It's the economy, Nicolás

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Inflation, scarcity, crime, and those damn numbers on people’s arms. I shoot off over at the Transitions blog.

My money quote:

Taming inflation would require the government to order their finances, but the administration seems reluctant to do so. For example, according to government sources, giving away gasoline for (practically) nothing costs Venezuelan taxpayers $24 billion in direct subsidies and lost revenues. This amount represents roughly a quarter of all spending included in the 2013 budget. But regardless of how dire the situation is, the government refuses to consider decreasing subsidies because it is fearful of a public backlash.

Unsurprisingly, it is getting harder to find items such as sugar, cooking oil, and corn flour — an essential part of any Venezuelans’ diet. According to latest figures from the Central Bank, scarcity peaked in April to reach a historic record of 21.4 percent. This means that roughly 1 of every 5 products consumers want to purchase is missing from the shelves. Not surprisingly, Venezuelan consumers are being forced to queue for basic staples, sometimes in an undignified manner. The photo above shows shoppers noting their place in line while shopping for corn flour.

1 COMMENT

  1. Some quick math.
    How many houses can be built with $24 billion?
    if the houses cost $60.000 each then 400.000 houses can be built. This is much more than any of the unkept promises of Hugo Chavez.

    Or you can have people living in the street with full tanks of gas in their cars.

  2. No, you have people who already have houses with full tanks of gas.

    The gas subsidy overwhelmingly favors the middle and upper class, especially the upper class. There are some middle- to lower-middle-class Venezuelans who have cars they can barely afford and are dependent on the gas subsidy to get by. There are at least as many wealhier Venezuelans for whom a realistic gas price would only be a moderate addition to their vehicle costs.

    The gas subsidy is a classic regressive tax-and-spend program. The cost is borne equally by all Venezuelans, rich and poor alike. The benefits are received in rough proportion to income level.

    The very poor, who can’t afford cars, don’t benefit at all, except indirectly – the subsidy reduces the costs of private buses and cabs used by the poor. Middle class who can afford a car benefit somewhat. The wealthiest people, who own more and bigger cars, and drive them more, benefit the most.

    Chavismo did not created this stupidity, but in over 14 years of class warfare, it has done nothing to fix it.

    • The gas subsidy was very much subdued by the 1996-1998 reforms put in place by the Caldera government. The MVR-PSUV administrations have hold the price set by Caldera in 1996 (around 30 Bs. per gallon, which was a lot back then). Do the math: that was 17 years ago.

  3. The craziness of the gas subsidies can be seen in the vast amounts of gasoline that get smuggled across the Colombian border. Gas prices in Colombia are in the order of 4.7 USD/gallon (for regular gas) and of than 5.5 dollars/gallon (for “extra” gas, what’s used in higher end cars). If my maths are correct, gas in Venezuela is approximately 100 times cheaper than in Colombia, at the official rate! Filling up your gas guzzling SUV in Cúcuta might cost you 100 000 pesos (50ish dollars), cross into el Táchira, and it’d be around 1000 pesos (at the official rate). For context, homeless people in Bogotá get mad at you if you give them less than 1000 pesos, that’s less than the cost of a single bus ride.

    Prices are subsidized near the border, but still, the difference is dramatic. Gas prices in Venezuela haven’t gone up in 16 years, they go up every 2-3 months in Colombia, sometimes coming down once every year. And add to that the fact that Colombia is perhaps the only place where you can buy Bolívares, at the parallel rate.Or you could even buy some greenbacks and take them into Venezuela in exchange for gas. Of course trans-border business opportunities happen everywhere there’s a price difference, but the fact that you can make a profit out of dragging plastic tanks filled with gas across a river is very telling.

    • If you take into account the black market dollar, then you get that for each bolivar in gas that you smuggle through the border, you sell it in pesos, buy dollars, then sell the dollars in black market for bolivares and you will get 450 bolivares. There aren’t that many business in which you get 450 times the amount you invest.

  4. The gas subsidy is total insanity. And to think that Chavez, with a total monopoly on power, did not dare to touch it. Is it really the key to political survival in Venezuela?

