The Devil's Excrement

I worry when I agree with Hugo Chávez on something. Not only is it rare, but there are so few things that he says that make much sense or are not outright lies, which are contradicted by evidence and what he has said or done before.

Imagine then my reaction when Chavez himself suggested he may increase the price of gasoline, because in his own words “we sell the cheapest gasoline in the world” and “there are people that use lots of gasoline, those that have luxury cars”. I have been saying this for ten years.

The only thing Chavez did not say, was that it was his enemies, the oligarchs and some of his newly enriched collaborators, who own these luxury cars.

But what Chavez did not explain, was: Why has he kept gas prices so low? Why has he given it away for ten years (gas is 17.07 cents a gallon at the official rate of exchange and 6.11 cents at the parallel swap rate)? Why give something essentially free to the rich, while there are so many poor people in the country? (The gas subsidy for someone like me is 4 times higher than for the poor)

And while we are on the subject, why did he give dollars at the official rate of exchange so that the same people could buy these luxury cars?

Is that part of the revolution?

A really weird revolution if you ask me.

Because Chávez has been in power for ten years, he did not start last year. So, he is saying that as administrator of our resources, he has wasted billions, just because…Did he only realize this yesterday? Does he realize what he could have done with it?

The answer is no, he has no clue as to what a house costs, or a kilometer of road, or school. Numbers have no meaning for him, order of magnitude is something he personally does not understand.

But maybe he can explain to us why it is that he actually reversed two important policies of the previous Government, when he arrived in power in 1998:

First, he stopped increasing the price of gasoline periodically, so that gas would be sold locally at the FOB price and PDVSA would not lose money. Is he just realizing now that PDVSA loses money when it sells gasoline? This has been happening for his ten years as President. Nothing new there. I could have told him that…I guess nobody told him, or nobody around was capable of doing so. Or was afraid to tell him once he made up his mind.

Second, in 1999,  PDVSA canceled the natural gas project for vehicles, eliminating its distribution from gas stations and ending a program that was a key part of the solution to having realistic gasoline prices without a large impact on the poor population of Venezuela. Why was this done? I guess because it was a project conceived by the IVth. Republic and it is better to be a good revolutionary and eliminate it, that to continue a good project from the IVth. (Remember the school lunches and the glass of milk projects? Yeap, Chavez got rid of them) That’s ignorance for you. (BTW, this natural gas project was “revived” last year)

And then in his best “Yo no fui” (I didn’t do it!) style, Chávez also complains about the cheap price of electricity…

Well, when Hugo Chavez came to power, the electric sector had been force to divide into three parts: generation, transmission and distribution. Then, the Government set formulas for the calculation of rates for each part of the system, giving companies a reasonable rate of return as well as  a yearly increase to be approved by the Government.

Then Chávez came and suspended any increases. Later, he took over the whole electric sector in 2007, and whoops! Guess what? It is now the Government that loses money, not the capitalistic oligarchs, so the system needs to be changed.

Which only goes to show how improvised this Government continues to be after ten years and how empty Chavez’ revolution is. Chavez wants to have a revolution, but ten years after he was first elected, he still has no clue as to what it means, except that he wants to “do good”.

The problem is how…

And this whole charade shows he has no criteria for making the decisions he regularly does, nor the reliable advisers that can tell him that what he has done for ten years made no sense.

Because in fact, it made much more sense to increase the price of gas a year or two ago than it can ever be right now.

Think about it, in June of 2008, PDVSA was selling a gallon of gasoline locally for 6.11 cents (swap rate) or 17.07 cents (official rate), while gasoline in the international markets could be sold for US$ 3.6 per gallon, while today gasoline was at US 1.41 per gallon.

Thus, PDVSA’s opportunity cost is much lower today than it was last summer at the peak of gas prices, gas prices were then twenty one more expensive then that local prices, compared to eight times today (official rate). Yes, that is eighteen, as 1800%, and seven, as in 700%. How stupid can this be?

Just think, had he increased gas prices last year, a tearful Chavez could come on his reality TV show and announce that he cares so much for the people, that he would actually lower gas  prices, simply out of love for them.

Because now the real question is. To what level is he really planning to increase prices now? Given the difference between the current price and market prices, the increase has to be more than just  symbolic. If he triples prices, PDVSA will still lose lots of money, in addition to the opportunity cost. (In fact, I don’t believe PDVSA can sell gas at a profit internationally). Thus, only a huge increase, which would have a hgh political cost, woudl make sense at this time.

Clearly, Chávez could sell magnets to Garcia Marquez’ Melquiades, only to convince him the next day to trade them for a magnifying glass. The problem is that he then sells the people the same magnifying glass and all we get are once again magnets. And people will still love him, even if the magnets point south.

The perverse and tragic fact is that these are decisions which imply wasting billions of dollars, in  a country where a few hundred million could solve significant problems of the population. Because in fact, due to this blind and reckless policy of keeping ags prices low, the traffic problem has increased dramatically and Chavez does not even attempt to begin solving it.

I haven’t done the calculation, but I would bet, that with the money from the gasoline subsidy in the last ten years, the housing problem in Venezuela could have been solved.

Imagine that! But Chavez can’t, the numbers are too large for his mind…

This entry was posted on March 17, 2009 at 9:16 pm and is filed under Venezuela.