Amuay = devaluation?

The country's finances up in flames
The country’s finances up in flames

Today marks the six-month “anniversary” of the explosion in the Amuay Refining Complex. Aside from being a massive tragedy, Amuay could have also been responsible for the devaluation of the bolivar.

These two events might seem to be unrelated at first. The first caused a fire that took days to put out and left dozens dead. The second is an immediate impoverishment of Venezuelans by lowering their real wages in foreign currency terms.

The link, however, comes through nicely in this El Nacional story. Venezuela has been importing 108 thousand barrels a day in gasoline and components, all to be used in giving gasoline away to Venezuelan consumers for free.

It’s one thing to have a ridiculous subsidy when the thing you’re giving away is being produced internally. Here, the cost is mostly an opportunity cost.

But when you have to import the gasoline you give away, that creates an immediate impact on your cash flow, on the government’s wallet. I wouldn’t venture to speculate the direct cost of these imports, but even if we were to use the low benchmark of $100 per barrel of gasoline, we’d be talking about $10.8 million per day, almost $2 billion for the semester. (The real figure is definitely higher, since a barrel of gasoline is more expensive than a $100 barrel of crude).

Add to that the money PDVSA needs to invest in order to bring the refinery back to speed – typically these things are insured, but I’m not holding my breath before we found out the policies had lapsed – and you have an important catalyst in causing a fiscal crisis to go from bad to worse.

Amuay didn’t cause the economic crisis. But my hunch is that, when all is said and done, we will find out that one of the casualties of Amuay was Venezuela’s public finances.

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