A Tolerance Worn Thin: Corruption in the Age of Austerity

The impeachment of Venezuelan President Carlos Andr6s P6rez has made it clear
that free-market neoliberalism has not served as a corrective to corruption.
If anything, it has opened new avenues for unscrupulous and illicit behavior.
When Carlos Andr6s Perez, Venezuela’s president from 1974 to 1979, was elected to a second term in office in 1988, he was an unlikely candidate to lead a national campaign against corruption. Less than 10 years earlier, he had been censured by Congress for negligence in financial dealings and was spared condemnation on moral grounds by just one congres- sional vote. Nevertheless, when he took office in 1989, P6rez pledged to eliminate graft, and insisted that the 2
neoliberal model he embraced was a
corrective to corruption in high places.
By extricating the state from the eco-
nomic life of the nation, he argued, the o new laissez-faire approach would Impeached Preside eliminate opportunities to steal from happier days: camF
the public coffers. 1988.
But as P6rez’ second term–without P6rez-grinds
to an unhappy close, it is obvious that neoliberalism
has not served as the corrective it was touted to be. If
anything, the sale of public enterprises and the dis-
mantling of federal regulations-both hallmarks of
neoliberalism-have opened new avenues for
unscrupulous and illicit behavior. Venezuelans are
now questioning the undervaluation of assets in recent
privatization sales: 40% of the state-owned telephone
company CANTV to the U.S. telecommunications
giant GTE, the national airline VIASA to the Spanish
Iberia, and several large hotels to a wide variety of
international private interests. 1 And after P6rez’
indictment and suspension from office this year for the
Steve Ellner is the author of Organized Labor in Venezuela, 1958-1991: Behavior and Concerns in a Democratic Setting
(Scholarly Resources, 1993) and the co-editor of The Latin American Left: From the Fall of Allende to Perestroika (Westview, 1993).
misappropriation of public funds, fol-
lowing two attempted military coups
staged by “anti-corruption” officers last
year, the issue of corruption is aboil like
never before on the front burner of
Venezuelan politics.
Perez was indicted by the Supreme
Court on May 20. The following day, the Senate decided unanimously to lift
his presidential immunity, thus automat-
ically suspending him from office. On
August 31, after the probe into P6rez’
misdeeds had yielded increasingly
incriminating evidence, Congress voted
to remove him permanently. P6rez is
accused of misappropriating 250 million
bolivares (the national currency) from a
nt Pdrez in secret fund earmarked for national secu- paigning in rity. Back in the 1960s, the fund for
secret operations had helped finance a
special police apparatus to combat Venezuela’s guer-
rilla insurgency. Even though the armed struggle sub-
sided by the late 1960s and the country achieved politi-
cal stability for the next two decades, large sums of
money continued to be assigned to the secret fund of
various ministries. P6rez allegedly transferred the 250
million bolivares from the Ministry of the Interior to
the Secretariat of the Presidency, which is not autho-
rized by law to handle such funds. Shortly thereafter,
the bolivares were illegally converted into 17.2 million
dollars at a special exchange rate. Both Perez’ minis-
ter of the interior, Alejandro Izaguirre, and his secre-
tary of the presidency, Reinaldo Figueredo, are stand-
ing trial as well.
Investigative journalists have played an important
role in the campaign against corruption in recent
years. What has brought the issue to such prominence,
however, has been the continuous expression of public
discontent in local elections, demonstrations, sponta-
VOL XXVII, No 3 Nov/DEc 1993 13 VOL XXVII, NO 3 Nov/DEC 1993 13REPORT ON CORRUPTION
neous unruly protests, and even quiet support for the
two abortive coups, whose banner was opposition to
corruption in the government and the armed forces.
