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!

36 Responses to “Can Venezuela be run in a rational way?”

  1. captainccs Says:

    Miguel:

    You are thinking as an economist. Not good!

    If the government raises rates then the rojo rojito bureaucrats will simply have more money to steal. Much better to waste the money on me and my fellow citizens since “el petroleo es nuestro!” No de los rojo rojitos.

    The sooner the government goes broke the sooner the country can get rid of the pestilence.

  2. Khyber Says:

    It is true. The level of coruption in this country is so out of control that any increase in prices will not help the companies and only serve to fatten the pockets of some goverment people. On top that Chavez’ popularity will suffer, and we all know that a populist dictator like Chavez can not risk that.

    Price increases will hit most an already suffering lower class in this country and a base that is already starting to wane for Chavez. If he did as Evo did, he better make sure he steals as much of that before 2012, because no amount of cheating will save him then.

  3. Roger Says:

    I don’t think that the Red Racketeers figure much into this. The problem is bigger and older than Chavezimo. I don’t know who came up with subsidizing energy, when and if it was to stimulate the economy or be populist but even during CAP II it was enshrined as a right of all Venezuelans and when he tried to stop it, Venezuelans rioted and course now many Venezuelans consider having air conditioning a right of all Venezuelans whether they can buy the power or not. Chavez has two choices, raise prices and start riots or keep paying the subsidy. Think of it as CAP’s Revenge!

  4. Juancho Says:

    It is precisely the fact that rates have been frozen for eight years that has led to the crappy service given by Corpoelec.
    ———–

    True. But we can throw all the Bs we have at the problem and so long as socialist buffoons are “running” the energy sector, and there’s no viable infrastructure (long gone), no comprehensive business model or work and maintainence protocols, no money to buy new technology or even to keep the old (Guri, et al) properly running, I wouldn’t expect radical changes.

    Juancho

  5. Charly Says:

    So, you just confirm that the problem is not Chavez but Venezuelans in general. Now we are getting to the core issue.

  6. George Says:

    HI – yes of course that would be a quick revolution if they touch the gas prices which have to go up to a reasonible level – not 10 times but 100 times – DO IT HUGUITO P L E A S E DO IT….

  7. island canuck Says:

    The real problem is that they’ve done nothing for years & years.
    If they had just raised it 5 or 10% each year in January like they did with salaries, unidad tributaria, etc., etc. then there wouldn’t be a problem.

    Sure it would still be cheap but not free.

    I was trying to explain the price to some guests a few days ago and was at a loss to get them to understand just how cheap it was.

    The best example was that for the same price as a bottle of Polar beer I could buy more than 30 litres of gasoline.

  8. Kepler Says:

    The funny thing is how the VTV expresses it:
    Bolivia “nivela los precios de combustible”
    You won’t see “aumenta precio de gasolina”
    Hyprocrite fools.

    http://www.vtv.gov.ve/noticias-econ%C3%B3micas/52046

  9. captainccs Says:

    On Black Friday, February 18, 1983, the bolivar started the day at an exchange rate of Bs. 4.50 per US dollar. Twenty eight years later the free exchange rate hovers around Bs. 8,650.00. Twelve years belong to Chavez and sixteen belong to the various socialists who governed before him. In any case, to go from 4.50 to 8,650 means an annual devaluation in excess of 31%. During these twenty eight years the US dollars has lost purchasing power. I think it is fair to say that Venezuela has suffered a continuous 35% inflation under a variety of left leaning governments (since 1958 Venezuela has never had a right leaning government).

    Maybe the problem is not the price of gas and electricity but the mismanagement that is robbing all Venezuelans of their purchasing power. How the heck do you save when money loses value at a 35% rate and you only get 15 or 20% interest (which, of course, most people cannot get).

    Chavez 12
    Other socialists 16

    So, who is to blame for the mismanagement? Only Chavez or the socialism that bankrupted the Soviet Union, the socialism that was renounced by Deng Xiaoping but which is still so much beloved not only by the rojo rojitos but by lots of Venezuelans including the owners and authors of highly respected blogs?

    Raising the price of gas and electricity solves nothing as long as we don’t solve the problem of inflation. Inflation goes away when there is sufficient production to offset the dollars brought in by oil. As long as the socialists kill production with price controls and expropriations, inflation is going to continue raging.

  10. moctavio Says:

    Sorry, if you keep subsidizing everything, inflation will never disappear, as the Government has to keep printing money to pay for everything. People should pay fair price for services, if they don’t, they will deteriorate and things will get worse.

  11. captainccs Says:

    Miguel, isn’t “subsidizing” the core of socialism and populism? What we need is capitalism where everyone carries his own weight and does not depend on a handout from government. Have you ever watched the shameful lines in the Metro at Parque del Este where students line up for hours to get their free passes? We are training our youth to be beggars! We have been doing this since 1958 so don’t put all the blame on Chavez. Our system is rotten to the core and has been for decades. The difference is that now the rot is distributed in a different way. Instead of Los Amos del Valle getting the goods, now it goes to rojo rojitos. Same system, different privileged class.

