Is Venezuela thinking about lifting its longstanding gasoline subsidy? Does it have a choice?

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Date: June 25, 2014
Publisher: SyndiGate Media Inc.
Document Type: Article
Length: 502 words

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They might be hard-pressed to find bottled water, flour, sugar, or even toilet paper in any of their local shops right now, but the availability of one basic necessity of which Venezuelans feel they are rightfully assured is the extremely cheap gasoline that the government has subsidized for a going rate of about 5 U.S. cents a gallon (which amounts to even less at the "unofficial" rate) for almost two decades. Venezuela has some of the largest oil reserves in the world, and the very idea of getting rid of or cutting back on the subsidy for domestic gasoline sales is pretty much the third rail of Venezuelan politics -- its continuation is basically one of the promised pillars of the country's socialized society. The subsidy costs the government at least $12 billion a year, however, and with the economy in the throes of so much centrally-planned-yet-not-planned turmoil, Nicolas Maduro might be running out of options. As the Financial Times notes:

...[A]nalysts say that removing a gasoline subsidy estimated to cost $12bn a year will be the litmus test of how far Mr Maduro is prepared to go in his attempt to bring a semblance of economic rationality back to the country.

"No government dares to do it, but we are at an inflection point: either they do it, or we go bankrupt. There is no other option," says Nelson HernEindez, a former senior executive with PDVSA, the state-run oil company.

Venezuelan gasoline prices have been frozen since 1996, three years before Mr Maduro's predecessor, the charismatic Hugo ChEivez, came to power and launched Venezuela's "Bolivarian Revolution". Since then, international oil prices have risen sevenfold, while accumulated Venezuelan inflation has topped 4,435 per cent, says a December report by Barclays.

... Ending the gasoline subsidy, for example, would help close a fiscal deficit estimated at some 13 per cent of gross domestic product that is currently financed by printing money, which only fuels further inflation. ...

Another businessman close to the government agrees. "It was inconceivable under ChEivez to raise the price of gasoline, but it is likely to happen soon," he says. "The difficulty is how to manage this without widespread social unrest while holding on to power when you have a slim majority."

One of the biggest problems with downsizing on the gasoline subsidy, of course, is not merely the collective rage blackout that would likely consume all of Venezuela, but the hugely lucrative black-market gas trade that the subsidy fuels; an estimated 140,000 barrels a day, the FT reports, are smuggled into neighboring Colombia and sold way above domestic prices. Such a large operation would be almost impossible unless some government insiders and senior military officers were involved -- i.e., people that Maduro needs to not piss off in order to keep the military on his side.

It's just so unfortunate how these planned socialist utopias so often devolve into self-cannibalizing kleptocracies, you know?

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Gale Document Number: GALE|A377024010