It was public discontent that forced the reshaping of
the Supreme Court last year, an outcome that had a
direct effect on P6rez’ fate. The Court found itself
greatly discredited because of its refusal to act on
charges of corruption against former president Jaime
Lusinchi (1984-1989) and others. Six of the Supreme
Court’s 15 justices stepped down in the face of a
national campaign calling for the resignation of the
entire Court. Under considerable pressure during the
process of selecting their replacements, Congress dis-
carded the traditional practice of choosing judges
closely identified with Venezuela’s two largest parties,
Acci6n Democritica (AD) and the social
Christian Copei, on the basis of informal agree-
ments. Congress committed itself to selecting
independents, and even accepted nominations
from lawyers’ associations and law schools
throughout the country. “Although most of the
judges we chose,” says Copei’s national con-
gressman Luis Guevara Le6n, “were really not
‘independent’-that is difficult to be here in
Venezuela-they were for the first time rela-
tively independent of their respective parties.” 2
Five of these six new judges voted in favor of
P6rez’ indictment. In August, all six voted to
press charges against Lusinchi, after the court
had sat on the request for his indictment for
two years. The same zeal to clean up govern- Anti-P ment led the Attorney General in July to pro- succes
pose a plan which places the secret fund for
national security under greater scrutiny, independent
of the executive branch.
Investigations into corruption have provoked a dead-
ly backlash. In mid-July, the two Supreme Court
judges most identified as favoring P6rez’ indictment
received envelopes containing explosives, while anoth-
er explosive device went off in the Supreme Court
building, permanently injuring a court employee. Sub-
sequently, bombs have exploded in strategic areas of
Caracas, including the national headquarters of the
main business organization, Fedecimaras. The two
principal suspects in the court bombings, a functionary
and ex-functionary of the Direcci6n de Servicios de
Inteligencia y Prevenci6n del Estado (DISIP), the Inte-
rior Ministry’s secret police force, were apprehended
in August. Both claimed they received orders from
Henry L6pez Sisco, the former head of the DISIP who
is closely linked to former president Jaime Lusinchi.
At the time, the Supreme Court was handling not only
the case against Perez but also similar charges against
his predecessor, Lusinchi, for the illegal use of money
assigned to the same secret funds.
he two journalists who blew the whistle on P6rez have put forward two distinct interpreta-
tions of his persistent misappropriation of pub-
lic funds. One alleges that P6rez was simply in it for
the money, amassing a personal fortune from all his
illicit dealings. The other views him as a political
megalomaniac, who illegally used public money to
extend his influence throughout the continent and
harass his enemies at home.
The first interpretation is put forward by a former
P6rez supporter, Andr6s Galdo, a columnist for one of
Venezuela’s leading dailies, El Nacional. Galdo
claims that the $17.2 million is just a drop in the buck-
et for P6rez who is one of the richest men in Latin
America. According to Galdo, P6rez operates in the
erez graffitti in the city of Mbrida: “when strength is unified, s belongs to all.”
style of Ferdinand Marcos-siphoning off dollars in
the name of intermediaries, and investing in or buying
up enterprises abroad without ever appearing as an
investor or owner. 3
As time goes on, Galdo’s version of Pdrez’ venal
motivations has gained credibility. In mid-July, Sena-
tor Crist6bal Fernandez Dal6 of the left-wing party
Movimiento al Socialismo (MAS) handed over to the
Attorney General’s Office photocopies of bank trans-
actions in accounts opened by P6rez and his long-time
mistress Cecilia Matos in New York, Paris, Geneva,
Buenos Aires, the Philippines and Hong Kong. The
photocopies show transfers of hundreds of thousands
of dollars among the various accounts, as well as
checks and deposits in the name of other Venezuelans
also accused of corrupt dealings. The disclosure puts
the lie to the president’s flat denial that he has bank
accounts abroad, and Matos’ statement that her only
source of income has been the series of modest-paying
jobs she has held over the years. Fernandez Dal6 has
petitioned the Supreme Court to admit his documents
as part of the case against P6rez, especially since they
14NACL& REPORT ON THE AMERICAS NACIA REPORT ON THE AMERICAS 14REPORT ON CORRUPTION
show that Cecilia Matos made several deposits of
$100,000 shortly after the purported misappropriation
of the $17.2 million.
The frequency with which Perez’ money criss-
crossed the world leaves the impression that a main
bank account exists which feeds these smaller ones.
