by Rory Carroll
Giordani was ruthless in elbowing aside cabinet rivals, but no one accused him of venality. His flaw was intellectual vanity. Venezuela presented him with a monumental puzzle. It was victim of what economists called a resource curse. An apparent blessing, oil, had stunted agriculture and industry. A Caribbean version of Dutch disease. Partly it was because oil exports made the currency overvalued, so it was cheaper to import everything, and partly it was because oil spawned a culture of bending the rules to make a fast buck rather than sweat with honest toil. More petrodollars equaled more parasites—the paradox of plenty. Giordani’s solution, the golden thread connecting a thousand equations, footnotes, and calculations, was control. The state would control the economy. Farms, factories, finance, all that was flabby, chaotic, and dysfunctional could be surgically snipped and stitched, smoothed into order and rationality. Private property would be respected, but the private sector would be regulated and transformed, along with the expanding state, by “endogenous development.” Self-sustaining agro-industrial communities would repopulate the interior, relieve overcrowding in coastal slums, and foster revolutionary consciousness. From this chrysalis would emerge a new economy and society. The process would take thirty, maybe fifty years. The comandante, of course, welcomed the prospect of an economy that would respond to command.
The first step was creating special funds. Giordani, working with compliant finance ministers, methodically underestimated the price of oil used in preparing the national budget. Even when oil was headed for over $100 a barrel, they would project just $35. The surplus was channeled to special funds that let the president spend billions outside the official budget and beyond public scrutiny. In the run-up to elections, the palace supplemented this with raids on PDVSA funds—Rafael Ramírez always obliged—and plopped another few billion into the kitty. Giordani batted away questions about auditing, about the underinvestment in transport and energy infrastructure, about integrating the “missions” into traditional public services. All that could come later. At first few complained because the economy roared, poverty halved, the state payroll doubled, and food subsidies reached 40 percent of the population.
By 2008, however, inflation was running at close to 30 percent, one of the world’s highest rates, and milk, coffee, sugar, black beans, and other staples periodically vanished from store shelves. Nobody went hungry. The poor ate more meat than before; they just had to queue for it in state-run stores or forage on the black market. Economists said the economy was overheating and the currency was overvalued. Giordani smiled. Tranquilo. We have a plan. The government spun an ever-widening web of controls, covering the economy. Farmers and factory owners complained raw materials had vanished and state-regulated prices for finished goods were too low. Production slumped. The government filled the gap by importing huge quantities of everything—containers stacked up at ports like vast ziggurats—and taking over farms and factories.
Giordani’s mightiest weapon was currency controls: setting a fixed exchange rate for the bolivar to the dollar. The system obliged PDVSA to sell petrodollars (those that remained after it funneled billions to the government) to the Central Bank, which passed them to an agency called the Commission for the Administration of Currency Exchange, CADIVI. This agency sold the dollars at the official rate to Venezuelan individuals and companies who wished to trade their bolivares for foreign currency. The catch, the epic, gargantuan, problematic catch, was that CADIVI did not sell enough dollars. This meant those first in the queue got their dollars. Those at the back—a factory owner wishing to import rivets, say, or a father wanting to take his family to Disney World—were stuck with bolivares useless outside Venezuela. No foreign bank would change them. Thus the system bred two exchange rates. Those first in line got the privileged, official rate that artificially overvalued the local currency. A hundred bolivares got you $40. Those at the back of the line had to use the black-market rate, which yielded only $16. Giordani liked the system because it trapped money in the economy and let him tweak and polish his plans to reengineer society. Chávez relished it as a powerful, additional mechanism to reward allies and punish foes.
Foreigners watching the revolution from afar never grasped the existential significance of CADIVI. Hundreds of billions of dollars of a historic oil boom roared through its corridors, giving the power of Croesus to those who controlled the sluice. Insiders created multiple arcane ways—fixed-rate bonds, zero-coupon bonds, treasury bonds, PDVSA bonds—to channel the river. A murmur in the right ear at the right time could make a dozen fortunes, the money blinking from computer to computer, dispersing into offshore accounts, vanishing. The system mocked socialist rhetoric.
