Missing the Point of Fonden


Elias Jaua cutting the ribbon on some Fonden project that nobody knows how much they spent on, nobody audited, and somebody undoubtedly got gobsmackingly rich out of…

Long time readers know I have a special fascination with Fonden – the Chávez-created National Development Fund – and, as a corollary, with the Venezuelan press’s utter failure to explain it.

It remains a subject of undying fascination for me: all these years later, even the newspaper reading elite – hell, the newspaper writing elite – doesn’t seem to have any clue what Fonden and its sister-funds are, or why there might be a problem with them.

Take this fairly representative piece by El Universal’s Mayela Armas: it describes a rumoured government’s plan to “unify” Fonden with all the other “parallel budget structures,” like the China-Venezuela Fund and other hierbas aromáticas del paraestadismo chavista.

What strikes me is how Armas fails to explain any of the reasons this story is interesting, or important, or might be worth knowing about. Instead, she leaves you with the vague sense that there’s some kind of boring bureaucratic reorganization in the government’s financing architecture that you probably don’t need to bother with.

Here are some of the things Armas – one of the top financial reporters at Venezuela’s oldest establishment paper – forgets to mention:

  1. That we don’t know how much money any of these funds have. She mentions we know $125 billion or so have gone into them and vaguely says the “details” of their activity hasn’t been reported. But what hasn’t been reported is not “the details”, it’s about the big, headline numbers: right now, the standing balance in Fonden is a state secret.
  2. That nobody audits any of these funds, nobody outside a tiny hyper-enchufado petit committee knows how much they spend on what when or why, that there’s no mechanism for anyone to force this basic information of evident public interest to be disclosed and that, strictly speaking, there is no verifiable guarantee that the funds even have any money funds in ’em in the first place.
  3. That this level of opacity, this orgy of spending that nobody’s ever put on the public record much less subjected to parliamentary approval, is clearly, plainly, deliriously, directly unconstitutional, Article 314 being one of those ones we’ve all decided doesn’t exist somehow.
  4. That the Chinese Fund is the product of an elaborate, long-running set of bilateral negotiations between the Venezuelan and Chinese governments and is therefore subject to special rules and oversight mechanisms through the Chinese embassy that don’t apply to the rest of the funds, rules that look surprisingly like – only far more invasive than – the type of conditionality that the IMF used to impose on  recipient countries, and that therefore you can’t just dump all of the Chinese Fund money into Fonden, or at least not without defaulting on a yards’ long catalogue of agreements with your key financial partner and fastest growing trade partner and key strategic diplomatic relationship (unless the idea is to somehow unify the funds by dumping the Fonden money into the Chinese fund and give China imperial rights over resources they didn’t even lend us in the first place, which seems crazy, but not any crazier than the other alternative.)

These are the bare-bones-basics of what remains one of the Big Three Chavez Era Corruption Cesspools (along with CADIVI and Military Drug-and-Subsidized-Product Smuggling.)

Fonden is more abstract and technical-seeming than the other ones, granted, and so the sprawling, 12-figure scandal (over ONE HUNDRED BILLION DOLLARS FERCHRISSAKE!!) barely gets talked about. People – not just Joe Blow in the por puesto, but educated people keenly interested in public affairs, have no idea that there’s a problem with it.

And how could they? When it does get written about, it’s in the sanitized terms of Armas’s nonsense little write-up.

45 thoughts on “Missing the Point of Fonden

  1. You are absolutely right, this is the single most important and least understood issue of Venezuelan economic mess by mainstream circles. When I read the original piece in El Universal, I said “finally”. But then, so many questions remained unanswered that I did not bother to keep thinking on how significant this would be in the near future for Venezuela’s little *red adjustment*.


    • A secret fund of an unknown amount arguably exceeding $125 billion that has run for a decade during the biggest oil bonanza the country has known in its entire history. A budget calculated at half of the real price of the oil barrel, the main (or should I say the only) source of revenue of the country. A country, despite all the aforementioned, in ruins with scarcity of pretty much any goods that you can think of, with constant blackouts and water supply interruptions, with hospitals falling apart demanding patients to bring their own gauze and aspirin. Half of a population that still supports a group of thugs in power. Hundreds of boliburgueses in any of the major cities of the country bragging about their millions of dollars in savings overseas, expensive cars, private clubs, properties in Miami, Aruba, Spain, etc., while the regular Joe can barely afford to eat once a day and full professor at a university makes close to $200 a month (Sicad II). Can you figure where the money went?