Fernmndez Dal6 thinks the funds he has uncovered so
far represent mere pocket money. “Following the
leads of the data I have presented,” says Dal6, “will
allow us to arrive at the fortune accumulated in the
Swiss accounts of P6rez and Mrs. Matos.” 4
A different explanation of Perez’ motivation comes
from the second major journalist in the corruption
scandal, the three-time socialist presidential candidate
Jos6 Vicente Rangel. The Supreme Court called
P rez
has always used
public money to
enhance his
influence, which
he in turn
converts into
personal gain.
Rangel as its first witness
in the suspended presi-
dent’s trial. His testimo-
ny was confirmed and
amplified by Freddy
Bernal, head of the Spe-
cial Tactical Support
Command (CETA), the
now defunct special
police squad which par-
ticipated in the second
attempted coup last year.
Bernal’s declaration was
subsequently admitted as
court evidence. Accord-
ing to Rangel and Bernal, some of the $17.2 million
helped pay off debts
incurred in P6rez’ 1988
campaign. The lion’s
share, however, went to the president’s political allies
in Central America and the Caribbean, bankrolling
such (sometimes laudable) activities as the travels of
deposed Haitian president Jean-Bertrand Aristide and
the security protection of Nicaraguan president Viole-
ta Chamorro.
More disturbing is Rangel’s allegation that some of
the money financed a campaign against P6rez’
Venezuelan adversaries. Rangel claims Salvadoran
mercenaries were hired whose hit list included Galdo, Rangel himself, and Attorney General Ram6n Esco-
bar Salom, who had recommended proceedings
against P6rez. Military officers are especially sensi-
tive about the mercenary issue. In the November
1992 coup attempt, rebels targeted the purported
locations of Cuban mercenaries in the service of
Venezuelan security forces. Rangel has received
veiled threats in the past from shady political and
military figures closely linked to P6rez. He fears that
the “dirty war”-ranging from slander to physical
aggression-will continue, a process which he
termed “Perecismo without P6rez.” 5
Actually, Galdo’s explanation regarding P6rez’
super-rich status and Rangel’s regarding the presi-
dent’s political schemes are not at odds. Freddy
Mufioz, secretary general of MAS, points out the rela-
tionship between P6rez the millionaire and P6rez the
politician:
P6rez has always used Venezuelan money to enhance
his international influence which he in turn converts into
personal gain. During his first term, he aided Felipe
Gonzdlez in his bid…for the presidency. Subsequently in
Spain, the state-controlled Galerfas Preciados was sold
to [the Venezuelan economic group] Cisneros at a price
lower than that offered by a Colombian magnate….This
deal became a national scandal in Spain. 6
s in the case of Watergate, the origin of the
information used by Rangel, Galdo, Fernmindez
Dal6 and others who have denounced corrup-
tion has been the subject of considerable speculation.
One theory, put forward by the magazine Zeta, is that
rival factions of the governing AD party, headed by
P6rez and Lusinchi, provided much of the evidence.
According to this version, confidants of P6rez leaked
clues in the case of Lusinchi in 1989 in an attempt to
discredit the former president by attributing the
nation’s economic woes to his irresponsible fiscal
policies. The P6rez camp argued that massive govern-
ment intervention, in the form of business subsidies
and support, lent itself to the rampant corruption of
the Lusinchi years. They used this argument to justify
the shift to the neoliberal model, which became the
official creed in 1989. Lusinchi, according to Zeta’s
thesis, avenged himself by playing the role of Deep
Throat in the case of the $17.2 million. 7
Indeed, one of Venezuela’s principal muckrakers,
MAS national deputy Orlando Fernandez, stated that
much of his information in the corruption case origi-
nated from “one or another Lusinchista annoyed at
Carlos Andr6s P6rez.” 8 Nevertheless, Zeta’s theory,
while correct in stressing the intense internal rivalry in
AD, may overestimate the role of Lusinchismo and
Perecismo as a source of information. “Both P6rez
and Lusinchi want people to believe that they are vic-
tims of personal animosities and rivalries, thus taking
the focus off what they really did,” says Tarek
Williams Saab, a leading member of Venezuela’s
Foundation for Human Rights. “To blame P6rez’
predicament on Lusinchi, or ascribe it to envy, as
P6rez is prone to do, is simply absurd.” 9
Another likely source of information is the murky
world of competing interest groups. Josd Vicente
Rangel, in his TV program “Jos6 Vicente Hoy,” asked
Fernmndez Dal6 if his informants may be linked to
Vol XXVII, No 3 NOVIDEc 199315 VOL XXVII, No 3 Nov/DEC 1993 15REPORT ON CORRUPTION
firms interested in undermining business rivals which
received government contracts of dubious legality.
