Transparency in South-South Cooperation: Why Does it Matter?

Venezuela's South-South cooperation has helped it curry favor with governments in the region, but it has also made the Chávez administration the subject of intense criticism for its apparent lack of transparency.

January 11, 2012
Daniel Gamboa Galvez, Jaclyn Goldschmidt


venezuelan development finance

Venezuela's President Hugo Chavez, Argentina's President Cristina Fernandez,

Brazil's President Dilma Rousseff, and Bolivia's President Evo Morales look on

during the Community of Latin American and Caribbean States (CELAC) summit in Caracas.

Source: AP/ Ricardo Mazalan

"We have to create a new international system, and we're doing it…

The solution is in our hands. It's not in handouts from the North." –Hugo Chavez, 2009

The global development finance architecture is rapidly changing. Many low-income and middle-income countries and longtime recipients of Western aid are now engaging in a different form of development cooperation called "South-South cooperation." Broadly defined, South-South cooperation is an arrangement in which developing countries share knowledge, skills, expertise and resources to meet mutual development goals.

Venezuela, a country known for promoting strong integration of Latin American and Caribbean countries, is an active sponsor of South-South development cooperation (SSDC) activities (see Chart 1). Its Ministry of Petroleum and Mining is one of the leading institutional actors involved in SSDC activities. It oversees Petroleos de Venezuela SA (PDVSA), a state owned oil company which offers oil to Venezuela’s partner countries on concessional terms  and funds social programs.

Source: The Reality of Aid Management Committee, Special Report on SSC 2010

Venezuela also sponsors energy integration in Latin America and the Caribbean, channeling significant amounts of oil-related assistance to governments through the Caracas Energy Cooperation Agreement, the Energy Treaty of ALBA, and Petroamerica. These programs have helped Venezuela curry favor with governments in the region, but they have also made the Chávez administration the subject of intense criticism for its apparent lack of transparency.

Consider Nicaragua. In 2007, Nicaraguan President Daniel Ortega decided that his government would join ALBA and Petrocaribe, a Petroamerica initiative. Through this arrangement, Nicaragua gains access to 27,000 barrels of oil per day, effectively getting half of its purchase back in low-interest, long-term loans. Venezuelan aid through ALBA also led to the creation of ALBA de Nicaragua SA (ALBANISA), a private company in Nicaragua that manages joint revenues between PDVSA and Petroleos de Nicaragua (PETRONIC). ALBANISA is not required to disclose its funds to Nicaragua´s National Assembly; oversight rests solely with the executive branch. Thus, an estimated $450 million in 2009 escaped public scrutiny.

Venezuela's unwillingness to disclose detailed financial information has aroused suspicions. TIME Magazine argues that the Ortega administration’s exclusive oversight of ALBANISA and ability to purchase private ownership of Nicaraguan companies has increased opportunities for corruption and political patronage.

But others argue that Venezuelan assistance, which may constitute as much as 50% of all official financial flows received by the government, has played a major role in improving living conditions in Nicaragua's rural areas.  Dr. Alejandro Martinez Cuenca, who runs a think tank in Managua, points out that extreme poverty in Nicaragua declined from 17.2% in 2005 to 9.7% in 2009. He attributes this improvement to the fact that "the government has had access to unlimited resources from Venezuela, and these have gone toward the rural sector."

Transparency would, of course, give the Chávez administration an opportunity to counter its critics. It would also help the research community better understand the rapidly evolving paradigm of South-South development cooperation. But for the time being it appears that the intended beneficiaries of Venezuela's SSDC programs will be left to hold the Chávez administration accountable for results.

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This post was written by Daniel Gamboa Galvez, a Visiting Research Associate at AidData, and Jaclyn Goldschmidt, an AidData Research Assistant.