  5. In all reality, the only out of pocket expense to the government is the production and distribution expenses paid by PDVSA, which I am told by a former worker, was still covered by the subsidized per liter cost on gas we paid prior to Chavez. Obviously, inflation makes this no longer true…

    To my economic friends, yes there is an “opportunity cost” of the money we could have gotten without the subsidy, but in all reality, that amount fluctuates with the price of oil/gas and I do think that the price of oil will be dropping soon with all of the production coming online in the US through fracking…

    Going forward, I think the common sense compromise that can be made with the people is that the cost of gas will be increased to cover production & distribution costs (still nowhere near what the rest of the world pays) and we will use that money to fix the electrical grid and fight crime. The price of gas is tangible, so the only way to not piss everyone off is give them something tangible in return…

    • In the US, people don’t complain about gasoline taxes, because they believe that it is going to fix roads and bridges.

  6. Everybody, every-body talks about the need for education in Venezuela. Nobody dares to start with that.

    About petrol prices and the poor: actually, the situation is worse than you think in Venezuela.

    If you compare what a Venezuelan worker pays in a month in transportation costs (thus: at least one bus to go to work and one to go back, often even more) and what the average worker pays in Spain or Russia or in Germany PER MONTHLY TICKET, you will see even so prices in Venezuela are horrendously high. Few people in these countries pay a ticket every day to go to work. They use a ticket for a longer period. And then you see there is substantial difference. But that entails an organisation we think our nation is too stupid to have. Shame on us. We should finally tackle this and do our homework.

    There are several issues:
    1) the hassle of car import/car parts (the SUV in which the revolutionary socialist secretary of Maduro was when he was kidnapped, for instance, costs around 35 thousand dollars in the USA, in Venezuela it cost at official prices three times as much)
    2) the bus companies as they operate are highly inefficient
    3) costs go up because of the moronic way Venezuelans drive, the amount of accidents that take place, the insecurity and costs added to that are higher than elsewhere…
    Have you compared the average cost of an insurance in Venezuela and in Germany or Spain? (perhaps Chile? no idea)

    So: you have to be sure you inform the poor that you are going to take well planned measures to
    make all those things better so that he doesn’t have to pay more or much more for transportation.

    You have to make it credible.

    OK, we know this government won’t do it. What happens if we don’t start to educate now?
    Be sure that if the opposition comes to power in the short to middle term Chavismo will do everything, everything it can to create a Caracazo times 10.

    They did their part, it was not only the brutality of the military back then, it was the consequences of the game played by both parties at the time, a game I saw with my own eyes being played when I started to go to the UCV.

    What are WE going to do about this level of awareness of Venezuelans?

    “They won’t

    • The problem with the bus routes is that they are handled by cooperatives, wich apart from making the service very crappy, it makes it quite hard to have a standarized monthly ticket for all the routes, they even can’t make their mind on wich parrishes you need to buy student tickets and in wich ones you don’t…. they should privatize or nationalize them, aslo so i won’t have to hear “el show de full chola” on my way to uni every single day…

      • That’s what I mean. Privatize or nationalize them. Perhaps just say: if you work for the state, you will have these and these rights but also these and these obligations and you get this salary and these holidays. If you don’t, you are on your own.

  7. Brazil has had 6 (yes six) different currency denominations from 1986 to1994, brought on by hyperinflation due to poor economic decision making. Each time a new denomination was introduced, 3 zeros were dropped vs. the previous one. At one time, 3 different currency nominations were in circulation (cruzado, cruzado novo and cruzeiro)

    Could hyperinflation happen in Venezuela? I believe the answer is yes, unless economic policy is immediately turned upside down by experts, a la “Chigago Boys” in Chile in 1973, guided by Milton Friedman. Instead, the decision makers for economic policies in Venezuela are doubling down, falling in the “sunk cost” trap (…but we have already spent so much money and effort into this, we cannot let go now…) contrary to basing policy only in the now and the future. But, blinded by their ideology, more of the same which will only bring on more of the same disastrous results.

    There is no shortage of illegal drugs in Venezuela. Talk about a truly “laissez faire” and therefore free market! To addicts? Yes, but we are all “addicted” to food or we die of starvation….

