Adventures in Petrocaudillism

First, you need a tiny bit of background to understand what petrocaudillism is. As far back as I can remember, there have been three ways the oil industry can transfer money to the Venezuelan state:

  1. It pays a percentage of its profits in income tax, just like everyone else -this happened even before nationalization in 1975.
  2. On top of that, it pays a percentage of the gross value of oil lifted royalties because the state owns the stuff – this also pre-dates nationalizaation.
  3. Since 1975, the state has been PDVSA’s only shareholder, so it gets dividends from the oil industry, too.

So that’s the zanahoria stuff: all three mechanism transfered oil rents into a single pot – the National Treasury – and all three are well established, transparent, and unquestionably legal.

Then, Chávez happened. Slowly at first, strange new ways of shifting petrodollars into state coffers came to be used. As time passed, PDVSA came up with new ways to bypass the National Treasury finance state programs directly.

Now, the difference between this kind of direct spending and the Zanahoria Fiscal Contribution might seem arcane, but it’s profound. By spending money directly instead of handing it to the National Treasury, PDVSA abrogates a privilege the constitution reserves to elected members of Venezuela’s National Assembly. In picking and choosing government programs and handing them cash discretionally, PDVSA becomes – what was that phrase, again? – a state within the state; utterly beyond the reach of democratic oversight and accountability.

You’ll search high and low in Venezuela’s 1999 constitution for PDVSA’s right to spend money this way. In the polite fictions of Bolivarian constitutional doctrine, Venezuela operates under the principle of the “Unidad del Tesoro” – all funds paid to the state are meant to go into a single pot. Once there, representatives elected by the people to the National Assembly must give explicit permission, through a budget law, before the government is allowed to spend any of it.

That obviously can’t happen if PDVSA skips the whole parliamentary rigamarole and starts spending money on whatever the president orders that day. Which, more and more, is what actually happens.

PDVSA’s Direct Spending (a.k.a. the Hanky Panky Budget) started out as a marginal sliver of Venezuela’s fiscal math. In 2001, it was $34 million, in 2002, just $14 million. Soon enough, though, that particular frog was boiled all the way through, and the Hanky Panky stuff started to  balloon. With the single exception of 2009 – the closest thing we’ve had to a non-election year in that time, since the only vote happened in February that year – PDVSA’s Hanky Panky Budget has grown every single year since 2002:

The thing is that PDVSA’s Zanahoria fiscal contribution is no longer keeping up. While from 2005 to 2008, its fiscal and parafiscal contributions grew in tandem, over the last three years it’s starting to look like Hanky Panky spending is replacing PDVSA’s Zanahoria Fiscal Contribution.

Notice the contrast between 2008 and last year. The total amount PDVSA dished out to the state didn’t change that much: $55.4 billion in 2008, vs. 58.6 billion last year. But while in 2008, twice as much of that was spent legally than illegally, by last year those proportions had been reversed.

Which allows us to have a look at our Petrocaudillism Index in historical context. Again, we’re dealing with a simple ratio here: the amount of money PDVSA spends illegally divided by the amount it spends legally. It’s looking bad:

As recently as 2009, just 24 petrocents were spent without legislative approval for every petrodollar spent under legislative oversight. Last year, that proportion had jumped to 2.08 to 1.

Which is why I can say, with scientific precision, that today we are 8.7 times more Petrocaudillistic than we were three years ago.

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All the Data for this post comes from PDVSA’s “Informe de Gestión Anual 2011″, pages 158 (for the Hanky Panky stuff) and 214 (for the carrot juice), with additional data from the 2009 Report (page 200.)

49 thoughts on “Adventures in Petrocaudillism

  1. Awesome – love the graphs. 2009 is quite surprising at first blush, but your explanation totally jibes.

    The shift to petrocaudillism is a perverse “crowding out” effect – opacity crowds out transparency and oversight.

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  2. Allways thought that “a parallel State out-off the State” was a more appropriate name. But the other one is the crisper one … so it prevails.

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  3. Nice Job, Q.!

    But if what a constitution actually says makes little difference, who will care about this? I recall the matter of Honduras, and its removal of Manuel Zalaya on very firm constitutional grounds, and his replacement according to the Honduran constitutionby his own party associates. Today, most Latin Americans, including as I recall you, as well as our Mrs. Cllinton, still call that a “military coup”, while the military was involved only to the extent of following constitutional civilian orders, and while the successional was also conducted according the Honduran constitution. Mistakes were very minor and reasonable (meaning they had good reasons).

