Just to put things in perspective, filling up a gas tank here is still cheaper than buying a two liter coke bottle.
30 liters of gas will cost Bs. 30 or Bs. 180 depending on the type you use. A 2 liter coke costs Bs.500. A McDonalds meal costs around Bs.1000 (Add Bs. 500 if you want fries fries. Fries are imported for some reason. I might be off on the price, I haven't been there in a while.)
And this will not stop the smuggling of gasoline to Colombia and Brazil, since the price differential is still so big. It reduces profits a bit, but it's still worth it for those that can do it (mostly military mafias that control the border).
EDIT: just to expand a bit on the subject, the price has been fixed since 1996 I think. The govt subsidies on gas are ridiculous. The country was losing around US$12500 million a year through the subsidy. Add to that, Chavez started PetroCaribe as a way to "sell" cheap oil to caribbean nations (in exchange for loyalty) that was never paid , or paid with beans,etc.
Now that the oil prices are so low, we have no income.Most of the money that came in to the country was stolen by govt officials (composed mostly of military men) and we have a huge debt obligations and low international reserves. Now it's time to tighten our belts.
Lines to buy food are enormous. You can only buy certain things twice a week if you can find them (according to the last number of your national ID). Medicines are dissapearing.
Maduro is looking everywhere he can to find some money, but there's not much he can do really.
Except the history hasn't been one where Venezuelans merely `tighten belts' and struggle through. The last time this happened (suddenly raising gas prices because the financial gears have finally stripped) under Pérez the Caracazo happened. That led to Chávez and the complete destruction of the Venezuelan economy.
There is no hope. Venezuela is in for violence and coups again. You should expect one of the outlying cities to go nuclear soon as the last trickle of goods dry up at some PDVAL outlet and hungry people start throwing stuff. The international media will suddenly rediscover Venezuela and adopt the usual talking points about low oil prices, studiously ignoring the last 17 years of deliberate left-wing economic destruction. Then the cries for `humanitarian aid'... and if it isn't forthcoming double-time then we'll be blamed for every subsequent tragedy.
My sympathy for this is already exhausted. When Chávez-then-Maduro struggled with elections they put a gun to the head of electronics shop owners and let `the people' steal the flat screens at fairy tale prices. When citizens are so debased as to believe that this is a legitimate way to run things -- and indeed vote for it -- then no amount is suffering is undeserved. I can find sympathy for the children, but everyone else has earned what is coming. And that includes all the financiers when Venezuela defaults and their money goes to money heaven.
I also think a violent outcome is the only way for a change to happen, unfortunately. But I don't know how far away it is.
We've already been through a lot and people seem to just go about their daily business like zombies. Wake up, go to the markets to line up to get a handout (if it's your turn that day), repeat.
Things are getting more and more desperate, but I don't see a breaking point. I don't know if people are just waiting for things to sort themselves out or what.
We have frequent power outages, no food , no medicine (I've been looking for an iron supplement for my pregnant wife for over a week now), nothing. And people just keep rolling with it.
Let's see how long the patience lasts. It's not going to be pretty unfortunately.
That's the thing. The problem is obviously getting worse every day, but it's not a new situation and people still deal with it. Let's see what the breaking point is.
Yeah , I realized I missed a zero there! Edited. This Forbes[1] article has even worse numbers.
Filling up the tank here is something people don't think about. People even tip the gas pump attendant two or three times the cost of the full tank (that's obviously over now).
The reason we are angry is not because we now have to pay a very low price for gas. The reason is that this country had a huge bonanza and it was all stolen and now the govt says its because of the "economic war" the US and allies are waging against Venezuela. Apparently, the fact that the US is extracting shale oil is all just a plan to topple Putin and Maduro. And now that OPEC wants to break the shale oil companies is another evil plan.
It's everyone elses fault that after 18 years of the highest income we've ever had, we now have no money for the rainy days.
As an American who attempts to keep up with the political situation going on in Venezuela... I know that Chavez stayed in power relatively easily during the oil boom by giving free handouts to many of the impoverished. How does Maduro actually stay in power?
It seems like from the outside, with the violence, inflation, and general instability, that Maduro has failed to keep the Bolivar Revolution viable.
Do you think Maduro, or one of his chronies will eventually be voted out by the populace? I'm genuinely interested in your side of the story as I can't get non-biased news in the US about Venezuela.
