Photo: Forbes, retrieved.

The Guaidó government is perceived by some in the international press as a para-government. 

This began almost immediately after his constitutional term as transitional president began, with the AFP making reference to a “parallel government” within a day of Juan Guaidó assuming the title. This past week (August 25th) the Associated Press described Guaidó’s cabinet appointments as the creation of a “shadow cabinet.” Guaidó’s power is quantified by the number of countries recognizing his leadership, while Maduro’s power is measured by whatever patience remains among his Russian, Cuban and Chinese superiors.

Guaidó must differentiate himself, then, from the Maduro regime to end this talk of parallels and shadows. He must distance himself from the stagnation and impotence that has plagued the opposition since Chávez came to power, too.

Many things must be achieved to attain real power. National Assembly-appointed bureaucrats must take their lawful place, and the unconstitutional ANC must be abolished. While this must wait for a change in Miraflores, Guaidó can take one important step today to help the executive become a government branch rather than the only branch. 

The steps are those taken by other resource-rich nations: Creating a sovereign wealth fund through capital found in Venezuelan government’s seized bank accounts in the U.S., to level power amongst the branches of Venezuelan government, increase transparency and move the nation towards a prosperous future. 

What It Is (and How to Do It)

Despite the country’s oil riches, Venezuela has never had a serious sovereign wealth fund. The closest attempt came in 1998; spurred on by the IMF, Venezuela created the Macroeconomic Stabilization Fund, which would have locked away any oil profits above a $9 per barrel, reference price. The fund was soon dismantled in the early years of Chávez’s presidency for his social projects, leaving Venezuelans to wonder what could have been as the price of oil increased exponentially soon after. 

Citgo must keep its earnings and assets. But there’s more to start the fund.

A sovereign wealth fund would allow Venezuela to fund long-term investments (education and infrastructure), manage pension liabilities and provide a hedge against fluctuations in commodity prices. Funds are managed independently of whatever political party is in power, reporting fund performance on a quarterly or annual basis. This component is key in Venezuela’s case, as it ensures that elected officials do not splurge government coffers to remain in power. 

A sovereign wealth fund would allow the Guaidó administration to stand outside the regime’s shadows and show that they’re not just a mere alternative, but a new way of doing things. 

To launch a fund, help can be asked to a neutral third party. Norway is an alternative, and this is a matter Norway knows quite well. Norway’s Oil Fund was founded in 1990 and saw its first inflow of capital in 1996. The Ministry of Finance owns the fund and it’s operated by an arm of the country’s Central Bank. Its three primary allocations are in equity, fixed income and real estate investments, all outside Norway. In 2019, the Oil Fund’s value surpassed $1 trillion. At the height of Chávez’s presidency, Venezuela’s international reserves did not surpass $45 billion. 

Closer to home, Panama or Ecuador are two other possible alternatives. The Fondo de Ahorro de Panamá, like its Norwegian counterpart, presents yearly audited financials and investment strategy; sovereign wealth funds are nothing new to Latin America. While Chávez weakened and disassembled Venezuela’s attempt at a sovereign wealth fund, the Panamanian Fondo has gained strength with successive administrations. Upon its founding in 2012 and under the tenure of Ricardo Martinelli, the Fondo received revenues generated by the canal that exceed 3.5% of GDP. In 2018, the Juan Varela administration passed a law that reduced the GDP threshold to 2.25% for 2020 and onward. 

The Opportunity

Although the long-term funding source would be oil revenues generated by PDVSA and Citgo, Guaidó can kick-start the fund by directing the capital seized from the Maduro regime by his international allies. 

A sovereign wealth fund would allow the Guaidó administration to stand outside the regime’s shadows and show that they’re not just a mere alternative, but a new way of doing things.

Figures on the funds handed to Guaidó have remained vague. An undisclosed amount in U.S. bank accounts has been seized, and the Bank of England currently holds $1.2B of gold that it refuses to give to Maduro. An additional $120 million owed to the Venezuelan Central Bank from Deutsche Bank as part of a defaulted loan should be claimed by Guaidó. As the fund forms, the new government should also consider financial help from non-profit organizations, too.

Guaidó’s partners, for the time being, have some leverage if they wish to keep the figures obscure. A sovereign wealth fund, however, can still publish quarterly or yearly reports on growth, marking the beginning of a new era of transparency, which would only improve as Guaidó and his democratically elected successors gain more power. 

But the whole idea is about the long term and money for reconstruction.

The Long Game

Locking up funds with a long-term view will incapacitate the kind of irresponsible social spending that launched Chávez to international fame (and the country into the abyss). 

A short-term strategy wins the next election by temporarily reducing poverty (at the cost of quality education, working opportunities, basic standards of living, dignity, and, in short, the future). Unlike populist promises, a sovereign wealth fund provides a slow-and-steady source of income to address some of Venezuela’s most pressing issues. 

Venezuela could even adopt the Panamanian model, allowing the presidency to access the dividends on a yearly basis, providing also for additional withdrawals in the case of economic downturn. By limiting the president to only dividends during years of economic growth, all administrations get a leveled playfield that doesn’t rely on the oil price lottery. Fund assets can grow over time through capital appreciation and yearly capital contributions, assuming the oil price exceeds the defined threshold. 

The commitment of capital to long term growth is much more significant than any promise the opposition can make today. Talk is cheap. Chávez presented himself as a moderate candidate in favor of privatization, before showing his true colors. A Venezuelan sovereign wealth fund can finance solutions to the current crisis and help to create a true democracy… by reducing the president’s power.

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Michael Khayan was born and raised in Caracas before moving to New York in 2003. He has worked on climate change issues and sanctions related research on Venezuela. He graduated from Adelphi University in 2015 with a BA in Political Science and Psychology followed by an MA in International Relations and Economics from Johns Hopkins SAIS in 2017.