Venezuela Lost Over US$33 Billion in Illicit Financial Outflows in 20081
Hugo Chávez again took to his twitter account last week, expressing his support for Ecuadorian President Rafael Correa in the midst of an uprising by disgruntled police officers. While a firm fan of new social media, Mr. Chávez tends to take a dim view of the more traditional sort. Since his election to the presidency in 1998, he has sought to muffle opposition, with state dominance of the media at the heart of his ‘Bolivarian Revolution’.
Invariably a government seeking to control the media is a government with plenty to hide, and the Chávez regime is sadly no exception. Booming oil exports and a lack of government accountability and transparency have combined to foster a culture of rent-seeking. The effects of this have percolated through the economy with the ultimate burden of the effects of corruption falling heaviest upon Venezuela’s poorest.
Transparency International recently ranked Venezuela as one of the most corrupt countries on earth, alongside the Democratic Republic of Congo. Meanwhile, inflation has soared—increasing over 30% from 2007 to 2008 according to World Bank figures—as has violent crime in the country’s capital, Caracas.
Inflation and violent crime disproportionally impact the poor, yet the policies which the regime has pursued to remedy these problems have been superficial. This year, the Chávez administration opened a series of ‘revolutionary cafes’ where ordinary Venezuelans can enjoy a brief respite from rising prices in the form of a state-subsidized coffee.
Meanwhile, another black liquid continues to fuel corruption and distort the domestic economy. Key sectors, such as agriculture, have been allowed to wither while Mr. Chávez tweets. A former government minister recently compared the ‘socialist’ Chávez regime to a colonial power, criticizing the ‘rentier capitalism’ that has come to prize oil revenues above all else. This was pungently illustrated by the recent discovery that a subsidiary of the state oil company had allowed 80,000 tons of food imports to rot in Caracas’s docks.
While the regime struggles to get food into the country, it has allowed wealth to flow out. According to estimates from an upcoming Global Financial Integrity report, over US$33 billion of illicit capital left Venezuela in 2008 alone1. This means that almost 10% of Venezuela’s entire gross domestic product—all the goods and services produced by Venezuelans that year—left the country unaccounted for.
There is a weight of academic literature demonstrating that the consequences of corruption hurt the poor more than any other sector of society. Lack of transparency and disregard for the rule of law have characterized Mr. Chávez’s regime to date and continue to hurt those whose interests he claims to represent. Rather than seeking to stifle dissent, perhaps Mr. Chávez would do well to heed the words of his hero, Simón Bolívar: ‘Out of the most secure things, the most secure is to doubt.’
Later this year, Global Financial Integrity (GFI) will release a new report by GFI Lead Economist Dev Kar measuring illicit financial flows out of developing countries. The report builds upon GFI’s ground-breaking 2008 report, titled “Illicit Financial Flows from Developing Countries: 2002-2006.” Sign up here to receive notices when new GFI reports are released.
Correction: An earlier version of this post stated that Venezuela lost almost 1% of GDP to illicit financial outflows in 2008. The correct percentage is almost 10%. The article has been updated to reflect this correction.
Disclaimer: Unless specifically stated to be the views of the Financial Transparency Coalition, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Financial Transparency Coalition.