I hope I'm totally wrong, but I don't see a scenario where Maduro or one of his chronies just gives up on power. I don't see one peaceful scenario where they leave power or try to negotiate some sort of power sharing agreement with anyone.
IMO, the thing to understand here is that it's not Maduro holding on to power, it's the military. They are involved in most of the corruption, drug trafficking, human rights violations,etc in the country. They are getting rich beyond their wildest dreams. That's not something that people give up on easily.
Chavez remained popular while oil prices where high, that way his wacky economic model worked, even when they stole most of the money that was coming in (confessed by Giordani, former Minister of the Economy, one of the architects in this disaster). If Chavez was still alive, the situation would be the same, with the difference that he had a charisma and incredible hold on the population.
Maduro now has to face the legacy of his disaster and he doesn't have the personality, charisma to deal with it. You could almost feel sorry for the guy. He's being pressured from the military side, and now he has to face the pressure from the population that is getting restless.
I don't know what the outcome is going to be like. I think some sort of violent looting escenario is inevitable, by the poorest parts of the population when they really start feeling the hunger. That brings repression by the govt forces and death. Maybe then will we see something similar to Egypt, Ukraine,etc where the military has a limit on how many people the are willing to kill on the streets and they flee.
Everyone who has a minimum knowledge of economics has been warning about this for ages.
Chavez even said once that our economy was bulletproof, that even if the oil prices plummet to zero, we were going to be OK.
I now fear that the only way out is through massive riots for food and medicines. The same people that held Chavismo in power these past years have to be the ones that remove them from power. And it's not going to be pretty.
This is a very sensational title, and I'm sick of media companies exploiting:
1) the natural tendency for people to read "by X,XXX%" as "X,XXX times"
and
2) the fact that raising something from nearly 0 to anything that's not nearly zero will naturally be a large percentage increase, even if it is a small absolute increase
Guardian, here's a better, albeit, less apocalyptic and click-bait title:
Venezuela raised gasoline prices from nearly free ($0.02) to about 1/12th of what the rest of the world pays ($0.20), because government oil revenue is down.
Even if it's not to that extent, the bigger number leaves a bigger impression without giving it much thought, even in a relatively trained mind. Once you parse that it says percent, sure, you can deduce that it's describing it proportionally and infer that the price was probably pretty low to begin with, but why do we need to have titles that require this to get the gist of it when we could describe it in a more clear manner from the beginning?
"Putting these prices in perspective for western readers should result in laughter: the new price for 95-octane is equivalent to $0.11/gallon using weakest official Simadi FX rate of about 203 VEF/USD, and 5 times less using the black market FX rate. The price previously was 0.097 bolivar/liter or about one-fifth of a U.S. cent per gallon.
And while the price is indeed laughable to western readers, price increases such as this one are all too tragic to the local population which is paid in local currency terms, and for whom this is merely the latest checkmark on the hyperinflationary wall."
This is a positive development. Too little, too late, but a better direction than the "vice president for the economy" Maduro appointed last month who, quite literally, does not believe in inflation [1].
Venezuela owes $15.8bn in debt payments in 2016, has less than $1bn of cash, and holds most of the rest of its reserves in gold [2]. Between 2011 and 2013, fuel subsidies cost Venezuela 7.1% of their GDP on a pre-tax basis [3]. (Note that this "measure of subsidies constitutes a lower bound, as it does not include forgone tax revenues or the cost of negative externalities".) This costs its government more than $1.7 billion a year [4].
Similarly, when one can buy a dollar for 6.3 bolivars from the government and sell it for 500 to 1 000 on the market, it should not be surprising that dollars are seldom to be found. This places an implicit but extreme tax on imports, creating shortages. Curiously for the socialist republic, this tax is levied by private interests as access to dollars at the official rate is rationed to the regime's friend. This was one way Chavez controlled the army. It is also why reducing the market-to-official gap of 100x is so difficult.
Maduro is an idiot, and his crony socialism is destroying a once-great and proud country.
None of these stop-gap measures are going to save things down there, and while Maduro and his fellow party leaders will ride off into the sunset as billionaires (if his people don't kill him first), the poor Venezuelian people will suffer for many years to come.
Unfortunately it will probably take decades to bring the Venezuelan economy back to a normal.
Almost every local industry is in shambles and foreign investors will need at least a decade to resolve all the claims from past nationalizations and settle all the debts.
Perhaps the worst economic problem is that any entrepreneurial spirit in the country has been crushed. For more than a decade the way to get ahead was to manipulate the system or leave.
