A brand new report by Transparency International’s Venezuela chapter confirms our not-so hard-to-place suspicions: The public sector’s massive portfolio of enterprises is a financial black hole. The report is part of a much larger effort by Transparencia Venezuela to map and identify the large number of State companies in Venezuela, which will be public in the future.

According to official government data, the annual losses reported by an estimated 70% of all State companies totaled 1.29 trillion bolivars in 2016, which is greater than the public sector’s total expenditure on important areas like health, education, housing and social security (which added up to Bs 1.13 trillion) in the same period. Talk about priorities!

The remaining 30% of companies… well, we know nothing about. In violation of the Organic Laws of Financial Administration of the Public Sector, of the Public Administration, and the Law Against Corruption, they simply do not publish their budgets or financial statements. That means that the financial losses that the report cites for the overall portfolio of state-owned enterprises could actually be even larger.

Venezuela beats Argentina (52) and Brazil (130) handily in terms of total number of State-owned companies.

Transparencia Venezuela discovered the existence of at least 511 state-owned enterprises since the start of a related investigation in June of last year. These are just companies managed by the Executive Branch and do not include those controlled by State Governors or Mayors, so the number could be much higher.

Caracas Chronicles spoke with Christi Rangel, who was part of this report. She mentions that the report’s conclusions were based on three Official Gazettes, which included budgets and financial statements released by the National Budget Office (ONAPRE) in accordance with the Anti-Corruption Law. Then, it compared the totals with the annual expenses on the mentioned public areas in both the 2016 National Budget and related additional credits.

Rangel also considers that some of the budgets and financial statements released to the public domain are doubtful and cites a concrete example: The money-losing sugar refining complex known as CAAEZ. They show a profit for 2016, even though press reports from the same period show a very different picture. (As a matter of fact, the AN’s Oversight Committee recently released their own findings about CAAEZ – and they do not square up with the official story).

Rangel, who is the regional coordinator of Transparencia Venezuela in the Andes Region and an Economics Professor in Los Andes University (ULA), told CC that how most of these companies were created between 2006 and 2010. In contrast, Nicolas Maduro only created 77 companies since taking office in 2013. This total includes expropriated companies by the government, companies created by the government and those involving PDVSA.

Most of the state-owned enterprises belong to the manufacturing sector (23%), but companies in the financial and insurance services were allocated more budgetary resources (42%), even though they only make up 7% of all companies. In comparison with other nations in the region, Venezuela beats Argentina (52) and Brazil (130) handily in terms of total number of State-owned companies.

However, the money pit is expected to become deeper and dodgier this year as new funds are allocated to the State’s enterprises in what is perhaps the least transparent budget to date, that is, the 2017 National Budget.

9 COMMENTS

  1. The public sector’s massive portfolio of enterprises is a financial black hole.

    I am reminded of how Argentina dealt with hyperinflation and a recession in 1989. President Menem said that the measures to solve Argentina’s economic problems would be equivalent to “surgery without anesthesia.” The solution turned out to be more painless than anticipated. Many state-run enterprises, most of which were being run at a deficit, were either sold or shut down. That was sufficient to stop the hyperinflation.

    It turns out that the driving force behind the hyperinflation was to print money to cover the money-losing government owned enterprises.

    Good riddance to Argentina’s government owned enterprises. It took a year and $1500 to get a landline from the state-owned telephone company. I took a 450 mile trip on the state-owned railroad which took about 24 hours. This without transfers: about 20 miles per hour.

    As Chavismo will refuse to deal with the money-losing publicly owned enterprises, the black hole will continue until Chavismo is out of office.

  2. Just to clarify. These companies were created, or nationalized in 2006-2010. In other words: Did they exist as private enterprises before then?

    I suspect not. If true, then these are nothing but shell companies designed to steal public tax money. Probably by insiders who knew how to get them nationalized and subsidized by the government.

    So the business plan is:
    (1) Start a company to make some product or provide some service. No need to be profitable or viable.
    (2) Get it nationalized
    (3) Sit back and enjoy the profits since you will always be given enough revenue to pay the bills.

    • Some of them were formerly private, then expropriated by the government. Others were State-owned right from the start.

  3. I understand that the expropiating craze was quietly stopped a couple of years ago as it became clear the the govt appointed managers of these companies were running them aground . Some companies continue to be expropiated but only when there are strong propaganda reasons for doing so or when the companies are already broke and the govt is forced come to their rescue to save the jobs of those working in them …..!!

    Met a guy ( an ordinary labourer) who worked at a factory which was expropiated and told me that after a while the company was such a disaster that the govt was forced to quietly call the former owners back to take again control of the company . The culprits in his opinion were the ignorant guys the govt appointed to head it after it was expropiated.

    Also have heard that all expropiation of agricultural and cattle raising lands has stopped , again after it became evident that what ever land was expropiated their production fell catastrophically if first they were not laid bare of every thing in it by the occupying peasants..

    I suspect that part of Pdvsa’s financial problems are due to the fact that its been used as a piggy bank by the regime to cover the very heavy expense of continuing to run totally unproductive expropiated industries , among them :the heavy industries of Guayana.

    “Come the revolution’ one of the first things to do will be to dispose of most if not all of these failing companies whether by selling them or shutting them down…!!

    • I suspect that part of Pdvsa’s financial problems are due to the fact that its been used as a piggy bank by the regime to cover the very heavy expense of continuing to run totally unproductive expropiated industries , among them :the heavy industries of Guayana.

      I would rephrase that: “nearly all of PDVSA’s financial problems are due to the fact it’s been used as a piggy bank, whether it has been used to fund social problems, cover operating deficits at other companies, or to enrich the bank accounts of enchufados.”

    • The “expropiation craze” stopped when Exxon sued the chavista government for billions for stealing their assets in the country, in other words, they stopped because somebody didn’t just sit and took it quietly.

  4. It’s hard to not become small government fanaticals after reading about the Venezuelan experience. Even the most stubborn Venezuelan leftist must be tempted to try something new by now.

  5. “Even the most stubborn Venezuelan leftist must be tempted to try something new by now.”

    Uh, no, they don’t care what happens to the country as long as they get their share, they’re prospering.

    I live in a town in the east of the country. A month or so ago, Godgiven Hair did one of his rallies at the local town square and the population swelled. The great majority of those who attended were not from here as evidenced by the hundreds of new cars that arrived. Godgiven apparently has a traveling gang of groupies who make all of his ralies.

    The locals commented that they’d never seen so many new cars in their life. Of course, most vehicles here in town are sitting in garages with flat tires and the motors sitting on the ground next to the vehicle because spare parts are almost impossible to find and too costly if they can be found.

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