I am behind on writing about Venezuela. There are so many things to write about and I do have many opinions on them. And there is little time. But the subject of the gasoline price increase is at the top today. In this supposed “adjustment” that Chavismo has claimed it will do for the last eight months, the discussion began after the regional elections in December with precisely the price of gas. But then, much like the so called “unification” of the exchange rate (now called the “convergence”), there was a lot of internal opposition within Chavismo to the increase of gasoline prices.
Now things have been turned around, there is a lot of opposition to the convergence of exchange rates internally, so all of a sudden Minister Ramirez revives the subject of a gasoline price increase. It seems Ramirez only wants to find a way to have PDVSA improve its finances, rather than improve the country’s fiscal balance.
Let me state first, that I am absolutely and totally in favor of the gasoline price increase. I find it appalling that people oppose it, condition it, question it and dilute it it in an absurd discussion of what they want or don’t want the Government to have or do.
The gasoline subsidy in Venezuela is a disgrace, it is wasteful, it is absurd, it is bad for the environment, it generates contraband, it is regressive, it is unfair, it is unjust for future generations, it generates traffic, it distorts policy making and it is simply irresponsible.
In fact, I find it amazing not only that the opposition has so many reasons to object to it, but that the Government is thinking of a small adjustment like to Bs. 2 per liter, if not half of that.
Gas is so cheap (free really) in Venezuela, that it is difficult to talk about how much a liter costs. So, we go back to a picture I posted in May 2011:
I filled up my tank down in Caracas with 43 liters of gasoline and paid Bs. 4.2 for he whole thing. Bs. 4.2 for 11.43 gallons of gas, which at the Sicad 2 rate happens to be 0.082 dollars for a tank of gas. All of 8.2 cents of a US$.
I use the Sicad 2 rate, because it is the highest accepted by the Government and the only one “real” people have a small chance of having access to it.
So, currently in Venezuela, filling a tank of gas up costs 8.2 US$ cents, let’s round up to ten cents for the sake of the discussion.
Now, as you can see in the picture above on the right, I used gas that cost 0.097 Bs. per liter. The Government wants to increase it to either Bs. 1 or Bs. 2, depending on who you believe. This means that the Government wants to increase it to around one or two dollars a tank of gas.
Ridiculous.
To me, that is the same as leaving it is where it is today. It will have no impact on contraband, waste, PDVSA, fiscal accounts, etc, etc., etc…
Furthermore, with 70% inflation the effort of convincing the population that the increase is good, doing it and implementing would be wasted very fast.
Thus I think the Government should target an increase that is large. Say to US$ 20-40 per gas tank. (50 cents to one dollar a liter, still cheap. Or FOB export price, which is the most rational to do) and maybe do it over a year. Similarly, they should schedule further adjustments whenever they devalue, so as to maintain the price at the same relative level to international prices as the adjustment.
All of the other arguments are simply irrational and spurious. That you don’t trust the Government and what it will do with the money? Nobody trusts any Government and what they do with your money. It is the same arguments why people don’t like or want to pay taxes. But the bills have to be paid and in the end it is a vicious circle. The same with the argument that the public transportation is terrible. It is a chicken and egg problem.
Finally, there is the Cuba and Petrocaribe argument. They are valid, but you can’t tie one to the other. The opposition should raise a stink and point out that we give Cuba and those countries very cheap gasoline. In the case of Cuba, the Government of that island sells it at international prices and makes money. But that should not stop us from supporting the price increase. In fact, if anything, the oppsoition should attack the increase because it is not large enough.
Until policy is not discussed seriously, Venezuela will never advance. Chávez introduced the absurdity of an overly subsidized gasoline prices, if this Government wants to take a small step into some semblance of sanity in its policy making, it is absurd in my opinion to oppose it. Otherwise you are promoting the same type of irresponsible Government you object so much too.
I know this will not be a popular post, but I do believe that in politics, one should have certain essential beliefs and principles and that one should stand by them and not turn them around and debase the nature of the discussion just for politics sake.
The Devil's Excrement 
February 17, 2016 at 9:10 pm
[…] liter (US$ 0.000097 per liter or US$ 0.0004268 per gallon). So you get it, in this post in 2014, I filled my car in Caracas in 2014 with about 10 gallons of gas and paid the equivalent today of barely 4.2 cents in US$ for the ten […]
August 15, 2014 at 8:47 pm
Venezuela beats Greece to take the top spot as the most ineffective tax regimes in the World, according to Damodaran at NYU Stern: http://aswathdamodaran.blogspot.com/2014/08/the-insanity-of-us-tax-code-bad-laws.html
August 15, 2014 at 11:12 am
Petrol price at the pump obviously has to rise, no question about it. However, Caracas bus fares have risen 143% (el universal, 15/08/2014) in the last three years without a rise in petrol price. What would happen if a tank of petrol cost a realistic amount? I think a rise now would cripple the economy rather than solve any problems. A rise in pump prices is not affordable until the economy is fixed and people start to see a significant improvement in their real earnings.
August 15, 2014 at 11:18 am
It usually does not work that way. For real earnings to improve, you have to decrease inflation, which will not happen until you push demand down. With inflation at 60%, the only way to lower it is to adjust, have a big spike in inflation, then it goes much lower. The economy is running artificially on vapor, high fiscal deficit and cheap money. You have to fix them all.