Lastly the political institutions are completely broken. Another charismatic strongman could come along or the military could simply take over.
None of this is a quick fix. Things can - and probably will - get worse for years before they get better.
An analogy: If a well functioning economy is like a rain forest with thousands of interacting systems and species in a complex dynamic equilibrium, Venezuela is crappy zoo with most of the animals sick or gone, incompetent and cruel zookeepers and no money for feed.
The cheap gas in Vz sounds great but has many horrible effects.
In Brazil you'll zoom about in clean, small alcohol-compatible cars. But in Caracas, people are driving around in 1980 Chevy Impalas spewing thick black smoke. They only recently stopped producing leaded gas. I was reacquainted with the "black boogers" I had not experienced since a trip to India in the 90's.
It's disgusting really, and a shame for country that should have so much going for it.
> The official exchange rate used for food and medicine imports will weaken to 10 bolivars per dollar from 6.3, as of Thursday, while a second rate will be allowed to float.
How can you have multiple exchange rates on the same currency? That makes no sense. And seems like it would lead to rampant cheating, e.g. shipments of food not being classified as such, or vice-versa, whichever is advantageous at a given time.
That's precisely the problem. The govt decides who gets dollars at rate #1 (Bs.10/$) and who gets the other rates. Of course, only govt officials and friends get rate #1.
They establish a company in say, Panama. Their venezuelan company imports food from Panama at rate#1. They claim they imported 1 ton of food, for example, while they only actually bring in half a ton. Or they buy the food at a certain price and they overbill the govt. Expand that to every facet of an economy where EVERYTHING is imported: food, medicine, appliances, cars, tires,etc.
The black market rate is at Bs.1000 per dollar. That's a Bs.990 difference. It's practically a money printing machine! Buy dollars at Bs.10, sell them at Bs.1000, restart the process. Over and over until there's no money left, which is our current situation.
The government nationalized their oil companies which, even at these prices, is still a reliable source of USD that is converted to Bolivars at the official exchange rates of 6.3 to 1.
Importers could then bid for these dollars at different exchange rates to buy medicines and raw materials. As long as US companies like Kimberly Clark, Clorox, PepsiCo, Goodyear and airlines had access to import raw materials at the official exchange rates they could, on paper, be profitable but couldn't expatriate any earnings. They were also motivated by the threat of nationalization.
Recently many of these companies have started to write off these earnings by marking down bolivar holding and writing down assets.
The oil company, PDVSA, has always been national.
They are practically selling oil at the cost of production right now, so there's no money.
Maduro said yesterday that during January , only $77 million entered the economy from oil sales, down from $37.000mm in January 2014.
International companies have their assets tied up in worthless bolivares here [1], so that's the reason there are no tires for example, and if you find one in the black market, they cost around Bs.70.000. The minimum wage is Bs.13.000, after yesterday's raise.
The PDVSA didn't have the technical expertise and capital to fully explore and exploit their oil fields. The oil majors had stakes in several projects that were nationalized starting in 2007:
Exxon and ConocoPhillips filed arbitration claims which resulted in an attempt to repatriate PDVSA assets. That resulted in the planned sale of Citgo and may have also motivated the repatriation of gold reserves held overseas (but who knows). Citgo eventually ended up issuing $2.5B dollars worth of bonds which stripped the asset of a lot of it's value.
It's not hard. The government declares that all currency exchanges must go through them, then they set the rules however they want. This leads to artificial scarcity, black markets, and other shenanigans, just like with any price control, but Venezuela is not exactly a bastion of sane governmental decisions in recent times.
Let me rephrase my question. I wasn't asking how you can have it period, but how you can have it work. Of course governments can always try legislating insane policies, but if they go against basic tenets of economics, or science, or what have you, then they won't work.
It's pretty clear in this situation that they aren't working.
I don't think it can possibly ever work. The question then is why Venezuela is doing it, and the answer to that seems to be that the Venezuelan government is insane.
People, forget about the gas being cheap on Venezuela even still after this arise.
That country is with serious problems for years. For instance, citizens need to be on slow and humiliating lines to buy food, that is limited by government. Recently, government also said that the prices of milk increased because people are drinking it too much.
For those olde enough to remember, this is very much what things were like in the USSR.
I remember not 10 years ago a liberal friend of mine (With a Masters in economics!) supporting Chavez and complaining about Obama not supporting Venezuela.
