in them a sense of resentment toward the government, are committed to ‘getting even’ with the country – taking for themselves what they believe they have always deserved.  When Hugo Chavez came to power in 1999, he assumed the role of ‘father’ to the poor and sought to provide for them. In doing so, however, he neglected the middle class, which is now suffering as a result.

The dismal state of Venezuela’s economy can be attributed to two main factors: so-called “Dutch Disease”, wherein an increase in the exploitation of natural resources results in a decline in the manufacturing sector, and high levels of corruption. The combination of these two factors has led Venezuela to economic, social, and spiritual ruin.

Two Main Causes of Corruption

  • The first occurs when income from the oil industry is not filtered through legal channels, such as the Central Bank of Venezuela, but rather is diverted into parallel funds with no transparency or accountability. These funds are controlled by a group of four elite politicians.
  • The second lies within the increasing scope of Petróleos de Venezuela’s responsibilities. The state-owned oil and gas company, Petróleos de Venezuela are involved in a multitude of additional activities, such as the importing and distributing of food, wherein there are a great many opportunities for money to be lost.

Examples of Corruption

  • As evidence of Venezuela’s rampant corruption, Coronel provided four specific instances of corruption:
    • The suspect rental of an offshore drilling barge by Petróleos de Venezuela from a company in Singapore, which was, in turn, owned by a company in India;
    • The diversion of US$500 million from the employee fund of Petróleos de Venezuela;
    • The importing of US$2 billion of rotten food by Petróleos de Venezuela;
    • Unscrupulous deals between Petróleos de Venezuela and Derwick Associates, an equipment contractor.
    • Over the last fifteen years Venezuela has received US$1.5 trillion in income. Yet, its national debt has increased by a factor of six.
    • The vast majority of crimes committed in Venezuela are not investigated. Due to this lack of law enforcement, Coronel feels he is on a ‘personal mission’ to name corrupt individuals.

Solutions for Corruption

  • The only solution for these issues is to change the government, which is imminent. This is likely to occur following the collapse of the current government rather than by democratic elections. The first step for the new government would be a three-prong strategy:
    • To imprison corrupt individuals;
    • To systematically dismantle the bureaucratic apparatus and, in doing so, eradicate the corruption built into it,
    • To create a society of citizens, rather than that of disinterested inhabitants.
    • There should be a private oil company run by a national regulatory agency without government interference. The government should focus its efforts and money on the education and health of its people instead.