August 15, 2014 at 8:07 am
On a comical note, Argentina’s Fernandez wants to pursue criminal charges against RR Donnelley & Sons for closing their operations there. (I worked for Donnelley in NYC in the early 80s! Great company to work for!)
We all knew these people are nuts, but they keep getting nuttier every day!
August 14, 2014 at 1:16 pm
Reblogged this on manuelcarbajal.
August 14, 2014 at 6:41 am
Ira,
Petrol is not that easily transported. If you increase prices 3 times, they need to take three times as many lorries. That slowly becomes a pain in the ass.
Remember also that all the rest (including car parts) is much more expensive than in the USA.
Besides: most of the transport now in Venezuela is really very inefficient. You have people driving in zigzag for anything.
Building new roads in Northern Venezuela won’t be an easy task. Settlements were better planned back in the day in Asia Minor 9000 years ago. That area is cluttered already. You can and should build better roads there but the process will be extremely painful.
August 14, 2014 at 5:34 pm
I definitely understand that, that gas smuggling isn’t easy.
But as long as there’s substantial profit to be made, and a 300% increase in VZ price still assures that, the only change will be MORE smuggling to make up for the lost margins.
And yes, building roads is a challenge, on many levels and many fronts, but come on:
We’re not talking about going to the fucking moon. They’re just roads.
August 13, 2014 at 8:50 pm
Miguel:
Any estimate on the inflation number for July?
Doesn’t look like the government will give us one.
August 13, 2014 at 9:27 am
Miguel, see this videos from Aporrea “Contraloria Social” interesting to see Felipe Perez and Roland Denis talking in this way and hearing the questions and comments from the rojos rojitos supporters
http://www.aporrea.org/contraloria/n255924.html
August 12, 2014 at 9:49 pm
How can raising the price fix anything–when the regime can’t be trusted to act responsibly with the additional revenue?
Miguel, I think this simple fact pretty much kills the argument for price increases, whether you’re a Chavista or not.
August 13, 2014 at 4:57 am
Let’s make some thought exercise.
– The government raises prices by 300%. It uses the money to buy more watches and trips for Diosdado Cabello.
– Less people drive, less traffic jams (I don’t know whether you have been to Venezuela in the last few years, but the problem is not like anything you have seen in the US or Europe), less pollution and less people dying in traffic accidents.
– less smuggling means thousands of people who need to look for a real job.
On the other side, the government can use the additional money (or what they think is additional money then in reality it probably won’t cover the production costs) to buy more Kalashnikovs and other material for the repression forces.
It’s incredible we have to think that way.
August 14, 2014 at 2:00 am
But if the price is raised 300%, doesn’t that simply mean that the smugglers will increase their smuggling 300% to maintain their current income? (And I know, the math doesn’t exactly work that way.)
In other words, unless the retail price is raised to near what they’re paying in Colombia…and a 300% increase still doesn’t come close to doing that…won’t smuggling volumes INCREASE to make up for the lower margins?
To me, the only fix to THIS smuggling problem is price parity with Colombia, which means zero subsidy, and since these new prices would turn the country upside-down in a hundred ways, it’s impossible.
So some things aren’t fixable, and this is one of them.
As far as current day traffic jams, pollution and accident deaths, no—I haven’t been there in years, and I can only imagine how horrible it is. And I can only imagine how horrible it WOULD be if the country actually had even a moderate number of new cars to SELL to its people.
But as much as they’re connected, I don’t see how in good conscience (and I mean “conscience” only in a literary sense, not moral) how anyone should connect VZ’s traffic problems with its gasoline prices:
It’s a totally separate issue, and advocating anything which hopes to relieve traffic problems simply by removing vehicles from the road—as opposed to IMPROVING and ADDING new roads—is Castroism at its very best, bringing you back to the horse and buggy days which Cuba still enjoys today. (So instead of gasoline, the streets smell like horse shit!)
To me, this is no way to think about solving the (two) problems, and further taking away Venezuelans’ dreams of owning a car is a depressing vision for the future.
I hear what you’re saying about the immediate relief of drastically raising gas prices, but what road does that bring you on for the future? Economic development depends on efficient transport, for both workers and companies, and pulling cars and trucks off the road doesn’t exactly help you get to that goal.
August 16, 2014 at 2:20 pm
Public transportation does not seem to cover current needs, at least in Caracas. In my household at least one person works just outside the city, so getting there using public transportation would be nearly impossible. Except for perhaps the subway, the available public transportation will take me longer to get from point A to point B. This means getting up earlier (as if it weren’t bad enough already) and getting home later. For safety reasons, we avoid using transportation as much as possible.
So, if gas prices increase as much as they should, we’ll probably still use our cars as much and somehow save somewhere else.
August 13, 2014 at 8:23 am
Ira, the current gasoline giveaway is irrational. This means it´s better to have prices changed. Whether the government doesn´t know what to do with the money is a different issue. Everybody with a working brain knows Maduro isn´t going to handle the money properly. So the next step would be for the Venezuelan people to convince Maduro to change jobs and go back to being Foreign Minister or something even more suitable.
August 14, 2014 at 2:06 am
My reply to Kepler above was also directed to you. I wasn’t ignoring your thoughts, but I couldn’t figure out exactly where to post it!
August 14, 2014 at 8:53 am
Ira, responding in part to your comment, if prices increase 300 % then smugglers will have less reason to smuggle (because the price differential is less, therefore they get slightly lower profits). However, they will still have a reason for smuggling. As long as there´s a price differential to cover the trip and allow a young guy to make a living while covering the risk of going to jail or getting robbed, the smugglers will smuggle.