Not exactly. In this case it is the government which is mandating the prices. While market prices would naturally rise due to increased demand, the statement "because people are drinking it too much" does not necessarily denote increased demand.
Market prices are one of the most essential aspects of a healthy economy. It is the lack of market prices which right off the bat dooms any form of socialism to failure. Any time you see large scale, perpetual shortages of any kind you can know there is some form of price fixing or market manipulation going on by the government.
>You can have perpetual shortages on the supply side that keep prices up. The entire luxury goods market relies on this, as an example.
You'll have to go into more depth on your example. I'm not sure to what you're referring.
>But what about supply?
Reread the second paragraph in my comment. Generally, when the term "shortages" is used, it refers to supply.
As for the "perpetual shortages on the supply side that keep prices up", I'm not sure you are using the term "shortage" as it is understood in economics. Just because something is not available at a price I prefer does not connote a shortage (as defined in economics). Otherwise the fact that I cannot buy a Lotus car for $10k would mean there is a shortage. However, if the government introduced price controls on Lotus cars so they could only be sold for $10k, you would definitely have a shortage because more people would want them (demand) at that price point but no one would be willing to sell them (supply).
Chanel captures the entire market for Chanel handbags. Their company entirely controls the supply, and they artificially limit the new supply fabricated each year. No other company can manufacture Chanel handbags. Hence: artificial scarcity. Many luxury good companies operate on this premise. Hence my original comment.
You are not describing a shortage as defined in economics. Re-read my previous comment.
You are not even describing a monopoly because there are still alternative brands, even luxury brands, which people can buy. Otherwise any brand would be considered a monopoly.
In theory, which is easier to say than acknowledging the reality. Essentially it's ignoring Occam's Razor by introducing a third party (personal consumption) when the cause (general inflation) just as easily explains the effect (higher prices for everything - including milk).
When I went to Venezuela years ago, gas was cheaper than water. Now at least they will have desincentives to use their cars. That's good for the environment.
The minimum wage in the U.S. is somewhere around $1,200/month, so a rough comparison (gallon of gas as proportion of income) might be if gas cost $10.00/gallon here.
If the price of gas in Brazil is anywhere close to the global market price then this price change will barely make a dent in the profitability of smuggling. From some random internet searching it looks like the price in Brazil is fairly high, $3/gallon equivalent or more.
Brazil is absurd with prices, in the other direction than Venezuela, here everything is more expensive than in a first world country, except maybe meat.
Brazil is the only country that is rising gas prices while oil price is falling.
Also, Brazillian gasoline in Argentina is a third of the price of Brazil, this leads to Brazillians going to Argentina to smuggle Brazillian-made gasoline back into Brazil.
Yes, this is "efficient" as it sounds.
Also our gas prices are blamed by economists here as one of the biggest reasons we have a 11% inflation.
And this is all effect of our extremely bizarre and byzantine taxation model (instead of having a single VAT like in other countries, we have multiple taxes that apply to transactions, with each one having a complex set of rules, many of them being mandatory to be included in the price AND be calculated from the price that include them, thus resulting in recursive calculations).
Here is slighly outdated the list of taxes here, from the final product price (ie: a product that costs 100 and has tax of 30%, means that 30 go to the government, and 70 is distributed among the business involved).
Gasoline: 53%
Microwave: 55%
Playstation 4: 72%
console-ran software: 72%
console dev kits: 72%
Bank Interests: 26% (yep, when you pay interest to the bank
you pay tax on it too!)
Lamp: 48%
Powdered Milk: 28%
Clock: 53%
Fishing Rod: 48%
Toilet Paper: 38%
Water: 38%
Fish (to eat): 48%
Cookies: 37%
Chocolate: 39%
Leather coat: 82%
Beer: 62%
Matress: 28%
House: 48% (also, every time... if you buy a house, you pay
48% of its value in taxes, if someone buy from you, they
will also have to pay 48% in taxes again, leading to a
extremely rapid inflation in housing prices, leading to a
extreme amount of homelessness, people needing to rent, and
power concentration in the hands of the actual home
owners... for example I once lived in a apartment I rented
from a single person that owned 60 entire apartment buildings).
Lowest tax I could find: Medicine and chemicals used by cattle ranchers: 13% (no surprise here, the most powerful politicians here are ranchers).
Highest tax I could find: Vodka (and some other distilled beverages): 83%
This is a knee-jerk response and doesn't really apply to the parent. The gas price raise was certainly not an artifact of having few data points or low resolution as in your example.