  2. Sigh…sigh…¿qué te podemos decir?

    Probably more resources have been stolen Venezuelans through FONDEN than through any other method since Juan Vicente Gómez came to power (at least Gómez mostly stole fincas, which later went to the State, he bought some stuff from the gringos but not that much)

    And the most detailed analysis about FONDEN is the data Miguel and you produced, which deputy Ramos, the one oppo politician dealing with that, has placed, as you know, on his site:

    A couple of million Chavistas are still angry at López for diverting around $ 106,194 from PDVSA back in 1998.


    • “A couple of million Chavistas are still angry at López for diverting around $ 106,194 from PDVSA back in 1998.”
      Being that coming from chavista propaganda-mongers, one can instantly dismiss it as just another red cloth.


  3. It all begun with one of the Convenios Cambiarios when it provided that to the extent Pdvsa forex export income exceeded the countries import needs (which would be sold to BCV) and Pdvsa own forex spending the rest would go to a development fund to be used in projects of national interest (might include industrial projects , housing projects , misiones , almost anything the govt might want to fund without using controlled national budget. money)

    Fondem was formed to spend money without any control or supervision ,at the whim of Chavez. Much of the money received by Fondem comes from the Chinese fund which is funded by the oil royalties which by law Pdvsa must pay the govt in money or in specie ( 30% of total production) a large part of which is sold to the Chinese on condition that the sale price be put in a pot to be used to loan to Fodem whatever money it needs to finance projects approved by a mixed committee of Chinese and Venezuelan govt reps .

    Execution of these projects are tied to the use of Chinese suppliers and contractors charging prices which arent always the most advantageous to Venezuela and allowing Ven Companies controlled by Chavista private interests to partake of the proceeds . Some of these project are located in China because they are somehow connected to Venezuela . The money in the pot is not inmmediately or automatically used in financing the projects because these sometimes lag in their execution and because the Chineses always have a buffer to ensure they are paid even if oil supplies lag behind .. Meantime they remain in Chinese banks and notionally might be said to be available to Fondem . At one point I read that last year money in the pot amounted to some 4 or 5 billion US$.

    Problem is that sometimes the govt has required Pdvsa to pay the same royalties twice , once to the Chinese fund via oil supplies and again to meet govt budgetary needs , this has created no small number of financial difficulties for Pdvsa.. .

    Fonden is a black box which allows the regime masters to spend large portions of the countrys oil money without any kind of control or regulatory constraints to feed their political and clientelar programs and expenses . and sometimes for purposes of personal enrichment.


    • Correction: According to a piece by Miguel Angel Santos from 2 years ago , the money from the sale of oil under certain Pdvsa contracts (oil which is reputed to belong to the Govt as royalty payable in specie) is by agreement between both countries placed in a Chinese Bank account in the name of Fonden and the National Treasury , China makes available an equivalent amount as a loan facility , the money from both sources is then considered to form a fund for financing any projects of social or national interest which both China and Venezuela may decide .

      Pdvsa is supposed to recieve 60% of the proceeds from these oil sales direct while the remaining proceeds remain in the Chinese bank account to be used to pay China its loans , I understand that the amount actually recieved by Pdvsa on each oil sale is about 40 to 50% of the total ( maybe because the chinese condition the release of their loan amounts to the bank account holding certain minimum ratios of loan to deposited moneys which might hike up the amount remaining in the account. ) .

      Thus the money purportedly belonging to Fonden includes money which is actually frozen in a Chinese bank account to guarantee China the payment of its loans , as these are disbursed to pay for various ongoing projects (including social projects , oil projects etc) .

      In short half the Chinese fund includes Fonden money in Chinese bank accounts which are earmarked to fund different ongoing govt projects and programs and guarantee the payment of the paralell Chinese loans .