      • Yes. Plus CAP II proved that implementing “shock therapy” like measures is politically untenable in this country. Remember that the adecos made him resign for that in 1992 can you imagine how difficult it would be politically to implement similar measures now with the rojo rojito polititians around , i would say impossible even if the opposition is in power. I think that ship sailed for veneZuela a long time ago and it aint coming back …. There needs to be another way

        • CAP II had everybody against him , even the bosses from his own party and practicallly every private interest group in the country , He had a long polticial career and even if he could win an election had collected important enemies like flies, he was also strongly and personally associated with corruption. Oil prices were low and the economy in the doldrums , He had a dream team of talented super tehcnocrats but who for the most part were new to the business of practical politics . He tried turning a new page but his past caught up with him . He is not a good comparison with anyone who might come in future . Still your are right that whoever undertakes the necessary task of remodelling the busted economy of today will face a daunting difficult challenge , specially with the rojos rojitos playing the role of opposition party. The thing is that even if the odds are against you , you have to play the best you can with the cards youre dealt and thats always better than not being in the game at all. There is of course another way, but one which most venezuelans would wish to avoid if at all possible.!!

          • Rationalization of the Ven economy is inevitable for it and the Pueblo to survive in a non-Cuban misery fashion, whatever the political costs. The timing of this is better later, rather than sooner, since as economic conditions worsen progressively under Chavismo, so will the Chavista political base weaken. In this sense, the delaying of an eventual Oppo Venezuelan Government is playing into the Oppo’s hands.

          • You can’t compare CAP with any other politician since or to come, that is true.
            The issue is that, like today, we had a highly polarized society (politically, economically, even intellectually), a highly combustible situation in the streets (crime, desabastecimiento, inflation, devaluation), which is why initially there was a social “explosion” when certain measures like price deregulation and gas price increases were implemented (actually, as I recall, the mere announcement of such measures in 89 caused el estallido, as most had not even gone into effect). After that, the government and its “supereestrellas” cabinet were a wounded duck that became easy pray for all the political and private interest that wanted CAP to pay for old debts or saw opportunity to gain politically by brining him down (Unless you buy the theories that the Caracazo was all a big conspiracy by these groups, which I don’t).

            But without the initial “social explosion” del Caracazo, you could argue that things may have gone differently. The question is, is it possible in Venezuela today, given the similarities with the situation back then, to take drastic measures to reform the economy? You have to remember that the V Republic, if anything, has made people even more dependent on subsidized prices and services. The only thing that may make things easier for a reformist government today than a few decades back is the high price of oil. Still, you need somebody with a special kind of political dexterity in a society as polarized and as dependant on the state as Venezuela is today in order to change things. And things must be “sold” to the people with creative ideas and communication strategies and, of course, gradually.

  8. Maybe we can imagine a road map towards a rationalization of subsidy policies , not only for gas but for other ruinously subsidized staples and services .
    1.- Study what impact the rationalization of the subsidy will have for most people .
    2.- study the best way of applying the new policy so as to lessen its impact
    3.- carry out an educational campaign to make people understand why the current subsidies are harmful to their current and future well being.
    5.- Link the rationalization of subsidies to some specific benefit which people will profit from once its adopted . Make sure the benefit is tangible and easy to percieve and that is actually produced .
    4.- Do it gradually.
    In Iran they rationalized subsidies by replacing them with a cash amount people recieved up front
    Important : even if large amount of resources are produced by rationalizing subsidies nothing is aachieved if the bureaucracy that handles it is inept and corrupt , the resources will get stolen and wasted and misspent any way . Prioritize the improvement of gubernamental organizations and the formation of its human capital not just at the upper levels of ministerial direction.

    • Hear, hear!

      I would like to see a debate of 45 minutes full between different groups (Chavistas included) on Venezuelan TV just about petrol prices.

      • Kepler,

        When the opposition has been cut down to size and kept firmly in its place, then the Government will have room to take unpopular measures.

        Before we can spend political capital, we must make it, and the way to do that is by squashing the disloyal oppositionists.

          • Hey Toro,

            Have you owned up to any of the lies of your beloved candidate yet? What ever happened to those 286 voting centers where witnesses were forced out at gunpoint? Are we just supposed to all forget about that now? We’re supposed to believe that it happened but that no one said a word about it? And the supposed irregularities with vote tallies that were not irregularities after all?

            How long will you maintain the lies on this? So far you’ve kept the lies going about the 2002 coup for 11 years.

          • it’s your side that lied about the 2002 coup, Capriles helped protect the Cuban embassy and was thanked for it by embassy personnel. And your points will never get anywhere given that you thugs still celebrate the 1992 deaths, as long a as that’s the case why should anyone give a crap about the 2002 coup?

          • Small problem Norske… See, your buddy Toro here still hasn’t even admitted that April 2002 was a coup!! He still supports the bonehead thesis that it was a “power vacuum”, despite the fact that the coup leaders went on television the very next day and openly told the world how they had planned it all out.

