Archive for December 28th, 2010

Can Venezuela be run in a rational way?

December 28, 2010

Somehow two items in the news have suggested to me in the last few days that anyone trying to run Venezuela in a rational way would have a hard time doing it. It seems that even rational decisions receive irrational responses in this country:

1) Corpoelec has proposed an electric rate increase after eight years of freeze. The most common reaction has been to say that if Corpoelec gives such bad service, how can it possibly aspire to a rate increase. This argument is simply garbage. It is precisely the fact that rates have been frozen for eight years that has led to the crappy service given by Corpoelec. Just think, since 2002, when rates were last increased, inflation has gone up by 890%, so that in real terms, rates are lower dramatically, and people expect good service! Sure! Of course, the service is bad in part because Corpoelec is not run efficiently, but the Government simply can’t give everything away. This is no way to run a country.

How cheap is electricity in Venezuela? Well, my bill last month was about 1.6 US dollars cents per Kwh, about a quarter of the typical value in Latin America or a tenth of what it costs in developed countries. What is Corpoelec proposing? A 30% increase! Imagine that, the nerve!

Hopeless!

2) And people have laughed at Evo Morales for increasing the price of gas. Morales took the decision to increase gasoline prices by 83% and diesel prices by 73%, keeping natural gas prices for the home frozen. Prices had not been increased in six years (inflation has averaged about 9% per annum in those six years there). Gasoline prices are now expensive in Bolivia, relatively speaking. One liter of gas will now be 6.47 Bolivianos which is about US$ 0.9. Thus, Morales is simply selling it at international prices.

I can not disagree with that. If energy is expensive there is no reason to subsidize it massively like is happening in Venezuela or was happening in Bolivia. These subsidies always end up being asymmetric and rarely favor those who need it most. So, rather than criticize Evo Morales, we should praise him for trying to rationalize his economy, even if other things are not as rational. It is a first step. We should use it as an example of what Hugo should do, not the other way around.

So, good riddance if Chavez ever leaves. You will be demonized no matter what you do or try to do, however rational it may be. People really want to have their cake and eat it too.

And the cake better be free!

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