    I suggest that you read the Honduran constitution to see if perhaps the successful Honduran avoidance of a budding dictatorship just like yours has somethng to do with an army that defends its nation and a strong constitution with clear civilian authority.

    When I hear sophisticated Venezuelans discussing Colombia and Honduras, I can’t help hearing the undertones – that a non-leftist regime such as Uribe’s or a government that kicks out a wannabe-Chavista is ipso facto a “rightist” one with suspect legitimacy – and whether or not it is a functioning consitutional democracy with the consent of its own people is nearly irrelevant to you. I urge you again to pay attention to your constitution and your army for the future of your country after Chavez.

    Otherwise you can do as Quico just did here – very competently complain about your government’s disregard of its laws and of your rights in saecula saeculorum, halleluia amen. If you can’t write a good shadow-constitution NOW to show what you really stand for, some new Chavez will do it to his own liking while the guns blaze away.

    I’m not a frequent participant, so I hope my criticism is out of date.

    But I fear for your beautiful country.

    Warmest Regards,

    Deedle

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    • Yes, “petrocaudillismo” is a great word for a sad state of affairs. Thanks for bringing this mechanism for usurping democracy to our attention. While Chavez himself is too ill to ever have to worry about his actions leading to prosecutions, others don’t have that luxury. Spending legally unauthorized money in these amounts should lead to jail sentences eventually.

      Even in Honduras, the Constitution is important.

      I think Manuel Zelaya had committed acts which should have caused him to be impeached. He violated decisions of the Supreme Court which were within its competence. Unfortunately, the mechanism for impeachment in Honduras was far from clear, and sending the army into the President’s house and putting him on a plane isn’t mentioned either. A good starting point for analysing this is the US Library of Congress Report. http://schock.house.gov/UploadedFiles/Schock_CRS_Report_Honduras_FINAL.pdf

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  4. FT, you nailed it! And even while disbursing all that money pdvsa is becoming a role model as a mismanaged deadbeat NOC, not paying their own workers, suppliers, ignoring contracts and obligations. Ignoring the constitution is normal behaviour for them.

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  5. petrocaudillism
    Yep, that’s it, that’s it. I do so enjoy a new and handy word. I will now use in a sentence.
    We do need no stinkin tulips we got petrocaudillism and badges.

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    • Exactly. Hugo Chavez & co. are an example of many (not all, be really afraid) the things that can go wrong in Venezuela with oil money in the hands of a single party.

      Even if you believe that oil money should be “public”, meaning going into State coffers, evidence mounts before the eyes of anyone interested in keeping both oil and the State honest, that “public” should mean something very different from “used at the discretion of the Executive Branch”

      I believe that oil money should definitely not be all “public”, and that a break with this kind of past and present is needed for Venezuela to become a half-normal country.

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  6. Excellent post, Toro. This trend described by you has not only fiscal consequences, but profound monetary and exchange rate impacts. A real macroeconomic tragedy. Just a minor clarification, I would not relate 2009 fall in the discretionary spending to perils of the political cycle, it was rather the only natural adjustment to the hard hit international financial crises of that year.

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    • I was just wondering what that dip was. Of course, it makes perfect sense. But at the same time what cuased the “lift off” in the trend? There was a very steady slow climb, but in 2011it exploded. Oil prices have not soared by that much!

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      • I was asking myself the same thing. As a complete layman I would still say this:
        once fixed costs of running a country are covered, I imagine the rest can be spent – according to Chavistas – more freely…paying such items as teachers’ loans with Fonden doesn’t make sense.
        Secondly and most importantly: they simply know they can’t afford to lose. What would happen to them? This is not like AD versus COPEI, SPD versus CDU, Republicans versus Democrats…these are the most shameless crooks. Unless oil suddenly becomes worthless they also know anyone else can do what they did as for social programmes…and not steal as they have done.
        Where are they going to go if we start investigating about why they really didn’t investigate the Caracazo? Proyecto Bolivar 2000? Pudreval? The drug deals?
        The weapons deals? FARC cooperation? Where can they go? Cuba? No way.
        They know they have to win this time, whatever may happen next. They know they do that even if they have to pawn their children’s souls.

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      • Rodrigo, the level of spending (both discretionary and not) has increased more or less in line with the price of oil. But what really soared was the degree of illegality as showed by the ratio computed by Toro

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          • Caracas, Carabobo, Miranda? The opposition came to power in 2009 but the government was trying different methods firstly, I suppose

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          • To me is fairly evident: the results of regional elections and National Assembly. Before 2009, PSUV and allies had almost total control of states and the NA. After those elections they had a high incentive to minimize the amount of budget allocated to opposition ruled regions and / or controlled by the Asamblea…

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  7. Excellent article, Quico.