      This money of course can hardly be considered available for use as reserves by Venezuela for they have first to guarantee the payment of Chinas loans under the system and moreover have to be used to give continuity to the projects which it helps finance.

      According to a Ramirez press conference of october the national reserves amounted to 31 billion US$ of which 21 billion where in the BCV , 5 billion were in the Chinese Fund which implies that some 5 billion where in the hands of Fonden . To the extent the fonden ‘reserves’ are in a Chinese bank account or are commiteed to paying Chinese loans or the continuation of ongoing projects they are of course not freely aviable for the country to use in covering its import needs .


  4. Up until the creation of Fonden what is considered to be the greatest theft in human history was Joseph Stalin’s promise to send Russian ‘military equipment’ to Spain in exchange for 500 million dollars in gold bars. “The gold was shipped, and in turn trickled in a few atrocious bits of equipment. The materiel was so lousy that the Republicans routinely left it on the battlefield for Franco’s soldiers to pick up for themselves.” To this day Spain never recovered their gold bars. The money stolen through Fonden, however, will easily eclipse any and all achievements in human theft. The numbers are simply staggering. Beyond belief.

    It is good to know, however, that inquisitive attorney’s like La novia de Venezuela (“The Girlfriend of Venezuela”), Eva Golinger, are hot on the trail in uncovering this colossal theft, Fonden, from the Venezuelan people, especially the poor. And WE all know how much she cares about the poor. You betcha. She was recently spotted flying ‘first class’ from New York to Miami, no doubt avoiding the ‘great unwashed’ flying behind her in coach. If you look closely at the photograph you’ll notice that she seems to be giving the world the Venezuelan finger from her ‘first class’ seat. It’s kinda like how Stalin felt about the Spanish and their demands for their gold back after the Second World War. “Gold? …what gold?”



    • Just stop to check your instincts, doctol ->

      I write “we have no way of knowing where this money is” – which is an incontrovertible fact.

      You conclude “it was all stolen” – which you have exactly no evidence for.

      That, right there, is the opposition bullshit machine in action…


      • Sorry, it was misplaced. No doubt Eva is looking into where the money was misplaced. I understand that it has something to do with an assassination plot.


          • You are right but we do know several hundred million dollars have been stolen in some places and that is why even the government has put some people in jail in the case of Serlaca and probably some other cases…and by 2011 Mr Ramos was missing about 29 billion dollars…which Giordani can be managing very well, we need to take his word for it…or ask the comptroller…everything else is speculation and we have no right to think the money might have gone the same way as Serlaca and a couple of other concrete cases.


            • Of course it’s likely significant sums have just been stolen. Given the well documented relationship between opacity and corruption, it would be genuinely shocking if that wasn’t the case.

              But are we talking millions? tens of millions? hundreds of millions? billions? tens of billions? We just have no basis for saying it’s one rather than another.

              So long as that’s the case, we should be scrupulous to distinguish between statements of fact and mere conjecture…


          • How about some simple math? If you subtract from the money that has gone into Fonden, the actual value (not the cost) of investments made, then you arrive at the total stolen amount.
            After all, according to the Gaceta Oficial that created Fonden, its purpose is to: “administrar los recursos asignados para el financiamiento de los proyectos de inversión real productiva, sociales, comunitarios, y los derivados de situaciones especiales”


            • If you put $100 into a company bank account and you only have $10 worth of stuff to show for it, it could mean that you stole the other $90, or that the other $90 is still sitting in that account. (Or that you stole $45, and $45 is in the account, or that you stole $1, and $89 is still in the account, or that you stole $89…etc. etc.)

              The point is, we just don’t know.


          • Unless you are part of the revolution. Then you can utilize supposition, insinuation and conjecture first and then just manufacture whatever evidence you need to justify your position (or lack thereof).

            Ready, Fire, Aim!


            • I couldn’t agree more. Furthermore, if you want a more precise figure as to how much money was actually stolen, I would suggest making your way to some of the nice watering holes just off the Bahnhofstrasse in Zurich. Many of the Swiss bankers who hang-out there would know the numbers. Bring wads of cash and ply them with free drinks. They know! They just spilled the beans on their American clients, and were forced to settle with the US Justice Department for billions of dollars. They could just as easily identify all of their Venezuelan clients and the amounts deposited. I’m sure the numbers are staggering.


