Venezuela: Central Bank Transfers $1.5 Billion To Fonden Fund (Chavez Slush Fund)

[naaman fletcher]

I wonder why a politician would put his country into debt in order to transfer money to an off budget spending vehicle with opaque bookkeeping. Hmm, must be for the people.

.................................................

http://online.wsj.com/article/BT-CO-20100302-708042.html?mod=WSJ_latestheadlines


CARACAS (Dow Jones)--The Venezuelan central bank completed its second transfer this year to the Fonden development fund, an off-budget spending vehicle favored by President Hugo Chavez, from its international reserves.

The central bank paid the Fonden $1.5 billion this week, according to data for the central bank's international reserves which now stand at $30.6 billion, the lowest level since August 2009.

The central bank has transferred so far this year $4.5 billion to the Fonden, part of the $7 billion it has to hand over in 2010 from its reserves.

The transfers to the Fonden, along with possible dollar-denominated bond issues this year could turn Venezuela into a net sovereign external debtor as early as 2010, Fitch Ratings said in a press release on Feb. 8.

The Fonden, which has notoriously opaque bookkeeping, received $12 billion last year from the central bank.

Under laws passed on Chavez's demands, every year the central bank hands over part of its international reserves beyond a predetermined "optimum level." It also receives financing from the state oil company Petroleos de Venezuela SA, or PDVSA.

The Fonden's spending project range from major infrastructure ventures to social programs.

[bemildred]

1. The central bank "receives financing from the state oil company Petroleos de Venezuela SA"?

What is "it" in this sentence: "It also receives financing from the state oil company Petroleos de Venezuela SA, or PDVSA."? (Second paragraph from bottom in posted excerpt.) One can infer that the central bank is not "it", and that "it" likely is the Fonden Fund, but it is not clear.

WRT the OP, the central bank is and ought to be a creature of the government, so it's tough nuts for them.

[protocol rv]

2. It is bad for the country

The creation of an "off-budget" fund is not a good idea. It is more sensible to have the budget approved by Congress, and the executive branch to spend it as approved. By creating this FONDEN, they create a fund which is controlled by the executive power, with budgeting kept out of the light. This creates a very good opportunity for corruption.

While the Central Bank is indeed a government instrument, it is also a good idea to have the Central bank shielded somewhat from the executive's orders. This helps the bank make decisions based on what is good for the economy, and not what is good for the individual in power.

This is just one of the signs of the way Venezuela's system is breaking down, evolving into a system which lends itself to autocracy and corruption. It is not working very well, by the way, there is a lot of inflation, now around 30 % per year, and the economy is performing poorly. This is called "stagflation", and it can be deadly. I think the President is being given advice by some low quality economists. They should know better.

[bemildred]

3. Time will tell.

I'm all for accountability in government, especially at the ballot box. I'm just saying that the bank is elected by nobody and ought to be subservient to the government. If the government screws up, then vote them out. That's the way things ought to work.

[protocol rv]

4. Wrong idea

Well Bemildred, in most nations the National Bank is given a certain independence from the executive branch. Remember, "the government" in a well run country is made up of three separate powers. The Presidency isn't supposed to be an absolute monarchy. Maybe you are an American, and you have been gradually bent to the idea that an Imperial Presidency makes sense.

But this isn't the idea your founding fathers had, and this is not the idea many of us have in many countries. It is better to have the Executive branch as a co-equal with the other branches, so that we can avoid autocratic behavior, and the consequences. In the USA, the autocratic behavior of the Imperial Presidency leads to misbehavior, such as the insane actions of the Bush years (the iraq war, the torture of prisoners, and the ruin of the economy), but also to insane actions of previous presidents, such as Clinton, who had his little war in Yugoslavia in 1999, and the stupid interference in Somali affairs, which led to the defeat of American forces in the Battle of Mogadishu (what you call Blackhawk Down).

[bemildred]

5. I said "the government", not "the Executive branch".

If Venezuelans don't like the way their government works they can have another election and change it. It is quite normal anywhere you go for popular elected politicians like Mr Chavez to get their way. That's what elections are supposed to be for, to decide who gets to run things.

[protocol rv]

6. It wasn't "the government", it was "the executive branch"

"The government" doesn't lean hard on the Central Bank, it's the executive branch - ie the president. In today's Venezuela, the National Assembly is a rubber stamp, the Supreme Court is just an instrument of the executive, and the executive acts without consulting, or even considering the facts.

It's easy to say, "well, you can vote the guy out in 2012". But things are going awry right now, the problems are serious, and thus by 2012 the country will be in a very deep hole. This is similar to what happened to the USA under Bush, somehow the Americans managed to be stupid enough to re-elect the guy (not that he was elected in 2000 anyway), and Bush inflicted enormous damage to the country, both the economy, as well as its moral fabric and reputation.

I think President Chavez had excellent ideas when he was elected the first time, and I was really angry when I saw the way they did the coup against him, but lately the man has been too influenced by Cubans (who don't have much of an idea about economics), and is not taking care of business inside Venezuela the way he should. He spends too much time arguing with other countries, basic things like police, hospitals and garbage collection are neglected, and the national economy seems to be managed by people who don't understand the basics. For example, they delayed the devaluation too long, and gasoline prices are too low, it is really ridiculous to sell gasoline so cheap it's less expensive than water.

[bemildred]

7. That is your view.

You assume what you conclude. "The President" is in fact part of "the Government", and I get to choose which I meant, not you. If you want to babble on about Chavez that is fine, but I still get to say what I choose, and I view Chavez as a normal part of "the Government".

[protocol rv]

8. But Chavez isn't a normal part of the government

Chavez is the government.