As an engineer living in Maracaibo many years ago I used to sketch ways I could use to smuggle gasoline into Colombia and Aruba. I wasn´t a smuggler, nor did I need the money, I did it as a hobby.
But there are plenty of people who will go beyond drawing sketches once they see that price differential. Smugglers will smuggle on, and there´s very little Maduro and Santos can do about it. This is like Maduro´s version of the USA´s “war on drugs”.
August 14, 2014 at 5:28 pm
But the U.S. DEA doesn’t set the street prices for drugs. They only set it by their enforcement practices:
When the DEA started to came down heavy on pot smuggling into the country, weed (depending on quality) was $35 an ounce, $400 or so a pound. With enforcement, pot prices went up–but because cocaine was “smaller” by volume and easier to smuggle by comparison, coke prices went from $85 a gram to $25. And more people are using it now than ever.
Enforcement didn’t help; it hurt.
Like I said, in the case of VZ’s gasoline, if the profit margin drops from a current 100%, for example, to 50%, smugglers will simply increase their shipments, not decrease them.
This is a business we’re talking about, and the idiots in this Chavista regime have no clue on how business works, like the smugglers do.
August 12, 2014 at 9:11 pm
I would propose the following rule:
Venezuelans should pay about the same relative price of gasoline to wages as efficient economies. For example, in the USA the minimum wage is about $7.25 per hour, and the gallon of gasoline is about $3.50. So the relative price of gasoline is 0.48 minimum wages. In Venezuela the minimum wage is about Bs.25 per hour (assuming about Bs.4500 per month). Thus, the price of gallon would be 0.48*25. That is about Bs.12 per gallon which is Bs,3.17 per liter. This could be calculated for various countries and then take the average. Then, the price could be adjusted whenever the minimum wage is raised to keep the same current relative price of gasoline to wages for the sample of countries.
Just trying to be socially fair and economically rational at the same time.
August 13, 2014 at 8:09 am
Venezuelans could consider whether it may not be fairer to have government income stabilized, use the money to pay for adequate public health care, better police, improved education and public transport subsidies. That sure sounds more rational than free gasoline.
August 12, 2014 at 4:43 pm
The opposition should come out openly stating gasoline prices should increase. The people should know this is a neoliberal idea, supported by the IMF and the bond traders who profit enormously from the bonds sold by Venezuela. Additional emphasis should be put on the idea that when Maduro raises prices he is following opposition advice.
Furthermore, the opposition should insist that all fuel deliveries to other nations, including Cuba, should be priced at the international price with no financing, because the money being given away is required to boost social services to poor Venezuelans badly hurt by inflation and increasing unemployment.
August 12, 2014 at 3:48 pm
Devil,
I couldn’t agree with you more. One of the problems of starting from (near) zero is that multiplying (near) zero by 30 still gives you… (sligthly more than but still very close to) zero.
Let’s hope someone is talking some sense to the government on this issue. The opposition’s reaction to this is embarrassing, by the way.
August 11, 2014 at 11:49 pm
I agree. I generalize it further to goods and services, other than gasoline, but gasoline is definitely a good starting point. The sooner the better.
One way to circumvent the “government will get more money for bad things, thus staying longer in power” argument, is to earmark the money. Most people know my suggestion, but there are many alternatives that would also work.
—
August 11, 2014 at 9:10 pm
For many, Venezuela is not the land of Grace but, the land of Gratis! Because of the oil wealth, they feel they should have free gas, electricity, Harina Pan and housing. And, if it were not for the corruptos of both parties, they all could have a BMW to drive to the beach. Everyone forgets the high cost of production much of which is billed at world prices and when used goes offshore. There are few Venezuelan petroleum engineers, geologists, drillers and well completion services.
We know the China deal. Cash up front for oil at a discount in the future and we intend to charge you the world price. I know that price. In the 80’s when I was in the oil patch, we would go out to a job and charge 350,000 USD a day! That was deep hole work but, I can’t imagine heavy crude that requires down hole heating being much different.
Regardless, from the student protests earlier in the year, we know that the populace is not ready to ask for a change. I think that the government is flying political ballons to see if they can do it or if it will bring people down from hills in protest. Either way its a problem for the government. It signals no more free stuff folks! When jobs for many Venezuelans have been destroyed, that’s a problem. At what point does it become unbearable or hit rock bottom, I don’t know. In the 21’st century global economy it’s hard to imagine. What is rock bottom? In the past we know that the Toltecs and others walked away from their great cities and back into the jungle. No one knows why but, I’m sure some sort of proto- bolivarian was involved. Perhaps this is a bigger force than we know? Look at all the kids facial piercings and tattoos. Perhaps they are a political underground planning to return Yamamani rule and culture to Venezuela? Look out PSUV and MUD!
I don’t want to see Venezuela hit rock bottom because other LatAm countries have and did not learn on damn thing from it and repeat their history.
August 11, 2014 at 6:17 pm
Between what China takes for no immediate cash, what Castro and his parasitic ilk have figured out how to steal, and what the chavistas put in their greedy pockets, there will be no monetary gain. If Citgo’s refining capacity is sold off, there may even be a shortage of refined petroleum products. The people’s blind faith in this failed revolution appears increasingly misplaced and stupid.