    It would be interesting to come up with some answers as to the diametrically opposite trends of 2008 and 2011 from a political science point of view. It seems to me that a conscious decision has been made to change the balance of legal v illegal contributions to the state. Chavez illness could provide an answer as his allies throw caution aside and focus on maximising the revenue associated with their positions of power. Somehow though I suspect this is not half the story.

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  8. Chavismo fiscal institutions are so f– up that reform will be a titanic enterprise. If I have to signal the real smoking gun, a sort of original sin of this trend, is the persistent criminal tendency for underestimation of the price of the oil barrel in the formal budgetary exercise of each year since 2001. If I were asked for a single really revolutionary relatively low cost reform to start fixing thing up it would be: Name a technical independent board to agree on the macroeconomic premises of the budge

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  9. “But you can’t deny Chavez is an extremely popular politician, can you?” quipped the former UK Ambassador to Venezuela to me in a meeting.

    “Of course he’s popular, you give me the opportunity to spend the kind of money Chavez spends, without oversight (enter here FT’s excellent Hanky Panky story and numbers), and I too can become Venezuela’s most popular politician, even a mentally retarded bloke would become popular with that kind of money!” I replied. Now with this data, couple with other stuff about memoria y cuenta I had published in the past, we can, very precisely indeed, put a price tag on Chavez ‘popularity’.

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    • Ecoanalitica has written about the relationship between government spending and Chavez’ popularity (using info on one of the reputable pollsters that track it periodically), and demonstrated the high correlation they have. On the other hand, it has also shown that as time has passed spending has become inefficient (need more $ to increase popularity), which is logic considering that misiones and similar programs have lost their shine with time. It is an interesting analysis, that if remember well, they published last year.

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  10. BTW, that’s ~$116 billion spent in Hanky Panky since 2005. There’s no beating la chequera que camina…

    Chavez may control every institution in the country and be a dictator alright. But with all that money, in a country of pedigüeños amorales, there’s no chance in hell any oppo candidate stands a chance against him.

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    • Sorry Alek, but precisely many people vote for Chávez because some persons from the opposition calls them pedigueños amorales for having a different political opinion. And in a country of pedigueños amorales half of the people who voted in 2010 did it against him. And the people who abstained don’t care that much about the Hanky-Panky money to vote for him.

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      • Oh yes, that’s right. Chavistas vote for Chavez just “because some persons from the opposition calls them pedigueños amorales for having a different political opinion.” That was their main reason to vote for Chavez in 98, and has been ever since.

        How could we’ve missed that? Please inform the oppo, MUD, politicos, etc., that the minute they stop calling chavistas “pedigüeños amorales” that’ll be the end of Chavez, right there.

        Money has got nothing to do with it, isn’t that right CACR?

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        • Alek,
          Money certainly has a lot to do with it but so has the treatment of the upper- upper-middle classes to others.
          I mentioned this once: went to visit a friend who has a yacht in a marina in Morrocoy (by the way: as virtually other marinas there, it’s going against national park regulations but then money talks). Another guy who also has a yacht there came to talk to us. While talking he mentioned several times how disgusting he found “todos esos monos que están yendo ahora a Cayo X”…he was referring to the poor who were now visitng the cays he saw as exclusive domain of those “con clase”. Don’t tell me about how polluted and clogged Morrocoy is now, this goes beyond that.
          He said more stuff like that. Not everyone with that background is like that with that background. But that happens pretty often. And although the background is not always the same, the pattern seems pretty clear: some (SOME) children of European immigrants
          or those from a traditionally rich family…lots of whom have only prospered because 1) even with their limited education they were the one-eyed in the land of the blind or 2) they had some link to the petrostate that allowed them to become the monopoly importers of X or Y.
          That they worked harder than the rest? Not necessarily.

          It is a mixture of racism with elitism, different ratios for each person. And they talked about that not only in a close circle, among their “peers” in a closed quay or neighbourhood. A lot of other people hear that…and word spreads, you have no idea how word spreads. And it sucks for others because they know life is not that simple: “those there are lazy and we here work a lot for our stuff”. And every time someone says “es que no tienen clase”, “son unos resentidos sociales nada más” etc you piss off a hell of a lot of people.

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          • Kepler, For once, I agree with everything that you said in your post and I am giving you a thumbs-up. The attitude of some of our fellow countrymen towards other, less fortunate, criollos is really despicable and, IMHO, partially responsible for the situation that we are in today.

