VENEZUELA is diverting almost $20bn from its oil bonanza into an opaque fund over which President Hugo Chávez has discretionary powers to spend as he sees fit on development and "political" causes at home and abroad.
The huge international "slush fund" is being created ahead of elections in December, when Mr Chávez plans to be re-elected, and as he seeks to extend his influence across Latin America.
However, his discretionary spending purse would appear to be dozens of times larger than that available to President George W. Bush under the White House appropriation rules, which has congressional oversight.
In recent days Venezuela's central bank has begun transferring $4.2bn (euro3.4bn, £2.4bn) from foreign reserves to a special fund called Fonden, which will have accumulated about $12.5bn by May. The government estimates that Fonden will have $17.5bn by the end of 2006 -- equivalent to about 40 per cent of this year's official budget of $46bn. An additional fund called Fondespa already has about $2.0bn.
Fonden was created last year under a law that obliges the central bank to divert "excess" reserves into the fund, with an initial deposit of $6.0bn last July. Since then about $100m per week has been transferred to Fonden from Petréleos de Venezuela, or Pdvsa, the state-owned oil company. Analysts allege that the fund is technically illegal, because the constitution prohibits extra-budgetary spending.
Domingo Maza Zavala, a central bank director, said last month that Fonden funds should be used to pay off foreign debt. Analysts doubt that will happen. "The government could use more of the Fonden to reduce external debt but there are indications that Fonden is geared to other priorities," said investment bank JP Morgan in a recent research note. Economists also warn that Fonden expenditure will lead to an increase in monetary liquidity, feeding into higher inflation.
Venezuela regularly signs oil and project-financing deals with political groupings or governments in the region. Lately it signed a deal with leftwing mayors in El Salvador to provide cheap oil to the poor. But there have also been persistent rumours of cash being given - in used dollar bills -- to left-leaning political candidates in elections.
President Evo Morales of Bolivia has denied receiving financing from Mr Chávez before his election last December, as has Ollanta Humala, the radical nationalist candidate running in Peru's recent elections.
FT Syndication Service