August 11, 2014 at 1:00 pm
There are no oil profits today, at the end of the day PDVSA loses money.
August 11, 2014 at 12:56 pm
If every Venesualan citizen had a national debit card, financed by oil profits, there would be more money in circulation that could be taxed. This would put the profits into teh people’s hands, where it belongs. The cost of gas should be the cost per gallon of gas exported. Remember th US exports gasoline, propane ans diesel fue while we pay $ 3.50 per gall at the pump. S.
August 11, 2014 at 12:31 pm
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August 11, 2014 at 12:26 pm
Ridiculous price for gasoline! Even at their income payment capacity! But if this price goes up most will find it harder to use public transport! For the casual Venezuelan a price hike is a price hike!
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August 11, 2014 at 12:29 pm
Canada’s gasoline price is at a limit! A limit of 40-100$ a tank <1.5$/ltr…! Which is around 400$/month for the Km my household does! Anything more is beyond a gasoline engine feasibility cost!
This limit is due to an average low middle class income and family group! Which is a big group!
August 11, 2014 at 12:29 pm
Canada’s gasoline price is at a limit! A limit of 40-100$ a tank <1.5$/ltr…! Which is around 400$/month for the Km my household does! Anything more is beyond a gasoline engine feasibility cost!
This limit is due to an average low middle class income and family group! Which is a big group!
August 11, 2014 at 1:53 pm
My household income is less than US$400 -(
August 11, 2014 at 1:54 pm
On its way to $200 if nothing is done.
August 22, 2014 at 2:11 pm
You’re getting a fat bill there, folks, my personal income is like 100$ (Black market, you know, the other ones exist just so the regime can make fun of the Venezuelans)
August 11, 2014 at 12:26 pm
Ridiculous price for gasoline! Even at their income payment capacity! But if this price goes up most will find it harder to use public transport! For the casual Venezuelan a price hike is a price hike!
August 11, 2014 at 11:37 am
I disagree. Raising the price sharply would have an immediate effect, starting with stopping contraband, less driving and cleaner environment. They will not undo everything, but every 10% they udno helps.
August 11, 2014 at 11:49 am
Less driving? I recently saw some statistics showing that Venezuela had one of the lowest vehicle penetration of LatAm. However Cuba beats it.
August 11, 2014 at 11:55 am
That may be true, but those that have cars manage to keep Venezuela in the top twenty in gasoline consumption per capita (800,000 barrels a day according to Ramirez). Maybe you just made my point about how aberrant and unfair the subsidy is. Penetration is low, consumption is huge (including gasoline stolen to Colombia)
August 11, 2014 at 12:09 pm
I agree that any bit helps – but is anyone in charge trying to help….but let me play the Devil’s advocate here….
Is the cost of gasoline the issue here or is the fact that the economic deformations have led to no credit, and no cars, and no purchasing power, thus people driving the 70s junkers that are gas hogs (our version of the Cuban’s 50s cars) that are held together by sheer ingenuity and in addition probably cause 50% of the accidents (despite gas costs)
So part of the result may be less consumption and cleaner environment but the cost would be more unemployment and higher poverty ( i need to pay gas and cant afford a newer car and cant get to my job otherwise…..so no food… which by the way i have to drive around the whole city to try and put together the most basic staples…) so more chaos….
Technically we could have free gas ( i don’t know this for a fact as i dont think anyone has any real sense of Venezuela economics) but all the other parts of the puzzle need to at least be nearby to eventually be put in place.
August 11, 2014 at 12:55 pm
No cars? Since 2004 the number of cars has doubled. If you calculate how many barrel of gasoline Venezuela should be consuming, you take the last official believable figure and use GDP growth or number of new cars minus attrition. What do you get? 800,000 barrels of day. The clunkers are coming but they are not there yet. The peak years of car sales were 2006-2008, recent past by Venezuelan standards.
The lower standard of living is coming whether you want it or not. Venezuela has to pay for the economic mismanagement and Venezuelans will pay with more poverty and a lower standard of living, there are no magic solutions.
Ecpnomic is about optimization of resources, Venezuela is a poor country with mismanaged resources. There is no such thing as free gas, cheap trael, cheap dollars. And that is precisely why gasoline has to go up. Sharply! The longer this lasts the deeper the poverty, the lower standard of living, unemployment, etc. etc. etc.
August 13, 2014 at 6:06 am
Absolutely right Miguel. More concisely, it’s stealing from tomorrow (the future) to buy (political) time today.
August 11, 2014 at 5:58 pm
Maybe not one of the lowest, but definitely below average for Latin America. Venezuela: 147 cars per 1000 persons. Mexico: 246, Argentina: 316. IIRC: 177 for Latin America. But highest gasoline consumption. If gasoline is free, it will be used.
Link came from a CC article last year.
August 11, 2014 at 11:32 am
Of course it would make sense to raise the prices, if your goal would be to try and undo years of mismanagement and find a path to direct the country in a positive direction.
But there is potential reason for doubt that any positive effect would come from raising gas prices. And even less than any of the “people” would see any benefit.
So it seems another one of the many topics that the government seems to discuss in their endless ” meetings” that go nowhere.
Raising gas will solve nothing – if there is not the will to right the many many many wrongs and head in a positive direction that would be the equivalent of creating yet another new ministry – maybe the one for supremely cheap gasoline ?
