The Devil's Excrement

I have no idea if what Quico in Caracas Chronicles and I have been writing about Fonden has anything to do with today’s front page in El Mundo (part of the article here):

Fonden Accounts do not add up

Report sent by the Ministry of Finance shows an unknown amount of US$ 28 billion. Opposition Deputies will ask for clarification of the numbers of the fund that feeds from the abundant oil income.

but I do get some satisfaction that it is getting coverage after our effort!

When you look at the Fonden Papers, the first question that comes to mind is: How is it that despite spending US$ 9 billion (Fonden) and US$ 2.2 billion (Chinese Fund) in 2010 alone, a huge number compared to the budget, it has so little impact on the economy, public works, visibility and the like?

The answer is simple, these are supposed to be development projects, but in the end the whole process has been perverted by ideology, lack of economic understanding and Hugo Chavez’ whims. And I bet it is those whims that delay and divert money, insuring that the few thing that could generate growth and development are not finished on time.

The problem is how the money is spent. As Quico in Caracas Chronicles has shown, the top four areas over the five years of Fonden expenditures got 70% of the money. Energy and oil was number one, Transport and Communications was two, Defense was three and Cuba was number four.

On Energy and Oil, there is the weird fact that PDVSA contributes to Fonden and then Fonden turns around and gives the money back to PDVSA. This sounds so weird that it’s fishy, but let’s assume these are bona fide PDVSA projects. The problem is that it’s well-known how few jobs these petrochemical/oil projects generate and in the end, it is a zero sum game, PDVSA gave money to Fonden which goes back to a company that is not investing what it should anyway.

Then, there is Defense. Most of the projects are about importing gizmos and toys, which simply give something to do to our military, but truly contribute little to the economy and development.

Cuba is number four, but it obviously contributes little to the Venezuelan economy.

Then there was Transport and Communications, a typical area that contributes to the economy. There are railroads and subway systems, but I decided to pick on a Chinese Fund project that I thought I could follow: The highway of the Autopista de Oriente between Las Lapas and El Guapo, line 1 under the Vice-Presidency under the Chinese Fund. This project for a 33 KM. piece of highway came to US$ 143 million, or US$ 4.3 million per Kilometer, which I have no clue if it is reasonable or not, in terms of price. You can see the stretch of road we are talking about in the map below, it is the one labelled number 3.

The earliest reference I can find to this part of the road was this Radio Mundial link, in which then Governor, now Deputy Diosdado Cabello (he was ousted by Capriles in an election) says that next week (this was Nov 24th. 2007!) they will name the winner of the bidding for the project. Cabello gloats, that once this part is done, they will build beyond El Guapo to Playa Pintada to complete the whole highway in his state.

A few months later in May 2008, the Agencia Bolivariana de Noticias carried an item (now not found on that website) saying that the Las Lapas-El Guapo road would be funded by the Chinese Fund and would be ready in two years (That would have made it May 2010, 15 months ago)

Except that this picture is from the construction of the road in October 2010, less than a year ago:

In fact, close to four years after the the announcement of the winning bid, the road appears to be about half completed, because in March of this year, for the Carnival holidays, the Government allowed cars to flow through the 15 Kilometers of only one side of the highway that was ready. In fact, I asked a friend who confirms that the road has yet to be completed to El Guapo.

The Vice-President, Elias Jaua actually opened this half of half the road, saying the money had been approved for the whole road (something that happened  already in May 2008, three years earlier) and that by Christmas 2011, these 15 Kilometers of the highway would be finished and then, they would complete the road all the way to El Guapo.

Thus, the two year 33 Km. project is now two years behind schedule and after four years, only 15 Km. of the 33 Km tranche. will have been completed.

Clearly, execution is not this Government’s forte.

But it is more than that. This Government loves to make announcements and clearly the money is not even there. When Diosdado Cabello announced a company had been chosen to build the project, there was no money for it. It was only six months later when the money was found thanks to the Chinese Fund. The rest, since then, is unknown to me. I have no idea why it has been delayed so much. If execution speed goes as badly as it has gone so far, it will take at least four more years to complete the remaining 18 Kms. to El Guapo. That is eight years or four times the original estimate!

And this shows why there is so little economic impact. Projects are drawn out for years, badly executed and the money is not being spent in the right areas, because the Chavista Government prioritizes ideology (Defense, Cuba) over investment projects that generate jobs or infrastructure. And even when they have these projects, after twelve years in power, they have not found a way to be effective and efficient. And I am ignoring corruption!