Fernindez Dal6, apparently uncomfortable with the
question, admitted to the possibility. Ironically, sever-
al years ago, President Lusinchi used the same argu-
ment to dismiss Rangel’s exposure of overpriced mili-
tary contracts.
Some discount the significance of whether or not
informants have vested interests in the information
they provide. “We need not examine the motivation of
those who provide anonymous information,” says
MAS’ Mufioz. “After all, police detectives work with
data supplied by criminal elements all the time in their
investigations, and this is valid. What is important is
the reliability of the information, not the motives of
those who supply it.”10
Mufioz’ position, however, is not shared by others
who fear that reliance on such sources of information
may involve ill-conceived deals, such as the conceal-
ment of the illegal activity of a competing group. The
issue was heatedly debated within MAS as a result of
the disclosure that party member Carlos Tablante,
presently the governor of the northern state of Aragua, had worked hand in glove with the Interior Ministry’s
police force, DISIP, during his investigation of cor-
ruption under the Lusinchi Administration in the
1980s. Tablante, who was then vice-president of the
Chamber of Deputies, received material favors from
the DISIP in the form of paid personnel. MAS’ ethics
commission voted to censure Tablante, although the
resolution did not impede his nomination as the
party’s gubernatorial candidate and his electoral tri-
umph in December, 1992.
P6rez claims that he is being tried for his political
behavior and not for any wrongdoing. There is
an element of truth in his argument. In fact, the
notion of a personalist campaign designed to malign
P6rez predates the case of the $17.2 million. P6rez’
development minister Mois6s Naim described the
popular clamor for Perez’ resignation, set in motion
by the February coup attempt, as a “lynching mood.”
The president, said Naim, was being scapegoated for
the nation’s pressing economic problems.” This idea
was taken up by AD leaders, who called P6rez’ sus-
pension a “political lynching.”
One of the nine Supreme Court judges who voted to
indict the president said in a confidential interview
that he and his eight colleagues were responding not
only to legal arguments against P6rez but also to the
general chorus-70% of the population, according to
surveys-favoring the president’s exit from power.
“The anti-P6rez sentiment,” he said, “goes beyond the
issue of corruption; it is a repudiation of P6rez the
politician.”12
The statements of diverse sectors of the Venezuelan
public at the time of the Supreme Court’s decision
strengthen the view that the judges were swayed by
political considerations. Ex-President Rafael Caldera,
for instance, one of the key voices calling for P6rez’
ouster after the first abortive coup, congratulated the
Supreme Court for grasping the prevailing popular
mood. The Left (which had been calling for a referen-
dum on Perez’ presidency ever since that coup
attempt), various leaders of Copei, and even represen-
tatives of the Catholic Church and the business com-
munity hailed the Court’s indictment of P6rez. They
all agreed that P6rez’ suspension would put an end to
the short-term political crisis-in which the corrup-
tion debacle was just one component-and would
thus make it easier to restore domestic stability.
The clamor against P6rez following the first coup
attempt showed how much Venezuela has changed
over recent years. 1 3 The economic crisis of the 1980s
had taken its toll on Venezuela as it had on the rest of
Latin America, but the contrast with the oil-boom
period of the 1970s meant that the shock was all the
greater. P6rez’ 1988 campaign was up-beat as he
promised to reimplement the interventionist policies
of his first administration which he claimed had made
the prosperity of those years possible. Upon assuming
office, P6rez surprised Venezuelans by announcing
IMF-style austerity measures, which he baptized “el
gran viraje” (the great turnabout). Obviously, P6rez
felt his personal charisma could pull the wool over the
eyes of the entire nation.