Sometimes it is fascinating to me, that in general we are still willing to give anyone in the government the benefit of the doubt. As if anyone over the last 15 years had once tried to truly provide a forward path for the country.
And that burden does not rest solely in the shoulders of the government, which continues to grow. But also on the people that in general are ok with anything as long as they are left alone (“mientras yo siga con la rumbita…”)
So theoretically of course it makes sense, now the reality continues to slap us.
LV
August 11, 2014 at 7:38 am
It seems that the price should be set to a minimum of what it costs to get the oil out of the ground, refine into gasoline and distribute. …and the overhead to run the stations.
August 11, 2014 at 12:20 am
Raise gas prices to same prices as Columbia. Cut all foreign subsidies of gasoline. Let the Bolivar float on the open market. Remove all price and wage controls. Start reversing all state owned industries, starting with media, food and utilities. Hold open and democratic elections. Free political prisoners.
And pass the legalized Ganga to me please.
August 11, 2014 at 1:49 am
It would be enough to raise the price to Colombia levels.
Columbia’s level is already a bit too high for the start. Colombia’s will do.
August 11, 2014 at 6:01 am
Doesn’t PDVSA give free heating oil to poor black folks in D.C. too?
Insert smiley emoticon here.
August 11, 2014 at 5:52 pm
I don’t know about DC, but it does in Massachusetts. Joe Kennedy, son of RFK, gets around $400-$600 k per year as CEO. Like they say, doing well by doing good.
August 12, 2014 at 5:49 am
Boludo, I was simply ribbing on Kepler’s post about the infamous “Columbia” versus “Colombia” spelling controversy.
August 10, 2014 at 10:38 pm
Very convincing argument, the other side of the medal is that this is a nice detonator for get high inflation into higher inflation. Moral of the story: you are damned if you do and damned if you don’t. But the bullet will have to be bitten some day. Who ever will do it is not going to make friends.
August 10, 2014 at 10:22 pm
The answer to all the objections are obvious.
For starters, ALL petrol that VZ sells should be at the market rate. But start with the exports, for 1 month. Then in the second month, increase the local price by 25% each month until it reaches market equilibrium.
And finally, take ALL of increased funds from local consumption and divide it equally among every Venezuelan, every single month. (Export sales increases will be kept by PDVSA, por ahora.)
The rebate will be embraced by the poor – what’s better than cold, hard cash?
The middle class will suffer, but this is the price that must be paid for VZ to get off the wrong road and get onto the right one.
August 10, 2014 at 9:17 pm
I totally agree with you Miguel. The low gasoline prices is a big part of the problem.
For several years now, this seems to have been a disagreement inside the goverment, and even inside the opposition. I hope that someone has finally the guts to increase it.
August 10, 2014 at 5:47 pm
If the government decides to hike the price of gas, it should pay the highest possible political price. No support from me.
August 10, 2014 at 8:08 pm
It will, in the form of inflation.
August 11, 2014 at 7:43 am
Apparently inflation is not a political cost anymore. A bit more won’t hurt them.
August 21, 2014 at 1:02 pm
For the regime, inflation doesn’t exist (After all, madonkey hasn’t acknowledged its existence), and people in Venezuela are filthy rich (Earning 649$ in minimum wage) remember, according to madonkey, the dollars are still in 6,3, even if it’s just to speak.
August 10, 2014 at 3:42 pm
Miguel,
No viste el memo?
Nicolás NO va a aumentar el precio de la gasolina ahora.
August 21, 2014 at 12:57 pm
Lo hará al día siguiente de las elecciones de 2015.
O en medio de las celebraciones de año nuevo.
August 10, 2014 at 3:32 pm
I understand and agree with the reasons why the price of gas should go up.
However, I also understand why so many people are against it. Why should Venezuelans pay more for something that Cuba and other countries pay a subsidized price. This is not an economical arguments but more ethical. Higher income from higher gas prices should in theory help improve roads, hospitals, schools, etc. But what a lot of people see is that in the last 16 years we have received so many billions of dollars in income from oil sales and we have not seen ANY of the above improve, but actually deteriorated — same for electrical and water services. People are always afraid of governments mishandling money, but I don’t think that never, ever has corruption been so bad, so blatant, so spread everywhere. So nowadays people are not afraid of the government stealing the money, people pretty much feel it is a fact that every extra penny will be robbed. When it comes to improving PDVSA balances many people think of how many people used to take to produce a barrel of oil and how many it takes now (can’t find the numbers at this time, but there’s quite a difference from what I remember), so you can’t blame them when they think that more income will mean increasing the number of chavistas employees even more.
The one reason against it that I see that affects the economy (mine) is that I make less than $400/mo., I already have a hard time making ends meet and my monthly gasoline bill could go up from US 40 cents/mo. to US$120/mo. (4 tankfulls per month at $30 each). So I think a more modest price increase would be more appropriate (international prices should apply when we make international salaries). I probably make less than most most of he people participating in this blog, but I probably make more than a lot of people out there.
August 10, 2014 at 3:36 pm
All of the subsidies, loans, arbitrage, etc, etc, will have to be paid by the population with a lower standard of living. The sooner the change starts the better. The longer all of theses distortions stay in place, the worse it will be for you and all Venezuelans. A more modest price increase does nothing about contraband, which reportedly consumes 100,000 barrels per day.
The reality is that the years of Chavismo are going be paid by the population, whether you like it, approve or not. The revolution has been very costly for the Venezuelan people.