Black holes punctured the state’s budget. Giordani dismantled an inherited macroeconomic stabilization fund, which made public reports, and funneled billions into black boxes, the biggest of which was called Fonden. By 2011 the government was estimated to be spending more than half its revenue outside the central budget. Giordani’s office, under pressure from an opposition legislator, outlined how it had spent $40 billion of Fonden money in previous years. But the fund had received $69 billion, leaving a $29 billion hole. PDVSA was just as opaque. It bought back $2.7 billion in foreign debt so it could sidestep an obligation to disclose financial statements to the U.S. Securities and Exchange Commission. A similar veil covered other state agencies such as BANDES, a development bank that answered directly to the palace. The government routinely contracted cronies for public works, without bidding, citing “emergencies.” It all added up to a mountain of money. Much vanished into overseas accounts: Global Financial Integrity, a global watchdog group, estimated $17 billion on average each year. The big winners were the likes of the PDVSA investment manager suspected of receiving $36 million in bribes to approve illicit financial transactions.
When challenged about corruption at his rare press conferences, Giordani would redden and fire a caustic non-reply to the question. But the Monk was not blind. As leader of the utopians, he had wide contacts and knew what was happening. In a fleeting passage of a little-noticed book he published in 2009, he vented despair. “The boligarchy is nothing more than the singular or collective grouping of those who throughout this process have devoted themselves to amassing immense fortunes in the name of the revolution . . . Many of them flaunt wealth that they did not have before the arrival of the government in December 1998. These people are professional thieves . . . who have disguised themselves (with red shirts) to take advantage of the honey pot of power for their own personal benefit. These people should be denounced, separated from the socialist process led by President Chávez . . . and tried as common criminals.”
It was a poignant plea. And utterly hypocritical. Giordani had not only created the economic distortions that facilitated the looting; he relied on the worst looters. To spin his web, he needed the Finance Ministry, Central Bank, and PDVSA. Venezuela slid toward the bottom of the honesty scale measured by Transparency International, an anticorruption watchdog. Successive finance ministers were accused of pocketing immense fortunes. The Central Bank governor was accused of selling insider information and ransacking the reserves. PDVSA was accused of wholesale kleptocracy. The austere, honest Monk twinkled little bells of complaint but did not lead a crusade against corruption, did not resign, did not redesign his policies. That would have imperiled his authority and elaborate utopian constructs. That would have admitted error.
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Giovanni Scutaro was a young, flamboyant fashion designer when he was picked by Carlos Andrés Pérez to overhaul his image for the 1988 presidential campaign. Scutaro had studied in Milan and knew how to make any man look good in a suit. His youthful makeover of the aging Pérez, who had served as president in the 1970s, helped propel him to another term. Four years later the panicked president wore a crumpled suit over pajamas during Chávez’s 1992 coup attempt. By 1999 it was Chávez’s turn, as president, to commission Scutaro. “I got a call from Miraflores that he wanted help with his image,” re
called the designer. The comandante was struggling with his wardrobe. Out of uniform he was lost, veering between sleeveless jumpers, checked shirts, and liquiliquis, a traditional Venezuelan suit with a Mao-style collar. Scutaro, by then Caracas’s chicest designer, with his own boutique, accepted the commission. The priority was to reassure foreign capitals during Chávez’s trips that he was not a military thug but a civilized civilian. “I managed the new image, coordinated everything from underwear, shoes, socks, shirts, ties, overcoats. Chávez is quite dark, so I used light-colored suits to show his face. The president was thin then; it was easy to dress him. He accepted all my ideas. I really enjoyed it.”