          • And? Again, as long as you celebrate the deaths of 1992, I don’t care what happened in 2002, let alone what you call it.

          • btw, claiming that because people celebrate a coup it means they are celebrating death is like saying that July 4th in the United States is a celebration of the deaths of the American Revolution. It is idiotic to say the least.

            But anything to avoid actually addressing what I say, right?

          • Obviously I am just trolling you as to celebrating deaths, mission accomplished since it pissed you off. The point is you and your cohorts celebrate the 1992 coup. As long as thats the case I couldn’t care less about the 2002 coup, and you’ll never address the point because you can’t.

          • Touchy little fuck aren’t ya?
            Get a little twitchy at 2 am when it’s just you and your copy of “How to Troll For Hot Wymens, the Easy Way”? Don’t worry, the paycheck won’t bounce until oil hits $48, then you can go back and work for Exxxxxxxxon.

        • I really don’t get how reducing the opposition translates in more support. Unless… you say that opposition should be expelled or killed. In that case, that’s a great democratic way. Congratulations.

    • Excellent!
      Given gasoline prices are entangled with the pricing models of everything that moves from point A to B, a drastic hike in gas prices will have ripple effects throughout the economy.
      It’s got to be raised in small gradients, allowing time for markets to stabilize and of course lessening the shock factor of a sudden increase.
      Here in Canada they always offset the political cost of such increases with promises of a “tax credit” for low income households that never seems to materialize.

      • Muzito : tax cuts wouldnt work here because the huge mayority of people dont pay taxes , its got to be some simple and direct benefit people can easily identify , In Iran they got rid of a 100 billion US$ in subsidies by opening bank accounts for 30 odd million people and putting an specific amount of money in them , (ahead of the subsidy cuts) . maybe something along the lines of the idea some people in this blog endorse of distributing the oil wealth among a big swathe of people but on a limited time basis . Also they spread the cuts along a 5 year period . Of course they have a police state there so any protest was sure to get squashed which might have helped accept the subsidy cut.
        They also created a special agency to manage the money which was released as the subsidy cuts were applied . The Iranians even got high scores from the Economist for the way they handled the subsidy cuts !! Go figure !!

        • You remind me of what my relatives in Venezuela told me back in the 90’s. They said the only people that paid taxes in Venezuela were fools because taxes paid were just more monies to be stolen. I think the government has helped clamped down on this but I also think the end result is the same, even if it’s the government “stealing” your tax bolivares.

          • Taxes in Venezuela are relatively low and for people working outside the structured economy easy to avoid . This is made possible by the huge income which the government recieves as part of its oil revenue . No one enjoys paying taxes. People only pay them either out of a sense of civic duty or to avoid the accompanying sanctions. It helps when you know that taxes paid are going to be put to good use but not when you believe a large part of your tax money will get stolen, wasted or used to pay for things you dont approve of.. This is specially true of taxpayers in todays Venezuela.

      • Twenty more years of bait and switch politics and Canada will be looking a lot like Venezuela, but that’s off topic.

    • How about subsidizing bus tickets and creating monthly bus passes for low income families, students and seniors?

      Of course, first they should make “public transportation” actually public and absorb all those micro buses controlled by the mafias.

  9. Esteban Gerbasi ‏@estebangerbasi says it all:
    ¡B días! Nos aplican el guion cubano d escasez, represión, terror y sumisión para desviarnos de nuestros valores Republicanos y Democráticos

  10. Carolina,

    “How about subsidizing bus tickets and creating monthly bus passes for low income families, students and seniors?”

    Here is where the problem will lie: in proving who, and who is not a low income person.Just think about it.Do you think people will be reporting their true incomes?

    There are plenty of people who live in the barrios who identify with being poor who earn a lot more than many in the middle class neighborhoods, and there are plenty of middle class who will be willing to look poor in order to get subsidies.

    This would be just another way for corruption to flourish.

  11. El régimen que desgobierna Venezuela está metido en un laberinto. Se acabaron las vacas gordas. PDVSA no da más. Mataron a la gallina de los huevos de oro y se la comieron. Tienen que buscar plata como sea. Pagarán altos intereses para endeudarse o entregarán el país a los chinos por un puñado de dólares. Esta es la herencia de Chávez, quien por cierto cada día tiene más hijos e hijas (la última en declarse “hija de…” fue la del turbante aquel).