  5. One hundred thousand dollars misappropriated is a tragedy. One hundred billion dollars misappropriated is a statistic.


    • Give the number per head. $125 dollars, 28 million Venezuelans.

      Fonden has taken $4,500 away from each and every Venezuelan, with nothing to show for it.


      • I don’t think that there is “nothing to show for it.” We just don’t know, now or ever, what the results are or if there will ever be a way to calculate a return on that investment; deriving metrics with which to measure whether the expenditures are justified simply do not exist and even if they did, there’s likely a “revolution” variable that would justify negative returns on, say, an IRR or NPV equation, which would be one of the most simplistic way of figuring things out. Ironically, there may be a trickle down effect from the enchufados making money off of this, and that’s still a return albeit a minor one given the intention of FONDEN. Still, it is the great LATAM tragedy all over again; only this time with a different set of new elites robbing the masses under the guise of equality and patria.


  6. Just another little tool to rob the country blind.

    Of course, 95% of Venezuelans, and 99.9% of the poor/unedecated population have never heard of such tools. It’s easier than taking the gold out of Banco Central, or other means to steal.


    • I’m wondering whether what is “unknown” is also “unknowable.” It seems to me that the dysfunction and financial deterioration should have at least a good chance of Sovereign financial collapse, and then a thorough investigation to reveal the true facts for its historical value. Can Venezuela learn from such history if we can some how recover from this disaster and redeploy the democratic institutions that failed us?


  7. A joke unless you are in the take.

    Then becomes the best way to become filthy rich without having to work for it. No wonder the previous establishment patiently awaits the demise of chavismo, to get back at being the incumbent, and having changed little of the petrostate, get ready to milk the cow again.

    Unfortunately, the dolientes that should care about the res publica, those whose living standard is influenced by the government and the state’s execution, have been kept dumb and do not know squat about public finances or care about who is “stealing” the money at any time.

    This has been the legacy of the guanabana, best capitalized by the Chavismo/ castrismo, and will continue to be the case until some one finally demands an answer to the powerful war cry : donde estan los reales? of former glory.

    Fonden and other parallel funds easily surpass the official state budget, and has been out of control since inception. Opposition discourse fails to address this minor accounting unknown.


    • When the rich ruled the state, did they do enough for the poor? After the poor took over the state, we see what’s happening now, but are the rich somehow culpable?


      • You are missing the point completely (and trolling perhaps?)

        There is not such a rich and poor divide, there is a divide between corrupt politicians (verdes, blancos, rojos, amarillos, naranjas y variopintos), and a “made-dumb” population / voter franchise, that is uninterested, uninformed, incapable of demanding performance and accountability.

        Furthermore, I find very telling that the opposition does not raise awareness of the massive pillaging and embezzlement occurring with Fondem for example, as Kiko states, even “specialized media writers” do not seem to understand the dimension of the scam.


        • I agree with you completely! However, the question is whether the rich were “somehow” culpable! Perhaps, pre-Cavez there might have been something that could have altered the course of history that those with wealth and means could of done differently?


  8. I’m still convinced that without any other evidence & the seeming inability of the government to pay their bills that all these accounts are virtually empty.

    Maybe a billion here or a billion there but no real reserves.


    • Agree. If there was anything left in the cookie jar, it would have been spent before now to put a band-aid on some of the problems.


  9. When there is finally a government change, are we just going to hope that the new government officials are honest and don’t let money disappear, or are we going to let them set up their own fondens? We need a change of system that prevents fonden from even existing.


    • I think if/when the government changes hands, it won’t matter if they are honest or not. Can’t rob an empty account.

      Sadly, after years of chanting about non-interference, self-determination, patria and sovereignty, the government will be handcuffed by their previous mismanagement of trillions of dollars and who will hold the keys to the esposas? The Chinese, Russians, Brazilians and other “stakeholders”; the stake being in the heart of Venezuela.

      At this point, there is very little upside to chavistas remaining in power without altering their course and unlimited downside. I think the government has begun to short against the box in an attempt to forestall the inevitable…so the damage will continue and expand in a likely geometric rate.