  12. deananash Says:

    Miguel, since it’s the holidays, I hope you’ll charitably forgive me for posting a link to my own blog – http://ruzikejiao.com/2010/12/29/dangerous-clowns/ -thanks in advance. When I saw this picture I had to comment on it. What buffoons!

  13. loroferoz Says:

    Miguel:

    People have a feeling always, that they are being ripped off. Gas (or electricity) being mostly free is a way of getting some back. Not just because public services (like police and emergency, and roads) are from hell and there’s corruption and racket everywhere.

    There’s a general feeling that if they are not prosperous, the govt. is to blame. To an extent, they are right, in countries where the economy depends on the whims of those governing and is actually controlled by the government.

    The “root cause of crime”, the extent to which this is true here has a name; fiscal mismanagement and inflation. Inflation is controlled by the money supply, which is controlled by the government here.

    If… people get getting poorer and miserly and less willing to pay. If… originally sufficient fees turn into freebies and subsidies over time that you cannot lift without riots. If… employees keep getting raises that are nullified in a few months… All of that…

    Populism via State monopoly plays a part in the situation.

    But inflation is the main culprit.

    If the State is not stripped of or severely limited in the power to produce it, the cycle goes on forever. If State monopolies are not broken, another government will find itself giving freebies, even through omission.

    I expect that a nasty shock and a complete breakdown of the Venezuelan State (and oil producing capabilities, and State dependent society) will turn Venezuelans’ thinking around. Something to dwarf what CAP faced. Nothing else can, in my humble opinion.

  14. moctavio Says:

    I understand all of that, but then we will neer be able to put our heads above water. As long as the Government subsidizes all of that, it will have to print more money, collect more taxes and the companies will have no reason to be efficient. All of that is extremely inflationary. If we do not applaud when correct measures are applied, then we will never improve.

  15. island canuck Says:

    As mentioned earlier it has just been announced that the CTV (Workers Confederation) is organizing a march for Jan. 5 to support the new deputies in the Assembly & against all the new laws approved by the outgoing deputies.

    http://www.noticierodigital.com/2010/12/ctv-convoco-a-marcha-para-el-5-de-enero/

    This is not going to end well.

  16. GWEH Says:

    A judge in Miami has delayed the burial of former Venezuelan President Carlos Andres Perez amid a family feud over his final resting place.

    Miami-Dade Circuit Judge Gerald Hubbart issued an order preventing a funeral home from burying Perez as planned Wednesday pending further orders from the court.

    The judge acted Tuesday on a complaint by Perez’s first wife, Blanca Perez, who wants him buried in Venezuela. Perez’s more recent wife and two daughters had planned to bury him in South Florida following a mass.

  17. Mick Says:

    So let me get this straight, according to the Wall Street Journal the head of the Fedecamaras is being investigated for quoting the constitution, in a country with one of the highest murder rates in the world and a military that publicly states it will not support a democratically elected government.

    Seriously.

  18. loroferoz Says:

    It’s even more profound, Miguel.

    The government has to DIVEST itself of, or rationalize, in a more or less hardwired manner, some of it’s powers regarding the economy.

    Getting rid of State monopolies, renouncing control over Central Bank or renouncing to have a Central Bank work in the first manner.

    The gold standard in the U.S. in the past, the Euro-zone agreements, work in the second manner.

    I cannot think of any way or manner that a Venezuelan government, of whatever sign and leaning will work in a rational manner with such powers intact.

  19. metodex Says:

    shut up everyone.
    extreme Socialism is bad for latinamerica
    we need balance and education for people,not academically,but changing the whole enezuelan people into a different person.

  20. AmonRa Says:

    The main purpose of the rate freeze, was to break the back of private utilities during the early years of this dying decade. Now is a must to increase them , the take-over is done, the destruction continues, we are going down in a flat spin !

  21. Gringo Says:

    This is not the first evidence that there is some semblance of economic sanity in Evo’s government. While Evo wants everything to be socialized, which is not an indication of economic sanity, he has shown previous to that increase in gasoline price that he likes to have the books balanced. In contrast to Thugo, Evo is not burning the candle at both ends.

  22. Gringo Says:

    Miguel Octavio
    I understand all of that, but then we will neer be able to put our heads above water. As long as the Government subsidizes all of that, it will have to print more money, collect more taxes and the companies will have no reason to be efficient. All of that is extremely inflationary. If we do not applaud when correct measures are applied, then we will never improve.

    Good point.
    The poster child for the vicious cycles of subsidies and inflation is Argentina. Even under the “right-wing” milicos, inflation was 100-300% per year for nearly 20 years. [ In quotes because the milicos still presided over a plethora of government-owned companies.]

    When by 1989 the economy had its biggest collapse, newly elected President Menem went against his Peronista principles and accepted “surgery without anesthesia:” selling off government owned “enterprises.”

