Into Fonden's Heart of Darkness

Allegorical depiction of Fonden’s Disclosure Standards

Rushing in where angels fear to tread, Reuters today publishes an in-depth special report on Fonden, the off-budget, off-the-record, off-its-rocker spending fund at the heart of the chavista accountability black hole. It’s an amazing read.

The report is explicit on the extravagant opacity that marks the fund’s operations, underlining features that, in my experience, strain foreigners’ credulity. Things like:

The fund now accounts for nearly a third of all investment in Venezuela and half of public investment, and last year received 25 percent of government revenue from the oil industry. All told, it has taken in close to $100 billion of Venezuela’s oil revenue in the past seven years…

Finding out how much of that money Fonden has spent, and on what, is not easy. The most detailed descriptions usually come from Chavez himself, rattling off multimillion-dollar investments on television while chatting with workers and extolling the virtues of socialism. Fonden does not regularly release lists of projects in its portfolio…

The secrecy also makes it impossible to determine what went wrong – at Fonden, or at the ministry level, or on the ground — when a project like Pulpaca stalls.

Now, when I talk to normal people outside Venezuela and try to explain to them that there really is this mysterious pot of money worth over one hundred billion of Venezuelan petro-dollars that simply nobody knows what happened to, I usually get these looks of pitying condescension.

“It’s too bad about Quico,” you can just about see them thinking, “he seems like an okay guy but then he starts spinning these wild, impossible anti-chavista conspiracy theories…shame, really.”

Reuters has now done me the invaluable service of providing a link I can point those doubting thomases to so I can prove I’m not just imagining these things.

In the process they’ve documented some seldom-heard-of Fonden boondoggles that will keep Salvaguarda investigators busy well into Henrique Capriles’s second term.

Take Serlaca, the aluminum mill in Caicara del Orinoco that’s already cost $312 million and four workers lives on its way to delivering…some concrete slab foundations. Or Pulpaca, the newsprint factory that’s sucked up over half a billion dollars and has basically just a couple of Chávez posters to show for it.

But it’s not just the Boondoggle-y projects, it’s the Boondoggle-y financial shenanigans, too. With Fonden plainly unable to spend the huge sums it takes in, much of the money has ended up chasing financial instruments abroad, and when you put together  unaccountable chavista moneymen with billions of public dollars, hilarity is sure to ensue:

Fonden at various times bought risky, high-yield securities in efforts to expand its resources while helping Chavez’s foreign allies. Its unusual portfolio has included bonds issued by ally Ecuador, high-yield derivative securities issued by Lehman Brothers, and Honduran bonds purchased to support then-President Manuel Zelaya.

By 2008, these investments had become problematic: Lehman went bankrupt, and Ecuador declared a partial debt default. In addition, Fonden unloaded the Honduran bonds — purchased at a concessionary rate of 0.75 percent — months after buying them because Zelaya was ousted in a military coup.

Fonden hasn’t revealed whether it lost money in these operations and if so, how much it lost. The fund sold off some of the assets and swapped the remainder for $960 million worth of derivative securities called structured notes, according to the internal Fonden report obtained by Reuters.

But it offers no detail on the market value of those securities. The report does say that Fonden’s auditors pointed out that the fund had not adequately valued some $1.8 billion in complex fixed-income securities. That represented close to a quarter of its liquid assets of $7.9 billion in late 2011, according to the finance ministry’s latest annual report.

This, let us not forget, is being done by a government that just held up the National Assembly’s business for an entire day over a technical reporting violation on a campaign contribution of less than $10,000!

The entire report is worth reading: it just piles up one crazy outrage on top of another. One genuinely baroque elaboration on Fonden’s culture of rule-breaking has to do with its inability to follow not just the constitution (which mandates congressional approval of all spending), but even the fake little in-house rules the fund gave itself to generate an impression of being rule-governed:

A Fonden 2007 instruction sheet for agencies seeking funding says it does not finance the purchase of buildings, vehicles or shares in companies. But by 2010, it had disbursed nearly $700 million to buy shares in a retailer and two cement-makers — payments generated by several nationalizations ordered by Chavez. It also set aside $46 million to buy an embassy building in Moscow, and $19 million to buy a fleet of busses for use during the 2007 America’s Cup soccer championships.

Well that’s just the cherry on top, ain’t it?! Because let’s review the score here: Fonden, which has no constitutional authority to appropriate any money without National Assembly approval in the first place first flouts this constitutional requirement, then invents a new set of rules out of thin air and then, then, proceeds to flout its own made up rules!

The story really is worth reading in full, because there’s plenty more where that came from: big dollar transfers to Cuba for projects that are never specified, millions to the Venezuelan president’s office for reasons that are never given, millions more to fraudulent social programs that flout not only Fonden’s rules but their own internal rules…and on and on and on. And through it all, the constant refrain, reverberating like a lament throughout the piece: “the agency did not respond to requests for clarification.”

The horror…the horror…