August 10, 2014 at 4:18 pm
wow! 100,000 barrels/day. That’s about 500 gasoline trucks per day. Definitely a lot.
August 10, 2014 at 8:07 pm
That’s the number Ramirez, gave 100k out of the 800k daily consumption, an absurd number for our population.
August 10, 2014 at 4:26 pm
The military honchos do not want to let their soldiers go empty handed. Thousands of soldiers live from smuggling. Thousands of other people live off oil smuggling.
And remember: free oil makes smuggling of many other things even more worthwhile. I hadn’t seen a discussion about this.
People don’t mind the distance in Venezuela.
August 10, 2014 at 4:34 pm
I don’t see how the smuggling of 100,000 barrels a day hurts anything–what’s the difference if Venezuelans bought and used this same amount internally? It’s still purchased at retail, right?
So assume you get your radical price increase, and all smuggling stops. How does PDVSA benefit?
VZ’s biggest crime is not creating industry to USE the cheap oil. The freaking place should have thousands of factories pumping out millions of goods (not to mention food processing).
Low energy costs usually mean higher GDP. In VZ, they mean nothing.
August 10, 2014 at 6:20 pm
I understand Venezuela imports 135,000 barrel of gas/day, according to an e-mail above. If smuggling is eliminated, the country would save some US$18 million/day in hard currency; which other industries could use, IF the government were to sell them those $.
August 10, 2014 at 6:22 pm
“…. according to a comment above”
August 11, 2014 at 5:58 am
I still don’t get it, because I’m stupid so please forgive me:
I have to assume by smuggling, they don’t mean outright theft, correct? Isn’t all they’re doing is buying gas at normal retail price, and selling it in Colombia at collosal markups? Or maybe now I get it:
Because the imported refined gas is so heavily subsidized by the time it gets to retail, the government is losing these subsidy dollars for gas going to Colombia.
But is this such a significant number?
August 10, 2014 at 4:01 pm
P.S. I have to go to the supermarket 3 or 4 times/wk. to get all the stuff I need, while in the “good ol’ days” once or twice every other week was all that was required for me to get all I needed. So now I spend more gas getting half the stuff I used to get.
August 10, 2014 at 2:59 pm
You see the price increase at its face value. In this narrow context, yes, it should be increased. Tom O’Donnell sees it as a political victory for the opposition. I believe such a move should be seen in the context of integral public policy. I maintain that a government that increases the price of gasoline without introducing corrections in parallel fiscal disasters, such as the Cuba, PetroCaribe and ALBA subsidies, such as the China loans, such as the Central Bank inorganic money diahrrea, such as the social expenditure of PDVSA , is behaving in a total irrational manner.
It is not a matter of more income for PDVSA or victory for the opposition. It is a matter of what is best for the nation.
August 10, 2014 at 3:23 pm
Then attack the irrationality, not the gasoline price increase. That is my point, ask for more, not for less.
August 11, 2014 at 5:50 pm
I will copy a posting of mine from Caracas Chronicles
Juan Cristobal: If you want to relate the price of gas to, say,the subsidies to Cuba, you need to thread the needle. It’s OK to say things like
BT: The hope is that many who heretofore have accepted the current economic situation will now start to ask embarrassing questions to the powers that be, when there is pain at the pump.
Up to now, the gasoline freebie was somewhat like the “Pero tenemos patria” chant. “Yes, the economy is messed up, yes our patrimony is being shipped off to Cuba, yes there are a lot of corrupt politicians, but I get practically free gasoline, so let’s go party.” The loss of practically free gasoline gives Juan Bimbo one less reason to accept the way things are and to start pressuring those in power.
August 10, 2014 at 2:23 pm
Correct me if I’m wrong:
Subsidize = Profit for smugglers?
If that is the issue, then yes, subsidies need to be eliminated altogether.
Some of us are not against gas prices going up Miguel, some of us are against giving this government more money,because thats what this will do. Give THEM more money to buy hummers,to go to Spain twice a year,to pay for the latest iPhone or Samsung Galaxy.
You have to start from the fact that every locha that the state gains is going to end up in the pockets of a minority of corrupt officials and jalabola enchufados (venezu-english i know).So how is this going to help the economy,the people,the middle and lower class?
It won’t.If anything it will only suck a large chunk of the already beleguered middle class into the depths of certain damnation we call venezuelan poverty.
August 10, 2014 at 2:31 pm
I have heard the give more money to the Government argument since before Chávez, it is not new.
The Government whether you like it or not IS the Government, because they claimed victory and we did not. They are entitled to run the Government until 2018 and it just so happens that their policies have been bad for certain sectors of the population.
But, when they propose something which is rational, sensible, should reduce pollution, save oil, I think it is irresponsible to oppose it.
If there is no gas price increase, the poverty will be worse, not better.
August 10, 2014 at 3:43 pm
Well then i agree to disagree with you Miguel.
Because this is not the moderately sane pre-chavez era we’re talking about. And it also seems pointless for us to discuss wether it will happen or not.
If they want it, they will get it, and there’s not a damn thing we can do.
What’s the point?…
August 21, 2014 at 1:06 pm
Nothing chavismo proposes will ever be rational, logic or beneficial for Venezuela, 15 years have shown us that.
“They are entitled to run the Government until 2018” <- Not if the rest of Venezuela can kick them out first, be it in an election, be it from protests, it doesn't matter the method, what matters is the end, cutting that sickening cyst off at once for all.