  12. You know things are bad when pro-Government polling outfits are releasing polls of Maduro with only just over 50% approval…. The same companies that had Maduro winning by 30%…

  13. There are two factual inaccuracies in this article. First, the scarcity index did not reach a historic record in April. It was 24.7% in January of 2008. Second, it is incorrect to call a set of recommendations presumably written by pro-government economists a “government source”.
    Calling this a government source is like calling the “paquetazo” document a Capriles campaign source.
    The bout of scarcity in late 07/early 08 was solved by the government through increases in government imports and relaxing of price controls; they will likely do the same this time. It led the government to lose the constitutional referendum and one year later they were back to winning elections.

    • Thanks. Point taken, although the document was written by a former Minister in the government, so it still qualifies as a pro-government source.

  14. Like the dry concise factuality of little birds post and also find his reference to the late 0’7 – early 0’8 period suggestive of a comparison with todays situation , which brings me to ask myself the following questions ..
    1.- How does the state of the regime finances today compare to those in 07-08.?
    2.- Is demand for imports today the same that it was in 07-08 or is it higher .?
    3.- What was inflation like in 07-08 ?, how does it compare to todays rising inflation?.
    4.- Is Venezuelas capacity to self supply its inner demand today the same it was in 07 08 or are we worse off.?
    5.- are we more dependent on imports now than in 07 08 ? if so, is the regimes current disposible level of foreign currency propportionally as large as it was then to pay for todays level of imports?
    6.- From the information contained in the economic reports attributed to regime supporters , are they credible ? do they paint a realistic picture of the challenges now faced by the regime on the economic front?
    My own conjecture is that the regimes financial situation today is really much worse to what it was in 07 08 , that demand for imports is much higher than it was in the past, that inflation is probably worse and climbing to a level where it will become very difficult to control, that internal productive capacity has fallen considerably from the toll of heavy price controls , currency restrictions , govts promotion of cheap imports , expropiation and general harrassment of private business, that we are more dependent today on imports than we were in 07 08 , that the regime lacks enough f currency to cover the cost of current import needs and maintain the heavy subsidies and give away policies of the past, and tha the reports although not official in origin might very well reflect the thought of economists close to the regime .

  15. La ignorancia del chavismo y sus aliados en temas económicos no tiene límites. Ahora resulta que, según el PCV, la Harina P.A.N. no se consigue en Venezuela porque se consigue en Estados Unidos. Estos brutos no saben que Polar fabrica y exporta esta harina desde Colombia. Vean aquí: http://goo.gl/2GB9B

  16. Venezuelans have never known these constant black outs and interrupted services , nor the humiliation of todays food shortages where you must be branded like an animal to be able to buy simple every day foods like harina pan , or sugar , or cooking oil or milk etc before they dissapear again from the shelves, nor having university labs closed because they cant find the chemicals they need to operate, nor having cars wait 6 months for repairs because the necessary motor parts are not to found anywhere, or where a drug or medical supply needed to restore your loved ones health or keep them alive cannot be had however much you desperately search for them :
    All these experiences robs us of our dignity , brutalize and torment our lives. and this at a time when the price of oil is 8 to 10 times what it used to be . At the same time prices balloon with an inflation that is soon to beat all records gradually transforming people into paupers and which the regime is incapable of controlling !! With a ten year boom in oil prices such as never have ocurred in the past none of this should be happening except that, as we all know, we are ruled by one of the worlds most incompetent and corrupt governments. Why are we in this fix ? because the government has run out of dollars to import the things the country needs to import after the destruction of its industrial and agricultural base by stupid measures . But then again how can a government run out of money having such inmmense revenues as no government had recieved in the past ? Because its wantomly and massively wasted it or given it away or allowed it to be robbed by the regimes favourites !!
    I thought that it wouldnt be possible to top the mismanagement of past administrations but this regime is really beating past mismanagement records to a pulp.
    What motivates the regime ?, the hunger for accumulating absolute power, obscene despotic control over every aspect of our lives so they can feel great and all powerful and feed their gargantuan delusions . How do they try to achieve this , by showering give aways to their constituencies , by feeding them with farcically glamorized hatreds and resentments , by a methodical all encompassing effort at deceiving people, at selling them rethorically dramatized lies !! yes, they are better than the nazis , they dont put us in concentration camps , they dont massively murder us , but that doesnt make their abuses and failures any less conndemnable !!

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