A decade later Scutaro was as flamboyant as ever. In 2011 he offset his dyed-blond hair and blue eyes with ripped jeans, a tight, colorful shirt, and four black leather wrist straps. He had just won an award in Miami and had hired Miss Universe to model his latest catalog of dresses. His role in the revolution, however, had evolved. He no longer dressed the president, who now boasted an extensive wardrobe and wider girth. “He’s much rounder now. His designers have to take account of that.” Instead, Scutaro now dressed the “boligarchs” and their women. The term fused “Bolívar” and “oligarchs” to underline the new elite’s political allegiance. Scutaro loathed the government and scorned the revolution but needed the clients. It had made him an ambivalent facilitator of luxury from the 2003 boom onward. “Is it incongruous to combine high fashion with socialist revolution?” He laughed. “You have to put inverted commas around those last two words, amigo. What we are is an oil state with a new elite. And believe me, they’re having fun. Flights are full, nightclubs are full, restaurants are full.”
The comandante had repeatedly lauded the poor as virtuous and said to be rich was bad, but the boligarchs exulted in consumerism. They bought SUVs, penthouses, gadgets, yachts, more and better SUVS, penthouses, gadgets, yachts. They rented the former Hilton—taken over by the government and renamed the Alba—on Margarita Island for birthdays and weddings. For parties in Caracas they rented Quinta Esmeralda, a faux-rustic banquet resort that charged $300,000 for receptions and was fully booked year-round. Venezuela made outstanding rum, but the elites preferred imported scotch, notably Chivas Regal. The comandante professed himself appalled. “Is this the whiskey revolution? Or perhaps the Hummer revolution? Venezuela is one of the countries that consumes the most whiskey per capita. That shames me. It is part of the capitalist curse that is consumerism.” It was rumored that on a trip home to Barinas, Chávez took a baseball bat to a brother’s Hummer. But for all his public railing, he continued letting the boligarchs make money—as long as they served him.
Scutaro watched it all with an arched eyebrow. Tycoons and politicians—or their representatives, if they were being discreet—rubbed shoulders in the glass elevator that led to his temple of dresses in Las Mercedes, a glitzy district in eastern Caracas. Silk or satin, cocktail or formal, above or below the knee, they had one request in common. Red. It must be red. The designer would inwardly groan and reply with a smile: I’ll see what I can do. “They explain that they’re Chavistas and it’s their daughter’s birthday. It’s a big deal here when a girl turns fifteen. If the father is with the revolution, he doesn’t care about the fabric as long as it’s in red. Something simple, $3,000. The more elaborate dresses cost up to $25,000.” The exhibitionism was kept within the rarefied circles of other boligarchs and government insiders. The public at large was kept at a distance. There were no fiesta invitations to the media, no photographs in the society pages, and, most important, the boligarchs paid with cash rather than with credit cards or checks, which left trails. Scutaro shook his head, half grateful, half repelled. “I go to weddings now, and I don’t know anybody there. When people from the United States and Europe come here and see our weddings, they go, wow, so much money. There is no equilibrium between perceptions from afar and the reality of what is happening inside the country.”
Scutaro said he tried to keep politics out of his business. “I try not to sectorize myself. I’m here to work. And so are my staff. That said”—he indicated some women arranging fabrics—“I’ve got twenty-five seamstresses, and they’re all Chavistas. Well, they were. Now they’re all complaining about inflation, insecurity, and incompetence.” He sighed and gazed around his store. “You might think clothes are simple, but we’ve got a whole little world spinning right around them.”
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It was seldom visible to outsiders, but boligarchs paid for their baubles and bank accounts in chronic anxiety that one day the legal and moral miasma in which they operated would dissipate, leaving them exposed. Their security and liberty relied on a covering mist of other bankers, businessmen, politicians, journalists, and judges, all of it swirling on money and personal relationships open to betrayal and blunder.
Such groupings were affiliated to different tribus, diminutive for judicial tribunal, an apt shorthand because tribal clashes regularly erupted. An unpaid bribe or competition over a government contract could pit one tribe against another, prompting leaks to the media, police raids, and prosecutions. Most scandals swiftly evaporated, forgotten, after backroom deals. The corrupt concealed anxieties behind smiles and conviviality. On very rare occasions the mask slipped.
