Crystallex International

Brian Ellsworth and Eyanir Chinea Reuters

6:04 a.m. CDT, September 26, 2012

MACAPAIMA, Venezuela (Reuters) - The site of what may someday be Venezuela's first newsprint factory today consists of little more than a warehouse, several acres of cleared tropical savannah, and two billboards bearing pictures of President Hugo Chavez.

More than five years after Chavez first hailed state-owned Pulpa y Papel CA as a vanguard "socialist business," there is little else to show here in rural southeastern Venezuela for the more than half a billion dollars that state investment fund Fonden set aside for the project.

As with many Fonden investments, tracking the money sent to Pulpaca, as the project is known, is difficult. A Pulpaca annual report for 2011 said the project was stalled for lack of funding. A manager at the dusty gates of the compound declined to comment. So did contractors involved. Requests for interviews with the industry ministry, charged with disbursing Fonden money for such projects, went unanswered.

Fonden is the largest of a handful of secretive funds that put decisions on how to spend tens of billions of dollars in the hands of Chavez, who has vowed to turn the OPEC nation's economy into a model of oil-financed socialism. Since its founding seven years ago, Fonden has been funneling cash into hundreds of projects personally approved by Chavez but not reviewed by Congress -- from swimming-pool renovations for soldiers, to purchases of Russian fighter jets, to public housing and other projects with broad popular appeal.

The fund now accounts for nearly a third of all investment in Venezuela and half of public investment, and last year received 25 percent of government revenue from the oil industry. All told, it has taken in close to $100 billion of Venezuela's oil revenue in the past seven years.

Fonden attracts scant attention beyond policy experts and Wall Street analysts. But it is at the heart of Chavez's promise to use Venezuela's bulging oil revenue to build new industries, create jobs and diversify the economy in the service of his self-styled revolution.

Finding out how much of that money Fonden has spent, and on what, is not easy. The most detailed descriptions usually come from Chavez himself, rattling off multimillion-dollar investments on television while chatting with workers and extolling the virtues of socialism. Fonden does not regularly release lists of projects in its portfolio.

Adversaries excoriate it as a piggy bank that lets Chavez arbitrarily spend billions of dollars with little more than the stroke of a pen and perhaps a celebratory Tweet, with accountability to no one. The secrecy also makes it impossible to determine what went wrong - at Fonden, or at the ministry level, or on the ground -- when a project like Pulpaca stalls.

"I'm shocked that we don't know exactly what has happened to $105 billion," said Carlos Ramos, an opposition legislator who has led a campaign to extract more information about the fund from the finance ministry. "That is not Chavez's money. That money belongs to 29 million Venezuelans and as such the information should be available to everyone."

Critics point out that since Fonden's creation, Venezuela's economy, rather than becoming more diversified, is even more dependent on its mainstay: In the first half of this year, oil accounted for 96 percent of export earnings, compared with about 80 percent 10 years ago.

The perception of secrecy has left investors unsure how to measure Venezuela's fiscal strength. Fitch Ratings this year warned it could downgrade the country's debt, in part because of transparency concerns. Those same concerns are also helping push up borrowing costs. Despite Venezuela's ample oil wealth, yields on the country's bonds are nearly equal to those of impoverished Pakistan, and higher than war-ravaged Iraq's.

"The visible portion that we can compare in Venezuela vis-Ã -vis other countries has declined considerably," said Erich Arispe, director in Fitch Ratings Sovereign Group. "I can't rate what I can't see."

CONTROL THE PURSE STRINGS

Chavez's control over the country's purse-strings -- unprecedented for any Venezuelan president in more than 50 years -- will be a key advantage in his bid for re-election on October 7. Projects successfully executed with billions of dollars in Fonden financing -- housing, hospitals and public transportation lines -- have improved the lot of Venezuela's poor, many of whom are already fans of Chavez's leadership.

"It's magnificent. It means we can have access to health care, education. All of this is for the people," said Domingo Gonzalez, 58, after being treated for hypertension at a new Caracas hospital funded by Fonden. "People say Chavez is throwing the money away, but that's obviously a lie, because otherwise we wouldn't have hospitals like this one," he said at the hospital gate near the slum of Petare, where middle-class Caracas merges with a chaotic jumble of narrow winding streets and ramshackle homes.

At the same time, Chavez is under growing opposition fire over abandoned or half-built projects, including some that received millions of dollars from Fonden. A fleet of modern busses for a transit project in the city of Barquisimeto, which received $301 million from Fonden, were left sitting idle so long that vines started growing inside them.

Some information about Fonden's outlays can be found in annual reports of government ministries. The finance ministry last year released a partial list of projects, following pressure by Ramos, the opposition legislator. A link on Fonden's website apparently dating from 2007 also provided a partial list of projects, but was taken offline in the first week of September. A cryptically worded internal Fonden document leaked to the press provides an outline of its financial investments, though it omits key details, such as losses on holdings.

Other publicly available data is provided at irregular intervals and in formats that often do not allow for comprehensive comparisons. Public officials pressed for additional information are as laconic as Chavez is loquacious. A Reuters reporter at a Fonden event who approached the finance minister -- the fund's president - to ask questions was physically restrained by two security personnel.