Analysis: The real cost of PDVSA sponsoring Pastor Maldonado

In recent years, extreme inflation, financial mismanagement, and shortages of basic goods and services have made daily life challenging for the average Venezuelan citizen.

Recent elections have caused a shift in political power, but life on the ground will be slow to change.

While the opposition party now has control of Venezuela’s National Assembly, President Nicolas Maduro has announced the creation of a parallel ‘people’s parliament’, which political observers have called a last-ditch attempt to hold on to some form of legislative authority.

But the election results are not the only challenge currently being faced by Maduro and his allies, thanks to ongoing investigations into allegations that the Venezuelan government used PDVSA to “loot billions of dollars from the country through kickbacks and other schemes”, while also “attempting to determine whether PDVSA and its foreign bank accounts were used for other illegal purposes, including black-market currency schemes and laundering drug money”.

Corruption rife

Venezuelan petro-chemical giant PDVSA has been a significant - if silent - player in global motorsports in recent years. In addition to their personal sponsorship of Pastor Maldonado in Formula 1, PDVSA have in the past backed GP2’s Rodolfo Gonzalez and IndyCar’s EJ Viso.

The current US investigations do not allege any impropriety in PDVSA’s sports sponsorship, but instead focus on corruption at every level within the company.

According to reports in the Wall Street Journal, when the directors of an unnamed Spanish construction firm secured a meeting with then-PDVSA president Rafael Ramirez (now Venezuela’s ambassador to the United Nations) to discuss an electro-power project, they were told that if they did not have $150 million in kickbacks to hand, they may as well go straight back to the airport.

Ramirez is believed to be one of the main targets of the current investigations. A committed Chavista who once threatened to “liquidate the enemies of the revolution” should Hugo Chavez lose a forthcoming election, the UN ambassador built up a substantial private fortune during his time leading PDVSA, and was dogged by widespread accusations of corrupt business practices, including filling senior PDVSA roles with family members.

Federal prosecutors from four US states met earlier this year to share evidence across a number of PDVSA-related enquiries, and that meeting also involved officials from the Drug Enforcement Agency, the Department of Homeland Security, and the FBI.

Investigations into corruption at PDVSA are ongoing, but the DEA has filed drug-trafficking charges against two of Maduro’s nephews by marriage, and the chief of Venezuela’s border agency is reportedly next in the firing line for his alleged role in easing the flow of narcotics through the country.

A defiant President

For Maduro, the charges and investigations have provided yet more fuel with which to fan the flames of anti-American sentiment in the socialist country.

Like Chavez before him, Maduro has found it convenient to blame both the United States and his own opposition for creating an “economic war”, which has led to annual inflation of at least 70 percent (although the International Monetary Fund estimates 160 percent) and an economy expected to contract by 10 percent this year.

Ramirez himself has already used that approach, taking to Twitter to deny allegations of corruption, saying media reports into the matter attacks were propagated “by enemies of the people”, aimed at destabilising the regime in retaliation for Chavez having re-nationalised the oil firm with a view to directing its profits back to the Venezuelan people.

It is unlikely that any consequences of the investigations will be felt in the F1 paddock. American jurisdiction over Venezuelan companies is non-existent, after all.

But the perilous state of the Venezuelan economy means that a trickle-down effect is likely to be felt throughout the population as the international community’s faith in the country’s ability to pay its bills plummets further still.

To sponsor, or not to sponsor?

PDVSA has long been viewed as the financial arm (read: cash cow) of the United Socialist Party of Venezuela (PSUV), and with the oil giant in trouble, it will be nigh-on impossible for the Venezuelan government to secure the necessary credit to keep up the current paltry flow of foodstuffs and medicines into the country.

The lack of basic necessities in Venezuela has been causing social unrest for over a year, with reports of citizens dying in knife fights over the last packets of toilet paper and loaves of bread left on store shelves.

The PSUV maintained a certain degree of popular support from those who benefited from PDVSA’s riches during the Chavez years, but as the recent parliamentary elections have shown, that popular support has waned in the face of vital shortages and increasing violent crime in a desperate country.

The effect on Venezuela’s political landscape of the creation of Maduro’s new ‘people’s parliament’ remains to be seen.

But with public sentiment now focused on repairing the damage done to the national economy in recent years, the government will be forced to choose between using PDVSA sponsorship to promote Venezuela in F1 through Maldonado, or diverting those funds into keeping Venezuelans happy at home.