    Inflation collapsed, but the economy did not. It rebounded much more quickly than many or most experts had anticipated. Now that the formerly government-owned enterprises could no longer count on a handout from the Treasury to balance the books, subsidies stopped. Because the Treasury was no longer printing money to subsidize inefficient government-owned enterprises, inflation collapsed.

  23. geronl Says:

    Personally I don’t think the government should be setting the prices, period. Being able to set the price just gives them an incentive to monkey around even more.

  24. metodex Says:

    this is a good idea:

    I don’t think that the government needs to do this and that,
    I think they have to leave,hell,take some money and leave the country,go to miami if you want.Just leave

  25. Roger Says:

    I see that CAP is going to be buried in Venezuela http://news.yahoo.com/s/ap/20101229/ap_on_re_us/venezuelan_president_burial this should be interesting. Also, Chavez establishes de-facto martial law in states along the Colombian border. Scroll down in the link http://news.yahoo.com/s/ap/20101229/ap_on_re_la_am_ca/lt_venezuela_chavez Its hard to keep up with this guy!

  26. captainccs Says:

    Roger:

    CAP va a saltar su Ultimo Charco. ¡El Mar Caribe!

    CAP is going to jump his Last Puddle. The Caribbean Sea!

  27. speed Gibson Says:

    no to answer your question….. not until you put some germans or dutch or afrikaners in charge…. last time I was there Colonia Tovar was an island of sanity and prosperity surrounded by trash on the roadways and peasants…..perhaps you can get them to run the government and economy

    and regarding this news article….boo hoo….let these assholes suffer until they grow some balls and do something about it…..this is Venz future

    http://apnews.myway.com/article/20101230/D9KDTGO80.html

  28. lahy Says:

    please note that snow flakes, which is an animation on your page is disturbing the reading experience. Happy New Year .

  29. jak Says:

    Quote from Charly “problem is not Chavez but Venezuelans in general. Now we are getting to the core issue.”
    Until the poor really suffer nothing will change. I hope Chavez is still in power after 2012 or else the new government will get the blame for this mess that hasn’t reached rock bottom yet. I’m living in Panama and frankly, stupid, ignorant people should not have the vote (this goes for Western nation too)
    p.s. Have you noticed how the US is following Venezuela? The US may not be subsidizing as much directly but the national debt is just another form of subsidy that the population doesn’t want to pay.

  30. island canuck Says:

    Another story on incompetence.

    Evo Morales of Bolivia has just greatly increased the price of gasoline in Bolivia.
    There have been strikes & blocked roads in protest.
    Today they are talking about a run on the banks as Bolivians try & get at their savings.
    The black market for US$ is skyrocketing.

    You have to think this was a test from Chavez to see what the reaction would be in view of Evo’s visit here last week. Evo hasn’t the intelligence to make these decisions on his own. Chavez gets his instructions from the Castros & passes it on to Evo.

    Based on this we will not see a gas increase until after the 2012 elections. (If there are elections)

  31. metodex Says:

    Miguel Octavio,

    Correct me if im wrong,but you are an economist,or at least you understand a lot of economics.
    Can you make a post for people like me that don’t understand much of economics??? talking about today’s (dec 30) devaluation of the bolivar and the increase of the IVA,and what and how will it affect LIFE in Venezuela?

    I can already predict not much protests or complains about this one,it seems big ebough though

  32. Halfempty Says:

    I just want to inform everyone that like most blogs, this one has only room for one right-wring knicklr-dragger, that would be me, so buzz off speedy, I was here first. And besides, you a kook.

  33. loroferoz Says:

    Gringo: Menem disposed, actually, of the root of the problems. I am not aware of how far did he take reforms to root out racketeering. And yes, sadly, this will not be achieved in Venezuela except by really bad experiences. So Naomi Klein can write another nice addendum to her critique of shock capitalism… by soi dissant leftists… but no worry, the blame is on neoliberals.

    The problem with the vote, is that the vote, or rather the politicians elected by the vote, decide too many matters that should be in the hands of PRIVATE citizens, and only, or that should be discussed openly, calmly and at length in parliaments. Democracy, as a procedure for electing public officers and members of parliament in a REPUBLIC in a equitable manner, is workable. Democracy as a supernatural entity called the Will of the People, is a failed messiah, probably originally thought out by some fascist or communist that really hated the idea.

  34. moctavio Says:

    The incredible thing in the aporrea forum is that some people actually believe there was no need for a devaluation…

  35. anon Says:

    hah, @speedGibson … last time I was there Colonia Tovar was an island of sanity and prosperity … that must have been a long time ago. Someone I know personally left that area awhile back after he found out that the FARC had begun extorting people there.


  36. […] New Year to everyone!Venezuelan Minister of Finance announces sharp devaluation of currencyCan Venezuela be run in a rational way?Carlos Andres Perez dead at 88Some nice desserts for Christmas, diet starts next […]


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