I read it as pointing out that if you take an extremely small number and increase it by a large percentage, the result is still pretty small.
Here, the price of gas has gone up by 6,000%. That's a lot! Except that in absolute terms, the price has gone from $0.02/gallon to $0.11/gallon. I can see larger fluctuations than that just by crossing the street in many places.
>Here, the price of gas has gone up by 6,000%. That's a lot! Except that in absolute terms, the price has gone from $0.02/gallon to $0.11/gallon
...It looks like you are missing a factor of 10. 6000% is 60x, so as near as I can tell gas was $0.002 per gallon, and now is rising to $0.11 per gallon.
Yes but then again if I purchase a hundred gallons, I go from paying $2 to $110. So it is indeed such a big growth in price.
They are fundamentally different dimensions, because a transaction value goes from negative infinite to positive infinite (from a specific point of view), and in it, zero is just a specific point in the scale (that could be moved by fees or other debts to be netted against); whereas number of visitors can't go negative, and in such a scale zero is absolute (https://en.wikipedia.org/wiki/Absolute_scale). This makes the comparison dangerous.
But it seems that pointing that deserves downvotes...
> But even with the rises, Venezuela’s petrol will still be the cheapest in the world, allowing Venezuelan’s to fill their tanks with high-octane gasoline for the equivalent of the price of three beers.
Whose idea was it to compare gasoline prices (heavily subsidized or taxed, depending on regime) to beer prices (heavily taxed, depending on regime)? Big Macs are a much better indicator of PPP.
That was just the election for the National Assembly, which is our congress.
But now that the government lost control of the Assembly, they decided that everything that they decide must be approved by the Supreme Court.
Guess who controls the Supreme Court? Guess who removed and appointed members of the PSUV (govt party) to the Constitutional area of the Supreme Court in December, right after losing the Assembly elections? One clue: it wasn't the opposition.
It lost an election, but has entrenched its influence by selecting civil servants and doing other things to keep power.
As Wikipedia puts it:
A little over a week after the elections on 15 December 2015, the outgoing National Assembly created the "National Communal Parliament" with President Maduro stating "I'm going to give all the power to the communal parliament ... This parliament is going to be a legislative mechanism from the grassroots. All power to the Communal parliament".[67] The move was described as an attempt "to sideline and leapfrog the incoming opposition-controlled National Assembly" and that such actions could possibly lead to more destability and polarization in Venezuela for the future.[68]
Yes, he created a parallel assembly. But the "grassroots" and "power to the people" thing is fake. The true power is in the Tribunal Supremo de Justicia (Supreme Court). They can now decide on whatever the National Assembly decides. It's already happened, they have removed opposition members elected to the NA , approved a law that the NA didn't approve and will repeal new laws coming out.
After losing the december elections, the old National Assembly (controlled by the govt back then), quickly elected new members to the Supreme Court that they control.
Just to give you an idea of how corrupt this is: one guy (from the govt party) in the NA was running for re-election as a member of the National Assembly. The guy lost the elections. So then he goes back to the old NA, still in session, runs to be a member of the new Supreme Court , VOTES for himself and is now the head of the Constitutional sector of the Supreme Court, which gets to decide on whether the things the new NA decides are legal or not.
30 liters of gas will cost Bs. 30 or Bs. 180 depending on the type you use. A 2 liter coke costs Bs.500. A McDonalds meal costs around Bs.1000 (Add Bs. 500 if you want fries fries. Fries are imported for some reason. I might be off on the price, I haven't been there in a while.)
And this will not stop the smuggling of gasoline to Colombia and Brazil, since the price differential is still so big. It reduces profits a bit, but it's still worth it for those that can do it (mostly military mafias that control the border).
EDIT: just to expand a bit on the subject, the price has been fixed since 1996 I think. The govt subsidies on gas are ridiculous. The country was losing around US$12500 million a year through the subsidy. Add to that, Chavez started PetroCaribe as a way to "sell" cheap oil to caribbean nations (in exchange for loyalty) that was never paid , or paid with beans,etc.
Now that the oil prices are so low, we have no income.Most of the money that came in to the country was stolen by govt officials (composed mostly of military men) and we have a huge debt obligations and low international reserves. Now it's time to tighten our belts.
Lines to buy food are enormous. You can only buy certain things twice a week if you can find them (according to the last number of your national ID). Medicines are dissapearing.
Maduro is looking everywhere he can to find some money, but there's not much he can do really.