Currencies

Venezuela need for dollars helped spark PDVSA graft probe -sources

Venezuela need for dollars helped spark PDVSA graft probe -sources
© Reuters. FILE PHOTO: A sculpture depicting an oil tower on a hand of Venezuela’s state oil company PDVSA is pictured near the company’s headquarters, in Caracas, Venezuela March 20, 2023. REUTERS/Leonardo Fernandez Viloria/File Photo

By Mayela Armas and Vivian Sequera

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

The arrests this week of more than 20 PDVSA officials prompted former oil minister Tareck El Aissami, long prominent in the government of President Nicolas Maduro, to resign. He was replaced by Pedro Rafael Tellechea, who had been named to head PDVSA in January.

Maduro said that his government was committed to “going to the root” of corruption, calling the probe which began last year “professional, scientific and disciplined.” His administration has provided scant further details of the alleged wrongdoing.

Three of the sources said the arrests of the PDVSA officials were linked to an investigation into heavy losses the company suffered last year, as tankers left the country carrying cargoes that had not been fully paid for.

PDVSA has accumulated $21.2 billion in unpaid bills, according to documents seen by Reuters, after turning to dozens of little-known intermediaries to export its oil under U.S. sanctions.

Those pending payments are a sore spot for the government as it gears up for next year’s presidential elections, which traditionally see a jump in public spending, the sources said. The government has said it expects oil exports to finance 63% of its national budget in 2023.

“The money is what’s important, the money is the central point of this mess,” said a political source. “If you don’t have money what do you do? Invent votes.”

The Finance Ministry, 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 review of contracts, part of an audit begun by Tellechea after taking the helm.

It is unclear whether the corruption probe and contract review will concretely improve PDVSA’s cash flows in the near future.

But it has come at a time when Maduro’s government faces pressure to raise public sector pay, which has held steady for a year even as prices for food and public services have shot up.

Maduro increased the monthly minimum wage by 58% in March 2018, two months ahead of the last presidential contest, whose results are contested.

Maduro relaxed currency controls in 2019, allowing a de facto dollarization. In a bid to combat rampant inflation the government later used dollar injections to stabilize the exchange rate, along with public spending cuts and other measures.

Cash flows from PDVSA to the central bank, which injects dollars into the economy, have been intermittent in recent months, said three of the sources, who have knowledge of finance and ruling party economic strategies.

Consumer price increases fell to single digits for about a year, but annualized inflation surged back to 537% in February, according to the non-governmental Venezuelan Observatory of Finances. Falling dollar cash flows have led to a sharper depreciation of the bolivar currency since late last year.

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

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

During all of 2022, it had tripled dollar injections to $3.7 billion.

Some $3.6 billion of PDVSA’s pending payments may be unrecoverable, Reuters reporting showed, because they are tied to tankers that left the country without prepaying at least a portion of the cargoes’ value.

PDVSA last year delayed cash payments in dollars to several of its suppliers because of dwindling income.

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