In November 2007, during a long lunch in a Miami restaurant, it happened courtesy of the FBI. Alejandro Antonini, a heavyset, jowly businessman in his mid-forties, had the fried calamari, the cotoletta alla parmigiana, and chocolate cake. Moises Maionica, a boyish corporate lawyer with thinning hair, had the veal marsala and key lime pie. Unknown to Maionica, Antonini was wearing a wire and recording the entire conversation. It was the latest twist in a tangled saga that had begun the previous year when a customs official at the Buenos Aires airport found $800,000 in undeclared cash in Antonini’s suitcase. He fled to Miami. In Miraflores, consternation. Antonini had been traveling with PDVSA officials, and it looked to the world that Chávez had tried to make a secret payment to the election campaign of Cristina Fernández de Kirchner, Argentina’s soon-to-be president. The palace dispatched a team of fixers, including Maionica, to Miami to buy Antonini’s silence, unaware he was collaborating with the Feds in a plea deal. They were later arrested for conspiracy and acting as unregistered foreign agents in the United States.
The value of the wire transcripts was not in learning more about the suitcase in Buenos Aires—it was one of multiple, clandestine payments to allies around the region—but in eavesdropping on how the boligarchs and their operatives spoke in private. It was the eve of the December 2007 referendum. After settling into their seats and scanning the menu, the two men got down to business. Maionica said getting hush money to Antonini was proving complicated because PDVSA could not make a wire transfer to him in the United States while he was under such scrutiny. It would have to be cash, and that would take time. He assured Antonini everything would be resolved quietly. “Look, in Venezuela nobody talks about anything. Nobody, nobody, nobody, nobody, nobody . . . nobody.”
Chávez, said the Caracas emissary, had instructed Henry Rangel Silva, head of the DISIP secret police, to make the payment. “Rangel has a secret fund.”
Rangel Silva wanted Antonini to sign a receipt for a $2 million payment, said Maionica, as proof the hush money was delivered in full. “Otherwise somebody will end up thinking the one who took it was Rangel.” The secret police chief, in other words, was so worried about corruption in government ranks that he wanted a receipt to prove he did not skim the payment.
Over calamari, which they shared, Maionica explained that Chávez had originally asked Rafael Ramírez, his oil minister, to resolve the scandal, then grew so frustrated at Ramírez’s incompetence he passed responsibility to Rangel Silva. Conversation turned to how colleagues used extortion and intelligence agency contacts to trip up competitors. They painted a dark world of ambition, greed, and betrayal. Maionica said prosecutors jostled for cases ripe with corruption opportunities. “They’re all sons of bitches who want
to profit at the expense of others, like, ‘if I get this one, I’ll become a millionaire.’”
Over key lime pie the Caracas envoy phoned a senior PDVSA executive in Argentina and used a medical code—Antonini was the “sick cousin”—to confirm the hush money. Antonini checked the time. Maionica remarked it was a beautiful Rolex. “I’ve got the exact same one.” A new version of it (the Yacht-Master II, costing $25,000) was already out, he said. “Have you seen it?”
Antonini nodded and said: “I have many.”
The transcription was one of two hundred that surfaced in a trial the following year, by which time Maionica, snared by Antonini, also made a plea deal with the FBI. Back in Caracas, nothing. Chávez, on his television show, shrugged off the whole affair. “We have nothing to cover up, nothing to hide.” And that was that. Officials played dumb. Suitcase? Antonini? There were no investigations, no prosecutions. Ramírez stayed on as oil minister and head of PDVSA. Rangel Silva, the secret police chief, was promoted to head of the armed forces. Waters closed over the case. “In Venezuela nobody talks about anything. Nobody, nobody, nobody . . .”
—
The comandante had swept to power declaring war on corruption and maintained his authority through verbal torrents, but when it came to corruption in his own government, he sought refuge in silence. He sealed not just his own lips but those of people who knew too much and threatened to blab. Most boligarchs willingly remained mute since they had no desire to incriminate themselves. However, some, perhaps a dozen, through bad luck or hubris, were deemed risks and thus banished to the basement cells of DISIP’s headquarters, a hulking, concrete hilltop ziggurat known as El Helicoide. They were not tortured, merely left to rot in the soundproof fortress. No journalist could slip in here. Their trials were continuously delayed, or held in camera, so they had no public forum.