August 10, 2014 at 1:55 pm
The problem is not a cheap gas price, it is something more important, the colossal fiscal gap, the fiscal deficit of about 24% of GDP, financed from BCV using PDVSA as bypass Just look at PDVSA debt with BCV (today 87.000 MM USD at 6.3 Bs./$, the official exchange rate, until the “convergence” of exchange rate system (jeje jeje) when will be higher.
The so wrongly called gas subside (or PDVSA loss) is taken off from the PDVSA balance, reducing taxable oil rent by the “subside” amount, (PDVSA income oil tax). Although everybody assume that the subsidy is equal to PVDSA loss, as the gas costs are not rewarded by the market gas price, do not expect these are going to be equal, there are bemols.
The 1999 Constitution and the LOH and its reforms in 2005, 2009, have changed the nature of oil rent, so, all PDVSA economic and financial activities belong to government, from exploration, production, refining, subsides, losses. Indeed all PDVSA documented debt have been issued not to expand PDVSA output –oil production- but to finance PDVSA’s social expenditure, everybody indigested from that debt knowing that PDVSA would not invest a penny from that money to increase the production of just one oil barrel. People in some way was playing in the Venezuela oil casino. PDVSA’s risk was as sovereign as government debt,
That was just an example of what is going on with government finances. When banks refused to lend money on behalf of PDVSA requested sovereign risk, it could not issue more debt; just two “private” issues sold in bolivars in local markets, to capitalizer the gap between official rate and the parallel dollar price.
PDVSA has today, by law, two main expenditures, the medullary one, producing oil, and the social ones; “PDVSA belongs to everyone” say the propaganda, including the Castro and all clients around, After aggregating all of it, it will not be easy for some in public opinion, where and how are subsidies and/or losses being redistributed. Many financial analysts in the market continue talking as of nothing has happened. So we do not know where Venezuelan are losing; giving away oil and money to its political clients, or to pay the financial costs to drive oil to Singapore, to disburse china money (yuans and dollars) from the China Fund, or to pay for the huge corruption, etc. After all of it, it seems that the gas subsidy is the only expenditure with a little bit of economic significance downstream, after all, is part of oil rent which in theory belongs to all Venezuelans, It seems that gas subsidy is not an nonsense!!.
August 10, 2014 at 2:01 pm
I dont buy the oil rent argument, you are screwing future Venezuelans, not only because they will not have it as you are using it today, but because their country will be in ruins.
Again, if we dont start today fixing things, it is hopeless.
August 10, 2014 at 1:43 pm
The Gov probably has no real intention of raising the price of gasoline. All they want to do is bring the subject to the national awareness, then appear the heroes by not raising it, for “the people”. Then as the opposition talks about a logical increase they will look like the villains.
August 10, 2014 at 2:02 pm
Government brought the gas oil price issue since it want to convert the “subsidy” into a “tax” for the reach and middle class. everything is prepared for that, San Cristobal and Maracaibo markets were electronically tested for it. Government is in need to “save” 100.000 gas barrels/day from imports. Gas and additives imports reached a pick of 135.000 barrels per day, and those are purchased at 135 $/barrel.
August 21, 2014 at 12:53 pm
Look about the smear campaign they used against capriles in 2013 and again in 2014, they said he would “take away pensions, raise gasoline and release dollar and product prices”
August 10, 2014 at 1:40 pm
Chile inflation-indexes 25% + of its money supply daily for many years already. Brazil did it in 1994 to a large percentage of the economy. This is not something new.
August 10, 2014 at 1:37 pm
Magic bullet: when all monetary items (bank deposits, money loans, etc) are inflation-indexed daily there is no effect of inflation. This will do nothing to actual inflation while the central bank excessively increases the money supply.
However, there will be no effect of inflation in monetary items in Venezuela.
August 10, 2014 at 1:30 pm
All prices in Venezuela should be indexed to the Daily CPI. That is the magic bullet.
August 10, 2014 at 1:10 pm
Our opposition should shut up it will be much better!!!! I m totally agree with your opinion.
August 22, 2014 at 2:08 pm
The opposition should remind every chavista of how their corpse swore to keep the price like it was, and how the idiot is trying to disguise the stab he’s doing now to their backs.
August 10, 2014 at 12:44 pm
You are completely correct.
Regardless of what they say publicly, I am sure no reasonable person in the opposition believes gas should be subsidized as it now is.
Everyone with a modicum of understanding of economics knows that the price of gasoline should be somewhere near the going market price. However, as soon as the chavistas threaten to do just that, the opposition, almost all of them, of course cannot see beyond their own version of polarization to say ‘Great!” “It’s about time!”.
Instead, its opportunistic populism (opposition style) meets opportunistic populism (chavista style)
Yes, you are absolutely right. The opposition should DEMAND that chavismo quit giving away valuable gasoline to people who do not need free gasoline, that this is merely a form of broad-stroke clientalism and social bribery of the worst sort.
THEN, when Chavismo is finally forced to raise the price of gasoline, declare VICTORY! Say, they finally see the light that you have been shining! CELEBRATE! Take credit for it!
But, also demand sensible social assistance for those truly in need who cannot afford to take a bus, or farmers who really cannot afford gas for their tractors, etc.. (i.e., demand competent public social-welfare institutions and calibrated social policies, etc).
This isn’t political rocket science.
