WikiLeaks: Corruption stifling Venezuelan production in favor of imports

El Nuevo HeraldMarch 8, 2012 

The destruction of Venezuelan production in favor of imports is worsening the scarcity problem and creating corruption by those who want to obtain bigger contracts, says a report by the private intelligence firm Stratfor released by WikiLeaks.

The report, which covers part of the more than 5 million emails revealed by the online organization, indicates that officials of President Hugo Chávez’s administration involved in importing food stockpile products to justify new transactions.

According to the report, the loss of thousands of tons of food in ports can be attributed in part to corrupt officials’ practice of not releasing products acquired abroad.

“As long as there is scarcity of a certain product, importers can present a strong argument for the need to import even more products, and therefore we have warehouses packed with products that are rotting and power generators that are useless,” says the report written in the middle of 2010.

The report points out that the corruption cycle is fed by the government’s economic policies, including its efforts to increase the role of the state through expropriations policies and a strict currency exchange system.

Both policies have represented a devastating blow to national production, which has led the government to import products through its state enterprises.

“The country’s distorting and unsustainable currency exchange system is not only pushing more and more segments of the economy to the black market (which leads to a bigger inflation and the scarcity of basic products) but it also serves as a catalyzing agent for a broad money laundering scheme that seems to be going out of control and therefore weakening the government’s control of power,” the report said.

The study said that the aggressive nationalization campaign launched by the government in the last four years to increase the population’s dependence on the state had given Chávez political benefits. However, those benefits have been accompanied by “blatant incompetence, poor management and corruption, which have led to a generalized decrease of the Venezuelan productivity.”

The country’s economic problems are accentuated by the exchange currency system that restricts the acquisition of foreign currency.

When the report was written, the country had three different exchange rates. It was simplified in early 2011, but the strict limitations on the purchase of dollars are still in place, prompting a black market where the U.S. dollar is normally quoted at double the current official exchange rate of 4.3 bolivars per dollar.

These restrictions aggravate even more the supply by exerting more pressure over national production.

According to the report, the possibility of importing food at a third of the production cost due to a subsidized exchange rate has the potential of “largely destroying” the incentives to produce food in the country.

This situation, combined with the government’s efforts to freeze prices, has created acute problems of scarcity that the country suffers.

The currency exchange scheme also generates other problems.

“The numerous and complex incentives generated by distorting currency exchange systems invariably lead to fraud and to a spiral of corruption,” the report said. “The Venezuelan exchange system is no exception.”

The distortions could have played a role in the scandal of food imported by the state oil company PDVAL in 2010, the report said.

The scandal over the detection of 130,000 tons of rotten food can be attributed in part to the poor management of Bolipuertos, a state firm with Cuban participation that operates the country’s ports.

“But the less obvious reason — though more disastrous — is that the ports are operated by mafias and the Venezuelan state enterprises and their affiliates are exploiting the privileged access they have to subsidized exchange rates to get rich on them. In other words, many of these situations of scarcity are deliberate,” the report said.

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