Venezuela need for dollars helped spark PDVSA graft probe -sources By Reuters

Written by Myla Armas and Vivian Sequeira

CARACAS (Reuters) – Among the drivers of a crackdown on alleged corruption at state oil company PDVSA is Venezuela’s need for dollars to boost its exchange rate and enable government largesse ahead of the 2024 elections, four sources familiar with the matter said.

This week’s arrests of more than 20 PDVSA officials prompted former oil minister Tarek El Aissami, a longtime figure in President Nicolás Maduro’s government, to resign. He was replaced by Pedro Rafael Telecia, who was appointed to head the PDVSA in January.

Maduro said his government was committed to “going to the roots” of corruption, describing the investigation launched last year as “professional, scientific and disciplined”. His administration provided few other details of the alleged wrongdoing.

Three sources said that the arrests of PDVSA officials were related to an investigation into the huge losses incurred by the company last year, as tankers left the country loaded with cargo that had not been paid in full.

PDVSA has accumulated $21.2 billion in unpaid invoices, according to documents seen by Reuters, after it turned to dozens of little-known middlemen to export its oil under US sanctions.

The sources said that these pending payments are a sore point for the government as it prepares for the presidential elections next year, which traditionally witness a jump in public spending. The government has said it expects oil exports to finance 63% of its national budget in 2023.

“Money is what matters and money is the central point of this mess,” said a political source. “If you don’t have money, what do you do? Invent sounds.”

The Ministry of Finance, the Central Bank and PDVSA did not respond to requests for comment.

Nearly all of PDVSA’s commercial crude and fuel exports have been halted amid a contract review, part of an audit that Tellechea began after taking over the company.

It is not clear whether the corruption investigation and contract review will measurably improve PDVSA’s cash flows in the near future.

But it came as Maduro’s government faces pressure to increase public sector wages, which have held steady for a year even as prices for food and public services have risen.

Maduro raised the monthly minimum wage by 58% in March 2018, two months before the latest presidential race, the results of which have been disputed.

Maduro loosened currency restrictions in 2019, allowing for de facto dollarization. In an effort to combat rampant inflation, the government subsequently used dollar infusions to stabilize the exchange rate, along with public spending cuts and other measures.

Three sources familiar with the ruling party’s finances and economic strategies said cash flows from the PDVSA to the central bank, which pumps dollars into the economy, have been sporadic in recent months.

Increases in consumer prices have fallen to single digits for about a year, but annual inflation rose again to 537% in February, according to the Venezuelan non-governmental Finance Observatory. Decreased dollar cash flows have led to a sharp depreciation of the bolivar since late last year.

“The (government’s) exchange strategy will remain the same in the coming months,” said one of the sources, adding that the government will need more foreign exchange to keep pumping dollars, which local businesses need to pay service providers and for imports.

The central bank had only $420 million to offer banks between the beginning of 2023 and mid-March, according to estimates from the economic firm Sintesis Financiera.

Through the whole of 2022, it tripled its dollar infusion to $3.7 billion.

A Reuters report showed that about $3.6 billion in outstanding payments to PDVSA may not be recoverable, because they are related to carriers that left the country without prepaying at least part of the value of the shipments.

Last year, PDVSA delayed dollar cash payments to many of its suppliers due to lower income.