  10. Using public money wantomly or wastefully or in the pursuit of sectarian political advantages or in grossly overpriced or ill concieved projects that are useless or fail to be completed or dont do what they are meant to do , or which are simply for show , to gratify the gargantuan conceit of the dear leader or to bribe people into turning a blind eye on abuses and crimes are as corrupt as allowing it to be stolen !! Fonden through its opacity , has allowed the huge amounts of public money entrusted to it to be misused in all of the above, it is therefore an instrument of corruption for those who arbitrarily handle or control its funds .

    According to Fukuyama one of the pillars of the succesful modern State is its accountability , its submission to a system that forces it to be open about its operations and results , that allow critical eyes to judge its performance and punish its failures or reward its succeseses.

    The Chavez regime has represented an all out assault on the principles of public accountabilty . This is the guiding motive behind so much of what it does . i still think that some forensic scrutiny of different sources of data can yield some picture of how the money has been spent and how much of it remains on its coffers .

    The thing is that Fonden is meant to fund on going projects that cant simply be stopped without very serious harm to their achievement , that involve future inmovable and sometimes growing financial commitments , even if there is some money in the coffers they very likely are accounted for for use in future disbursements .

    Projects in Venezuela even when well and honestly managed end up by costing much more than originally estimated , its much worse if they are badly managed or include corrupt incentives , then they cost 5 to 10 times more than initially planned and they go on forever . I doubt very much that whatever amount remains in fonden is a high figure or that it can simply be used to shore up the Govts many financial problems . !!

    Just a few months ago Ramirez spoke of there being something like 5 billion US$ in fonden , bet there is much less of that now because mismanaged projects consume money in great amounts as if there is no tomorrow. !!


  11. Well, add to that, missing the point of the first court appearance of LL since his arrest. What a difference a thriving press makes….


  12. Government as a solution is frequently slow and impractical. For one thing, governments use “centralized control” which is easily overwhelmed and cannot handle the vast detail that captures what really needs to be understood to make successful decisions. Secondly, entrapeneurial skills for assessing risks, innovating, and effective management are not in the normal skill set of bureaucrats! Government cannot do everything, and entrapreneurs can easily fill in the gaps… And as a group, they have more capital than the government, especially this goverment now!
    The next goverment will hopefully lift the floodgates and let property rights resume and allow the free enterprise do it’s part with controls and protections that provide opportunity for all venezuelanos who are willing to take risks and work hard doing things and making things that others are happy to pay for!


    • As for the poor, education! I also would be willing to support the communal enterprises if the are willing to compete!


      • Gordo, a friendly note of caution . Even if private business often works better than goverment in our latitudes , it doenst always , there are a lot of badly run businesses, businesses that abuse , that survive simply because they are protected by bad regulation or by devious but familiar practices ,

        People who know how to run things are always a minority and also have to deal with enviromental factors like poor worker motivation that stymie their efforts .

        Even if you change the current govt leadership the people they have to work with are the same , their underlying behaviour tends to follow the learned tracks of habit , the new leaders themselves may be an improvement on those they replace but they may lack the very high level of organizational competence that is required to succesfully perform the very difficult job at hand .

        A regime change needs a lot of thought on how to organize things to improve its performance . As to the poor , the culture of poverty warps character traits in a permanent way and incapacitates many of its victims for the productive disciplined activity that a modern market society demands of them.

        Education doesnt improve character , giving people skills doenst automatically make them into better workers or producers , there are loads of studies in the US about this subject . Character is conditioned by the culture of peoples living environment , by the kind of family they belong to .The first step is to change the regime , but after that the challenge is daunting .

        Cogol the russian novelist once created a character which wanted to improve things , he wanted to change slovenly hard drinking russian peasants into dutiful sober disciplined hard working german peasants, He figured he could do that by changing their clothes and making them wear leatherhossen and generally the clothes german peasants wore . We cant fall into the trap that thinking that just because the leadership changes thats going to effect the revolution in peoples character and habits that our ambitions for a better Venezuela require. Lets not fall into hubris , lets think a bit more carefully into what happens afterwards and hot to prepare for what happens next.


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