August 21, 2014 at 12:51 pm
The problem is that chavismo always attacked every single proposal and plan from opposition claiming they would “sell the country to the FMI, take away pensions, abolish the currency exchange and price controls and skyrocket the gasoline price through the roof!”, only to go and do it themselves, using stupid euphemisms so their followers just nod and say “they’re not anything like you capitalist pig were going to do!”.
That’s again the stupid chavista hipocrisy at work.
August 10, 2014 at 12:32 pm
Miguel you have put into words my exact feelings.
I also can’t understand anyone that is opposed to an increase.
Maduro recently (yesterday or Friday) said that there would be no increases.
These people haven’t got the balls to rock the boat.
With survey numbers hitting rock bottom they don’t want to do something that would be the proverbial straw that beaks the camel’s back.
August 10, 2014 at 12:30 pm
No hospitals, no medicines, no public transportation, the metro a disgrace, no roads, streets and highways gone to pots, no harina Pan, no meat, no cooking oil, inflation worst than Zimbawue, rampant crime, and you, my dear Miguel, want to raise the price of the one and only thing that we enjoy for free!
August 10, 2014 at 1:44 pm
Maybe the free price of gas explains in part why we do not have other things.
What is the alternative? Let the country go down the drain forever?
Not exactly the best policy. We have to start destroying the effect of The Devils’ Excrement at some point.
August 10, 2014 at 6:48 pm
If the government had credibility, or find it, it could make the argument that the money raised from higher gasoline prices would be used to,improve hospitals, public transportation and whatever essentials must be provided by a normal government. Public opposition would thus be reduced because the people would in effect get their money back.
August 21, 2014 at 12:46 pm
The “money raised from higher gasoline” won’t be invested in anything else, it’ll cover the cost of producing more gasoline.
Anybody else who says “that money surplus is going th be used in…” is flat out lying.
August 22, 2014 at 7:15 am
Producing “more” gasoline? are you serious? if prices go up, demand goes down, that simple. Also, the extra income should be used to cover the cost of production, at the very least. Yes, there is a lot of inefficiency in the government, and yes a lot of money disappears, but trying to justify not raising the prices with an economic argument is plain stupid, it’s a political argument, those against it just want to cut all source of income so the government has to shut down, this is a political move. I don’t agree with it, but it’s a political strategy non-the-less. So, lets not kid ourselves, the subsidy is not a benefit, we are paying it… y con creces.
Raising the price of gasoline will not make this a better government, they will still be corrupt a-holes, and will still steal whenever they get a chance… but raising the prices also means: less pollution, no gas trafficking in the border, more use of public transport (which should then result in improvements of these, at least the privately owned), considerable positive impact in inflation given that there will be less disposable income floating around, etc.
“Anybody else who says “that money surplus is going the be used in…” is flat out lying.” No one is saying that, at least no one that has suffered this government and is not on the Chavista-BS-train. But economically, it still make sense, and will benefit everyone.
August 22, 2014 at 2:04 pm
“the extra income should be used to cover the cost of production”
The extra income WILL be used to cover the production cost, it won’t be used for anything else until the sale price is higher than every cost to produce the gasoline, so, you just said the same thing I said, the money’ll be spent in making more gasoline.
I said that because maduro is trying to sell the raise in the gasoline prices claiming that the money’ll be used for missions and other infrastructure works, which is a dirty lie as much as it was the one claiming that the corpse lived to see 2013. You are right when you said that only the morons that eat every bullshit from the regime will believe or accept the raise.
There are some effects you named that I would like to answer separately:
*Less pollution: This one is plausible, less cars and trucks clogging the roads would mean less monoxide farted in the air and less smog in our lungs, that one is good. But I wouldn’t count too much in this one, people who once got to buy a vehicle won’t ever get into a public transport ever again, it’s just too much a shit service.
*No gas trafficking in the border: To stop that bloodsucking mafia, the gasoline price should reach the imfamous international price, or at least the same price than in Colombia, which is a ridiculously high compared to now (But is the actual price with a profit margin estimated in base of the costs, like any other merchandise).
*more use of public transport (which should then result in improvements of these, at least the privately owned): I have to disagree with this, the public transport in Venezuela is a turd, nothing more, it’s one of the worst transportation systems in the continent, which also has one of the highest costs for the users in comparison to the population’s salary (almost 1/6 of the minimum salary goes away in the shitty wrecks people are obligated to ride to their jobs, it gets way worse if you’ve to pick two or more cars to get to your destination), the public transport, specially the private lines, have fleets of shitty malibú wrecks rolling everywhere, and they would just ask for another rise in the passage to keep working (and won’t ever improve a bit their garbage cars), because the shitty unions have a grip in the transport oligopoly since the regime itself choose to dismantle almost all the public transportation in several states of Venezuela (It’s the stupid vivo culture, they don’t want to improve their service to attract more customers, they just threaten you with “You don’t want to get into my trashcan? Then fucking walk, fag!”).
Don’t mention subsidizing the public transport, they already have subsidies for everything, and still give the crap service with crap cars and prices that raise like 50% every year (And the state owned ones are just a tiny fraction, so they can’t cover all the demand).
*This considerable positive impact in inflation given that there will be less disposable income floating around: The inflation’ll come from the price hike from every single product or service that has to count gasoline among its costs, starting with public transport, where they’ll ask for ridiculous raises like they were the only people with the right to not have their income eaten away by the damn inflation created by the government.