Just think, the Caracas-la Guaira highway, about the length of the first part of the Las Lapas-El Guapo road, was started on December 1950 and inaugurated on December 1953. But at the time, this was truly an engineering feat, with huge viaducts and an imposing grade, the Las Lapas to El Guapo highway is mostly flat and has little engineering novelty.

I hope the readers will look at the Fonden papers and find one project to study in their area of expertise, this way we can all pool our expertise and dissect how much waste these discretionary funds represent.

I will publish any material you send on the subject!

About two weeks ago I told the story of Deputy Carlos Ramos of the National assembly who provided us with an excel spreadsheet of the projects financed by Fonden after I wrote to him. The sequence of how this spreadsheet came about was somewhat unclear, the Congressman saying that there was some US$ 29 billion, give or take a billion simply missing. He made this discovery when he added all of the numbers provided by the Minister of Finance and realizing the total was different, the Minister saying US$ 69 billion had been approved for projects, but the addition of the numbers totaling only about US$ 40 billion.

Quico at Caracas Chronicles then decided to call the Deputy’s assistant to see if we could obtain the original information. But it just so happens that XXIst. Century Socialism, uses XIXth. or XXth. Century tools. There isn’t a scanner to turn the 30 or so pages turned in by Minister of Finance Giordani to the National Assembly into digital form, thus, unless Quico, who lives 2,448 miles away from Caracas, could drop by and pick them up, he (and we) were out of luck. Fortunately, the Devil had to go to Caracas and could go get the papers.

Thus began my trek to the Pajaritos building. The building (pictured above) is actually called the Jose Maria Vargas building, but nobody calls it that, everybody calls it Pajaritos, the name of the “Esquina” (corner) where the building is. I made the mistake of showing up five minutes past noon, which meant that I could not enter the building. (The building is shared by the administrative offices of the Judiciary and the National Assembly, each has its own reception, which opens into the same hall, you can get into the Judiciary at any time, but not to the Assembly between noon and 1:30 PM)

I called Deputy’s Ramos office and they told me they would come down and give me the info we had requested. Waiting there was an experience in itself, I could not go in, but the guy in the mortuary suit that controlled the people allowed a few ladies, buddies and officials to go through. While I waited (He asked me three times what I was doing standing around there, I studied the dozens of people who showed up looking for help. Quite an experience, from Guajiro indians to students wanting to talk to their Deputy, mostly to see if they could get some money (preferably cash).

Finally, the extremely efficient assistant of the Deputy came down and gave me a folder with copy of all the material. You can find the projects all here. Essentially, the story is that Deputy Ramos, as a member of the Comptroller’s Commission, requested on April 6th. that Giordani give him a full list of projects approved not only for the development fund Fonden, but also for the Chinese fund, the Fondo Chino. On April 28th. Minister Giordani sends the info to the head of the Comptroller’s Commission, Hector Navarro and on August 2nd. Deputy Ramos sent Giordani a letter asking about the fact that there seems to be some US$ 29 billion missing from the project list.

The problem is that, as you can see in the link, Minister Giordani provided the complete list of 140 projects, giving the name, the Ministry, the amount awarded, the amount disbursed over the years and the amount disbursed in 2010 (Which is actually the only thing the Deputy was asking for) But Giordani sent all of of the info, and when you add up the total amounts approved and disbursed historically, the information provided says that projects were awarded some US$ 69.446 billion (down to the cent as Quico shows) of which US$ 66.057 billion has been disbursed and US$ 9.621 billion was disbursed in 2010.

Except…that if you create an Excel spreadsheet put all 140 numbers and add it all up, the total is “only” US$ 29 billion short, as discovered by Deputy Ramos. Now the Deputy is asking for even more information, including who got the contracts for each project.

It’s interesting to note that the total given  by Giordani is roughly what was contributed by the Venezuelan Central Bank, under the screwed up concept of excess reserves, and PDVSA, whose contributions are now set by law, as shown in the Table below, where I have used all public sources from the BCV, Fonden and PDVSA to come up with the grand total of US$ 69.80 billion contributed to Fonden.

We can speculate all we want: Were projects removed from the list? Was the total simply faked? Was this intentional? Was it sloppiness? Can they provide the information or they just don’t have it? Is the money somewhere else? Is the money missing?

But no matter what, the point is the same, US$ 29 billion is currently “missing” or unaccounted for from the parallel fund Fonden, which is managed by Chavez and Giordani at will and in an extremely discretionary fashion. (They used part of the money to buy a new Embassy in Russia, for example)

This would be a scandal in any country in the world, but apart from Deputy Ramos and a couple of nutty bloggers, it just seems to have not even induced a yawn in Venezuelan politics.

Hopefully, we will help bring the issue more into the spotlight.

And again, kudos to the Deputy and his efficient and diligent assistant!