But P6rez’ image and style, which had worked like
a charm in the 1970s, now seemed to be out of tune
with the times. His militant position as a Third World
spokesman, which involved constant travel abroad,
was a source of pride for many Venezuelans in the
1970s. The same role, however, even in a toned-down
form, appeared bombastic and a waste of time in the
context of the 1990s, when Third Worldism had lost
much of its luster, and internal economic problems
absorbed the nation’s attention.
The major scandal of P6rez’ first administration-a
case of venal private interests feeding at the public
trough–involved the government’s overpriced pur-
chase of a refrigerated container ship, the Sierra
Nevada. In the face of accusations which nearly led to
judicial proceedings against him, P6rez never lost his
composure. Flushed by the prospect of continuous
economic expansion, many Venezuelans were willing
to condone his unethical behavior. Some may have
even admired his audacity and “machismo.” But 14
years and an economic collapse later, such behavior is
no longer acceptable. 1 4 With the greed of a few politi-
cians magnifying the economic woes of the nation,
the people’s tolerance has finally reached a limit.
A Tolerance Worn Thin: Corruption in the Age of Austerity
1. Diccionario de la Corrupci6n, Vol. 3, 1984-1992 (Caracas:
Consorcio de Capriles, 1993).
2. Luis Guevara Le6n, personal interview, June 12, 1993, Barcelona.
3. El Nacional, May 24, 1993, p. D-3; May 26, 1993, p. D-3.
4. Cecilia Matos, following the initial investigations into her financial
operations, ordered the Republic National Bank of New York to
transfer her deposits to a new account whose checks would not
have her name and address printed on them. El Nacional, June
30, 1993, p. D-1; Diario de Caracas, July 13, 1993, pp. 26-27.
5. El Nacional, June 8, 1993, p. D-2.
6. Freddy Muhoz, personal interview, July 15, 1993, Barcelona.
7. Alexis Rosas, “Las vueltas de un mundo de 250 millones,” Zeta,
No. 947, p. 22.
8. Nelson Chitty La Roche (president of the congressional commis-
sion that investigated the P6rez case), 250 millones: La historia
secreta (Caracas: Editorial Pomaire, 1993), p. 67.
9. Tarek Williams Saab, personal interview, July 2, 1993, Caracas.
10. Freddy Muhoz, personal interview, July 15, 1993, Barcelona.
11. Mois6s Naim, “The Political Management of Radical Economic
Change,” in Joseph S. Tulchin, ed., Venezuela in the Wake of
Radical Reform (Boulder, CO: Woodrow Wilson Center and
Lynne Rienner Publishers, 1993). This book, which is a strong
defense of Perez’ neoliberal policies, consists of edited tran-
scripts of presentations at a Wilson Center conference.
12. Confidential interview, Urbaneja, Anzo6tegui, June 11, 1993.
13. In Organized Labor in Venezuela, 1958-1991: Behavior and Con-
cerns in a Democratic Setting (Wilmington, DE: Scholarly
Resources Inc., 1993), I argue that Venezuela’s relative social
stability until the mid-1980s was due to transitory factors,
including the unpopularity of the guerrilla struggle of the 1960s,
the oil boom of the 1970s, and the false expectation that the
economic crisis of the 1980s would be short-lived. When these
short-term developments ran their course, the disillusionment
and sense of frustration among Venezuelans were particularly
felt. For an additional account of the late 1980s, see Daniel C.
Hellinger, Venezuela: Tarnished Democracy (Boulder CO: West-
view Press, 1991), pp. 155-198.
14. Growing concern over the issue of corruption is reflected in a
number of well-documented books on the topic. Among the
most valuable are: Jose Guillermo Andueza, Jos6 Ignacio Arrieta,
Tello Benitez, et al, La Corrupcibn en Venezuela (Valencia: Vadell
Hermanos Editores, 1985); Hector Malav6 Mata, Los extravios de
poder (Caracas: Universidad Central de Venezuela, 1987); Jos6
Agustin CatalI, ed., Blanca lbalhez y las miserias del poder
(Caracas: Ediciones Centauro, 1991); Angel Rodriguez-Vald6s,
La otra muerte de CAP (Caracas: Alfadil Ediciones, 1993).