            I can tell you similar stories about the attitude that some eastern Caraqueños who have weekend housed in Rio Chico towards the criollos of the Barlovento area. Their unfortunate attitude towards these criollos is representative of the “isms and schisms” (yes, this is a Bob Marley quote) of our society.

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        • Is not that money doesn’t have anything to do with why he wins, but my point is that the class prejudice of many people in the opposition does influence why many people are chavistas and reinforces Chávez’ speech about how the opposition does not care about them.
          You call people who vote for Chávez pedigueños. What about the business men receiving millions in preferential dollars from CADIVI, government contracts, elite lawyers advising the government? and many, many other people receiving thousands of time the money people from the misiones get. But because they have, you know dignity, and don’t vote for Chávez or support them openly, no one insults them here.

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            • I agree,
              But my point is that the pedigueños amorales argument feeds right into the class resentment of poor people in Venezuela, and makes it easier for the government to create the rich v. poor argument that has worked so well for them inside and out of the country.

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            • Of course. Now: where can it be more easily controlled and how does it start?
              We can say it’s childish to try to find out “who started it”…and yet we know what we personally ca do so as to contribute to defuse the tension
              and how close we are to what group and thus how we can do our best there.
              I have met some very upper class people in Western Europe and by chance got to know well a couple from the so-called “nobility”. Even if there is a lot of eliticism here as well
              I never heard them talking in such a classist way as I heard some upper or simply middle class people in Spanish America…somehow Renaissance and real revolutions had a stronger impact here than in our continent

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          • What about the business men receiving millions in preferential dollars from CADIVI, government contracts, elite lawyers advising the government? and many, many other people receiving thousands of time the money people from the misiones get.

            Just to be perfectly clear about something here: They are all pedigüeños amorales, the fucking lot of them, from the less fortunate in misiones, to the middle classes living beyond their means with CADIVI, to the tigres-de-zoologico -otherwise known as Venezuelan businessmen- who keep dancing to the tune chavismo sings so that they can get contracts, to the lawyers that are prepared to wipe their asses with the law and allege that they were following orders, to the many, many, other people, such as anti chavistas who decry Chavez but happily queue in the bank each month to get their pensiones… The list is almost endless, and that right there is the crux of the matter CACR: it has got nothing to do with some inexistent moral value -dignity- that has been trampled upon, and all to do with the fact that Chavez knows the idiosyncrasy of Venezuelans perfectly well, and uses the money he’s got to exploit it.

            Miguel wrote a while ago a post about this, Oligarco Burguesito. While his take was about a chavista who got clever, Chavez, the master puppeteer, has got a mision for every bracket of Venezuelan society, chavista and otherwise: misiones for the poor; CADIVI, pensiones and all manner of price fixing measures for the middle classes; and petrobonds and government contracts for the 1 percenters. So I stick to what I said earlier and I am sorry to have given you, and perhaps others, the impression that by pedigüeños amorales I was referring only to chavistas. Every Venezuelan woman or man that hopes to get something for nothing, or undertakes actions geared at getting something for nothing, is a pedigüeño amoral in my book, and that applies to nearly the lot of them. Y el que esté libre de todo pecado, que tire la primera piedra. I already threw mine.

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  11. Can you imagine the time this dead brains must have to spend the time clicking on a thumbs down, clearing what they have to clear & then doing it again for, in the case of Kepler’s last post – 21 times as I write this and 45 times on previous posts.

    He or they are like children. Arturo, Chris or whoever you are get a life & grow up.

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    • You just proved what I said – really, do you think this accomplishes anything besides proving how immature you are?

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      • I can think of ways to get 50 clicks out of mere 5 seconds; perhaps they’re not as dedicated as you imagine.

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      • It’s like the old westerns where the men in the fort put up 30 rifles when there are only 2 people left to defend. 1 A.. H… trying to look like there are more of them. What a childish, immature way to act. Just about describes what’s left of Chavismo these days.

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  12. Dear Kepler:
    Speaking of mutual rich-poor resentment:

    “Of course. Now: where can it be more easily controlled and how does it start?..”

    The appropriate message is this:
    “We resent the rich. We envy their success and would like to be like that. They resent us because they are ashamed of where they came from. But today we have to be Chavista to be rich. Haven’t you noticed them driving around in big cars bought with PDVSA oil and access to the government money machine? We can’t get rich unless we bring back an economy that lets us all do what do best. We want to work, instead of stealing and kissing the butt of a Chavista thug. Let’s try an honest government who lets us ALL work, so we have at least a little more for everyone . Then we can love the people who we would like to imitate as well as the poor who were once just like us.”

    Inclusive. That’s what Capriles seems to be talking about.

    Best Regards,

    Deedle.

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